Tamil Nadu

StateCommission

A/214/2014

The Branch Manager, Karnataka Bank, R.A. Puram Branch & anr. - Complainant(s)

Versus

Consumer Protection Council, Tamilnadu & 2 Ors. - Opp.Party(s)

S.R. Rajagopal & Asso.,

02 Mar 2022

ORDER

IN THE TAMIL NADU STATE CONSUMER DISPUTES REDRESSAL COMMISSION, CHENNAI.

 

Present: Hon’ble Thiru Justice R.SUBBIAH       ... PRESIDENT

            Tmt. Dr. S.M.LATHA MAHESWARI  ... MEMBER

 

F.A. No.214 of 2014

 

(Against the Order, dated  19.03.2014,  in C.C. No.307/2010,

on the file of  the DCDRC, Chennai-South)

                                                    

                                Orders pronounced on:   01.03.2022

            

1. The Branch Manager,

Karnataka Bank,

R.A. Puram Branch,

62, Greenways Road,

Raja Annamalaipuram,

Chennai 600 028.

 

2. The Chairman,

Karnataka Bank HO,

Mangalore.                            …Appellants / Opposite Parties

 

vs.

 

1. Consumer Protection Council, Tamil Nadu,

2, RMS Building, Thillainagar Main Road,

Tiruchirappalli-18.

 

On behalf of:

2.Sanjeevani Yoga Ayurveda Foundation

represented by Nedungadi Haridas

     and

3.Indira Nedungadi,

Directors, Sanjeevani Yoga Ayurveda

     Foundation,

A-7, No.17, First Street,

Gill Nagar, Chennai 600 094. … Respondents/Complainants

 

             Counsel for Appellants          :M/s.S.R.Rajagopal

             For Respondents  – R1, argued Party-in-Person.

            

          This First Appeal came up for final hearing on 31.01.2022 and, after hearing the arguments of both sides and perusing the materials on record and having stood over for consideration till this day, this Commission passes the following:-

 

O R D E R

 

R.Subbiah, J. - President.

             This appeal has been filed by the unsuccessful Opposite Parties/Karnataka Bank, challenging the order, dated 19.03.2014, passed by the DCDRF, Chennai-South, in C.C. No.307 of 2010, whereby, the complaint came to be allowed against the Opposite Parties/Bank.

 

             2. In the complaint filed before the District Forum by complainant No.1/Consumer Protection Council on behalf of  complainant Nos.2 & 3, the case projected, in brief, runs thus:-

             Complainant Nos.2 and 3 were the Directors of a Private Limited Company by name Sanjeevani Yoga Ayurvedic Foundation (in short SYAF), which was founded in the year 1997 and registered in Chennai with the Registrar of Companies.   Since 1997, the company was operating Current Account Nos.150200010004001 and 150200010001280 with the 1^st Opposite Party Branch at R.A. Puram, Chennai.  While the company had more than 5 Directors, the Bank Account was operated by one of them by name Mr.Peter Morgan, as the sole signatory.

             While so, for various reasons, the Board was reshuffled to have only three Directors viz., Nedungadi V.Haridas/2^nd complainant, Indira Nedungadi/3^rd complainant and Peter Morgan, and, in the Board Meeting held on 23.05.2009, it was resolved that the aforesaid Current Accounts of the Bank maintained with the 1^st OP shall be operated jointly by two Directors out of three.   The said resolution was duly communicated to the Bank/1^st OP under acknowledgment as well as to the Registrar of Companies.

             In such a situation, on 31.08.2009, a sum of       Rs.10 lakh was credited to the Current Account of the Company operated with the Bank/1st OP.   To the shock and surprise of the two Directors/complainant Nos.2 and 3, much later, they came to know that the Bank/1st OP, despite being aware of the Resolution, dated 23.05.2009, had issued a cheque book on an Application that carried the sole signature of Peter Morgan on the same date/31.08.2009 and permitted him to withdraw Rs.6 Lakh through a self-cheque  and also allowed several withdrawals on subsequent dates without even the knowledge and consent of complainant Nos.2 and 3. On the whole, the Bank had allowed withdrawal of Rs.9,97,876.50 by honouring all the cheques issued by Peter Morgan, carrying his sole signature.  The said act of the bank, exhibiting wilful negligence and gross violation of instructions/resolution of the Board, caused huge monetary loss to complainant Nos.2 and 3. Having thus suffered mental agony, anxiety and undue hardship, seeking the Opposite Parties to re-credit the amount, the complainants sent a legal notice, dated 23.11.2009, followed by two letters, dated 14.04.2010 & 17.04.2010, but in vain.  Hence, left with no other alternative, they filed the complaint before the District Forum, seeking to direct the Opposite Parties/Bank to,

               a) re-credit the account of complainants 2 and 3 a sum of Rs.9,97,876.50p with 18% interest from the date of wrong debit till the date of credit;

               b) pay the complainants 2 and 3 a sum of Rs.100 a day from the date of wrong debit 31.08.2009 till the date of re-credit as per RBI regulations of July 17^th, 2009 (Ex.No.7);

               c) pay complainants 2 and 3 a sum of Rs.10,000/- as token compensation for the mental agony caused and physical hardship suffered;

       d) pay complainants 1, 2 and 3 a sum of Rs.5,000/- each as costs. “

            

             3. The Opposite Parties/Bank resisted the complaint by filing a written version, wherein, among other things, it is stated thus:-

             Neither the first complainant nor the other two complainants have any authority to file or represent SYAF, since no proof whatsoever has been produced empowering or authorizing them to represent SYAF, as such; the complaint is liable to be dismissed.  The complaint is not maintainable more particularly as against the 2^nd OP, since he is, in no way, personally liable for any of the transactions.

             SYAF maintains an Account with the 1^st OP/Bank vide A/c.No.150200010004001.  As per the resolution, dated 28.11.2000, the 1^st OP/Bank was informed that, from the said date, Peter Morgan would operate the bank account of SYAF.  By a subsequent Resolution, dated 03.08.2002, the said Peter Morgan was appointed as a Director and he continued to operate the Bank Account.

             A copy of the alleged resolution, dated 23.05.2009, which was handed over to the 1^st OP/Bank only on 31.08.2009, was not in the Letter-Head of the A/c. Holder and further, the signature of  the 3^rd complainant found therein differed from the one available with the Bank.   The building mentioned in the alleged resolution reflecting the address was already demolished and further, the resolution received without any covering letter was found to be with incorrect information.  In such circumstances, the Bank received the Notice, dated 23.11.2009, from complainant Nos.2 and 3 and responded to the same by a due reply notice, dated 25.06.2010.

             As regards the allegations made in the complaint, the constitution of Board of Directors of SYAF is not within the knowledge of the Bank and it is not for the Bank to supervise as to how much each of its customers withdraws from their account, but, the obligation of the Bank, in such transactions, is only to verify the signature with the specimen available in the Bank records.   As per banking practice, the Bank cannot refuse payment on cheques that come in the normal course of banking transactions.   Inasmuch as the Bank has not acted in a negligent manner much less wilfully, the complaint filed by the individuals, who are not account holders, cannot be maintained and accordingly, the same may have to be dismissed.

 

             4. While both the complainants and the Opposite Parties filed their respective proof affidavits before the District Forum, the complainants marked 12 documents as Exs.A1 to A12 and, on the side of the Opposite Parties, 9 documents came to be marked as Exs.B1 and B9.

`

          5. The District Commission, by the impugned order, dated 19.03.2014, after analysing the materials on record, concluded that the Bank had committed deficiency of service by permitting Peter Morgan to withdraw Rs.9,97,876.50 in spite of the intimation given by the SYAF through the Board Resolution to the effect that the Bank Account cannot be operated by any single Director and ultimately, directed the Bank to pay the 1^st complainant a sum of Rs.9,97,876.50  towards compensation with 6% interest from 31.08.2009 till the date of deposit, and also to pay  Rs.5,000/- towards litigation expenses. Aggrieved thereby, the Bank is now before us with the present First Appeal.

 

             6. Learned counsel for the appellants/Bank, at the outset, by stating that the complaint is an abuse of process of law and not maintainable either on facts or law, would submit that the complaint was not preferred by the Account Holder/SYAF, rather, it was filed in the name of the 1^st complainant on behalf of SYAF on the authority given by complainant Nos.2 and 3. Based on the affidavits/application under Section 560 of the Companies Act, 1956, filed by complainant Nos.2 and 3 with the Registrar of Companies, the company was struck off from the Rolls of the Registrar of companies in 2009 itself, while so, at the time of filing the complaint in the year 2010, they ceased to be the Directors of the company, however, by suppressing the said factum, they projected themselves as Directors and signed the Memo in individual capacity authorizing the 1^st complainant to represent their interest in the complaint.

             The resolution, dated 23.05.2009, is not valid for various reasons including the one that the signature of the 3^rd complainant does not match with the specimen available in the bank records and also, it lacks proper authorization; as such, there being several disputed questions of fact, the issues raised cannot be decided by the consumer forum.  Further, to file litigation on behalf of a company, the Director/s should be empowered by the Board, but, the present complaint came to be filed without any Board Resolution specifically empowering them to represent the company.  In the absence of such resolution, the complaint filed in individual capacity is not maintainable, as held in 2010 SCC Online Mad 6539 (Schmenger GMBH and Company Leder vs. Saddler Shoes Private Limited) and 1998-1-LW-195 (Indian Commerce and Industries vs. Swadharma Swarajya Sangha). 

             By referring to Sections-2(1)(d) and 12 of the Consumer Protection Act, 1986, it is argued that the entity who availed the services of the Bank, being the company, if any deficiency by the Bank is alleged to have occurred, the same can be questioned only by the company which is the consumer-cum-account holder and not the Directors in their individual capacity, that too, without any proper authorization by the company.

             It is next submitted that the allegations in the complaint viz., Peter Morgan mismanaged the funds of the company resulting in huge monetary loss to the other two directors coupled with denial of the resolution, dated 23.05.2009, would indicate that these disputes in the nature of oppression and mismanagement falling under Sections 397 and 398 of the Companies Act, 1956, would warrant adjudication only before the then Company Law Board, presently National Company Law Tribunal; as such, neither any civil court nor the consumer forum shall have jurisdiction to entertain any proceeding connected thereto.

             Finally, by re-stating the details given in the version as to the role played by Peter Morgan  as the sole authority to handle the current account of the company in terms of the company’s resolution, dated 28.11.2000, as well as their stand that the subsequent resolution, dated 23.05.2009, to the effect that bank transactions should be carried out jointly by two directors, was invalid, and also their claim that the company itself, by its reply dated 31.08.2009, denied the resolution, dated 23.05.2009, it is submitted that, in those circumstances, non-joinder of the said Peter Morgan as necessary party has vitiated the very complaint.  By ultimately submitting that all such core and relevant aspects were not even considered by the District Forum, learned counsel pleaded that the impugned order calls for absolute interference by this Commission. 

 

             7. Countering the above submissions, on behalf of the respondents, it is argued thus:-

             Respondent Nos.2 and 3 continued as Directors of SYAF for a long time and only in 2002, Peter Morgan was inducted as a Director and as such, there were only three Directors viz., respondents-2 and 3 and Peter Morgan, who was the sole authorized signatory of the company for bank purposes till 22.05.2009.  As there was trust deficit between Peter Morgan and the other two Directors, the Board met on 23.05.2009 and passed a resolution to the effect that transactions with the Opposite Party/bank shall be operated jointly by two Directors.  Copy of the said resolution was personally served to the opposite party/Bank and it was also acknowledged by the Bank on 23.05.2009 itself, as evident from Ex.A2.  While so, on 31.08.2009, when the company’s account with the Bank received a credit for Rs.10 lakh, in violation of the resolution, dated 23.05.2009, under which, the Bank transaction cannot be done by any single director, the Bank illegally allowed Peter Morgan to withdraw Rs.6 lakh on the very same date without the signature of one of the other Directors and also allowed several withdrawals on subsequent dates, totally to the tune of Rs.9,97,876/-.  Thus, having violated the established banking norm that, when there is a dispute, the operation must be suspended, the Bank is bold enough to raise questions about the status of the complainants as Directors without even verifying the fact that, as per the records of the Registrar of Companies, respondents-2 and 3 are still Directors and that they formed majority in the Board.  As such, the complaint is well-founded and maintainable.

             When Ex.A2 clearly shows that the Bank had acknowledged receipt of the Resolution, dated 23.05.2009, that was presented in a computerised print-out form on the same date itself, to say that it was without covering letter and not in the letter-head, only exhibits the vague defence of the Bank over insubstantial things. 

             The complaint is laid on the basis of deficiency in service, in that, the Bank illegally permitted Peter Morgan to withdraw the amount in question in gross violation of the Resolution, dated 23.05.2009,  which clearly specified that, for all banking transactions with the Bank, there should be joint signature of two directors.   When no plea or contention has ever been raised to go into any inter se dispute between the Directors, the attempt made by the Bank to convert the issue of deficiency of service into a matter of mismanagement/oppression that would be dealt with by the National Company Law Tribunal would only indicate that they lack bona fides and their intention is to somehow circumvent the liability.  That is why the District Forum rightly entertained the complaint, decided the issues formulated on merits and rendered a well-reasoned order, which does not call for any interference.  Accordingly, the complainants prayed for dismissal of the present appeal.

 

             8. In view of the rival submissions advanced above, the following questions arise for consideration in this First Appeal.

                a)  Whether the complaint filed by the Consumer Protection Council on behalf of erstwhile Directors of the company/SYAF is maintainable?

                b)  Whether the element of ‘deficiency in service’ is attracted against the appellant/Bank for adjudication by the consumer forum, on the face of the counter-claim that the actual issue being inter se dispute between the Directors, the appropriate forum is the National Company Law Tribunal and not the consumer forum?

c) Whether failure to implead Peter Morgan would amount to non-joinder of necessary party?

 

             8-a) Coming to the first question, although  it is vehemently contended that the complaint cannot be maintained by the 1^st complainant on behalf of the 2^nd and 3^rd complainants for the reason that, having filed the application and affidavits on 14.11.2009  before the Registrar of Companies  seeking to strike off the name of the company from the Rolls, which application was accepted in 2009 itself, complainant Nos.2 and 3, at the time of filing the complaint during June, 2010, ceased to be the Directors and also, the company itself had become defunct and therefore, the complaint filed by the 1^st complainant/Consumer Protection Council and not by the company, cannot be maintained, we hasten to add that such contention does not merit acceptance for the simple reason that, admittedly, cause of action for filing the complaint arose on 31.08.2009, on which date, the Bank had permitted one of the Directors/Peter Morgan to withdraw the amount in violation of the Board Resolution of the company, dated 23.05.2009, which clearly spelt out that any banking transaction with the appellant should be done only by two directors jointly.  Since the name of the company came to be struck off from the rolls of the Registrar of Companies only subsequent to the above phenomenon, it can never be said that, at the relevant point of time, complainant Nos.2 and 3 were not Directors, who also formed majority.  In other words, in terms of cause of action, prima facie, they did not lose either the character of Directors of SYAF or the capacity to represent the company since formed majority in the Board.   Also, in terms of the Consumer Protection Regulations, 2005, there was no impediment for them to be represented by the 1^st complainant/1st respondent. Accordingly, the question is answered against the appellant.

 

         8-b)  Regarding the second question, even at the outset, it must be adverted to that, nowhere in the written version filed before the District Forum, the Bank/appellants herein have ever whispered or raised a plea that the actual issue was the inter se dispute between the Directors of the Company and hence, the proper forum to deal with the same is the National Company Law Tribunal and not the consumer forum.   Having fought before the District Forum a case that stemmed from the cause of action purely connected to deficiency in service, the present endeavor of the Bank to project the case as the one exclusively litigable before the National Company Law Board ex facie exhibits their imprudent and adrift approach.  Even though the Bank refuted acknowledgment of the resolution, dated 23.05.2009, anytime during May, 2009, their own legal notice, marked as Ex.B8, dated 25.06.2010, at paragraph No.3 thereof, affirms that the said Resolution was handed over to the Bank on 25.05.2009.  Even barring the same, as per their own admission, the said resolution was received on 31.08.2009, on which date, the company’s bank account received a credit of Rs.10 lakh.  Admittedly, on the very same date, the company was functional and all the three Directors were available.   Once again, admittedly, on the very same date, one of the Directors Peter Morgan approaches the Bank seeking issuance of a cheque book for the purpose of withdrawing a big sum.  Ironically, the Bank gets a reply about the Resolution, dated 23.05.2009, from none else than the sole signatory/Peter Morgan on the same date, to the effect there was no such resolution at all.  All the above successive actions performed by the Bank in one single day by showing extraordinary care and special interest in Peter Morgan withdrawing huge sums would raise serious doubts about their very probity.  In such course, what is expected of a prudent banker with ordinary skills is to first verify with the other two Directors/Board about the Resolution that mandated joint banking operations by two Directors, especially when a single Director/Peter Morgan has approached the Bank immediately on the date of credit and exhibited a great hurry for withdrawal on the same date.  To say the least, no person of even minimum logic would endorse such a reckless attitude from a Bank like the appellant in rushing to get a verification/reply on the same date from the very same person/Peter Morgan, who sought for withdrawal, and in readily permitting withdrawal on the basis of the reply signed by him.  We fail to understand as to which factor impelled the Bank to munificently construe the reply, dated 31.08.2009, signed by Peter Morgan, as that of the company itself.  Heavens would not have fallen if the Bank waited a little bit to cross-check about the Resolution in question from the other two directors or at least from the Director/respondent No.3, whose signature, according to them, was differing from the specimen available in the bank records.  Like the present instance, if Banks are empowered to permit a Director contrary to the written instructions of the Account Holder/Company available in the form of a Board Resolution on the ground of presumed authority, no account holder would be safe.  We once again underline that the above series of actions unusually performed by the Bank on one single day coupled with their vague and inappropriate counter-claims not  only self-speak that they absolutely lack bona fides but also give room for serious doubts about their credibility.  Since a debit without proper authorization would amount to deficiency in service, the District Forum rightly proceeded to record a factual finding that the Bank, despite knowingly well that there was a dispute in the company with regard to operation of the account, illegally facilitated Peter Morgan to withdraw the amount and thereby, the 1^st appellant/Bank was responsible for the loss occurred to the company.  Since the factual findings of the District Forum are based on proper reasoning over the issue of deficiency in service, we see absolutely no logic or rationale in the contention of the Bank that it was an inter se dispute between the Directors, when the cause of action actually arose from the clear deficiency of service on the part of the Bank.  Accordingly, we answer this question against the appellants.

 

             8-c) Coming to the question of non-joinder of necessary party, we are of the opinion that Peter Morgan is not a necessary party to decide the issue involved in the complaint, since the main allegation is, in spite of the resolution, the Bank had allowed the said individual to withdraw the amount, which factum of withdrawal is not denied by the Bank.   Accordingly, this question also is answered against the appellants.

             Inasmuch as the findings recorded by the District Forum are perfectly in order, both on facts and law, the ultimate conclusion arrived at to fasten the liability on the Bank is absolutely justified; as such, we see no reason whatsoever for interference therewith.

             9. In the result, the appeal is dismissed, by confirming the order, dated 19.03.2014, passed by the DCDRF, Chennai-South, in C.C. No.307 of 2010, however, with a clarification that the first respondent, after receiving the compensation amount, shall forthwith remit the same into the Bank Account of the 2^nd and 3^rd respondents.  

 

S.M.LATHA MAHESWARI                             R.SUBBIAH, J.

MEMBER                                                      PRESIDENT.

 

Index    :  Yes  / No.

ISM/TNSCDRC/Chennai/Orders/March/2022.