REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELALTE JURISDICTION

CIVIL APPEAL NO. 3303 of 2005

Indian Bank …. Appellant  

Versus

Godhara Nagrik Cooperative Credit  Society Ltd. and another …. Respondents

WITH (C.A. Nos. 3336, 3337, 3338 and 3304-3335 of 2005)

J U D G M E N T

S.B. SINHA, J.

1. These appeals involve an interesting question as regards the power of

judicial review of a Superior Court.

2. Respondents  herein  are  cooperative  societies  registered  under  the

Cooperative Societies Act and/or their Members.   

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They deposited certain amounts in cash in fixed deposits  of Banks

wherefor Fixed Deposit Receipts (FDRs) were to be issued.  Such deposits

were  made through some so-called Commission Agents  of  the  Banks on

payment  of  huge  commission  which  is  ordinarily  not  allowed  by  the

Nationalized Banks.   

3. Applications for grant of loans by various persons were filed before

the  prescribed  authorities  of  the  banks  on  the  basis  of  the  said  FDRs.

Allegedly a large number of officers of the banks were involved in a scam

whereby unofficial investments of the said amount were being made.   

4. As and when the FDRs matured, the investors requested the Banks for

their  encashment.   The  banks  refused  to  accede  thereto  stating  that  the

amount under the FDRs had already been paid by way of loans and, thus, no

further amount was payable.  It was contended that a fraud on the banks has

been practiced to which the depositors and the officers of the banks were

parties.  

5. Writ petitions were filed.   A learned Single Judge of the High Court

opined that serious disputed questions of fact being involved in the said writ

petitions, no relief can be granted to the writ petitioners.   

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6. Despite the same, the learned single judge relying on the provisions

contained in Section 35A of the Banking Regulations  Act,  1949 directed

constitution  of  a  Committee  under  the  Chairmanship  of  the  Deputy

Governor of Reserve Bank of India or his nominee to go into the matter in

great details.  Various powers were delegated in favour of the Committee

including  the  one  that  the  decision  of  the  Committee  shall  be  final  and

binding upon the parties.   

A Division Bench of the said Court in an intra court appeal preferred

thereagainst, however, stayed only the operation of some of the clauses of

the said order.  The Committee, however, was allowed to function.   

A special leave petition filed thereagainst has been dismissed by this

Court with certain observations.   

7. The Committee submitted its report.  It was found that principally the

officers  of  the  banks  were  involved  in  the  matter  of  commission  of  the

alleged fraud on the Banks.   

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Members of the Committee, however, differed in their opinion as to

whether,  having regard  to  the  limited scope  of  the  enquiry,  any positive

direction could be issued.   

8. Relying on and/or on the basis of the report of the Committee, the

Division Bench of the High Court opined that as the writ petitioners were

not parties to the fraud, subject to any other or further orders that may be

passed in the criminal case, appellant-banks should be directed to pay the

amounts under the FDRs to the depositors.   

9. Appellants are, therefore, before us.

On 5th April 2004, a limited notice was issued by this Court, which is

to the following effect:-

“ Issue notice on the special leave petition limited to the question as to whether the High Court should have directed  payment  having  regard  to  the  fact  that  the Committee itself had not finally resolved the question of liability as far as the disputed amount was concerned.

Issue notice on the prayer for interim relief also.”  

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This Court in its order dated 10th December, 2004 explained the said

order stating :-

“ The issue which is now required to be resolved is a  narrow one  viz.  whether  the  Committee  had  finally decided that the amounts payable by the Bank (a) were the  liability  of  the  Bank  and  (b)  if  so,  what  was  the quantum if  any,  payable  by the  Bank  to  the  deposits. Learned counsel appearing on behalf of the respondent prays for time till after the vacation.

Let the matter appear two weeks after reopening on a miscellaneous day.

There will be interim order staying the operation of the impugned order.”   

However, by an order dated 9th May, 2005, upon hearing the counsel

for the parties, ‘Leave’ was granted, as a result whereof all the contentions

of the parties are now open.

10. Mr. P.P. Rao, learned Senior Counsel appearing on behalf of Bank of

Baroda would submit :-

(i) In a writ petition involving private dispute, no direction

for payment of money in favour of the writ  petitioners

should have been issued by the High Court;

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(ii) As the writ petitions involved serious disputed questions

of fact, the High Court should not have entertained the

same;

(iii) Having  regard  to  the  fact  that  the  Central  Bureau  of

Investigation has since submitted a charge-sheet wherein

not  only  the  officers  of  the  banks  but  also  the

commission agents have been found to be guilty of an

offence of conspiracy in committing fraud on the bank,

the judgment and direction of the High Court should be

set aside.   

Mr.  Sundaram, learned Senior Counsel,  appearing on behalf  of the

respondents, on the other hand, would contend:

(a) Although  the  writ  petitions  were  filed  for  enforcement  of  a

contract,  as the same involved public law character,  the  writ

petitions were maintainable.

(b) Appellants  being ‘State’ within the meaning of Article 12 of

the  Constitution  of  India,  they  were  amenable  to  writ

jurisdiction of the High Court.

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(c) The  writ  petitions  having  not  been  dismissed  in  limine,  the

High Court was entitled to go into the merit of the matter for

the purpose of arriving at a finding as to whether any case has

been made out for issuance of any writ, direction or order.

(d) In a case of this nature the High Court is entitled to convert a

private dispute into a public interest litigation, the same having

a  public  ramification  by  appointing  a  Committee  and  act

thereupon, as a consequence whereof,  relief  in favour of  the

writ petitioners/respondents could be granted.   

The propositions of law which are undisputed are:-

i) Writ Petitions against the banks being ‘State’ within the

meaning of Article 12 of the Constitution of India were

maintainable;

ii) Writ  Petitions  involving  serious  disputed  questions  of

fact,  ordinarily  should  not  be  entertained  although  the

High  Court  in  some  cases  may  enter  into  disputed

questions of fact.  

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The question,  however,  is  as  to  whether  the  learned Single  Judge,

despite  holding that  the writ  petitions were not  maintainable,  could have

issued direction for constitution of the Committee.   

The powers and functions delegated to the Committee were wide, by

reason  whereof  for  all  intent  and  purport,  even  judicial  power  were

delegated.   

Let us now consider the question as to whether direction to constitute

such a Committee was legally permissible.  Indisputably, the authorities of

the Reserve Bank of India in exercise of their statutory powers conferred

upon them under Section 35A of the Banking Regulation Act could issue

directions for initiating an enquiry into the affairs of the Banks.  The Banks

being public sector undertakings could themselves do so and have in fact

done so.   

It is one thing to say that the Public Sector Banks having regard to the

provisions  of  the  Banking  Companies  (Acquisition  and  Transfer  of

Undertakings) Act, 1970 should discharge their functions keeping in mind

the  larger  public  interest  but  ordinarily  in  the  matter  of  enforcement  of

contract, they are to be governed by the terms thereof, which would not be

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amenable to writ  jurisdiction of the High Court unless the actions of the

banks are found to be wholly arbitrary and unreasonable.   

The core question which arises for consideration in the writ petitions

was as  to  whether,  keeping in  view the apprehension in the  mind of  the

Bank that  it  has  been subjected  to  fraud by its  own officers  as  also  the

apprehension in their mind that  the writ  petitioners or their agents  might

have conspired with the offices of the Banks, was it unfair and unreasonable

in  its  decision to refuse to  make payment?  The answer to  that  question

prima facie must be rendered in the negative.  If, however, it is found as of

fact  that  the  writ  petitioners-respondents  were  not  parties  to  the  fraud,

whether even in a lis involving private law domain, namely, contract qua

contract, as a trustee of the investors’ money, they may be held to be liable

to refund the amount, is the question?.   

Indisputably, whether as a public sector undertakings or otherwise the

banks cannot refuse to accede to the just demand of the investors to pay any

amount lawfully due to them inter alia on the premise that their officers are

guilty of commission of any fraud.   

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It is one thing to say that fraud has been committed by their officers

to cause wrongful loss to the bank but it  is  another thing to say that the

banks are constructively liable for the acts of their officers.   

In  given  cases,  the  employors  are  constructively  liable  for  acts  of

negligence on the part of their employees.  

The Alter Ego approach adopted in the theory of Corporate liability

which has been applied by the House of Lords in  Lennard’s Carrying Co.

Ltd.  v.Asiatic Petroleum Co Ltd  [1915] AC 705 HL is one such instance.

The facts of the case concerned a cargo claim which Lennards sought to

defend by contending that Section 502 of the Merchant Shipping Act 2894

exonerated  the  owner  from losses  arising  without  his  actual  fault.  The

House of Lords held that they could not rely on that defence since the fault

of  the  appropriate  organ  such  as  the  Board  of  Directors  or  managing

Director could be attributed to the company.

In Farrar’s Company Law, 4th Edn. Page 147, it is stated:  

“An employee  who  acts  for  the  company in  the course of  his  or her  employment will  usually bind the company and his or her knowledge will be attributed to

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the company because he or she is the company for the purpose of the transaction in question.

This  is  so  even  if  the  employee  is  acting dishonestly  or  against  the  interests  of  the  company or contrary to orders but it is not so where the company is the victimThis is to avoid an obvious contradiction.”

Another  instance  of  the  application  of  the  theory  of  Corporate

Liability is the ‘Attribution Approach’ as adopted by the Judicial Committee

of the Privy Council in  Meridian Global Funds Management Asia Ltd. v.

Securities Commission [ 1995] 2 AC 500, [1995] 3 All ER 918.

In that case, two employees of Meridian, had improperly used their

authority to purchase in the name of the company a substantial interest in

Euro-National Corp. Ltd., a New Zealand listed company. Under the New

Zealand Securities  Amendment Act 1988,  Meridian  was required  to give

notice  of  its  acquisition  to  ENC  and  the  Stock  exchange.  The  two

employees knew this but the Board and the managing Director of Meridian

did not. No notice was given. The Privy Council upheld the New Zealand

Court’s in decision holding that Meridian had contravened the law, on the

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premise  that  the  knowledge  of  the  employee  would  be  attributed  to

Meridian.

We will, thus, assume for the purpose of this case that the Banks are

constructively liable for acts of their employees.  We will also assume that

the Banks  are  liable  to pay the amount  under  the contract  for which the

FDRs were issued.   

11. The main question, however, would still  remain as to whether in a

case of this nature (which would in turn depend on the finding of fact) as to

whether the petitioners themselves or their agents being party to the fraud,

any direction in the public law domain can be issued.   The larger question

would  be  as  to  whether  the  writ  petitions  having  not  been  found  to  be

maintainable being purely of private law character, the High Court could

treat it to be one involving a public law domain and could still have private

law remedy available to the writ petitioners?   

A writ petition indisputably would be maintainable even in relation to

a matter arising out of contract qua contract.   

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12. As has been submitted by Mr. Sundaram that some cases may start on

a private interest but if the court finds involvement of a public law element

therein concerning a large number of people, it may proceed on the basis as

if it was a public interest litigation and appoint a Committee and then grant

relief in favour of the writ petitioners.  Whether such an extraordinary case

has been made out herein is the question.   

Respondents are cooperative societies.  They at the instance of some

agents  or  the middlemen thought  it  expedient  to invest  in  Fixed Deposit

Receipts (FDRs) in Bank of Baroda and Indian Bank.  The modus operandi

appears  to  be  that  the  brokers/intermediaries  lured  a  few  cooperative

banks/credit  societies  for  placing  deposits  with  the  branches  of  Bank  of

Baroda/Indian  Bank  in  and  around  Surat  as  also  at  Bharuch  wherefor  a

handsome commission/incentive ranging from 3.8 to 25 per cent used to be

given.  The Cooperative Societies themselves did not approach the Bank.

All acts were done through the agents.  The documents seem to have been

sent  through  brokers  who  also  delivered  to  them  the  Maturity  Value

Certificates  in  lieu  of  original  FDRs  or  the  FDRs/Xeroxed  copies,  in

addition to delivery of drafts for commission.  The commission used to be

paid in cash.  In some cases, the original FDRs were retained by the banks.

However,  the original  documents  sent  by the cooperative societies  to the

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banks in  some cases  were not  available  in  the offices  of  the  bank but  a

different  set  of  documents  were  replaced  in  the files.  Loans  were raised

against FDRs on the basis of such documents mainly for further investment

by private individuals.  Funds were withdrawn in cash either directly from

their current accounts or by issuing cheques in favour of some individuals

who reportedly discounted their cheques.   

13. The fact  that  the  officers  of  the banks  were  involved in  the entire

dealings  is  not  in  dispute.  It  is  furthermore  not  in  dispute  that  some

brokers/commission  agents  were  also  involved.  To  what  extent,  the

authorities  of  the  cooperative  banks  and/or  cooperative  societies  were

involved and/or in know thereof, however, is not very certain.  

Respondents - Cooperative Societies prayed for issuance of a writ of

or  in  the  nature  of  mandamus  or  any  other  appropriate  writ,  order  or

direction quashing and/or setting aside the letter at Annexure A dated 2.4.98

of respondent No. 1.  It was furthermore prayed that the respondent Nos. 1

and 2 be directed to honour the FDRs copies of which were annexed thereto

with the interest  accrued thereon and to  restrain the respondent  No. 1 to

appropriate the proceeds  of the said FDR and also be further  directed to

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honour the FDR with interest accrued thereon on such terms and conditions

which the Hon’ble Court deems fit.  

The learned single judge issued the following directions:

“I. A Committee is hereby constituted as under:-

(i) The Deputy Governor of the Reserve Bank of India himself or his nominee as the Chairman of the Committee.

(ii) One member to be nominated by the Deputy Governor of the Reserve Bank of India who shall be the officer of the highest rank  in  the  Reserve  Bank  of  India  but  subordinate  to  Dy. Governor.

(iii) One  member  from  the  Bank  of  Baroda/Indian  Bank  to  be appointed  by the  Board  of  Directors  of  the  concerned  Bank preferably a Chief General Manager or an officer not below the rank of General Manager.

II. The  member  from  Bank  of  Baroda  would participate in the meeting of this Committee only when the cases relating to the Bank of Baroda are taken  up  and  the  member  from the  Indian  bank shall participate in the meeting of the Committee only when the cases  relating  to  Indian Bank are taken up.  

III. The  Committee  may evolve  and  follow its  own procedure and will also have the power to examine summon or examine the witnesses.

IV. This Committee shall examine each and every case on  its  own  merits  with  reference  to  the  records desired  to  be  made  available  and  will  give  its findings  with  regard  to  the  amount  due  and payable  to  the  concerned  petitioners/parties  and the  rate  of  interest.   The  Bank  of  Baroda  and

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Indian Bank shall inform the Committee in writing about  the  undisputed  amount  with  full  details. This Committee shall also go into the question of the  rate  of  interest  payable  in  case  of  the undisputed  amount,  which  is  directed  to  be paid under  this  order.   It  will  also  be  open  for  the Committee  to  opine  as  to  who  were  the officers/employees/party  responsible  for  this conspiracy and fraud.

V. The findings as may be given by the Committee shall  be  binding  on  both  the  sides  and  shall  be implemented forthwith.  

VI. The petitioners/parties on receipt of any amount as a  result  of  the  finding  of  the  Committee  as aforesaid,  shall  also  give  an  undertaking  to  the concerned Bank before the amount is withdrawn, that in case as a result of CBI inquiry, it is found and held by the concerned Court after the trial that any  amount  had  been  withdrawn  by  any  such party,  as  a  part  of  the  aforesaid  conspiracy,  etc. they  will  return  such  amount  to  the  concerned Bank.  

VII. The Committee shall decide all these cases within a period of three months from the date the certified copy  of  this  order  is  produced  before  the  Dy. Governor of the Reserve Bank of India.

VIII. It will be open for the petitioners/parties to agitate their  grievance,  if  any,  against  the  orders  which may be passed as a result  of the findings of the Committee constituted under this Court’s order as aforesaid.

IX. These  directions  are  in  addition  to  and  not  in derogation of any legal remedy, which any party may seek after the report of this Committee.

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X. For the time being, the concerned Banks, i.e. Bank of  Baroda/Indian  Bank  shall  disburse  the undisputed amount, if any, with interest at the rate of  Savings  Bank  Account  to  the  respective petitioners/parties within 15 days from the date the copy  of  this  order  is  produced  before  the concerned  Bank.   The  payment  shall  be  made through  Demand  Drafts  in  the  name  of  the petitioners Societies/Banks/Depositors.  However, if  the  Committee  decides  any  rate  of  interest higher  than  the  Savings  bank  Account,  the consequences shall follow.”

The learned single judge opined that there existed disputed questions

of fact in respect  whereof no definite finding could be arrived at having

regard to the modus operandi of the persons involved.   

14. The  private  dispute  between  the  parties  were,  thus,  sought  to  be

converted  into  a  public  interest  litigation  for  the  purpose  of  making  an

enquiry into the affairs of the bank by a Committee.   

The Committee was consisted of the following members:

“(a) Mr. JR Prabhu - Chairman

Banking, Ombudsman, Mumbai

(b) Mr. VS Das, Regional - Member  Director, RBI, Ahmedabad  

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(c) Mr. RV Tyar - Member General Manager, Bank of Baroda

Or  

(d) Mr. S. Arunachalam, - Member General Manager,  Indian Bank.

As  per  the  judgment  of  the  learned  single  judge,  the  Committee

consisted of three members.  When the Committee dealt with the cases of

Bank  of  Baroda,  only  the  representative  of  Bank  of  Baroda  acted  as  a

member and when the Committee dealt with the cases of Indian Bank, only

the representative of the Indian Bank acted in the said capacity. The other

members  of  the  Committee  were  Shri  JR  Prabhu,  Banking  Ombudsman,

Mumbai and Mr. VS Das, Regional Director, RBI, Ahmedabad.    

15. We have been taken through the report submitted by the Committee.

The Committee did a yeoman job. It went into various aspects of the matter.

It tried to cover as much ground as possible.  It noticed the facts leading to

setting up of the Committee.  It considered the written submissions as also

the  oral  submissions  of  the  appellant  and  the  submissions  made  by  the

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respective banks, the officers of the banks, the intermediaries as  also the

actions taken by the banks concerned.   

Whereas  general  observations  and  recommendations  by  all  the

members appear to be unanimous, no unanimity however could be reached

in regard to the question as to what direction could be issued in the matter.    

Whereas  the  Chairman  and  Regional  Director,  RBI  were  of  the

opinion that the banks should refund the disputed amounts of deposit to the

depositors; other two members representing the Banks were of the view that

the return of the deposits may amount to double payments to the depositors.  

It was opined:

“The Committee is required to examine each and every case on its own merits with reference to the records and its findings in regard to amount due and payable to the concerned petitioner borrowers in terms of the terms of reference based on the orders of the Gujarat High Court. The modus operandi in perpetrating the fraud in respect of all the petitioner depositors has been the same.  There have been only minor variations here and there.  Couple of  petitioner  depositors  has  mentioned  during  their deposition before the Committee that some of them had gone  to  the  banks’  branches  along  with  the middlemen/intermediaries for placing the deposits.  The photographs and specimen signature of all the authorized signatories  of  the  cooperative  societies/cooperative banks  were  not  available  on  the  banks’  record.   The

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banks  records  also  do  not  reveal  that  the  authorized signatories had signed the account opening forms and the loan documents  in  the  presence  of  the  officials  of  the banks.   The resolutions purported to have been passed for the purpose of availing of loans by the cooperative societies/cooperative  banks  have  not  been  on  their letterheads in almost all cases.  In view of these reasons it has not been considered necessary to differentiate the cases  of  the  petitioners  and  the  Committee’s recommendations  are  uniformly  applicable  to  all  the petitioner depositors.

A  Statement  indicating  the  disputed  and  undisputed amounts submitted by the two banks to the Committee is given in Annexure 3.  The undisputed amount deposited with the Gujarat High Court by Bank of Baroda amounts to  Rs.  3.16 crore and interest  thereon at  Savings  bank rate Rs.29.02 lakh.  An undisputed amount of Rs. 16.20 lakh has  been  remitted  to  the  Income Tax   Authority. The  disputed  amount  of  deposits  aggregate  Rs.  20.00 crore.  In the case of Indian Bank, the undisputed and disputed amounts of deposits  aggregate Rs. 72.85 lakh and Rs. 4.45 crore respectively.  The bank has stated that it has deposited the undisputed amount of Rs.72.85 lakh with interest of Rs. 1.66 lakh in the Court.

The refund of the deposits to the petitioner depositors by the banks should,  however,  be subject  to certain  terms and conditions which are as under:

a) The  cooperative  societies/cooperative  banks  should  execute necessary documents as per the banks’ procedure.

b) The banks could take indemnity bonds from persons acceptable to them apart from the cooperative societies/cooperative banks before effecting the refund of the disputed amount of deposits.

c) In case at a later date for any reason the amounts are required to be  refunded  to  the  banks  by  the  cooperative societies/cooperative banks they will have to pay interest at the

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prime lending rates of the bank concerned compounded at half yearly rest from the date of refund of the deposits by the banks till  the  date  of  repayment  by  the  cooperative  societies/ cooperative banks to the two banks.”

Unanimity, however, was arrived at that no interest on the amount of

deposits would be payable.  It  opined that the officers of the banks were

primarily responsible for perpetration of fraud.

Mr. Rao had taken us through various parts of the report as also the

charge  sheet  submitted by the C.B.I.  to  contend  that  involvement  of  the

brokers/commission agents appointed by some of the cooperative societies

has also been found both by the Committee as also by the C.B.I.  It was also

submitted  that  in  any  event  most  of  them  were  aware  of  the  illegal

transactions  which  had  been  going  on  and  that  they  had  directly  or

indirectly  connived  with  the  officers  of  the  banks  in  respect  of  their

activities,  which would be apparent from the fact  that they used to get  a

large amount by way of interest, a portion of which was paid in cash and

which was not even accounted for.   

Our attention has also been drawn to the charge-sheet  filed by the

Central  Bureau  of  Investigation,  wherein  Jyotiben,  the  agent  of  the

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cooperative  societies/bank  has  also  been  made  an  accused.  One  of  the

cooperative societies, it was pointed out, had even authorized her to enter

into negotiations with the Bank.   

In the said charge-sheet, it was stated:

“It has been stated by the executive and office bearers of the society that, we have appointed Jyotiben as the agent for the purpose of depositing and withdrawing the F.D. at Surat and to give loan on the F.D. Receipts etc.  It is the say of this Jyotiben that, since there is a big lobby of industrialists and builders in Surat city, if they are given the  loans  on  our  deposits  receipts,  they are  paying  us 24% interest and on the other side, we are getting 11% interest,  and  thus,  since  we  have  been  getting  35% interest, the deposits were made through them.”

Mr. Sundaram, on the other hand, submitted that the fact that it was

only the officers of the banks who have been found to be primarily liable

and  their  modus  operandi  was  to  grant  loan  utilizing  the  said  FDRs.

wherefor the cooperative societies had no role to play.   

It was urged that in view of the fact that the officers of the banks have

been found to be liable, the cooperative societies should not be punished.  

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16. A writ  court  exercising  the power  of  judicial  review has  a limited

jurisdiction.  A writ petition would lie against a State within the meaning of

Article 12 of the Constitution of India. Indisputably, exercise of jurisdiction

by the High Court is permissible in a case where action of the State is found

to be unfair,  unreasonable or arbitrary.  The question which should have

been posed by the High Court was as to whether the action of the bank was

so arbitrary so as to invoke the public law jurisdiction.  If the answer to the

said question was to be in the negative, the High Court should have refused

to exercise its jurisdiction.   

A fraud has been practiced on the banks.  Primary accused may be the

bank officers  but  a conspiracy with  them by the outsiders  has also been

alleged. The original FDRs only in some cases are available; in most of the

cases they are not.  Even the Committee could not decide for as to which

one was  the  original  FDR and which  was not.   It  could  not  distinguish

between an original FDR and the Xerox copy thereof.   

Opinion of the expert thereon might have been received, but the final

verdict thereupon in the cases initiated by the C.B.I. is still awaited.   

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17. The law as regards application of the power of judicial review, inter

alia, in the contractual filed stands covered by a large number of decisions.

(See  LIC of India & anr. vs.  Consumer Education & Research Centre &

ors., [(1995) 5 SCC 482],  Sanjana M. Wig (Ms) vs.  Hindustan Petroleum

Corpn. Ltd. [(2005) 8 SCC 242], ABL International Ltd & Anr.. vs. Export

Credit Guarantee Corporation of India Ltd & ors.. [(2004) 3 SCC 553], The

D.F.O, South Kheri & ors. vs. Ram Sanehi Singh [(1971) 3 SCC 864].  We,

however, do not think that facts involved in each case and the law laid down

therein need to be discussed at length as there does not exist any dispute in

regard to basic principles laid down therein.   

In   M/s  Hyderabad  Commercials  vs. Indian  Bank  & ors. [1991

Supp. (2) SCC 340], this Court held:

“Since the basic facts regarding the unauthorized transfer  of  the  disputed  amount  from  the appellant’s account as well as the bank’s liability was  admitted,  there  was  no  justification  for  the High Court to direct  the appellant  to file suit  on ground  of  disputed  questions  of  fact.   The respondent bank is an instrumentality of the State and  it  must  function  honestly  to  serve  its customers.

Would the ratio laid down therein apply in the instant case?  We do

not think so.  The question as to whether fraud has been committed by the

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officers of the bank is pending consideration before a competent criminal

court.  There are other various disputed questions which are required to be

gone  into  in  the  said  proceeding.  The  role  played  by  some  of  the  writ

petitioners  –  respondents  is  also  in  issue.  Such  a  seriously  disputed

questions of fact, in our opinion, could not have been gone into by the writ

court.   

We would accept the proposition of law as propounded by this Court

in  Guruvayoor Devaswom Managing Committee & anr.  vs. C.K. Rajan &

ors. [(2003) 7 SCC 546].  In that case it was, inter alia, observed that public

interest litigation procedures may be adopted in a case where initially the

writ  petition  was  filed  as  a  private  interest  litigation.   (See  also  Ashok

Lanka & anr. vs. Rishi Dixit  & ors. (2005) 5 SCC 598 at page 618).

We may in this behalf notice development of law in other jurisdiction.

Abram Chayes in his article on “The Role of the Judge in Public Law

Litigation”  Harv.  Law.  Rev.  Vol.  89  (1976)  at  Pg.  1281  opines  that

“Traditionally,  adjudication  has  been  understood  to  be  a  process  for

resolving  disputes  among  private  parties  which  have  not  been  privately

settled.” He thus emphasizes the need for a “Public Law” model wherein

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“the  traditional  adversary  relationship  is  suffused  and  intermixed  with

negotiating  and  mediating  processes  at  every  point.  The  judge  is  the

dominant  figure  in  organizing  and  guiding  the  case,  and  he  draws  for

support not only on the parties and their counsel, but on a wide range of

outsiders-masters,  experts  and  oversight  personnel.”  He goes  on  to  give

examples  of  school  desegregation,  employment  discrimination,  and

prisoners’  or  inmates’  rights  cases  as  also  antitrust,  securities  fraud  and

other  aspects  of  the  conduct  of  the  corporate  business,  bankruptcy  and

reorganizations, union governance, consumer fraud, housing discrimination,

electoral reapportionment, environmental management- fields that display in

varying degrees the features of public law litigation.   

According to him, The public law litigation model inter-alia has the

following features:

“7.  The  judge  is  not  passive,  his  function  limited  to analysis  and  statement  of  governing  legal  rules;  he  is active,  with  responsibility  not  only  for  credible  fact evaluation but for organizing and shaping the litigation to ensure a just and viable outcome.

8.The  subject  matter  of  the  lawsuit  is  not  a  dispute between private  individuals  about  private  rights,  but  a grievance about the operation of public policy.”

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In Krishna Swami v. Union of India and another With

Raj  Kanwar  v.  Union  of  India  and  Another  (1992)  4  SCC  605,  a

constitutional bench of this court had to decide upon the maintainability of a

writ petition filed under Article 32 against the removal of a Supreme Court

judge without impleading the judge himself as a party to the proceedings.

The court on the role of an investigation committee opined:

“The investigation done by the Committee, thus is to find whether  the  alleged  misbehavior  incapacity  has  been proved.  Undoubtedly,  the  public  law  litigation  often contradicts the premise behind those of private law. In public  law  wider  public  interest  it  involved  over  and beyond he contending parties. It concerns the future and private law litigation is retrospective in operation.  

What the  court  could  do?   It  could  appoint  a  Committee.  But  the

decision  of  the Committee would not  have been decisive.   The Division

Bench appears to have applied its mind on the report, but in the absence of

any categorical finding that it was the officers of the Banks alone who were

liable, no direction as has been done in the instant case should have been

issued.   It  may  be  that  in  appropriate  cases,  the  court  may  find  the

recommendations made by the Committee acceptable.  

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18. But it is, in our opinion, not a public interest litigation in that sense of

the term.  The report,  however,  was not  unanimous.  The opinion of the

Committee was a divided one on the crucial issue.  Two members of the

Committee were of the opinion that whether the amount deposited by the

cooperative  banks  was  received  back  by  them  or  not,  was  yet  to  be

ascertained.  We are, therefore, of the opinion that it cannot be said that the

fact finding body, assuming that the same could be constituted, made such

recommendations which could be accepted by the Court without going into

the merit thereof.  It is also not a case where any mandatory relief could be

granted in favour of the respondents.  

19. Having  however  said  so,  we  must  pose  unto  ourselves  a  further

question.  Could those cooperative societies which had absolutely no role to

play in the entire episode should suffer in any manner whatsoever?   The

cooperative societies/cooperative banks for the purpose of their day-to-day

functioning, require the amount which they have invested in FDRs on their

maturity.  Should they wait till the criminal cases are over?  Should they be

pushed to institute civil suits?  They can indisputably be compensated by

grant  of  interest.   What,  however,  happens  if  in  the  meanwhile  in  the

absence of the requisite funds being available to them, they find it difficult

to run the day-to-day affairs?  

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20. Answers  thereto  may  be  difficult  to  find  but  it  is  not  a  wholly

impossible task.  We think that the appellant Bank being a ‘State’ within the

meaning of Article 12 of the Constitution of India with the assistance of

officer(s) of the Central Bureau of Investigation should make all attempts to

ascertain as to which of the cooperative societies/cooperative banks are in

no way involved with the scam, and subject to such precautions as may be

found necessary to be taken, release the amount in their favour.   

21. In any event,  the  quantum of  the  amount  which  all  the  depositors

would have otherwise received, in the event their  investment in FDRs is

found to be genuine, should be informed thereabout. Once the liability of

the bank is  determined,  the  bank may invest  the said amount  in  its  own

account and issue fresh FDRs therefor.   Whereas the bank may keep the

original FDRs with itself,  it may issue the duplicate copies thereof to the

eligible cooperative bank. Such an exercise should be completed within a

period of four weeks from date.   

22. In the event, the cooperative society intending to avail loan facilities

from the banks for running their business, may approach them which may

apart from usual conditions release the same on a further condition that the

amount of FDR would remain with them and on that basis, loans may be

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granted of such amount.  The usual precautions in regard thereto may also

be taken by the Bank(s).   

23. We,  while  saying  so,  do  not  intend  to  lay  down any law.   These

directions  should  not  be  treated  to  be  precedent.   We are  issuing  these

directions keeping in view that the factual scenario obtaining in the case and

that non-release of the amount is likely to enure hardships that may be faced

by the cooperative societies.   We would also direct  the criminal  court  to

dispose of the criminal cases pending before them with utmost expedition.

These appeals are allowed with the aforementioned directions.  There shall,

however, be no order as to costs.

……………….…..………….J. [S.B. Sinha]

..………………..……………J. [Lokeshwar Singh Panta]

New Delhi; May 16, 2008

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