Project on State Bank of India vs Shyama Devi

Introduction

Generally, a person is liable for his own wrongful acts and one does not incur any liability for the acts done by others. In certain cases, however, vicarious liability, that is the liability of one person for that done by another person, may arise. For such a liability to arise, there should be a relationship between the two, that is, the wrongdoer and the person who is made liable. The law of tort has been used for many centuries to protect personal interests such as property, reputation, body etc. It ensures justice is done by looking into the claimant's need for compensation, which is paid by the defendant who has committed a breach of duty. The general rule in tort law is that liability is personal, i.e., liability is generally linked to a breach of one’s own duty and a person is liable for the wrongs committed by him only. However, in certain scenarios, the law makes one person being liable for the harm caused by another, because of some legally relevant relationship between the two. This is known as the doctrine of vicarious liability. The doctrine of vicarious liability generally operates within the law of torts. It has become well-established in English law and historically has been called ‘Master and Servant liability’. Vicarious liability means liability which is incurred for or instead of another. A person is usually responsible for his own acts. But there are circumstances where liability attaches to him for the wrongs committed by others. The most common instance is the liability of the master for wrongs, committed by his servant. In these cases liability is joint as well as several.

The other common example of vicarious liability is the liability of an employer for the torts of his employees committed in the course of employment. It is not necessary in such circumstances for the employer to have breached any duty that was owed to the injured party, and therefore it operates as strict or no-fault liability. It is possible that the injured party could be either an employee or a stranger, and the employer can be held vicariously liable in both situations. The most important element to establishing a case for vicarious liability is that the wrongdoer be acting as a servant or employee, and that the wrong done be connected to the employee’s course of employment. Vicarious liability can only be imposed if it is proved that the employee was acting in the course of employment. This criterion is essential, and requires a clear connection between the employment duties and the employee’s acts complained of. A reason for vicarious responsibility of employers is that employers usually are, while their servants usually are not, financially capable of the burden of civil liability. This principle is best illustrated in the case of Leesh River Tea Co. Ltd. & Ors. v. British India Steam Navigation Co., Ltd. & Lloyd v. Grace, Smith & Co.

Doctrine of Respondeat Superior

"Respondeat superior[1]" is a legal doctrine which states that, in many circumstances, an employer is responsible for the actions of employees performed within the course of their employment. This rule is also called the "Master-Servant Rule", recognized in both common law and civil law jurisdictions. In a broader scope, respondeat superior is based upon the concept of vicarious liability. This doctrine also derives its validity from the maxim ‘qui facit per alium facit per se[2].’

STATE BANK OF INDIA VS SHYAMA DEVI[3]

Facts:-

On September 17, 1945, the respondent opened a Savings Bank Account, with the appellant's predecessor, the imperial Bank of India at its Allahabad Branch. She was introduced to the Bank by one Kapil Deo Shukla, who was an employee of the Bank, and admittedly a close neighbour of the respondent and a friend of her husband, Bhagwati Prasad.

On November 30, 1948, the respondent made a petition in forma pauperis for the recovery of Rs. 15,547 together with pendente lite and future interest from the Imperial Bank. This petition was later registered as a regular suit in 1950.

The plaintiff had, apart from 1,932 admitted by the defendant-Bank, also deposited from time to time a sum of Rs.12205 in the Bank. The 12205 was deposited in the manner given below.


-Rs.105 deposited on September 17, 1945

-Rs.4000 deposited on September 17, 1945

-Rs.8000 deposited on December 7, 1945

-Rs.100 deposited on June 20, 1946

These amounts were entered in the respondent's Pass Book by the employees of the Bank which had been confirming and ratifying those entries from time to time.

There was a permanent clerk named Kapil Deo Shukla in the employment of the defendant Bank, who exercised much influence on other employees of the Bank and used to work at different counters. The Bank viewed his actions with approval and acted with negligence. The plaintiff as well as other constituents regarded him as an employee and a responsible person of the Bank, send letter of instructions to him, while this clerk used to obtain the signature of the officer on the Pass Book as usual. The plaintiff used to believe that the money had been deposited and she was satisfied on perusal of the Pass Book. She had never any occasion for suspicion.

In August 1946, the plaintiff's husband felt some suspicion in the Bank's affairs. She thereupon sent a notice, dated August 13, 1948 to the defendant Bank. The Bank replied by letter, dated August 14, 1948, in which it accepted the deposit of Rs. 1,932 and denied the other deposits. The defendant-Bank was responsible for the acts and omissions of its employees which they did during their service, and if Shukla or any other employee of the Bank had committed embezzlement and defrauded the plaintiff, the Bank was responsible for making good that loss.

The defendant-Bank in its written statement admitted that Kapil Deo Shukla was one of its employees and he used to work at the counter, but not at the Savings Bank counter, where the Savings account of the plaintiff was dealt with. Shukla was no longer in the service of the Bank. The Bank further pleaded that the amount of Rs. 12,205 as detailed above, was never deposited with it, nor were the alleged deposits constituting this amount ever confirmed or ratified by it. The Bank further stated that only an aggregate amount of Rs. 1,932 had been deposited by the respondent on the diverse dates, as indicated below


-Rs.50- deposited on September 17, 1945

-Rs.400- deposited on January 31, 1946

-Rs.432- deposited on February 4, 1946

-Rs.1000- deposited on April 23, 1946

-Rs.50- deposited on July 23, 1946

The Bank further averred that the plaintiff was introduced to, the Bank by the said Kapil Deo Shukla who was her close neighbour and a fast friend of her husband, Bhagwati Prasad, and that if the plaintiff-respondent selected him as her agent or instrument for depositing money in the Bank and he had defrauded her, or if Kapil Deo Shukla acting in collusion with her husband, showed wrong amounts in her Pass Book, the Bank was not liable for any loss that might have accrued to her.

The parties went to trial on these issues.

(1) Did the plaintiff deposit with the defendant the various sums of money mentioned in Para 4 of the plaint?

(2) Are these amounts mentioned in the plaintiff's Pass Book? If so, is the defendant bound by the entries therein?

(3) Did the plaintiff make any deposit in contravention of any rule of the Bank? If so, to what effect?

On Issues (1) and (2), the trial court found that, except for the items of Rs. 105/- and Rs. 4,000/- entered in the Pass Book, the respondent had deposited the other amounts mentioned in it and that the Bank was bound by those entries. On Issue No. (3), it was held that the Rules were not strictly enforced by the Bank, and if the Bank had accepted an amount larger than the sum of Rs. 5,000/in contravention of its Rules, the respondent was not debarred from claiming such deposit.

In the result, the trial court, on July 8, 1952, decreed the respondent's suit (in respect of two items) for Rs. 10,040, together with simple interest on this amount from January 1 1946, to August 14, 1947 @ Rs. 1-8 per cent per annum, and from, August 15, 1947 to December 1948 @ Rs. 7 per cent per annum. It was further ordered that the respondent would get simple interest on the decretal amount (after deducting Rs. 1,986 which had been paid during the pendency of the suit) @ 6% per annum. Proportionate costs were also awarded to the respondent.

Aggrieved, the Bank carried an appeal to the High Court of Judicature at Allahabad, and the respondent filed cross- objections in respect of the amounts of Rs. 4,000 and Rs. 105, disallowed by the trial court.

The High Court observed that the disputed amount of Rs. 8,000 shown in the Pass Book consisted of two items, the bigger of which was an amount of Rs. 7,000 in the form of a cheque drawn by Bhagwati Prasad on the account of Bhagwati Prasad & Sons in Bharat Bank Ltd., Allahabad, and that Bharat Bank paid the amount of the cheque to Dass Bank Ltd., Allahabad, who credited it to the account of Lala Babu alias Kapil Deo Shukla, the aforesaid employee of the Imperial Bank. On these premises, the High Court found that the amount of the cheque was not actually deposited, first, in the account of Bhagwati Prasad & Sons, nor later in the Savings Account of the respondent, and that Kapil Deo Shukla had fraudulently taken the money of the cheque and credited it in his own account in the Dass Bank Ltd., Allahabad. "Therefore, the respondent had to suffer because of the action of Kapil Deo Shukla, an employee of the Imperial Bank."

Repelling the contention of the appellant-Bank, the High Court held on the basis of the evidence of the appellant's witnesses Mahadeo Prasad and Narbada Prasad-that "it could not be said that Kapil Deo Shukla was not acting in the course of his employment in the Bank".

Regarding the entry of Rs. 100 the High Court held that the initials against this entry purporting to be of L. Anthony, had not been proved to be forged inasmuch as L. Anthony had not been examined, and that if any fraud had been committed by Kapil Deo Shukla, the Bank was liable for the same.

In respect of the disputed deposit of Rs. 4,000, the High Court held that the appellant had not, disproved the statement of Bhagwati Prasad. The respondent could not be made to suffer for the fraud committed by Kapil Deo Shukla in the course of his employment in the Bank.

With regard to the item of Rs. 105 also, the High Court accepted Bhagwati Prasad's statement that this amount had been deposited by him on September 7, 1945.

The High Court dismissed the Bank's appeal and allowed the plaintiff-respondent's cross-objections, decreeing the suit for Rs. 14,145, together with simple interest thereon from January 1, 1946 to August 1947 to December 1, 1948 @ 6 per cent per annum. The appeal filed by the bank on a certificate granted by the High court under Article 135 of the Constitution read with sections 109 and 110 of the Code of Civil Procedure. The Supreme Court allowed the defendants appeal and dismissed the Plaintiff’s claim with regard to Rs.11,000 (consisting of the items of Rs.4,000 plus Rs.7,000) and interest thereon. The Supreme Court ordered the decretal amount granted by the High Court shall stand reduced by Rs.11,000 and interest thereon.

The main issue in the case

The main issue in the case was whether the amounts, in question, were handed over by the plaintiff or on her behalf by her husband, Bhagwati Prasad, to K. D. Shukla in the course of the Bank's business? In other words, was K. D. Shukla, while receiving these amounts from the plaintiff, acting as an agent of the plaintiff or of the Bank in the course of his employment? This question, further resolves into the issue whether these amounts in question were handed over in the usual course of business in the Bank?

Principle governing this case

Vicarious Liability

The first of the principles which govern the vicarious liability of the employer for the loss caused to a customer through the misdemeanour or negligence of an employee is that the employer is not liable for the act of the servant if the cause of the loss or damages arose without his actual fault or privity and without the fault or neglect of his agents or servants in the course of their employment. Thus a master is liable for his servant’s fault perpetrated in the course of master’s business whether the fraud was for master’s benefit or not if it was committed in the course of his employment. There is no difference in the liability of a master for wrong whether for fraud or any other wrong committed by a servant in the course of his employment, and it is a question of fact in each case whether it was committed in the course of his employment.[4]

Where a client of the bank paid certain amount to an employee of the bank for crediting it to her account, the onus was on the client to show that she paid the amount to the employee of the bank which was received by that employee in the course of his employment with the bank. In such a case the false and fraudulent entry about the deposit of the amount in the pass book, of the client, could not shift the onus on the bank to prove the contrary. So also, whether husband of the client gave a cheque drawn on his bank account to the bank employee for crediting it to the account of the client by endorsing on its back and the employee cashed the cheque and misappropriated the amount, the act of the employee which caused the loss to the client could not be said to have been committed by the employee in the course of the employment with the bank. In such a case, the fact, the false and fictitious entries to cover up his fraud were made by the employee in the pass book of the client and in the ledger account of the husband could not make the embezzlement committed by the employee an act committed in the course of his employment with the bank. Consequently, the bank was not liable to make good the loss caused to the client by the act of the employee because the latter in such a case would be deemed to have acted as an agent of the client and not within the scope of his employment with the bank.

In Leesh River Tea Co. Ltd. & Ors. v. British India Steam Navigation Co[5]., Ltd, the facts of that case were that during her voyage a ship called at an intermediate port to discharge part of her original cargo and load some fresh cargo. The shipowners engaged a stevedore company to discharge and load. A servant of the stevedore company stole a brass plate, which was a cover that could be removed to the access to a storm valve. Its removal rendered the ship unseaworthy as sea water could enter when the ship rolled. The resulting hole in the ship was concealed by part of the fresh cargo loaded. On her voyage after leaving the port the ship encountered heavy weather. Water entered through the hole end damaged part of the original cargo. In an action for damages by the owners of the damaged cargo, the shipowners contended that they were excepted from liability by Art. IV. Rule 2(q) of the Hague Rules, because the cause of the damage arose without their actual fault or privity and "without the fault or neglect of the agents or servants" of the shipowners.

The vital point in the case is whether the theft of the brass plate was made by the stevedore, at Port Sudan, in the course of his employment by the ship- owners. He was to be regarded as the agent of the shipowners for the purpose of unloading and loading cargo. There is no doubt that this gave him the opportunity to effect the theft of the plate; but the stevedore was concerned with cargo and not with the ship or parts of the ship. When he deliberately stole the plate he was acting in a way which was completely outside the scope of his employment on behalf of the shipowners. The theft could not have been prevented by any reasonable diligence of the shipowners through the officers and crew of the ship.

Salmon, L.J., speaking in a similar strain emphasised that the fact that the thief's employment on board presented him with the opportunity to steal does not suffice to make the shipowners liable. The conclusion drawn was

"For an employee to, be liable, however, it is not enough that the employment merely afforded the servant or agent an opportunity of committing the crime."

It must be shown that, the damage complained of was caused any wrongful act of his servant or agent done within the scope or course of the servant's or a s employment,even if the wrongful act amounted to a crime. For this proposition, Salmon, L.J. referred to Lloyd V. Grace, Smith & Co.

In Llyod V. Grace, Smith & Co[6]., Mrs Lloyd, who owned two cottages but was not satisfied with the income therefrom, approached the office of Grace, Smith & Co., a firm of solicitors, to consult them about the matter of her property. The managing clerk of the company attended her and advised her to sell the two cottages and invest the money in a better way. She was asked to sign two documents, which were supposed to be sale deeds. In fact, the documents got signed were gift deeds in the name of the managing clerk himself. He then disposed of the property and misappropriated the proceeds. He had acted solely for his personal benefit and without the knowledge of his principal. It was held that since the agent was acting in the course of his apparent or ostensible authority, the principal was liable for fraud.

Also in United Africa Company Ltd. v. Saka Owoade[7], the Privy Council laid down that a master is liable for his servant's fraud perpetrated in the course of master's business, whether the fraud was for the master's benefit or not, if it was committed by the servant in the course of his employment. There is no difference in the liability of a master for wrongs whether for fraud or any other wrong committed by a. servant in the course of his employment, and it is a question of fact in each case whether it was committed in the course of the employment. In that case, the appellant-company, general merchants, had expressly committed to servants of the respondent, a transport contractor, at his request, goods for carriage by road, and the servants stole the goods, and the evidence established that that conversion took place in the course of their employment. The respondent was held liable to the appellants for the value of the goods - The rule in Lloyd v. Grace, Smith & Co. was applied.

The principle used in the above two cases can be applied in the present case also. The plaint was that the various amounts had been handed over in cash or in cheque by her to K. D. Shukla, an employee of the Bank for crediting in her Savings Bank- account with the defendant- Bank. But Shukla fraudulently misappropriated or converted the same to his own use.

Procedure to be followed while depositing money by a customer:

When a depositor comes to deposit money in his or her Savings Bank account, the related voucher together with cash is tendered by him at the cash department counter in the Bank. The receiving Cashier counts and checks up the amount tendered, enters the items in the cash scroll maintained by him, certifies the voucher on, the back by his signature in token of having received the money and passes the voucher on to the Cashier for his signature. The Head Cashier after certifying the voucher sends it to the official in the Banking Department who enters the voucher in his cash scroll after branding, the voucher with the big 'received' round rubber stamp bearing the date of transaction. The voucher then goes to the ledger Keeper for entry in the relative account after which it is passed on to the Day-Book writer for entry. If the depositor had on that date lodged his pass-book with the Ledger-Keeper then the entry is also made in his pass-book and the pass-book together with the voucher and Ledger is sent to the official for attestation. The passbook need not necessarily be lodged with the Bank at the time of making the deposit but it must be produced when a withdrawal is effected. In the cash voucher that is tendered, the ledger's signature is invariably taken before the money is accepted by the Cashier.

Conclusion:

The point to be noted in this case is that the plaintiff has given the money to K. D. Shukla not in the usual course of business as per the facts of the case. Moreover the procedure mentioned above while depositing money in the bank by a customer was not followed by her. So the question which arises is that whether K.D.Shukla acts as an agent of the bank or that of the customer. K. D. Shukla, instead of depositing it with the Bank, manipulated to appropriate it himself in such a situation, the act which caused the loss to the customer could not be said to have been committed by Shukla in the course of his employment with the Bank. At the most, it could be said that the fact of his being an employee of the Bank and a friend of Bhagwati Prasad, gave him an opportunity to commit this fraud.

The rule in Leesh River Tea Co.'s case, squarely applies to this situation. The appellant-Bank was therefore, not liable to make good the loss caused to the Respondent, by the act of K. D. Shukla, while the latter was acting as an agent of the customer and not within the scope of his employment with the Bank. Nor could the fact that false and fictitious entries to cover up his fraud, were made by K. D. Shukla in the Pass Book of the respondent and in the Ledger Account of Bhagwati Prasad & Sons, make the embezzlement committed by Shukla an act committed in the course of his employment with the Bank.

Bibliography



Books referred:-
Banking law and practice in India

- Tannan
Laws of Banking and Negotiable instruments

- Avtar Singh
Supreme Court on Banking Law

- S.N.Gupta

Net source:-

· www.indiankanoon.org

[1] It is a Latin term which means “let the master answer”

[2] He who does an act through another is deemed in law to do it himself

[3] AIR 1978 S.C. 1263

[4] S.N.Gupta, Supreme Court on Banking Law (Universal Law Publishing, 4th edition), P.265

[5] [1966] 3 All E.R. 593

[6] 1912 A.C. 716

[7] 1955 A.C. 130