Madras High Court
M.Pushpanathan vs Respondents In Crp.(Npd) Nos.614 on 21 April, 2022
Author: N.Seshasayee
Bench: N.Seshasayee
C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 21.04.2022
CORAM : JUSTICE N.SESHASAYEE
C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022
and C.M.P.Nos.5089, 5097 & 5100 of 2022
1.M.Pushpanathan ... Petitioner in CRP(NPD) No.614 of 2022
2.M.Selvakumar ... Petitioner in CRP(NPD) No.678 of 2022
3.V.Vijayan ... Petitioner in CRP(NPD) No.571 of 2022
4.M.Senthilvelan ... Petitioner in CRP(NPD) No.589 of 2022
T.Maheswaran (Deceased)
5.M.Priya ... 1st Petitioner in CRP(NPD) No.588 of 2022
6.Master M.Kishore ... 2ndPetitioner in CRP(NPD) No.588 of 2022
(Petitioners 5 & 6 are brought on record as Lrs
of deceased T.Maheswaran, vide order of the
Court dated 31.01.2020 in WMP.No.33472/2018)
Vs.
Respondents in CRP.(NPD) Nos.614, 678 of 2022 :
1.The Dharmapuri Co-op Town Bank Ltd.,
Rep by its Special officer
Dharmapuri – 636 702.
2.The Deputy Registrar of Co-op Societies
Dharmapuri.
3.The District Co-op Tribunal
Dharmapuri.
(Principal District Court, Dharmapuri)
4.P.Thangavel
https://www.mhc.tn.gov.in/judis
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C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022
5.P.Selvam
6.A.Shanmugam .... Respondents
Respondents in CRP.(NPD) Nos.571, 589 & 588 of 2022 :
1.The Dharmapuri Co-op Town Bank Ltd.,
Rep by its Special officer, Dharmapuri – 636 702.
2.The Deputy Registrar of Co-op Societies
Dharmapuri.
3.P.Thangavel
4.P.Selvam
5.A.Shanmugam .... Respondents
Common Prayer : Civil Revision Petition filed under Article 227 of the
Constitution of India, praying to set aside the judgment and decree dated
21.09.2011 of the District Co-op. Tribunal, Dharmapuri / Principal District
Court, Dharmapuri, made in (a) CMA (Co-op Society) No.51 of 2008; (b)
CMA (Co-op Society) No.55 of 2008; (c) CMA (Co-op Society) No.50 of
2008; (d) CMA (Co-op Society) No.47 of 2008; and (e) CMA (Co-op
Society) No.53 of 2008; along with the order dated 11.03.2008 in
Na.Ka.No.158/04 Sa Pa 2 of the second respondent.
For Petitioners : Mr.S.Venkatraman
(in all CRPs)
For Respondents : Mr.M.S.Palaniswamy [R1]
(In CRPs.614,678/2022) Mr.P.Harish,Govt.Advocate[R2&R3]
Mr.R.Chandrasekaran [R6]
For Respondents : Mr.M.S.Palaniswamy [R1]
(In CRPs.571,589 & 588/2022) Mr.P.Harish, Govt Advocate [R2]
Mr.R.Chandrasekaran [R5]
https://www.mhc.tn.gov.in/judis
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C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022
COMMON ORDER
These revisions are preferred challenging the separate orders of the Co- operative Tribunal which confirmed the liability fastened on the petitioners in a surcharge proceedings initiated against them along with couple of others on the allegation of financial loss caused to the Dharmapuri Co- operative Town Bank (henceforth would be referred to as Bank)owing to the negligence of the revision petitioners.
2.1 The facts are that the Bank had gone in for automation, popularly known as computerisation and outsourced it to M/s Ahaana Computers, Dharmapuri, a proprietary concern owned by a certain P. Thangavel. This concern was also awarded the Annual Maintenance Contract. They had taken place in 1999, at a time when computerisation has barely entered the Indian shores, and few are familiar with its development and working. Both M/s Ahaana Computers and its owner Thangavel opened separate accounts with the Bank. Yet another account was opened by Thangavel in the name of his brother Selvam. This apart the bank had accounts of three more entities, in all of which Thangavel was connected with. Thangavel developed necessary software for automation, and also had control over the https://www.mhc.tn.gov.in/judis 3/12 C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 database and also the passwords, and was able to access the ledger accounts of the customers of the bank. Given his expertise in the field, he began manipulating the data of couple of accounts of the customers of the bank and gave an enhanced credit over the actual credit and siphoned off the difference by transferring it to various others accounts where he had a stake.
2.2 An enquiry came to be ordered under Sec.81 of the Tamilnadu Co- operative Societies Act, and it resulted in a report dated 02-12-2004 in which it was identified that three accounts were targeted for defrauding the bank of its funds by Thangavel which according to the report, ended in the bank losing Rs.2,87,48,492.30. One of the points highlighted was that cheques drawn by Thangavel were passed without the passbook of his, and recommended action against certain staff of the bank which included the present set of revision petitioners.
3. This was followed by a surcharge proceedings under Sec.87 of the Act against the staff of the Bank which included the present petitioners, which focused its enquiry to three heads of charges, and it culminated in the https://www.mhc.tn.gov.in/judis 4/12 C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 proceedings of the Deputy Registrar of Co-operative Societies, dated 11.03.2008. The proceedings of the Deputy Registrar of Co-operative Societies found them jointly and severally liable for causing loss to the Bank to a tune of Rs.2,87,48,492.30 owing to their negligence. The table below shows the liability which the revision petitioners or the estate of the deceased staff of the Bank, as the case may be, face:
Charge I Charge II Charge III
Name of the Rs.1,87,64,194.80 Rs. 95,00,513.00 Rs. 4,83,784.50
Staff/petitioners
M. Pushpanathan
M. Selvakumar
V. Vijayan x x
M. Senthilvelan
T. Maheswaran* x x
* Maheswaran had passed away, and his heirs are on record : liable x : not liable
4. This was unsuccessfully challenged by the petitioners before the Tribunal in separate appeals. The line of reasoning of the Tribunal in each of the case is tabulated below:
Name of the CMA(CS) No. CRP No. Reasoning of the Tribunal Staff/petitioners M. Pushpanathan 51/2008 614/2022 The appellant has not verified the ledger accounts of Thangavel and his brother Selvam, and if he had verified, he could have discovered the https://www.mhc.tn.gov.in/judis 5/12 C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 Name of the CMA(CS) No. CRP No. Reasoning of the Tribunal Staff/petitioners misappropriated amounts given credit to their accounts. Cheques were passed without token entries.
The appellant has not verified the ledger accounts of Thangavel and his brother Selvam, and if he had verified, he could have M. Selvakumar 55/2008 678/2022 discovered the misappropriated amounts given credit to their accounts. Cheques were passed without token entries.
The appellant has not issued V. Vijayan 50/2008 571/2022 tokens for the withdrawals by Thangavel.
M. Senthilvelan 47/2008 589/2022 The appellant has passed a cheque of Thangavel without token numbers, and hence his negligent has led to the loss.
The appellant worked as a cashier and has not verified the ledger accounts of Thangavel and his brother Selvam, and if he had T.Maheswaran 53/2008 588/2022 verified, he could have discovered the misappropriated amounts given credit to their accounts. Cheques were passed without token entries.
5. The learned counsel for the revision petitioners in this batch would submit:
https://www.mhc.tn.gov.in/judis 6/12 C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 ● That there was an enquiry by RBI into the fraud, and it zeroed in on Thangavel, the agency for automation/computerisation of bank. It found several lapses as providing the circumstances for Thangavel to plan, execute and conceal his fraud. The RBI report reveals that Thangavel had control over the passwords and also had access to all the accounts of the customers of the bank. When at a time when automation is nascent unless it can be demonstrably proved that each of the staff on whom, or on whose estate, as the case may be, liability is sought to be fastened in the surcharge proceedings, had adequate familiarity with computers and its functioning, it cannot be held that they have connived to the fraud committed by Thangavel.
● More specifically, if the line of reasoning of the Tribunal is considered, it focused on failure to notice the absence of token numbers in the cheques before passing it, and failure to refer the ledger accounts of Thangavel are the content of the negligence attributed to the petitioners herein. What however, required to be established is how a negligence, even if any, in not perusing the ledger account of Thangavel or his brother Selvam would lead to the https://www.mhc.tn.gov.in/judis 7/12 C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 suspicion that a fraud had been committed. Indeed, the report of RBI says that even the bank was clueless for few years in quantifying the loss. Computerisation of accounts is far too hyper-technical for the revision petitioners to understand how it could be misused by a schemer such as Thangavel. Secondly, even if the line of reasoning of the Tribunal is accepted on its face value, then a mere negligence to refer the ledger or absence of token number by themselves cannot be termed as wilful negligence leading to loss of amount.
6. The learned counsel for the Bank harped on the same line of approach adopted in the surcharge proceedings and also supported the reasoning of the Tribunal. He also argued that RBI enquiry is only broad based and only in the enquiry under Sec.81 the modus operandi behind the fraud emerged, and in the surcharge proceedings the role of the petitioners were ascertained.
7.1 Allegation which the revision petitioners, including the one who died face is that their negligence had resulted in Bank losing about Rs.2.88 crores. The amount is no small amount but that cannot be the only https://www.mhc.tn.gov.in/judis 8/12 C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 determinative factor to fix liability. That these staff were found to be negligent on two aspects: (i) that they ignored the fact that no token numbers were given to the cheques drawn by Thangavel before they were passed; and (ii) that they did not peruse the ledger of the fraudster Thangavel.
7.2 First, are they mere acts of negligence, or wilful negligence – something they omitted to ignore deliberately. Secondly, could they by themselves have prevented Thangavel from committing fraud. 7.3 Here comes the issue of computerisation of accounts, the free access and control Thangavel had to accounts and to the passwords. This Court now discusses something that had happened twenty years ago when most of those who belonged to the old school of banking were clueless to computerisation, the manner of its working, and to them men like Thangavel would be a God of automation. This was the state of affairs. Admittedly the fraud which now concerns this court is computer driven. Therefore, the nature of enquiry should be not about omission to comply with certain primitive precautionary steps in a pre-computerised world, and https://www.mhc.tn.gov.in/judis 9/12 C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 its relevance in the post computer world. The fraud had occurred during early days of switch over to computerisation. This should not be lost sight of. This has been the life's experience at that relevant point of time, and could not be ignored.
8. Therefore, the point therefore, is not whether the revision petitioners including the one who is now dead had been negligent in ignoring certain aspects which are perceived as safety aspects for preventing the fraud, but could the fraud have been prevented even if the two precautionary steps were followed. Here lies the answer, but the surcharge proceedings did not adequately focus on it. Here the enquiry report of the RBI is relevant and its usefulness cannot be ignored. That the report is very neutral and it exposes the systematic flaw in the Bank's approach towards banking.
9. Turning to the legal requirements for fastening the liability on the revision petitioners in the surcharge proceedings, it is not sufficient to prove that the staff were negligent, but must project the circumstances from which the Tribunal / the Court may reasonably infer that it was wilful negligence. At stage two it must be established that loss or deficiency of https://www.mhc.tn.gov.in/judis 10/12 C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 assets of the Co-operative Society must be the direct consequence of such acts or omission constituting wilful negligence. After all there is no case that the revision petitioners including the dead one had misappropriated the funds of the Society.
10. Given the totality of the circumstances, this Court does not consider that the liability could be fastened on the revision petitioners or on the estate of the deceased staff T.Maheswaran. All the revisions are allowed and the judgment and decree of the District Co-operative Tribunal, Dharmapuri/Principal District Court, Dharmapuri, dated 21.09/2011 made in CMA (Co-op Society) No.51 of 2008; CMA (Co-op Society) No.55 of 2008; CMA (Co-op Society) No.50 of 2008; CMA (Co-op Society) No.47 of 2008; and CMA (Co-op Society) No.53 of 2008 are set aside including the proceedings of the second respondent dated 11.03.2008. No costs. Connected miscellaneous petitions are closed.
21.04.2022 Index : Yes / No Internet : Yes / No Speaking order / Non-speaking order ds https://www.mhc.tn.gov.in/judis 11/12 C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 N.SESHASAYEE.J., ds To:
1.The Deputy Registrar of Co-op Societies Dharmapuri.
2.The District Co-op Tribunal Dharmapuri.
(Principal District Court, Dharmapuri) C.R.P.(NPD) Nos.614, 678, 571, 589 & 588 of 2022 21.04.2022 https://www.mhc.tn.gov.in/judis 12/12