The Apex Court held that the Post office/Bank can be held liable for frauds or wrongs committed by its employees. This is vicarious liability where the employer is liable for the wrong committed by the employee during the course of their employment. This liability cannot be absolved by just initiating the proceeding against the said employee.

Parties: Pradeep Kumar And Another (Appellant) v/s Postmaster General And Others (Respondent)
Supreme Court Of India
Citation: CA No. 8775-8776 Of 2016
Date Of Judgement: 7th February 2022
Bench: Justice Sanjiv Khanna, Justice L. Nageswara Rao, Justice B.R. Gavai.


Facts of the Case
The appellants are Pradeep Kumar and Raj Rani, who have filed an appeal against the order of the National Consumer Disputes Redressal Commission, New Delhi, the 'NCDRC', dated 15th May, 2015.

The appellants during the years 1995 and 1996 had purchased Kisan Vikas Patras, 'KVPs' for short, in joint names from various post offices located in the State of Uttar Pradesh indifferent denominations and with varying dates of maturity. The combined face value on maturity was Rs.32.60 lacs; however, the KVPs were encashable at the post offices before the maturity date at a lower value after the stipulated/lock-in period of holding.

In the February of 2000, the appellants had requested the Post Master, Head Post Office Chowk, Lucknow, to transfer of the KVPs from one Post Office to another and were informed about the time-consuming and cumbersome procedure. The Post Master had recommended them to seek the services of an agent 'Ruksana', appointed by the State of Uttar Pradesh and associated with the post office. After making several representations when the Respondent had remained unresponsive, the appellant had filed a complaint under the Consumer Protection Act before National Consumer Disputes Redressal Commission (NCDRC).

NCDRC had held that the respondents had acted in accordance with Rules 14 and 15 of the Kisan Vikas Patra Rules and dismissed the complaint. It held that the appellants could sue the State for appointing the Agent in case of their failure to recover the amounts due from her.
Allegedly the appellants were misled to believe that without the help of an agent, it was impossible to transfer the KVPs and the agent would have taken care of their interest.

The Agent had assured the appellants regarding her working experience and had taken the original KVPs which carried their signature on its backside along with the Monthly Income Scheme (MIS). The Agent had then executed a receipt and gave it to the appellants confirming receipt of the KVPs. She had reverted to them on her own and upon being contacted, and had assured them regarding the transfer.

Appellant No. 1 (Pradeep Kumar) had left the city and the Second Appellant (Raj Rani) had kept in touch with the Agent. They learnt in June of 2000, that the agent had committed fraud with several persons and was arrested for the same. When they inquired into their KVPs, they knew that they were encashed for a lower amount of Rs. 25, 54,000/- and the entire amount was pocketed by the agent. Further inquiries suggested the involvement of the Postmaster who had recommended the Agent to them, and paid her in cash in place of cheque, as provided under the Kisan Vikas Patra Rules, 1988.

After making several representations when the Respondent had remained unresponsive, the appellant had filed a complaint under the Consumer Protection Act before National Consumer Disputes Redressal Commission (NCDRC). NCDRC had held that the respondents had acted in accordance with Rules 14 and 15 of the Kisan Vikas Patra Rules and dismissed the complaint. It held that the appellants could sue the State for appointing the Agent in case of their failure to recover the amounts due from her.

Contentions of the Respondents
The respondents argued that Ruksana was not an agent appointed by the post-office and she entered into contract in her individual capacity. Hence, the post office is not vicariously liable for a contract between appellants and agent.

The sub postmaster (another respondent) contended that the complaint was not maintainable as he had paid the amount to the right person and there was a valid discharge and he had not violated the law.

Order of NCDRC
The NCDRC, while accepting that some negligence could be attributed to the respondents in making the payment, dismissed the complaint against the respondents holding that they had acted in accordance with Rules 14 and 15 of the 1988 Rules. The commission observed that Rule 19, requiring payment by cheque when discharge value is more than Rs. 20,000/-, came into force and was effective from 28- 29th August 2001, whereas in the present case, the KVPs were encashed in June 2000.

Further, the appellants had not been truthful as it was difficult to fathom as to why they had signed and acknowledged payment on the backside of the KVPs and thereafter the KVPs were given to an unknown agent. The appellants, having done so, acted with open eyes and at their own peril and risk. NCDRC rejected the claim that KVP's were transferred to Rukhsana without transfer application as appellant No.1 is a well-educated person, and should have observed due care.

It further stated that appellants were negligent, hence the complaint against the respondents, including the post master, was dismissed. Rukhsana, being a service provider, was held liable to pay Rs. 25,54,000/- with interest @ 9% per annum from the date of release of amount from the post office till the date of realisation by the appellants. Rukhsana was also liable to pay Rs. 1,00,000/- as compensation and Rs. 10,000/- as litigation expenses, and the appellants were at liberty to sue the state for its omission and commission in appointing Rukhsana as an agent.

Issues before the Supreme Court
The Apex Court faced the following issues:

1. Whether the officers of the Post Office were Negligent?
2. Whether there was contributory negligence on the part of the appellants?
3. Whether the Post Office was liable for the fraud committed by its employee?

Observation of the Supreme Court

1. Section 3 of the Negotiable Instruments Act, 1881, states that a 'banker' includes any person acting as a banker and any post office savings bank. In terms of this section, a post office savings bank is a banker under the NI Act.
    
2. KVPs are negotiable instruments in terms of Section 13 of the NI Act.
    
3. The apex court while referring to the Judgement delivered in the case of U. Ponnappa Moothan Sons, Palghat v. Catholic Syrian Bank Limited and Others[1], observed that the presumption under sec.118 (g)[2] would not apply to Ruksana, as she was not an indorsee and the instrument was in the name of the appellants. Further Ruksana cannot be said to be a holder in due course, as she obtained the instrument through fraud, and was not entitled to sue the maker, acceptor or indorser of the instrument for the recovery of the amount due. The KVPs were not indorsed in favour of Rukhsana. She was just a carrier for the purposes of change of details in the KVP.
    
4. The appellants had acted in good faith and without negligence. The Court further observed that KVPs were not simple bearer instruments payable to anyone who presents the same for encashment and discharge, and there is a need for identity slip as per rule 11, if they are not presented at the place of issue, which was not complied in the present case. There was nothing on record to suggest that the Officer-incharge of the post office was satisfied on the production of the identity slip or on verification from the post office of issue that the person presenting the certificate for encashment, namely Rukhsana, is entitled thereto. Thus, there was violation of Rules 9 and 11 of the 1988 Rules.
    
5. There was also violation of Clauses 23(1) and 23(2) of the Post Office Bank Manual (Volume 2), which provided that when a KVP is presented for encashment at any post office in India doing savings bank work, but such KVP is not registered in that post office and not accompanied by an identity slip, the holder will be required to make an application expressing his desire to encash the KVP at such other post office and in the application state the name of the post office where the KVP stands registered, full particulars of the certificate, that is, the serial number, date of issue and the registration number. These requirements were also not fulfilled in the present case.
    
6. The court observed that NCDRC erred in stating that Rule 19, requiring payment by cheque when discharge value is more than Rs. 20,000/-, came into force and was effective from 28- 29th August 2001, and did not refer to the letter No. 95- 8/98-SP dated 18.08.1999, which stated that payment above Rs.20000, should be done via cheques, effective immediately. Further NCDRC had been rather harsh in holding that the appellants were silent and, therefore, guilty of negligence. The apex court observed that it can be assumed that appellants were in constant touch with Ruksana and were under the belief that the process will take time.
    
7. In Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd.[3], the Privy Council had held that the customer had a wider duty to act with diligence which the contract must imply and the duty arose in the relationship of banker and customer as a form of tort. It was further held that by mere negligence it could not be presumed that duty of a customer of the bank was breached. To prove contributory negligence, the sine qua non was to prove that the plaintiff had remained silent regarding the matter while the plea of acquiescence was raised even though the truth was known to them. In the present case, the appellants were unaware of the sinister design of the agent when the KVPs were encashed. The appellants were in touch with the Agent and were however, under the impression that the transfer of KVPs was complex and time-consuming. The Respondents had failed to prove that the appellants with full knowledge had acknowledged the correctness of the accounts in the relevant period.
    
8. In Punjab National Bank v. Smt. Durga Devi and Others, it was held that post offices like a bank were entitled to proceed against the officers for the loss caused due to the fraud etc. However, in such a case, if the employee involved was acting in the course of his employment and duties, the liability of the post office would not absolve. In State Bank of India (Successor to the Imperial Bank of India) v. Smt. Shyama Devi,[4] the sine qua non for employer's liability was that the crime was perpetrated by the employee during the course of his employment. It was established that the fraud was committed by the employee of the Post Office in the course of his employment.

Decision of the Supreme Court
The appeal was allowed by setting aside the order passed by the NCDRC. The order passed against Ruksana was left undisturbed. The Respondents were made to take joint liability to the maturity value of the KVPs along with 7 % simple interest per annum. Both the appellants were entitled to compensation. The appellants were required to be paid compensation within eight weeks from the date of pronouncement of the present judgement. Further in case of the failure to pay the compensation in the said time, the respondents were entitled to pay simple interest at the rate of 7% per annum on the compensation amount even.

Analysis of the Decision.
The act of postmaster lacks bona fides and consequently absence of good faith and , this is a case of fraud by an officer of the post office.

Thus, The Supreme Court was right in setting aside the order of NCDRC, Noticing that M.K. Singh (post master) was not a third person but an officer and an employee of the Post Office, and the post Office, as an abstract entity, functions through its employees. Employees, as individuals, are capable of being dishonest and committing acts of fraud or wrongs themselves or in collusion with others.

Such acts of bank/post office employees, when done during their course of employment, should be binding on the bank/post office at the instance of the person who is damnified by the fraud and wrongful acts of the officers of the bank/post office. Such acts of bank/post office employees being within their course of employment will give a right to the appellants to legally proceed for injury, as this is their only remedy against the post office.

Thus, the post office, like a bank, can and is entitled to proceed against the officers for the loss caused due to the fraud etc., but this would not absolve them from their liability if the employee involved was acting in the course of his employment and duties.

This decision extends the vicarious liability to the post offices/banks, if a fraud is committed by its employee in the course of employment, and it cannot be absolved by prosecuting the employee.

End-Notes:

1. (1991) 1 SCC 11
2. that holder is a holder in due course - that the holder of a negotiable instrument is a holdrer in due course
3. (1985) 2 All ER 947
4. (1978) 3 SCC 399

Written By: Muskan Lalwani