Supreme Court Rules: Banks Vicariously Liable for Employee Conduct

In the recent case of Leelawati Devi & Anr. v. District Cooperative Bank Ltd., the Supreme Court delivered a significant verdict, holding banks accountable for the criminal actions of their officials, especially concerning fixed deposit holders.

Background of the Case

The bench, comprising Justices P.S. Narasimha and Aravind Kumar, deliberated on an appeal against a decision by the National Consumer Disputes Redressal Commission (NCDRC). They highlighted the NCDRC’s oversight of crucial findings by the District Forum regarding the wrongful withholding of fixed deposit funds by bank employees.

Dispute Overview

The case centers on a consumer dispute between the District Cooperative Bank Ltd. in Varanasi and their customers, the appellants, who sought the release of fixed deposit receipts worth Rs. 1,60,000. Despite the District Consumer Forum ruling in favor of the appellants, directing the bank to return the funds along with interest and damages, the bank persisted in denying them.

Legal Proceedings

The bank’s subsequent appeals to the State and National Consumer Dispute Redressal Forums proved futile. The NCDRC, upon review, unearthed discrepancies in the bank’s records, questioning the authenticity of the fixed deposit receipts.

Supreme Court’s Verdict

However, the Supreme Court, while hearing the customers’ appeal, recognized the appellants’ claim that they had indeed entrusted Rs. 1,60,000 to the bank officials, as evidenced by the bank’s ledger. The Court also acknowledged the bank’s initiation of criminal proceedings against implicated officials.

Court’s Emphasis

Emphasizing the NCDRC’s oversight of these crucial findings, the Supreme Court held the bank vicariously liable for its employees’ actions. It deemed the NCDRC’s findings contrary to the record and reinstated the District Forum’s original decision.

Final Decision and Direction

Consequently, the Court allowed the appeal, overturning the NCDRC’s judgment, and restoring the District Forum’s order. The bank was directed to comply with the District Forum’s terms within eight weeks, failing which the appellants could initiate execution proceedings.

The verdict establishes an important precedent in consumer protection law, ensuring accountability in banking practices and safeguarding the interests of fixed deposit holders.