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Post offices can be held liable for fraud by its employees: Supreme Court

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The Supreme Court has held that post offices are entitled to act against its officials for losses caused by fraud but it doesn’t absolve post offices from its liability .

A three-Judge Bench of Apex Court, comprising Justice L. Nageswara Rao, Justice Sanjiv Khanna and Justice B.R. Gavai, on Monday observed that a post office is an intangible entity that functions through its employees.

The employees are capable of being personally dishonest and committing fraudulent acts in collusion with others. However, if the employee concerned was doing such acts in the course of his service and duties, it does not absolve the post office from its liability.

Holding that a post office or bank can be held liable for fraud or mistakes committed by its employees, the Supreme Court set aside a May, 2015 judgement of the National Consumer Disputes Redressal Commission (NCDRC).

In its order in a case related to Kisan Vikas Patra (KVP), the NCDRC had dismissed a complaint filed against the Post Master General of Uttar Pradesh Circle and some other officers.

The Supreme Court said, “The post offices are entitled to action against the officials for the loss caused by the fraud. This complaint was related to encashment of certain KVPs amounting to Rs 25.54 lakh. These KVPs were bought from different post offices in Uttar Pradesh in the years 1995 and 1996 by two persons in joint names.

The Bench directed that the officers shall be jointly and severally liable to pay the maturity value of KVP as on the date the KVP is presented at the post office for encashment.

The Court said that in February 2000, the complainants had approached the postmaster of the Head Post Office, Lucknow and requested to transfer the KVP to another post office. They allege that the postmaster had recommended that they take the services of an agent appointed by the state of Uttar Pradesh and attached to the post office.

The complainants had stated that they were misled to believe that it would not have been possible to transfer the KVP without the help of the agent. The agent had come to his residence and took the original KVP he had signed. In June 2000 it was discovered that the agent had defrauded several investors and had been arrested.

He had claimed that the interrogation had revealed the involvement of a deputy postmaster who had paid the maturity amount (Rs 25 lakh 54 thousand) in cash and not by cheque in his name, in violation of norms.

The Supreme Court said that the agent has neither appeared to oppose the petition nor has he challenged the decision of the NCDRC. He was convicted on other charges, including fraud and criminal breach of trust. The bench looked into the aspect as to whether the department would be liable for the mistakes and acts of the Deputy Postmaster concerned.

The bench observed that a post office as an intangible entity functions through its employees. These employees are capable of being personally dishonest and committing fraudulent acts in collusion with others. When bank or post office employees commit such acts in the line of duty, it empowers the appellants to proceed legally for damages as this is the only remedy for them against the post office.

In State Bank of India vs Shyama Devi, (1978) 3 SCC 399 the Apex Court held that for the employer to be liable, it is not enough that the employment afforded the servant or agent an opportunity of committing the crime, but what is relevant is whether the crime, in the form of fraud etc., was perpetrated by the servant/employee during the course of his employment.

The bench said that there is no doubt that the Deputy Postmaster had committed this fraud in the course of his service. In view of these findings, the Bench dismissed the consumer case filed by the appellants and set aside the order of NCDRC.

Further , the Court directed that the appellants would be entitled to a compensation of Rs 1,00,000 and costs of Rs 10,000 to be paid within eight weeks from the date of pronouncement of this judgment. In case of failure to pay the compensation amount within the aforesaid time, the respondents would be additionally liable to pay simple interest at seven percent per annum on the compensation amount of Rs 1 lakh from the date of pronouncement of this judgement till the date of payment.

Read order below

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