M.Pushpanathan vs Vijayan X X 
2022 Latest Caselaw 8338 Mad

                                                     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

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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

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

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

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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

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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:

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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

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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

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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

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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

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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

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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