National Consumer Disputes Redressal
Shree Bhavnagar Nagrik Sahakari Bank ... vs United India Insurance Co. Ltd. on 15 October, 2025
IN THE NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
AT NEW DELHI
CONSUMER COMPLAINT NO. 160 OF 2011
Shree Bhavnagar Nagrik Sahakari Bank Ltd.
14, Gangajaliya Talav
Bhavnagar-364 001 (Gujarat) ... Complainant
Versus
United India Insurance Co. Ltd.
Divisional office,
2nd Floor, Kaveri Complex,
Navapara,
Bhavnagar-364 001 (Gujarat) ... Opposite Party
BEFORE:
HON'BLE MR. JUSTICE A. P. SAHI, PRESIDENT
HON'BLE MR. BHARATKUMAR PANDYA, MEMBER
For the Complainant Mr. Akhil Dave, Advocate
For the Opposite Party Mr. Ravi Bakshi, Advocate
Mr. Manuvendra Pratap Singh, Advocate
PRONOUNCED ON: Oct, 2025
ORDER
1. The Complainant is a Co-operative Bank that had for securing its financial and business transactions acquired a Bankers Indemnity Policy the duration whereof was from 01.04.2006 and 31.03.2007. It was also engaged in the business of extending Gold loans where under Gold ornaments were mortgaged and were kept in safe custody against the loan accounts. As would be evident from the facts unfolded later on several Gold loan accounts were transacted on the basis of fake Gold ornaments that were all transacted through an employee of the bank namely, Mr. Jayant Bhai Miraj Bhai Shah who was designated as the Gold Loan Supervisor. On discovery of these fake CC/160/2011 Page 1 of 42 transactions, an FIR was lodged on 16.11.2006 and a list of 2416 accounts was identified that was subject matter of investigations. The Directors of the bank were also accused in the criminal case that was launched and the said Gold loan supervisor Mr. J.M. Shah took upon himself the responsibility of all these transactions. 14 Gold bags that were supposed to be kept in custody were found in the almirah of the said Gold supervisor that were also investigated and found to contain fake ornaments. A chargesheet was filed and the criminal case is reported to be still pending but unfortunately during the pendency of the criminal complaint the said Gold supervisor Mr. J.M. Shah as informed by the Learned counsel for the Complainant, has reportedly died.
2. The Bank staked its claim before the Insurance Company under the said indemnity policy and the Insurance Company appointed a surveyor Mr. Jayesh H. Shah who tendered his Survey report on 16.02.2009, the same is extracted hereinunder:-
>■ jrayeslx M. Shah.
Surveyor 4 Assesser (Mlae., Fire, Marine) 1SZA, Bhertl Nivas Society.
Nr. Naorl Hoepital. eillsOrlOo®.-
NO-. stA/at ortT-exp-, ot. ao-n.aou AnmooeOed -'380 000.
Phono : O79-W444O73-20449441
Mobllo :• 80203 20002
Raf.No. .
I UI/l 41/08-09 SURVEY REPORT
Date :
J Dt.ld.2.O9
ln_ accordance with th© instruction received ftom United India Zns.Co.lI^tdL Regional' A^"e4abad 9n dt.7.12.06, I attended at Bhavnagar on dt.8.12.06 _ and thereafter several times to survey & assess the . loss . caused os reported due to dk. __________________ Ishonest acts of ! ►ye© tvir-Joyruit N'tSBali* other ei-Ployeoa ©j oftaurod IBankLtd.
THE INSURANCE: ■ ■
THo Inauror . . rUnited tzillla ln».Co.L.td.
I •'■■'* BhavnagBrD.CC
Navapara, Kaveri Complex,
- • Bhavnagar
The Insured
. 14. <3ans«U*ll<* Talev.
Bhavnagar
i PoUoy No.
Period
: 063.100/46/06/62/000^)0005
: t.4.06 to ,31.3.07
Basic Sum Insured'- : Rs. 6QOOOO/r Cltem A- to H.) (Six loo only> .
A.dditioxifd>Suzn Insured on premises ; 'R3.3670a0b00/-'.ancIudln8.Rs.6Z000000/--on
cash Rfe.BOOOObOOp/- on-gold. silver & . I (Only On item A of policy) Valuable documents Additional Sum insured on transit* : Rs. lOOOpOOO/-'(Rupees one crore only) (Only dri*item'B of.fjolloy) • Type of policy : Bankers*' Indemnity. Polley Dtof discovery of loss .. : Dt.lS.l 1-.Q6 ' OENBR^L.rNJ'ORMATION: . _ .
toured) k. reslstored under State Co Oporto goedouo. RBI' ■ .Head office is at 14,Oange0alia Taiav.Bhavnagar. At head P CC/160/2011 Page 2 of 42 ■ \-
m:
Lice. N0. .8LA/21B87 Eip. e%-ak£*''\ .. 1S/A, Bhaftl Niva* So'olety, Nr. Nagrl Hospital, Elllabrldge, Ahtnadabad > 380 006.
Ref. No. ■'• .• Phon* : 078-26444073-26449441
: • Mobil* : 98253 28682
^"Wbes- Bank's J . Data :
deposit is Of Rs. {?75 crores., 6 - J total advances '• Banks' board of die.
l.Niranjanbhai D.Dave
• 2.GunwantbhaiT. Vadodaria Chairman
.. 3.Jaydevbhai T Joshi .ManagtogpL^ star /■
4. Venibhai M. Parekh Jdiht Managing Director -
, 5.Manila! G. Gandhi Director .!
■' ■■■ d.Arvindbhai D. Mehta Director ■
7.Jitendrabhai N. Upadhyav - ■ Director
5. Mahendrabhai S. Shah Director '.
Dlrectdr
i
i DISCOVERY OF LOSS: '
?.°ld l'Oa? Department (portfolio) pt HeJad Office is entrusted to MrJayant M. Shah and he was ippking after goM Ioan portfolio for last 20 years. Bank has reposed full confidence; ^n hinx,* Mr.Jayant M. Shah has to keep gold.omament^ in his custody which are valued by bank's approved, valuer, put .thc o|mamehts in doth bag .(known as gold . bagX seaf it and put the same in bank's locker in Strong room in basement of Head office u premises. ■ ' . &■ : ' | , \y^On dt29.9;06; the charge of gold loan department was to be changed and handed over to ; ■ another' employee MnHaresh Raval. Mr.Raval insisted for physical counting/inventory of' all gold bags containing gold ornaments; of bank's borrowers. On that day in the process i of handing over of charge and .physical exchange of recordsand inventory, 14-gold bags I were found from the steel cupboard in cabin of Mr.Jayant M.shah. Ihli WAS UHUsuai. - .! . Hence bank management decided'to examine and inspect entire golo loan porttotio. •"
i On dt.3:11.06 while counting gold bags, .ftve bags were found short. Instead
1 6f 3457 ,
• ' isibUity vide his
isM WtW'fBOBa. Mr.Jayant Sfiah admitted his responsibility iis" A
i... ItHer d!T11.0<>. ^t bank telt that it was hece^ary now to
! correctness, genuineness of gold ornaments id each gqld.bags. Bank thrm fomied a
I ^omSe and iZld a letter dtl 1.11.06 no.53'5301 to Mt.Jayant^Shah asking him to
remain pre^nt 6n dt.l4.1i:06. at 10.30 am >efore committee. MrJayant remainei : . present but refused to take part in process of.chet king and examining the ornaments.
■j V
- ' !* •„ I' ?' ' CC/160/2011 Page 3 of 42 '*1 J 5 < i''' ■ ^Jayesli' H. Shall 16/A, Bhartl Nival S oclety, I SMrvayor A Aameor (Miao., Flr«, Marine) Nr. Nagrl Hospital, mill bridge, . Lite, No. 3LA/21897 Exp. Dt. 28-11.2013 ■ Ahmodabad >. 380 0 16.
Phono;: 079-2844407: -21 449441 Mobile : 98253 28882 Ref. No. • . dtl5.l l.66. Said 14 gold bags were 8 d*?"' Then c<^nnlittee members met on valuer Mr.Piyushbhab and h was 7o^d °f ""Puttee members and ornaments in the 14 baas i/10* ^?sonI^9n of ornaments, weight of ! andXo^L weri mentioned in valuation-reports 1 addrSf^ow^o?SdT^^ -On lnqUiry " f0Und «une\nd . arras oioorrpwers. of said 14 gold joan accounts were-bogus/felse/fictitious.
I Details of 14 gold loan accounts are as
accounis afe i,nd., »> <
ac under
Srmo. A/c number Nartie.ofborower :
i* Ramesb Chaganlal
' ,,997 ;.. . Manubhai Dhahiibl
.Manubhai Dhahjibhai
3. 3277^ * Madhubhai Rayjibhai
4. 32649 -iw Ganeshbhai Bhudarbhai
5. . 32725 Nareshbhai Kanjibhai
6. 32832 r Manishbhai'Rajnibhai Dave
' I 32815 Rameshbhai MaganUhai Patel
8. 32642
r 9.
10.
32743
32742
Atul Chiinibhai Jani
Ashbkbhai Kanjibhal Patel-
Ka^sanbhai Nanubhai
11. . 32763 . Bachubhai Bhagwanbhai
12. . 3^813 Damjibhai Labhubhai Mandukiya
13. 32660 Vinodbhai Parsottambhai .
14. 32643 ' Dineshbhai -Vinodbhai
Bank then lodged police complaint againsl.'Mr.Jayant M;Shah alleging him of-malafide I intention■ _____ misappropriation and_______ of_________ __ _______________________ funds-- bank. First_ r of________________ police complaint-was ___________ filed
--r----_____________ [ . - ..d.tl6.11;06 for fraud of Rs.859449/-.
I Police"then started investing into the matter. Other valuers Vasantrav B. Dongare and
! Zaveri Ratilal were
Bhupatrai Ratilal
Zaveri Rhnnatrai were asked verify and
to verify
asked to examine each
and examine each& & every
every gold bags imd
gold bags and
T issue, their reports. All ---the gold bags were T opened and contents therein were
verified/examined with regard to description, weight and genuineness' of gold and it was bags mgst of the bags Retained found that bags- fakd ornajaents, imitation jewelleries and contained fak^omwjaents, weight and description of ornaments found by bolh the valuers did not match/tally with the valuation reports on bank'scraperd,;
ornaments was of 1 ' loan supervisor etc. on dt.7.12.2006.
■ • K ■'
i
.r :-
> J
CC/160/2011 Page 4 of 42
li 6 &
ZJayeshr-H. Shah -• 16/A, Bhartl Niva* Sfclety,
Surveyor a. A»»a»*br (Mlto./frlr*, Marin*) - m • .■____ • ••_____ i.-t
Nr. - Nagrl Hoipltal, aE llabrldga,
Lie*. No. SLA/21697 Exp. Dt 29-11.2013 . • . Ahtnadabad -> 380 006.'. 006.'.||
; ■■ ■ •/
Phona079-29444073-26448441
Mobil* : 98283 28682
. Ref- No- • . <• ' ' .
' Oat*': ■ .
possible-irivolvement of valuers, other stdff members -- a "J50 ilf''estl8atill8 iato
i S'd,16no6
Ponce also issued first charge sheet on dt27.12.(|6 against the arrested persons.
te arrested persons. Police Police subsequently arrested^ other employees, retired employees and directors. Police filed a?ot"*f. ^leet d^- Names of five arrested directors appear in second charge sheet dt-6.7.07 alongwith other, arrested persons {Copies of two charge sheets available). poBcetad seized relevant documents, record? of bank, Obtained specimen signatures of. arresjettpersons for investigation anti prepared panchnam&ibr the same. ! j^JeJDUS OPERANDI:
| Asreported by bahk,Mr. jayant Nf.Shah- who was supervisor of gold loan portfolio created I bogus gtfid loan accounts with following modus operandi.
. 1.He, managed to obtain blank valuation reports duly Signed by Government approved valuer appointed by bank M/s.ShahtilalNagardas & CO.
- ZHe managed to modify eld valuation reports of doted accounts by Cutting some portion ' • ty , r/and/or-
1 . 3.Such loan^iccbuhtf were renewed several times..tyithbut obtaining fresh valuation report .
-!I ai}d/pr -o'-' , .'4'.Iu all fraudulent loan cases, fake ornaments were pledged as security.
jgl j 'Aforesaid metifdSs were successfully operated si ice long time in absence of. effective i ' ' dual control system. • *' . • • ■ EXTENT OF LOSS: . f Bank has sustained huge toss of Rs.155325400/- being.tho principdloan amount of ' 2416 bogus gold loan a/C. The outstanclihg balance as on dt.15.11.06 together with . ; interest' debited is of Rs.179493998/- . Bank has not debited interest m some accounts i ^th£accounts became irregular; The interest notdebrtedto *ese account is^ .
Rs.4J34U2^ Thus total claim of bank including interest debited and undented interest is ofRsll84328pOA.
• f. ■ ' '
Is • •
ft iBR'.
CC/160/2011 Page 5 of42
339
18/A, Bhartl Niva* Society
Nr. Nagrl Hospital, eillsbrldfl*,
. .. ■ Ahmadabad - 380 008.
Rhone : 07B-28444073-26449441
'' • i ■ ' . ' . Mobile : 98253 28682
. R8'[ N°' INSPECTION & VERIFICATION: Date : "
> L^^d^T?n7baln O^ ol'8;A2-,'°6 and thereafter on'ft-SO.12.06, 23.1.07, 24.1.W,
223.07 & 13.8.07. On dt.23.1.07 & 24.1.07, I was accompanied by my chartered .. accountant also , on some days. Many papers were collected and/or verified. Test i checking has been resorted to wherever required looking to huge volume of documents, £^ceP ' Of fraud over many years' MX findings airef; appended", below without
1. The insured bank has framed rules & regulations which are to. be observed before 1 i granting different types of loans and advances as pet resolution no; 16 of board of • If' directoiS'.nieeting dtx7.4.05.. S&lient points of .rules of gpld loan are ag yndar, 1 a.Termofloan:2yeaB | b.Maximum amount of Joan: Rs.2b000b/- ? ' c.Gold ornaments to be exammelfc^^app^dved valuer on bank'S'-panel and-valuation .
I report to be obtained. One Or more than.one valuer should be appointed oh bank's Xgyi • panel. .
cLLoanamountto be rtaximum 70% of valuation of gold ornanfents ' , • e.Interest to be' changed every month • '. j ■ fNecessary documents,applicationform tobe taken from applicant of gold loan ■ i g.Gold ornaments pfedged as security to be kept in strong room of bank >• luAuction sale to berebnducted when borrowers default-in repayment of bank's dues • i ■ 2.The procedure of entire gold loan disbursement as .reported by bank is as under. .] The applicant of loan first approaches the bank for iuch loan. Then he gets the weight of i gold ornaments done at Jewellers Association knowjn as 'Dharam Kanta*. Two copies of' ; weighing, slip are given to applicant. Applicant theij goes to bank's valuer where bank's ■ '; ■ . gold loan supervisor (supervisor) ■ also come. Weighment of gold ornaments is again done by valuer. Valuation is done by valuer taking prevalent market value of gold.: J ' Valuation report is issued by valuer mentioning description of ornaments, weight and maximum loan amount, based bri market value of gold ornaments. Valuer, puts rubber stamp and 'signature oh valuation report. Applicant's signatjire is also obtained on . valuation report. Valuer receives valuation fees, from applicantBank's gold loan i supervisor also signs the valuation report and takes the ornaments into his custody and i puts the same in special cio'th bag known as gold bag^ One copy of weighing slip of | Jewellers Asso. is also kept inside gold bag. Name of applicant is written pn gold bag and . i • signature.of applicant' if taken .on gold l?pg.
I Then'bank
! ■ Then' bank's's gold supervisee comes
loan supervise
gold loan c9'- • to bank. Necessary documenta like loan
! application, personal details form* *$fcinissory note, loan agreement, nominal • I ! i ' •i ' . • : •? : : . -
i ■ J CC/160/2011 Page 6 of 42 ly 06.;.
I_ ••
' ■ Sno. 8LA/2W Exp. 01. 29-11.2013 1'.
. -i- ?. ■' ■
■ '■•
•>„ c.
■■ x
-V.- ;; . ■ - !.•■'
. Uowift :ms3!»>t2 • .>
.. Ref.! No. .
Date:
membership form (If applicant is not member) are wllected from applicant duly signed ■ •i r "UppUMU&U Gold loahlsupervisor by applicant by Y29VJ tUBV CHIUS also asksb applies:
UppilblU IAJ UV to rpay
t IIUli nominal
W ***v***w-- membership
-r------- fees.
• .. rr ■ * a. --• -J v..
■ Then a token is isswd to applicant Payment voucier is prepared & is signed by gold * ' • A« « •.! ____ ____ .▲ 8a loan Supervisor.. liien. entire set of documents alongwith payment voucher is forwarded LU OUWVITWV*., 4MVU-VUMiV OV» W4 !*•*/ -w---------------- * ' loan sr^jervisor.^Loan to lorn svy^ervisor.^Loan supervisor after verifying documents and satisfying himself signs payment vouoler.
i ■This entire set of documents and payment voucher, is put. before loan manager/branch manager. He also satisfies himself on difiirent aspects of gold loan, signs payrpep voucher. All these papers then come to cashier. Cashier collects die token from applicant and makes the payment Gold, loan Supervisor then seals, the gold tag pute rtm 1 locker in strong-room of bank. The loan papers again come to computer clerk who site data entry opens the account which is approved by account supervisor. , . A statement of gold loan sanctiohed/disbursed is prepare^ and placed beforeJmard o . SSmeeWexecutive committee meeting for. ratification of gold loan. Minute of ; meeting is prepared.
?. A - ^1° bAnV tntal WOgoldhian accounts were foundbogus, in fictitious names. Yearwise break up is as under.. Year ' No.of.a/cs . Principal i .Current.
• ' Amount ! Outstanding
8 392000 ' ! 392270 ;
2000- 01 1934530 .
2001- 02 . 45 1933000
.44 ■ ' . 1291000 ,1292496
2002- 03 2^ / . ^Ml<)48000. . 14576824
2003- 04 . 44586500. .56786716
2004- 05 .710 •.58645900 . 65725994
2005- 06. . «46 ' 374290,00 ,38^85166
.. 2006-07 5^e ..
1 . . 24^... .' 155325400 179493998
Total no. is 2417 but I have bank's
confirmationfor 2416 a/cs. wmained
If ■
•i'
i
CC/160/2011 Page 7 of 42
• n- i
■
w
hwhh
vdFayesJ1 Shah 16/A1 Bharti Nivas' suclety,
X Survsyot * Aswawr (M!sc., Fire, Marine) Nr. Negri Hospital, Elllebrldge,
f Ul4». No- SLA/21687 Exp. Dt. 29-11-2013 Ahmadabad - 380 006.
| - Phone: 079-28444073-28449441
Mobile : 98253.28682
Hol- No. ;
i . SiiXmro£S^SiesU^rOnraidnto ?:7,85- Aftw.his retirement^t.30.11.02, his J. ^^Si^Sfflowp^8^De^r'i978tiui4-ii°6^
5.After; police complaint w_was filed,' police and. newly appointed valuers, physically o^' °Puened --i. ..r .l. | Md ^u«,u W ^m same. C. entire This ims enun exercise a- took 840 days.. Police has taken original gold: loan documents, original payment . vouchers, gold bags etc.into theSbdstody and prepared die panchnama. ^•^"^^M ^^y^M.Shah GoW Loan Supervisor on 17.11.06 and then on ' ' ■ Qt7.l2.06 arrested foHpwing employees of hank , . l.lvfr.Ashwinbhai.^t2Bhatt Asst.General Manager I 2.Mr.Kulin (J.Pathak . ' Loan Officer ■ 3 Jvlr.BEiadresh KSfiali Chief cashier
4. Mr.Chandubhar;F;Amrelia Loan Supervisor i
5.Mr.Shailesh H. Sheth Cashier
6. Mr.Mahendra B.Vora Officer (Internal auditor) uoui had Bank uou suspended suspcnucu above Anerwaros. alter receiving bail, bank has auove six employees. Afterwards.after bas i' i^in^tedjhe reinstated P-Amrelia & Mr.Shailesh H. Sheth. Service the service of Mr.Mr.Chandubhai P-Amreiia i •j of lyft'.M.B.Vora expired during course of his arrest Other suspended employees are still | ]inHf»r suspension.No under ancnprioinn Vn hail of XZr.Tavant bail rxf Ivin Jayant Qhah was rmsnte^ Shah tvoe bycourt.
grinted k«r So
a/mi.4 C!h he isinjail.
:n:i
' Three partners .of valugr firms were also arrested bn dt 18.11.06.Their names are as
2 i under, " ■
i. . l.Mr;.PiyushbhaiParekh
l.Mr.PiyushbhaiParekh
2Jvlr.Deven P.Parekh
S.Mr.JatanP.Parekh
Subsequently oh dtl4,4.07, police also arrested following employees/retired employees.
■ l.MrJCiritVyas A$stGen.Manager
j 2,MrJB.H.Sanghvi Manage^.
I ! 3.Mr.M.B.Trivedi. . . .Officer '
t 4J4fJLM.Jagad Reti^'Afst.OenJ4anager
I i 5.MrJ4.J.Dani
I •i 16.MrJLH.Shah, -Retired manager
II'." j--
i ' "'J 'fe"
I t-'
CC/160/2011 Page 8 of 42
LflP
iyesh H., Shah 15/A, Bhartl Nivas Sdolsty,
Suf wyw * Flro, Marina) Nr. Nagrl Hospital, Elllsbrldga,
Lie i. No..SLAffl18?7 tap. Dt. 8#-11-2013 Ahmadabad • 380 008.
Phone ■ 079-28444073-26449441
. Mobile : 88253 28862
Ref No.
TOmedmesCT^ce8^1*'14'4'b"®' Wvtagbail, employees at sr.jjo.1 to.4 above
".'i II. l.Shri NiranianDave
Niraryan
l.ShriNiraryan
3.ShriManila!
;! 3.Shri
Dave .
2-Shri Jaydevbhai TJqshi
■ - i ' 2.Sbri
ManilalGXfcmghi
; 4.Shri'Arvindbhal.D
G.Gan^hi
4.Shri'Arvindbhai, JDAjf
Upa
'
?N{ehta
Jitendrabhhi Upadhyay
-i S-Shri'Jitendrabhai
ChniferiJ
T.Joshi ■ Jt.M.D
Director
Director
Director
j
1
■ '•*.
. . V ' / 1
dt27.u'.(»ik dt.6.7.07,
&
8?1®1i?c re8istbred the comp&iht u/s 406, 408, 409, 42Q; 465, 467 468 471 it 120B ST1 SVtiO" 13 (1)CI>) ofIPC sectiond^I whh (S^5 46T^t Ch °f (.SeC^0I' 4°6> 48' *®). (Seo.420), Forgery .. Setmtt (slc^llo B) " 8enu,ne document Rowing it forged one. (Sec.471) and per cSargesheet Tiled, by police against all the arrested persons, in the year 1992 and .1994, one case in each year of bogusUgold Ioan a/c was created, by MrJayant Shah. It ' fid^ te?1rt?ra,y fraUdDb<iCaUSu^°ii1 repaid- Bu'then *» subsequent ye^s, he started .tiustisirig the. system Police has-.Abarged valuers, with issuing false/bogus valuation fey \ ^Ort-
Police has forged connivance of employees, valuers and directors in the charge -ty-t. ■ • rcPortedl>' Prepared bogus loan papers, managed valuation reports pigged , feke ornaments as security, forged- documents, opened bogus' loan a/ra in I fictitious, rwmes and misappropriated the money. MrJayant Shah after misappropriatina .the cash of bogus loan a/c was as far as possible ensuring that accounts do not become irregular sp he used to. pay interest and/or repay loan on due date. Inmost of the cases he used to open new loan account on the same date when he repaid the loan gr interest of same account or other account. .Thus on one hand he was depositing the cash in one ' account, as repayment of loan & interest, on the other hand he was withdrawing the cash I-
;O-
,i- ■ * r AS CC/160/2011 Page 9 of 42 r k 4/( Ahmedabad ■ ^073.2644944i ' Phone : 079-28**™' ;• ■ '■«. 1 ■ .
Mobile.: 98263 298"Z Date :
Rot. No.. by opening new bogus account on the same date sf either same ^h amotot.When, amountWhen, aa particular account was. due-for t^ayment, he particular account was i aved {■gcci- -- --in that account so account Was c^d " He also used to shown Hl aS taken. This as laKCIV' xius was wcu» viwwiiy don? 5HJ «> *** iwoj/ cleverly uvuy O vary amount t------ deposited • as repayment
- - and amount paid on new account.
! . Borrower's identity, genuineness of a/c were never questioned, do y to ion Such loan accounts wSXwed several times without obtaining fresh fteu. valuation report
-- ' t fresh valuation Rani? aft&rwards claimed in point no.7. of .their irts were used. ^rts ^Xken otfall accounts an^o old valuation reports ^oW valuat|o? re^^opening ftesh bog"
' II mention mention below few instances*'to loan a/c inbelow fewname the same instances^fdone) oil due date, (as per test cnee 6.
!• Dtof valuation ■ Old a/oA/C'opened Newa/c Opened report Name of Jscrrower'i no. on No. on ■
-33400 29.8.06 24.2.04 tKanubhaiNa^hai Patel1 29296 24.2,04. 33401 29.8.06 26.2.04 29314 26.2.04 30.8.06 19.2.04
2.Kalpeshbhai fCSolanki 33414 ,3-SHantilalM.Dave 29275 19.2.04 30.8.06 16.2.04 29255 16.2.04 33415 4 Dipakbliai D.Patql, D.PateL 33416 30.8.06 19.2.04 . i 5.MohanbhaK.Kanani 5>IohanbhaK.Kanani ' 29276 19.2.04 . 30.8.06 17.2.04 . 29263 17.2.04 33417 ■i' ''" 6,Ganeshbhai B.Oohtl 33427 31:8.06 21.2.04 29283 21.2.04 31,8.06 H.2.04 ■ 7 Kantibhai' R.Sheth * 29227 11.2;04 33428 ' 33429 31.8.06 12.2.04 S3<-L .SSSSKS* 29230 12.2.04 29344 3.3.04 . ____ 33441 33442 .
4.9.06 3.3.04
4.9.06 3.3.04
! . -fflSSSSS MM' 3304
10
i This suasests <■«*!"
JsSsa?****. I iit and cash payment on the si ie
12.i «lso
date td show transactions cameu .
/ '■ V ■
. ■ 1
'i-;' . 'as;!'
■ r-'-
CC/160/2011 Page 10 of 42
f
"7,*.' ■■
H. Shall 15/A, Bharti Riva ► I oclety,
/ girveyor * A»»e»«or Hre. Marine) Nr. Naflrl Hospital;, illli brWfla.
Ll'c*. NO. SLA/21897 Bxp. Ot. »-11-2013 - Ahmadabad • 380 COO-
'8-2 1449441
Phone : 078-26444071-2
Mobile t: 98253
98283 28882|
28882
Ref. No. • ' Date :
D14.3.05
1 . Receipt/Repaymentofloan
' A7c 26838 ------------ - , Payment/openlng hew gold loan a/c
RS.72G00Z- ■ A/c 30798 Rs.72000/-
■ A/c 26829 RS.726OO/- : 4'' A/c 30797 ' RS.72000/-
'' I A/c 26839 Rs.72000/-
i. A/c 30799 Ra,72000/-
. DL113.05,
A/c 26827 I.RS.575P0/- A/c 30841 Rs.57500-/- .
A/c 26286 " f Rs^QSOO/- . A/c 30840 'Rs.60500/- .
A/c 26851 Rsl720Q0/-:. .A/c 30839 Rs.72000/- '
A/c 26851. Rs. i,4$ I/- (Interest) ■' A/c 30 833 Rs.10000/-
A/c 26286 RA'? 440/- (Interest) A/c 30834 Rs. 15000/-
A/c 26827 , Rs. 455/-(Interest) AZc3C836 Rs.15000/-
f. A/c 30335 . Rs. 5000/-
A/c 30837 Rs^OOOO/-
A/c 30838 Rs.50000/-
■ * ■ • • . ' . - . 1 !
In above account Mr.Jayant showed closure of some accounts and opened three accounts of identical amount and also opened fresh six account and misappropriated the money. * ' . I Dt 18.9:06 • A/c 29495 Rs.70000/.- A/c 33563 Rs.70000/- A/c 29490 •: Rs.72500/- A/c 33562 Rs.7!2500/- A/c.29467. Rs.73500/- A/C 33561 Rs.735d0/- A/c 29474 Rs.64500/- : A/c 33565 Rs.64500/- A/c 29475 . RS.575Q0/- A/c 33564 Rs.57500/- . A/c 29527 u RS.246Q0/-) A/c 33558 Rs. 13000/- A7c29511. Rs.23OO4>/-) JUj, .A/c 33559 ;Rs;15000/-
A/c 29528 ,„v,-
Rs.24000/-)87000/- . A/c 33560 Rs. 10000/-
A/c 29486 - ' Rs.16000/-) i -A/c 33556 Rs.87000/-
j A/c.29467 Rs. 287/- Interest
A/c29490 Rs. 491/- Interest
A/c 29495 7_. 30^/- Interest
Rs. ■
A/c 29474 ., Rs. ll/t/-Interest
A/C29475 -=Rs.
__ 424/- Interest
«««• - -<■ "p» *" ■»
I ■ ■ • • '■ ■
' . I
■
_1
CC/160/2011 Page 11 of 42
Zrayesh H. Shah > 1S/A, Bhartl Nlwi SclolBty,
■ aukMvr a I?!w> M«rln») • >■ • Nr. Nigrl Hospital, Elllabrldga.
~ Atimodabsd - 380 006.
Phono : 079-28444073-2M48441
Mobile: 08283 28682
Rfl No.
P®7 j^^^^^Statutcry Budi'/Inspection, certain yital obsJvations highlighting the- defects -in the system and procedures were made from tirnr.- to •tinje.However 1 compliance to certain, audit remarks were not made due to undoubted trust on the t concerned employee/valuer. Copy of PMR is enclosed, . . ' . I • 14iAs. per Modus Operand! reported by bank, in a last para, bank has admitted that •j •'Aforesaid methods were successfully operated si ice long time in absence of effective : _• dual control system."
' IS-As-per trial balance provided of head offfce dt. 15.-11.06, out of total outstanding .i - balance of gold loan account of Rs.200060795/-, I s.179493993/- (incl.ini.) is on account of bogus-loan in fictitious name against fake ornii icnts.(
16.Bank had informed RBI .and The registrar of Co.Op.Societies regarding this fraud. ■ Bank's board of directors had also passed resolution dt26.ll.06' requesting registrar to . conduct inquiry ii/s 86 of Gujarat CoiOpvSocieties Act Registrar Of Co.Op.Societies.- . ■ Gandhinagar has also called for details of fraud and passed an order. dt28.11.06 for I .-thorough inquiry andappointed Mr.Amirali Sadruddin Khirani. - Botdd (DistBhavnagar) as Inquiry Officer (Chokshi Adhikari^ and MfJigar A Gandhi C.A. as.Assistant inquiry .. • officer to inquire on 11 issuesjas charted out in the .order.' Main issues being.sanctionmg power of gold loan vested in Ufadtn, whettier rules of. gold loan violated, total amount . r involved; ' audit remarks complied with or not auction of ornaments conducted or not in 4 I • case of defeulters^duties, responsibilities of employes, accountability of directors, . ■ .regarding ^tens|^.^f service of MrJayant Shah, etc.
17.Bank Has provided copy of report of Chokshi Adhikari by their letter dt.19.9.08. As, I per this, report,.Ghokshi Adhikari has recommended to Registrar of Co.op.Societies for j • further inqiiiry/action u/s 93 of Co.Op.Spc.-Act against chairman of bank ShnNiraryan I . bhai Dave and Joint Managing Director Shri Jayneybhai T.Joshi for the doubtful entries in their'bank a/c and unsatisfactory reply to Chokbhi Adhikari. Chokshi Adhikari has also recommended similar action/inquiry agaiMt bantonw^ ■ employees, their relatives,' valuers, retired employees etc. as mentioned in the report.. Copy ofreport of Chokshi Adhikari dt.l 6.4.07 containing 137 pages is enclosed. • i • Registrar Of Co.Op.Soc had ordered further investigatfons on certain points of Oiotehi i Askari's report But I have no information regarding the order, points of investigation etc. 'I ' this fraud, relevant audit reports. t . ts f san>pje cases, account statement of , ;»v '. / • • . ;
' • . ' / k
f
-.
■■ . 4'
■r
CC/160/2011 Page 12 of 42
, jrayesh H. Shah 15/A. Bharti Nivas So<
Surveyor & Aesessor (Mlac., Fira, Marine) Nr. Nagrl Hospital, Elllsbf
Lice. No. SLA/21687 Exp. pt. 29-11.2013 : Ahmedabad - 980 008.
Phone : 070-28444073-2644
, Mobile : 98253 28882
Ret, No. . Date •
k!8 in^™ed.^iat following dues of following,arrested employees are lying. with it I have not considered PF of employees, figures tis on 31.3.08) '
1. A.B.Bhaft ' ■ fer? •
2. ■K.G.Pathak , . '
3. EytShah. T99500
4. C.P.Amrelia >> 132825:;. .
5. S.H.Sheth 117645
6. K-P.Vyas 117045
7. B.H.Sanghvi , 873Q0 fc. M.B.Trivedi . 139035
9. H.M.Jagad ;\. ' '64800 i Total Rs. . 1297580 ■ .From above employees at sr.no. 1 To 3 are under suspension. Deposits of dismissed employee Mr. Jayapt M.Shah was Rs.63995/-with bank. , I • 20.RBI in its report dt 16.8.04 for 15"' inspection of bank upto 31.3.04 has suggested for appointment of other valuers oh bank's panel. Bank appointed two valuers in addition to i Shantilal Nagardas & Co..videresolutioh dtl7i)dt7;1.05 of board of directors.
1. Bhupannai R.Zayeri,Saraf Bazar, Bhavnagar ■ •
2. Rameshchandra Mdhahlal C/o Mohanlal Vamnaiidas Jewellers ■ SarafBazar, Bhavnagar ' • ■ . s . ■ •' ■ ' < :
But it is found that in all cases , of bogus gold 'pan; valuation was done by Shantilal Nagardas'& .Co. Services of other two valuers were not utilised by bank. • L. 21 .As per internal hudit for June'06 quarter carried.out by Mr.Mehul Vora, following ■ discrej^ncieswei^observedasfar^Bgoldioanisconcerned.
aNumberof Gold bagswere/£pqnd'vithoutseal b;Gold bags were hot kept in chtdnofogjcaj order and account number was not written on gold bags making it diffloult to conduct surprise checking' . c.ReneWaiofaccopnts shouldnot be encouragedbutif renewed then fresh valuation I report and that obtained.
that, top from another valuers should bb 'obtained; r d.KYC (Khow j^tir customer) norms were not o (served: No address proof; phone numbers were collected.
e.Lban vzas<. T_ "
senctipnpd/disbursed to particular cor ununity thereby requiring bank to be ihd implant • more alert and .
••i i ■ .
I S: J
CC/160/2011 Page 13 of 42
Ltif
/lrayeS^ Shah. 16/A, Bhartl Nlvaa Society
Nr. Nagrl Hospital, EHlsbrldge
Ahmadabad - 380 106
Phone s 079-284440 '3-1 6449441
Mobile : 98263 2868:!
to 2OoS7VSiS Sth hart^nS°coimncnt^ on
7 ° u'-borne of the important comments are asunder.
4^M^w^^0l^"^lIn?^P?yOrdersh''Uldhavebeenissued-
oTdi^dWCk t0,^eJ£ept *n 1110 custody of single person i.e. MrJayant Shah. • . Sj^temof dual custody should have been implemented at batoe. ; 5.Valuation of gold ornaments should have been done from more than one valuer. . 6.System of Surprise check should have been implemented. I . ' ^3.Total gold loan accounts at head office as on the date of discovery of loss were 3465. • r Out of this, 2416 accounts were bogus.
N' 24.Mr.Jayant M.Shah was locking after,Gold Loan Portfolio-since December 1978 to 14.1.1.06., There was no job rotation niade to gold loan- department and one person was i handling this for last 28 years. ??
! ' I . ■ :
25.1nsureds direct loss of money shall be to the extent of. principal amount of bogus gol l . loan-; disbursed' i,e> amount which have been misappropriated. I haye therefore .nc t considered interest'debited to the accounts or undebited.interest to assessment. 26.1 have collected many documents, audit reports, vouchers, detailed panchnama prepared by police of documehtetsksh in their custody, & held on my record.
EXCESS: .
----- u._ v - A'- ' • •
• Excels uiiaer beers' indemnity policy is ps under.
'Insuted shall bear the first 25% of each loss under items C to E or or 2% of basic sum .-I ' insured whichevarts higher but not exceeding Rs.SOQOO/-. Each loss to respect of each drshoriest or criminal act shall be treated as separate loss. This excess will however not apply to loss or damage arising out of fire, riot strike, burglary, housebreaking risks.' I h8*P applied excess on each account I am not giving here separate calculation of I f 1635 accounts, but comfirm that my calculation is to confirmity with above. (^/JRETRO-ACTIVE PERIOD OF COVER:
^I^^ b'a^k h^b^ne^7g7^e'r'S indemnity policy for several yedrs with same ! insurance company.
Clhuse iii of para C of Retro active period of coyer of beets' indemnity policy under . the head PROVISOS reads as under. Company shall not be liable .
• . I - • "Vs CC/160/2011 Page 14 of 42 18/A, Bhartl Nivas Sicluty, Fire, ftfarite) Nr. Nagrl Hospital, Ellis »rlc gs, ' Uc7X SLA/21697 Exp. Ot 8931.2013 Ahtnadabad - 380 008.
Phone : 078.26444073-28A49 Ul Mobile : 982S3 28882- . Re*. 'For losses sustained prior to a retro active period of two years from the,dateof discovery 1 Since date of discovery reported by .ihsured is Dt.15.1 L06,1have considered ftaudulent] . transactions taken place.on or after 15,1 l.U4.T)Ut <Jf241? frihfujent gold loan accounts, .. ac«M.nt<!'fa1l.hetwaen dt. 1 $. 11,04 & 15,11.06, Assessment fierefore has been done | for these 1635 accounts. These accounts begin from account no.30402 with dtlS.l 1.04.
•i ASSESSMENT: . . I Insured bank'has taken hankers* indemnity policy forjlast seyeral.years.
Bank has. sustained financial loss, due to dishonest, abts of employee/s which is.covered-
; J underitenrDqftheptolicy.
uuuw M Otm iw^wn basic
Bankh^Jakjn sum insured fbr Rs.600000/- (Six lacs
PB31C SUT
. go^, silver-, valuable documents
only). . Bank, has insured goy, do for Rs.30.00 crores under
additional.sum insured .'onpremises*,.'. [ ■ '
Basic sum insuited i?$w sum insured of item A to H jjf the pelicy. ' Additional sum . insured covers additionally the particular section for which additional sum insured has beep.preferred/opted.
1 Item A.'On premises* of bankers' indemnity policy covers 'Loss of ■money and/or ■ securities for which the ansured are responsible or interested , in of the custody of which they have undertaken and which are, upon their premises lost; destroyed or . otherwise ■ made away wth by fire, riot, and strike, burglary, theft, robbery, or hold up and whether by the employees of the insured or any other person or persons whomsoever.' Company indemnifies following under Item D of Dishonesty' of policy. 'By reason of dishonest or criminal act of the employees df the insured with respect to the loss of money and/or securities wherever committed, singly or in connivance with others.*' ■ ■ . ' '£■ t : In the present case bank's contract employee Mr.Ayant. SWas aUegedJwd caused * financial loss to the bank by creating bogus loan akc, by renewing same a/cs, and by following above stated modus operandi. (see para of modus operandi .m the. reP?*) No complaints Had. been received from borrowers of genuine Gold loan a/cs. Asalleged by □randI also as appears in police papers, statements, take ornaments, imitation jewelleries had been kept in gold ba^ljy .Mrjayilt Shah, EPC sections under which Jpoli<S has registered th? complaint areTalso for cririunal breach of trust, cheating, etc. confirming dishonesty- 'ty. . « So claim clearly faljs under/item p Dishonesty of the policy and basic sum insured therefore is the maximum liability of insurer. '! .:4 3*.
CC/160/2011 Page 15 of 42 1 Ill ft .TnivofiVi TT Qkah >9 1B/A, Bhartl Nivas Society, eJayeSl^ xl» 0X18,11; Nr. Naarl HospItal, Elllsbrldgo, .Survevor a ASSMsor.(Miso., Fire, Marine) v ,, . ,, Ahmedsbad • 380 008.
Lloe. Ho. SLA7218S7 Cxp. Dt. M-t 1-2013 . 'A.,' Phone : 07#-2«444d73-26449441
Mobile : 98253 28682
Rdf No. r . ' ■ " Date ;•
■ 1 8'.ve "elov<.*"s^ment of all the 1635 accounts falling under retro ^active period and
.. ■ ... i|as n deducted. z
J P^sipalanAbhtoif^Sgoldloanaccounrbeginnini
f From a/c-no.30402,.Icist a/c nb.being 3358b ds per Us enclosed.
' J Gross assessed loss. , Rs.l 11949900/-
.. ■ I Less:Excess for 1635 accounts Rs. 28238075/-
Net assessed loss. Rs. 83711825/-
■> - INDEMNITY: ■. •'
to.:
Basic stun insured is the maximum liability of insured subject '.
to notes below Rs^OOOOO/-
|. Notos:. r.
! 1.Deposits of Mr.Jayaht M.Shah with bank is Rs.63995/-.Dues of other employees
J named in charge sheet are Rs. 1297580/- in form of gratuity
i 2.Bank had obtained valuation'reports o&hly one valuer nanlely Shantjlaj Nagadas & Co
I though bank was advised by audit<jjs'.to obtain report from mqre tban one valuers.
| 3.KYC norms of RBI have riot been followed By banlj.
I 4;Exception riq.(b).& (ej^f policy reads as under.; i . ■ s
Cpipp^iny sbalniot bumble in respect.of .
t. ' Nb.(b)Losses resulting, wholly or partially from any negUgent act of insured's employee.
Np.(c)Losses resulting wholly or. partihlly from the wrongful act or default of any directors or partners of the insured other than salaried. : Case against employees, directors & other persons named in charge sheet is pending in I the court.
. II 55.CONDITION PRECEDENT • TO LIABILITY:
! Condition precedent to any liability under this policy reads that the insured shall comply • in "> all material respect with the following; I Joint custody shall be established and'maintained for sjafeguardiijg of | ' AMfl/nw noMiriilOO m Cflfi* nr VfillltS 0 money and/or securities in safe or vaults
ii) AU kbys to safe and vaults) ■'■i.
I fr 1 CC/160/2011 Page 16 of 42 ■ b
- f•. />■>• -*r- • ■ I •.•<•■■■•• _____ ' *,,f5 7]- '^ -SHah ' j4y® sk survlyo' * .Ammw (Mito., Fire, Martao) 15/A, Bhartr Nlvaa EOolety, Nr. Nagrl Hospital, E.lllsbr dge, Ahmadabad .• 380 00#l .
- LIC»JNo. 8LAMleS7 Exp. Pt. 2P-11-2013 . Phone : 079-25444073': «4< M41
. Mobile : 98253 28882
Rtf. No. ' Date : ■
There should be job rotation for employees handling money and/ or securities. These conditions have been clearly breached as NtrJayant Shafi ^yas alone handling gold ■'■• Iaao I'WirrfAl'.re loan ft-»o portfolio since11978.
In view of above insurer please take-suitable decision in the matter. | Last set of paper was received by insures letter dt.2.1.09. >.
• This report is issued without prejiidi^e and subject to;the terms, xonditions and warranties < .'of the policy, 'A." , Encl:- Jayesh H.Shah Police complaint dtl&l 1.06 copy Chargesheets 2 nos.copies . Panchnama sample easis copies Chokshi Adhikari's report copy Statement of Manhabhai Vyas to police 3 nos.
' Statement of J.M.Shah to police 3 nos.
Resolution for extension of service of J.M.Shah 4 hos. • Joint inspection dtl5.11.06 . Hand writtenConfession letter of J.M.Shah dt.14.11.06
- Dismissal letter tp J.M.Shah I Suspension letters to otheretnployees . Loan document without fresh valuation report 2 nos.sample case
-Lfian procedure narrated by bank. -
Modus* operandi. narrated by bank '■ . Special- reporf of auditor r Bank's letter eo^y dt.22.11.08 & 2.1.09 'x * ' Newspaper cutting ' List of fraudulent a/cs. 29 jumbo pages Summary ofyearwise bogus a/c ■j ' Claim farmin original .
. I Photographs of gpld bags & safe 4 nos/< ■ . i | " - ■ s '• . •I ■ '- ' ' •.
. -e « ' i i CC/160/2011 Page 17 of 42
3. The Insurance Company repudiated the claim by a detailed order dated 31.07.2009 and a copy of the said letter of repudiation is extracted hereinunder:-
' «?■ .r 'I i
. y^rreb co. ltd..
, bX^^pf-FXCe.KAVBUeOMLEX.BNNlOott. NAVAPAM. BHAVNAGAR-3MOO*■ ■ . ' IPHONl: Nus.nL4JAX.-OSim-ZAl43Z4 24Z5O4& 24257141 REF: BVN/AAISC/ftCP/AKM/ /2009. jiplf 31, 2009 • To BY RFSD. A.D. I Shri Bhavnag^- Nag. Sahkdri Bank ltd., ................ WITHOUT PREJUDICE..
I 14, Ganga-Jatta Tglag.
Head Office, BHAVNAGAR.
Dear Sir,
RE: YOUR'CLAIM UNDER BANKERS' XNDEMNXTV -
3 POUCy N0.063100/4S/06/000005.
PERIOD: 01.04.2006 TO 31.03:2007.
CtAIM NO.063100/46/06/62/90000005.
DATE OF RECOVERY OF LOSS: 15.11.2006.
This has reference to the claim lodged; by you vide your letter doted 16.11.2006 and J"
response to this claim intimation, we had appointed Independent. surveyor Snri Jayes Surveyor Ahmedabad to assess the'i.oss and to find out the Modus Operandi of the oss. ... 5 Shri Jayesh PI. Shah has submitted his report and it Is observed that:- ■ n
1. On 29.09.2006 when the charge of gold loan department was to be ho"d"l • , employee Shri Hitesh Raval by then incharge Mr. Jayant M. Shah was not able to give physical ZKSZLTSXri --0411-2002 • " MJU0°3 SfiESSS- * ="-h w* - d""d "to *•be smoll «- "k"' " there deemed v "-
4 rf ™ ■'h'"ah !"r=h
"•* ",he e"k
.6. in deduction of fraud due ^ndoubtecL t ^esaid method were
4
CC/160/2011 Page 18 of 42
t
/ ■
4- ...2
Mehul Vora had pointed your many procedural mistake.
'bags ^kf^it jlffUu^i
Si or^l'
y«~» **
Qccount number was not written on gold
c)
-- -.CoS' S?S
e"'tW) n0PmS lf r?newed
No address fresh valuation reportwere
thenproof and
observed. phone numbers
and vigflant.Ct Oned/,diSbursed particular community thereby requiring bank to be more alert ' ''rf'th80 "!!'mented °n the vorious irregularities your Internal Auditor Mr. Mehul Vora. °nd thMe Were thC S0'ne " Were P°inted our by t basic SX Rs;6/- La^only whirt anTw^d "t t^ °Ur Bankers Illdemnity Policy token by you for • ri„ J) under iternb'- toacee,,toncc * liabili^ " the 'W"' ""rb'. Wb 'the^an^^fnKf,°,a *** procedure for mo^e/ and/or securities shall be kept on .• i ' Joint optoifyshill be establishedand maintainedfor safeguarding af.. P]. ' Mon^ahd/or securities tdtlle insafe or vaults, pi] ; AUkevs ta Safe and- vaults and PH] I CodeS. C/phers and test keys..
<1 'I :. Joint Custody means the handling ofthe above in the presence of or under the observations of at least one other person, such person being equally accountable for the physical protection ■' and safeguarding of the various security„items including money lacks and combinations on vaults and safes must be so arranged that no one person can open them alone.
Dualeontrol shall be established and maintained for the handling of:
\ . ■: ■ P] AU types of securities, negotiable and non-negotiable instruments and. unissued and \ blank forms ofsaid irsms.
Pi) The reserved supply of'officialcheques drafiS-cnd unissued travellers cheques. pH) bormant accounts of depositors:
(fv) Codes. Cyphers and test keys.
[Dual control means the work of one person in processing transactions being verified by a secondperson arid both sharing the aceoimtability] * There should be Job rotation far employees hanaHr.g money and/or securities.
....3/-
CC/160/2011 Page 19 of 42 ?
I • >.
i . - • ■3" . . statutory
'■ U edition to th^rmaL/awiit of books of account.of the business by at all
premises.
--■--fremiSes includes-insured's computer, centre md'facilities at which the-business is~carrie andsfyll retain the cards relating to such review. ! We hereunder >9^e, of the exceptions mentioned In the Poifcyl. ! The Contpony^eholi not he Hable In respect of,:
aj lbsses>rtstdtfng wholly er partially from any negligent act of the insured's } w^.or/^MIy from tha wre^fu! act or default of any Directors or ■ - of.' the Insured other than salaried.
As.pcr^M^"Ml;ti*e':l'«flod clause the Company shaH not be Gable for losses sustained prior to a retrcspittivejperlod of two yearsfrcm tltc date of discovery of loss.
b.'1 '. ,c, . • .
fl/ " I- view of the rctrMperilv* dwte «nlr th«* eUms of bogus owounts opened ??
1
' period 2416 bogus gold loan accounts were opened where the principal amount is Rs. Bdsed^oJVthe observations,.noted above the ciaims lodged'by you Is treated as No Claim f following wc^pns-.-
ii-.. The Bankhas not been /otiowlng the '^n^ees g.vitK^mk has not beSn following the policy of transfer of pcrt^llos of employees.
and i
* - -----
Inconvenience caused to you Is regretted.
. ■ ' i '
Thanking ydu?.
Voursfalthm/-' ' ■ .
'.I
DIVISIONAL MANAGER.
4. The present complaint was filed on 15.09.2011 alleging deficiency in service against the Insurance Company. The petition was entertained and notices were issued whereafter pleadings have been exchanged and the matter remained pending for completion of evidence that was also filed, the survey CC/160/2011 Page 20 of 42 report was also brought on record but the case continued on the list with adjournments being sought and the granted time and again. The Covid intervened thereafter and the case was listed on several occasions when the complaint came to be dismissed for want of prosecution on 09.08.2023.
However, the same was restored on 16.10.2023. Mr. Akhil Dave, Learned counsel for the Complainant intimated the Commission that he had received instructions on behalf of the new management that has taken over. The case was heard by one of us sitting singly and orders were reserved but on 29.10.2024 an order was passed for the listing the matter before a Bench and this is how the matter came up on 11.02.2025 when Mr. Dave advanced his submissions that is extracted hereinunder:-
"Heard Mr. Dave, Learned counsel for the complainant advanced his submissions today online urging that the repudiation on 31.07.2009 (Page 423 of the paper book) is based on an erroneous assumption and all the four reasons given in the penultimate paragraph do not stand to reason, more so, when the surveyor's report dated 16.02.2009 (Page 403 of the paper book) had made an assessment even though of a lesser amount which reflected that the loss suffered by the bank was indemnifiable.
The loss claimed is in respect of an insurance cover acquired by the Bank which is a Banker's Indemnity Policy. The loss about which the claim was made was based on the terms of the coverage contained in the policy (Page 262 of the paper book), the duration whereof was from 01.04.2006 to 31.03.2007. The policy contained a retroactive clause/ date effective from 01.04.2004.
CC/160/2011 Page 21 of 42
Mr. Dave submits that the initial discovery of the loss was noticed in 2006 and according to the claim submitted by the Bank and the documents in support thereof, 14 bags of jewellery pertaining to Gold loans were discovered in suspicious circumstances from the cupboard of the Gold loan supervisor, Mr. Jayant M. Shah on 29.09.2006. On further enquiry and investigation by the Bank the shortage was identified on 03.11.2006 and it was found that there were about 2416 fake Gold loan accounts that had been operated against which money had been transacted, and of course siphoned off with the connivance of Mr. Shah and other accused persons. An FIR was lodged on 16.11.2006 (Page 299 of the paper book) and further investigations were carried out departmentally as well as by the Reserve Bank of India. Simultaneously, claim intimation was sent to the Insurance Company on 16.11.2006 (Page 306 of the paper book). The main accused in the criminal case Mr. Shah also lodged a complaint with the police on 04.12.2006 and the contents thereof are also revealing as the facts stated therein do indicate and establish the loss that was caused to the Bank.
It is further pointed out by Mr. Dave that with all the material in respect of the loss suffered by the Bank the claim was lodged on 20.12.2006 (Page 268 of the paper book). He submits that it was a multifaceted fraud where bogus and fake accounts were opened, fake inventories and ornaments were shown to have been transacted for obtaining loans in the name offake borrowers.
He also points out that some loan accounts which had been transacted through real borrowers were closed, but the documents of CC/160/2011 Page 22 of 42 such accounts were utilised in order to again transact fresh loans with fake ornaments which were absolutely fake transactions.
The nature of the modus operand! has also been noticed by the surveyor (Page 406 of the paper book) and the number of accounts has also been noticed therein as claimed by the complainant to be 2416 (Page 408 of the paper book).
However, the surveyor while proceeding to carry out the calculations with regard to the loss suffered, erroneously interpreted the retroactive period and wrongly calculated the loss in respect of 1635 fake accounts only instead of all the 2416 accounts as reported. He has invited the attention of the Bench to the calculations made by the surveyor from Page 347 to 349 of the paper book. He submits that the surveyor by drastically reducing the calculation on the basis of an erroneous method also incorrectly applied the excess clause thereby bringing down the net loss to Rs.8,37,11,825/-, whereas the complainant had claimed a total loss of Rs.18,43,00,000/- and odd as per the indemnity claim form that is on record.
The submissions of Mr. Dave that the erroneous exercise by the surveyor was transformed into a complete repudiation by the Insurance Company by incorrectly interpreting the applicability of the policy clauses, in as much as, the complainant had established that the policy which was applied for through the proposal form (Page 290 of the paper book), was acquired on the terms and conditions that provide for indemnification on the basis of on premises claim, the claim on the ground of the dishonesty clause applicable to the facts of the present case as also the clause pertaining to the pledged goods. He therefore CC/160/2011 Page 23 of 42 submits that all these three clauses were available and applicable which is evident from the proposal form as well as the policy that was acquired by the complainant. He therefore contends that the coverage was complete and there was no ambiguity for applying any other methodology so as to decline the claim.
He then submits that the entire incident is one event and therefore to segregate each of the dishonest acts into a separate event and then apply the excess clause is also an erroneous exercise. He therefore submits that the excess clause is not attracted at all and consequently the reduction or deduction on the strength thereof is wholly unjustified.
He then submits that the Insurance Company has also taken a stand on the status of the Gold loan supervisor ofthut being of a contract employee. For that he has invited the attention of the Bench to Clause 2(a)(i) to contend that the definition of the word employee as per the policy itself includes even a contract employee and consequently, the liability cannot be denied on any such flimsy ground.
He further submits that the nature of the cause of action complained for as also the incident and keeping in view the communications on record the complaint -was filed promptly and is within time which was registered with this Commission on 15.09.2011.
The arguments could not conclude today and Mr. Dave prays that he may be granted an audience through physical hearing on some other date.
List on 21.05.2025 at 2 p.m."
5. While advancing his submissions Mr. Dave points out that the fourth ground taken for repudiation is that Mr. Shah the defaulting employee, who CC/160/2011 Page 24 of 42 was functioning as a Gold supervisor, was taken on the job after attaining superannuation and he was allowed to work independently without following checks and balances. The contention of Mr. Dave is that he had being re- employed much earlier but he was given no responsibility after the discovery of the loss in 2006. He retired in 2002 and there was no cause for suspicion on his conduct as according to the learned counsel for the Bank, they had no complaint about Mr. Shah and that is why the management decided to re engage him who continued till 2006. Mr. Dave submits that there was no reason to not trust Mr. Shah as he did not enjoy any adverse repudiation. He further submits that he was reengaged because of his competence as the Bank had no knowledge and was not aware about any dubious activity of Mr. Shah. Therefore, there was no reason to presume any dishonest act on his part so as to avoid his re-engagement.
6. Mr. Mehta therefore submits that the liberty given to Mr. Shah to function independently was a conscious decision as there was no complaint against him either from any customers or from the staff or the Directors, or either anybody superior or inferior to him. The appointments were thorough Board Resolutions that have been detailed in paragraph 14 of the Complaint.
7. Mr. Mehta then contends that the confusion in the repudiation letter that the Bank has not being following the policy of the transfer of portfolios of the employee is an incorrect assumption, inasmuch as employees were subjected to transfer but in view of the nature of the work of the person handling the Gold portfolio, it was Mr. Shah who was continued and therefore this cannot be a valid ground or repudiating the claim as the transfer of the CC/160/2011 Page 25 of 42 portfolios has been carried out in a routine manner and there cannot be any negligence attributed to the Bank on that count.
8. He then submits that the Directors of the Bank had been charge-sheeted by the police but they all have been bailed out and according to the learned counsel, it is the main accused Mr. Shah who was essentially involved in this episode and who has died. Thus, any chargesheet served on the Directors in the criminal case cannot be construed to be deficit functioning of the Directors nor any proof to that effect. He then submits that the only ground which the Insurance Company could have possibly levelled was about not following the statutory system of audit and inspection, which is also incorrect.
9. Mr. Dave submits that the entire Gold loan account was maintained by systematically proceeding with the identification of the Gold ornaments through an identified Goldsmith. This was followed by the Valuer's report and then the proposal of opening an account was entertained. The formalities were verified and approved by the cashier and then the account details were uploaded on the computer. It is thereafter that the Gold ornaments were kept in a bag and was given in the custody of the Gold supervisor to be placed in the safe. It is urged that none of these procedures have been violated nor is there any evidence to that effect. Mr. Dave then submits that there is hardly any fault in the procedure of the maintaining of the accounts and therefore the repudiation deserves to be discarded and the claim deserves to be indemnified.
10. Mr. Ravi Bakshi, Learned counsel for the Insurance Company has urged that this bungling and complete mismanagement was going on under the patronage of the Bank itself and these fake accounts were being renewed and CC/160/2011 Page 26 of 42 new accounts were being opened with imitation and fake ornaments against such accounts which were huge in number.
11. Mr. Ravi Bakshi submits that when all this seems to have come to the knowledge of the Bank and there was some change in the management, the charge of Gold Loan Supervisor was resolved to be handed over to one Mr. Haresh J. Raval. When Mr.Raval was asked to take over charge he insisted for the physical counting and verification of the inventory of all the Gold bags pertaining to the respective accounts. Mr. Bakshi points out that paragraph 18 to 21 of the complaint admits the said lapse to have been discovered when a new person was permitted to take over charge, and had this incident not happened of the change of charge, probably the incident would not have been discovered. Mr. Bakshi therefore submits that this was a clear breach of the terms of the policy, inasmuch as, it was the Bank itself that had committed a serious default and was not covered under the policy. He urges that the contention of the Mr. Mehta that the policy Clause 'A' to 'H' which covers the loss on premises is a misconceived argument inasmuch as, on premises loss has to be by fire, riot, strike, burglary, theft, robbery or hold-up in which an employee may be involved. He submits that in the present case it is neither burglary nor theft and it is a clear case relating to pledged goods under Clause 'E'. He further submits that the word 'Employee' includes all employees whether whole time or part-time or on contract basis. In such circumstances, even if it is presumed that Mr. Shah was the employee of the Bank he committed an act for which a criminal prosecution is on. The contention of Mr. Bakshi is that the Bank cannot take advantage of its own wrong by indulging into fraud knowingly and deliberately. The period within which the bank faced the losses, the retroactive clause would be applicable and consequently, the CC/160/2011 Page 27 of 42 Complainant-Bank cannot take any undue advantage so as to interpret the terms of the policy in its favour. He, therefore, submits that the Bank having breached the terms of the policy the claim is not indemnifiable. He has then invited the attention of the Bench to the surveyor's report and the irregularities that were writ large. Written arguments have also been tendered by the Learned counsel for the Insurance Company which is extracted hereinunder:-
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BEFORE THE NATXONAL CONSUMER DISPUTES
REDRESSAL COMMISSION, NEW DELHI
CC No. 160/2011
!
In the matter of :
Shree Bhavnagar Sahkari ...Complainant
Vs
United India Insurance Co. Ltd. ....Respondent
INDEX
1. Written synopsis behalf of the respondent.
i RAVI BAKSHI, ADVOCATE SRA-146/A, Shipra Rivera Gate No. 4 Indirapuram, Ghazlabad.
Mobile No. 9312181525, 7048920258
Email- [email protected]
Consumer Oisputo* „ »
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CC/160/2011 Page 28 of 42
BEFORE THE N^IONAL CONSUMER DISPUTES
REDRESSAL COMMISSION, NEW DELHI
CC No. 160/2011
In the matter of:
Shree Bhavnagar Sahkari ...Complainant
Vs
United India Insurance Co. Ltd. ....Respondent
Brief written arguments on behalf of Opposite Party
1. The complainant has approached the Hon'ble Commission claiming Rs. 40,27,49,765/- alongwith interest from the date of filing the complaint. The claim is made under a "Bankers' Indemnity Policy" which was valid from 01.04.2006 to 31.03.2007. The loss was suffered allegedly as some bags of gold ornaments were found missing. The gold belonged to the borrowers..
2. On receiving the intimation about the alleged loss, the insurance company had appointed surveyor. The Surveyor submitted his report dated 16.02.2009 which is Annexure C/41 to the complaint.( page 335)
3. After examining the survey report and the relevant records, the claim was repudiated vide letter dated 31.07.2009, a CC/160/2011 Page 29 of 42 SgSJHJEjJJ copy of which has been filed by the complainant as Annexure C/46 (page 355)
4. That the alleged loss was caused by an employee Jayant M. Shah , a favorite of the authorities concerned. He was given a free hand and acted In a manner totally ignoring the standard norms. Bogus gold accounts were opened to help certain people. The transactions were fraudulent in nature which are not expected of a Banker. The fraud was committed over a long period of time and came to light only when a new employee was to take over the charge. The officers of the Bank were thoroughly negligent.
5. The insurance Compnay is not liable in respect of the losses resulting from any negligent act of the insured's employee, from the wrongful act or default of any Directors. The claim is also not payable under the retrospective period clause of the insurance policy.
6. The OP submits that the admitted facts of the case as per the complaint clearly show that there were 2416 bogus gold loan accounts were opened by an employee of the complainant Bank over a period of time prior to the date of discovery of loss. The loss was allegedly discovered on 15.11.2006. The O.P. is not liable for the loss as the claim falls under exceptions mentioned in the policy as mentioned in the repudiation letter(at page 357)
7. It is an undisputed fact that the Insured Bank had committed serious irregularities In gold loan account for the CC/160/2011 Page 30 of 42
-y-
year 2006-2007. These irregularities are reproduced in the repudiation letter C/46 page 355 -357 (at page356)
8. It is further submitted that the claim was rightly repudiated as the Bank had failed to follow the statutory systems of audit and inspections. Its failure to follow the transfer of portfolios of employees and over dependence on a particular employee Jayant M. Shah resulted in fraudulent business transactions. He was even re-employed after retirement and was allowed to work independently with no checks and balances in place. Moreover, the Directors of the Bank were charge-sheeted by the police.
9. That the repudiation letter is self speaking. A perusal of the same would show that the Competent authority of the Insurance Company had examined the case thoroughly and concluded after due application of mind that the claim was not payable. Hence, there is no deficiency in service on its part, nor any other ground for filing the present complaint, which is liable to be dismissed.
I COUNSEL FOR THE O P.
12. The contention raised by the learned counsel for the complainant - Bank is that the repudiation erroneously has omitted to consider the impact of "On Premises" clause A of the terms of the policy which also ought to have been considered apart from clause D of the policy. The surveyor even though has mentioned both the clauses, but has concluded that Dishonesty clause D is applicable as the claim clearly falls within the same and consequently the basic sum insured of Rs.6,00,000/- is only indemnifiable. The relevant clauses A to H of the policy are extracted herein under:
"A. ON PREMISES: By reason of any money and/or Securities for which theinsures are responsible or interested in or the custody of CC/160/2011 Page 31 of 42 which they have undertaken and which are, upon their premises lost, destroyed or otherwise made away with by Fire, Riot and Strike, Burglary, Theft, Robbery or hold-up. and whether by the employees of the Insures or any other person or persons whomsoever.
B. IN TRANSIT: By reason of any money and/or Securities being lost, stolen, mislaid, misappropriated or made away with whether due to the fraud of the employed of the Insures or other fortuitous cause, whilst in transit in the hands of such employees, such risk of transit to commence from the moment the same is received by the employee on behalf of the insures and to continue until delivery thereof at destination.
C. FORGERY OR ALTERATIOIN: By reason of the payment made in respect of bogus or fictitious or forged or cheques and/or drafts and or genuine cheques, and/or travelers cheque and/gift cheques and/or Drafts and/or Fixed deposit receipts (excluding bills of discount and other credit facilities) issued by the insures bearing forged endorsement or providing of any credit to any customer on the faith of such documents whether received over the Counter or through the clearing house or by Mail.
D. DISHONESTY: By reason of dishonest or criminal act of the employee(s) of the insured with respect to the loss of money and/or Securities wherever committed and whether committed singly or in connivance with others.
CC/160/2011 Page 32 of 42 E. PLEDGED GOODS: By reason of fraud and/or dishonesty by the employees of the Insured in respect of any goods and/or commodities pledged to the Insures and under the Insures control. E REGISTRED POSTAL SENDING: By reason of loss by Robbery, Theft, or by other cause not herein excepted whilst in direct transit by Registered Insured Post to the consignee G. APPRAISERS: By reason of indefinitely or criminal acts on the part of Appraisers provided that such Appraisers are on the approved list of Appraisers maintained by the Insures and further provided that the insures shall exercise reasonable precautions and safeguards in the selection and appointment of such Appraisers. Provided always that the company's liability for anyone loss or all losses during the period of insurance due to indefinitely or criminal acts of each of such Appraisers shall be limited to 5% (five percent) of the basic sum insures under this policy or Rs. 50,000/- (Fifty thousand only) whichever is less.
H. JANATA AGENTS/CHOTI BACHAT YOJANA AGENTS/PYGMIE COLLECTORS: By reason of indefinitely or criminal acts on the part of Janata Agents/Choti Bachat Yojana Agents/ Pygmie Collectors or persons performing duties of a like nature, provided that such agents are regular part-time commercial agents of the Bank are CC/160/2011 Page 33 of 42 appointed after full scrutiny about their credentials guaranteed by two reliable independent persons subject to the condition that the total liability during the period of insurance in respect of each such agent will be entitled to 5% (five peprcent) of the basic sum insured under this policy or Rs. 20,000/- (Twenty Thousand only) whichever is lower."
13. On an analysis, we find that the On Premises clause is applicable when any of the causes of loss referred to therein are an outcome of the act of the employees of the insured or any other person or person whomsoever. The loss on the premises has to be either by fire, riot, strike, burglary, thefts, robbery or hold up. In the instant case none of these contingencies seem to exist and rather this is a clear case of systematic misappropriation and cheating and the like. It is for this reason that the police has also registered a complaint under the then existing Section 406, 408, 409, 420, 465, 467, 468, 471 and 120B of Indian Penal Code read with Section 13 (1) (D) of the Anti-Corruption Act. However the criminal case is subject to its own investigation and a charge- sheet has already been filed.
14. But, in the present case we find that the Bank itself got the matter investigated and Mr. Jayant M. Shah, the Gold loan supervisor was found to have indulged in dishonest acts which was also a criminal breach of trust. This clearly falls within D of the said clauses.
15. The indemnity granted under the policy in respect of such direct losses is stated not to exceed the sum insured which is Rs.6,00,000/-. We therefore find the incident to be covered under clause D for the purpose of indemnification and hence the argument of Mr. Dave that On Premises would apply under clause A is untenable.
CC/160/2011 Page 34 of 42
16. However, it is urged by Mr. Dave that the other Clause E may also be attracted which refers to pledged goods. In the instant case, the pledged goods were Gold ornaments that were in the custody of the Bank itself. However, no claimant of the said goods has come forward seeking any relief or release regarding the pledged goods. The transactions were fake and were all based on fake ornaments, fake valuations and a systematic manipulation, as such in fact the loss is of the finances of the Bank and not of the pledged goods, belonging to any individual which has not even been claimed. Thus, the argument of Mr. Dave for applying clause E also does not stand to reason on the facts of the present case.
17. Learned counsel for the complainant has then urged that the application for retroactive clause is misplaced. Under the definitions of the policy. The retroactive period of coverage is defined in (c) (iii) which is extracted herein under:
"(iii) For losses sustained prior to a retroactive period of two years from date of discovery of loss."
18. A perusal of the said retroactive clause would indicate that the losses sustained prior to the retroactive period of two years from the date of discovery of loss would not be indemnifiable. In the instant case the discovery of the loss began with the incident of the handing over of the charge initiated on 29.09.2006, when it was discovered that 14 Gold bags in respect of 2416 out of 3457 Gold loan accounts were found lying in the steel cupboard almirah of Mr. Jayant M. Shah, the Gold loan supervisor in his cabin. This led to suspicions and then the Bank set up its machinery calling upon the valuers, who found prima facie that all the accounts were fictitious, and then the police complaint was filed on 16.11.2006. However, when the enquiry commenced and CC/160/2011 Page 35 of 42 documents were gathered, then after recording the statement of Mr. Jayant M. Shah himself, it was found that Mr. Shah was working in the Bank since 1969 as a clerk and was handling the Gold loan portfolio since 1978. He was promoted as a Gold loan supervisor on 01.07.1985 and since then he was single handedly managing all Gold loan transactions. He retired on 30.11.2002, yet the Bank resolved to continue him on a contract basis and his assignment was to continue till 30.09.2007. It is in between that this discovery was made and on 16.11.2006, he was dismissed and the police complaint was filed.
19. Thus, the period within which Mr. Shah operated the Gold loan portfolio stated to have been managed entirely by himself, is the period during which the said manipulations were made. However, during the enquiry, documents were found and the surveyor has extracted a chart of the period during which the said manipulations have been found to have been given effect too. It is for this reason that the surveyor found that the retroactive clause would be . applicable and he has accordingly segregated 1635 accounts from 2416 fake accounts out of 3457 accounts to be falling within two years of the date of discovery and has indicated the said period from 15.11.2004 to 15.11.2006. Consequently, he has identified these 1635 accounts beginning from 18.11.2004 onwards to compute the loss within the retroactive period. In paragraph 3 of his report extracted hereinabove are the details that were then provided by the Bank stating that they were bogus accounts which were 2416 in number. It has also been stated by the surveyor that this number almost tallies with the enquiry officer's report appointed by the Registrar Cooperative Societies, namely, Chokasi Adhikari, who has tendered his report indicating the number of bogus accounts within the respective period. Since the chart has already been indicated and extracted in paragraph 3 of the surveyor's report CC/160/2011 Page 36 of 42 extracted hereinabove, we are not repeating the same. It is on the said strength that the surveyor has recorded his conclusions under the heading of retroactive period coverage in paragraph 26 of his report which is also extracted hereinabove.
20. Learned counsel for the complainant has been unable to dispute the said figures as the same appears to have been collected by the Bank during enquiries held by it including the respective dates of the opening of the accounts and the respective dates of the opening of the account. We have therefore no reason to doubt the said figures and consequently the opening of the fake accounts amounting to 1635 in number are the only accounts which may be subject to any indemnification as they fall between 15.11.2004 and 15.11.2006. The application of the retroactive clause by the surveyor therefore does not suffer from any infirmity.
21. Mr. Dave then urged that the excess clause has been erroneously applied. He submits that the surveyor has erroneously treated each act as a separate loss. The said argument of Mr. Dave is contrary to what is indicated in the excess clause of the policy and we find no substance in the same.
22. Coming to the reasons given for repudiation, it will be relevant to point out that the material supplied by the Bank itself to the surveyor has been recorded and the surveyor has indicated that according to the Bank, the fraudulent acts commenced in the year 1992 as per the data available with the Bank. This recital is contained under the heading "Discovery of Loss" in the second last paragraph thereof. The repudiation letter refers to the report of the surveyor that also records that the FMR-I report submitted to the Reserve Bank of India on 16.12.2006 by the Bank categorically states that the delay in detection of the fraud was due to "undoubted trust" on the concerned loan CC/160/2011 Page 37 of 42 officer and the valuers and a similar answer was given by the Bank to the statutory audit team, where it was stated that the said method was successfully operated since long 'in absence of effective dual control system'. The procedural mistakes were also noted as observed by the internal auditor in June, 2006 itself.
23. The same has been mentioned in paragraph 7 of the repudiation letter, which records that a number of Gold bags were found without seal, they were not kept in chronological order, renewal of loan accounts was done without fresh valuation reports from other valuers, KYS norms were not observed and the loans were sanctioned and disbursed to a particular community. This was further confirmed by the statutory auditor.
24. The repudiation letter thereupon referred to the manual of instructions covering the procedure to be observed for the maintenance of money and other securities handled by the Bank. The said manual of instructions has been extracted in the repudiation letter itself which requires that all money and securities shall be kept in safe or vaults and shall be maintained in a joint custody.
25. This instruction has been breached and under the exceptions to the policy contained in clause (b) and (c) thereof, that has also been extracted in the repudiation letter, states that the Insurance Company shall not be liable in respect of losses resulting from any negligent act of the employee or the wrongful act or default of its directors or partners.
26. In the instant case there is a negligent act clearly, in as much as, admittedly 14 Gold bags were found in the almirah of the cabin of Mr. Shah and was not in the safe vault or safe room of the Bank. The management was equally faulty and therefore the Directors had also defaulted in allowing Mr. CC/160/2011 Page 38 of 42 Jayant M. Shah to handle the entire Gold loan portfolio and custody solely by himself. The Bank has taken a plea that it had full trust on him and there was no doubt ever raised about the functioning of the Gold loan supervisor. On a preponderance of probabilities of the facts of this case, we are unable to accept the argument of Mr. Dave that Mr. Jayant M. Shah's trustworthiness was creditworthy. The negligent act of Mr. Shah was deliberate and no measures were taken by the Bank to plug any such loopholes when according to the data of the Bank itself such fraudulent operations were continuing since 1992. Mr. Shah retired on 30.11.2002 and was then again reengaged and dismissed on 16.11.2006. At least the period from 1992 to 2006, which is almost 14 years was a free period offered to Mr. Jayant M. Shah to operate all by himself.
27. This is yet another breach of the instructions of the Bank itself which required the observance of dual control as defined and is indicated in paragraph 8 of the repudiation letter. Admittedly, as indicated above Mr. Shah was allowed to handle everything all by himself without any dual control. This was yet another breach of the functions, which the Bank was itself obliged to observe. This is not only negligence of the Managers in charge, who are the employees of the Bank, but it is also appears to be a default on the part of the Directors, who were looking after the affairs of the Bank. The breach continued uninterruptedly for 14 years at least and to us it appears, that it even stretched beyond that, in as much as, Mr. Shah was looking after the Gold loan portfolio since 1978 and he had been promoted formally as the Gold loan supervisor on 01.07.1985 and continued to handle the entire Gold loan portfolio all by himself.
28. The survey report also finds that the modus operand! was such that it violated the norms of the sanction of loan, which Mr. Dave has been unable to CC/160/2011 Page 39 of 42 explain except for saying that there was no reason to doubt the trustworthiness of Mr. Jayant M. Shah. In the wake of the fictitious transactions that have been unearthed, the argument of Mr. Dave cannot be accepted and we find that the Bank itself had breached its own instructions as a result whereof the terms of the policy on negligence and default are clearly attracted and the claim is not liable to be indemnified.
29. Admittedly, even though there were transfers of employees, but Mr. Jayant M. Shah continued for long uninterrupted, when ultimately all this fraud was discovered during the handing over of charge to a new supervisor.
30. It is also evident that inspections and audits did not seem to have been timely carried out and had that been done this fraud could have been detected long ago. The breach of such observations of audit have been noted and it has also been noted that only one valuer M/s. Shantilal Nagardas and Company were utilized for all the cases of the bogus Gold loan accounts. Paragraph 21 and 22 of the surveyor's report reflects on the same. We have not been able to find any material so as to contradict or draw any adverse opinion on the conclusion drawn in the repudiation letter.
31. Having perused the documents on record, it is evident that a large scale fraud was being committed at the Bank with the indulgence of its own employee who was re-employed by the Bank. The modus-operandi has also been detailed and a total of 2416 Gold loans accounts were found to be bogus. The surveyor has also taken notice of the report submitted by the Chokasi Adhikari. The concerned employee Mr. Shah had joined the Bank in 1969 as a Clerk and he was promoted as a supervisor on 01.07.1985, he retired on 30.11.2002 but he was retained on a fixed salary on the same post that was continued from time to time by resolutions of the Board and his last extension CC/160/2011 Page 40 of 42 was from 09.09.2006 to 30.09.2007. It was also observed by the surveyor that Mr. Shah had been handling the Gold loan portfolio since December, 1978 till 14.11.2006, whereafter on the discovery of the fake transactions he was dismissed from the service w.e.f. 16.11.2006. There were 21 people who were named in the two chargesheets and except Mr. Shah all were granted bail but later on he was also granted bail.
32. It was also observed by the surveyor that Mr. Shah had been indulging in Cricket betting and bribing valuers. The chargesheet narrated as to how Mr. Shah created the accounts but at the same time the chargesheet also indicated clearance of the employees, the valuers and the Directors. The preparation of the bogus documents and its chain indicate that no one in the Bank right from the Directors onwards had ever questioned the transactions conducted by Mr. Shah. The surveyor has also found that all bogus loans were valued by one M/s. Shantilal Nagardas & Co. whereas, the reports were not obtained from the empanelled valuers. The discrepancy had been observed in the internal audit and the irregularities in not observing the KYC norms, the disbursement of the loans in cash, the Gold bags being allowed to be kept in the custody of a single person namely, Mr. Shah and there being no surprise checks or job rotations attempted were all noticed. The happening was not a sudden and was a clear perpetuation of a fraudulent act.
33. The surveyor has also indicated that applying the retroactive clause and the period within which the accounts have been opened. The calculation has been made of the accounts keeping in view the two years period w.e.f. 15.11.2004 till 15.11.2006 within which 1635 Gold loan accounts have been found to be faked. The surveyor has therefore calculated the loss only on the CC/160/2011 Page 41 of 42 basis of 1635 Gold loan accounts and also suggested norms to be maintained in this regard.
34. Having assessed the same and having considered the submissions raised, we find that the repudiation proceeds logically after a consideration of the reports on record and given the conduct of the bank and its employees, it is ■ evident that the bank was lacking in its security systems and following its norms.
35. Accordingly, we do not find this to be a case of deficiency where the claim could be indemnifiable and these facts pertaining to the nature of the evidence as alleged and relied on by the Complainant do not make out any case for consideration of the claim in a summary trial. The complaint is dismissed without prejudice to the rights of the Complainant to avail any other remedy that may be available in law.
Sd/-
( A.P. SAHI, J.) PRESIDENT Sd/-
( bharatkumar PANDYA)
' MEMBER
MM/Brahm/VM/Court-I/CAV
CC/160/2011 Page 42 of 42