The Madras High Court, on 28 October, held that once a depositor establishes that a bank received money for fixed deposits and failed to repay the maturity proceeds, the bank must prove that loans secured against those deposits were obtained with the depositor's authorisation.
Justices P. Velmurugan and G.K. Muthukumaar dismissed an appeal filed by Indian Overseas Bank against a decree directing it to repay Sree Gokulam Chit and Finance Company the amounts covered by two fixed deposits. The Division Bench held:
“…the respondent has proved their claim and the appellants have failed to discharge their onus”
Sree Gokulam Chit and Finance Company issued three crossed account-payee cheques of Rs. 1 crore, Rs. 2 crore and Rs. 3 crore to Indian Overseas Bank's Koyambedu Branch in Chennai to open fixed deposits in its name. The bank encashed the cheques and issued three Fixed Deposit Receipts (FDRs).
Later, the company discovered that third parties had fraudulently obtained loans of Rs. 2.70 crore against the first two FDRs, collectively worth Rs. 3 crore, without its authorisation.
It alleged that the bank had handed over the original FDRs without proper verification. It also alleged that the bank had prevented an attempt to obtain a loan against the third FDR using a fake company seal.
Subsequently, it lodged a police complaint and demanded repayment of the matured deposits. Following an investigation by the Central Bureau of Investigation (CBI), a final report was filed. The bank nevertheless refused to repay the first two FDRs, claiming that it was also a victim of the fraud.
Following this, the company filed a recovery suit, arguing that the bank had failed to follow the prescribed verification procedures. The Single Judge decreed the suit in its favour, prompting the bank to appeal.
The Court found that the company had established that it made the deposits and had not received the maturity proceeds. The bank therefore had to prove that the persons who obtained the loans had the company's authorisation.
Further, the Bench noted that the loan documents were not in order and that the criminal investigation had proceeded. It took note of the conviction of a bank official in connection with the transaction.
Accordingly, the High Court dismissed the appeal and upheld the decree directing the bank to repay the company.
For Appellants: Senior Advocate A.R.L Sundaresan and Advocate D. Saikumarran
For Respondent: Advocate B Arvind Srevatsa