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Petitioner: M/s Muslim Commercial Bank Limited VS Respondent: Federation of Pakistan and two others
Court Name: Sindh High Court Judge(s): Muhammad Ali Mazhar, Adnan Iqbal Chaudhry Title:M/s Muslim Commercial Bank Limited vs Federation of Pakistan and two
others Case No.:(1) C.P. No. D-905 of 2017 (2) C.P. No. D-6672 of 2017 (3) C.P. No. D-6673 of 2017 Date of Judgment:2019-04-05 Reported As: 2020 CLD 829, PLD 2019 Sindh 624, 2019 SHC 108 Result: N/A Judgment Adnan Iqbal Chaudhry J. - The Petitioners in all these petitions are Banks who have impugned decisions passed concurrently by the Banking Mohtasib and the President of Pakistan respectively under the Banking Companies Ordinance, 1962 [the BCO] and the Federal Ombudsmen Institutional Reforms Act, 2013 [the FOIRA], whereby the complaints made against the Petitioner Banks were allowed. Since the impugned decisions have been challenged also on jurisdictional and constitutional grounds common to all petitions, we decide these petitions by a common judgment. I. C.P. No. D-905/2017, MCB Bank v . Federation of Pakistan 2. The Respondent No.3, Kulsoom, made a complaint to the Banking Mohtasib under Section 82D of the BCO stating that she was a widow and illiterate; that her father-in-law, namely Rahim Bux (by then deceased), had on 02-03- 2012 entrusted the Branch Manager, MCB Market Road Branch, Nawabshah, with Rs. 600,000/- (cheque) with instructions to create a fixed-deposit in the bank account of Kulsoom so that she would be able to get a monthly profit for her and her children's sustenance; that the said deposit was evidenced by a deposit slip issued by the Bank on which was also scribed a note of the Branch Manager stating "As per instructions of Mr. Rahim Bux Rs.4000/- per month, fixed 7 years only profit"; that for some time she received monthly profits, but when those stopped, she discovered that the deposit of Rs.600,000 was never made to her account; that the Bank informed her that she had been defrauded by the Branch Manager, but her complaint/claim (dated 11-05-2015) for the return of her money was rejected by the Bank vide letter dated 06-11-2015. 3. The Bank's internal investigation report had found that the Branch Manager was responsible for the fraud, and that there were previous investigation reports finding the same Branch Manager guilty of similar frauds against other account holders whilst he was posted at another Branch. However, by a final report dated 07-09 2015, the Bank concluded that the evidence was not sufficient to hold that the Bank was liable.
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4. Before the Banking Mohtasib, the Bank acknowledged that the Branch Manager after misappropriating funds from other accounts had absconded and that an FIR had been lodged against him by the Bank. The case of the Bank before the Banking Mohtasib was that the original deposit slip produced by Kulsoom was no evidence of the alleged deposit as the writing thereon had vanished/become invisible with the passage of time except for the stamp of the Bank. Though a photocopy of the deposit slip, said to have been made at the time the original slip was issued, had been produced by Kulsoom to show the writing thereon, but the Bank contended that such photocopy was unreliable as it could have been fabricated later on. However, it was acknowledged by the Bank that the photocopy of the deposit slip did correctly mentioned Kulsoom's account number, the serial number of the slip and the deposit of Rs.600,000/ ; and that the handwriting and the signature on the photocopy of the deposit slip was that of the same Branch Manager. 5. The Banking Mohtasib found the photocopy of the deposit slip to be reliable evidence of the fact that Rs. 600,000/- had been deposited with the Bank for the benefit of Kulsoom with the intent to create a Term Deposit. Therefore, vide decision dated 03-06-2016 the Banking Mohtasib directed the Bank to pay Rs. 600,000/- to Kulsoom with such profit as would be applicable on a Term Deposit. Against the decision of the Banking Mohtasib, the Bank made a Representation to the President under Section 14 of the FOIRA which was dismissed vide order dated 17-1 1-2016; hence the subject petition. II. C.P. No. D-6672 of 2017, MCB Bank v. Federation of Pakistan III. C.P. No.D-6673/2017, MCB Bank v . Federation of Pakistan IV. C.P. No.D-6674/2017, MCB Bank v . Federation of Pakistan V. C.P. No.D-6675/2017, MCB Bank v . Federation of Pakistan 6. The Complainants, namely Ghulam Sarwar, Ghulam Mustafa, Ghulam Murtaza and Ali Gohar (Respondent No.3 respectively in the captioned petitions) made complaints to the Banking Mohtasib under Section 82D of the BCO stating that they worked in Jordan and used to deposit their savings in MCB Hub Chowki Branch, Balochistan, by entrusting the same to the Branch Manager; that in 2015 they were shocked to discover that their bank balance did not reflect the deposits made by them; that they were informed by the Bank that they had been defrauded by the Branch Manager; that they had claimed the misappropriated money from the Bank, but the Bank was delaying the process of their claims; hence the complaint to the Banking Mohtasib. In the meantime, the said Branch Manager had been apprehended and imprisoned. 7. The internal investigation report of the Bank did find that the Branch Manager had defrauded the complainants by pocketing their money instead of depositing it in their bank accounts, and by making unauthorized transfers from their bank accounts. However, the Bank did not agree with the quantum of the claims and accepted liability only as under: Of CustomerClaimed Claim Claim Total Difference Amount againstagainstAmount of Depositdebit ofPayable claimed/pa Slips funds against Claimyable amount to customer Mr. Ali 15,259,132 15,522,000 *(265,868) Gohar Mr. Ghulam12,001,210 4,274,650 Murtaza Mr. Ghulam20,780,492 5,064,000 Sarwar Mr. Ghulam19,500,000 15,239,940 Mustafa *Amount pertain to the profit credited in the customer a/c which was fraudulently debited by the culprit but not claimed by the customer consequently payable amount exceeded the claimed amount.
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Note:- since all customers have PLS accounts hence claims may be settled along with sum of profit amount." 8. As against the Bank's determination of Rs.5,064,000/-, the Banking Mohtasib found that Ghulam Sarwar's claim was valid and payable to the extent of Rs.5,964,000/-. The Banking Mohtasib found this further amount of Rs.900,000/- payable to Ghulam Sarwar for the reason that he was a photo-account holder which entailed that no transaction could have been made from his account without his personal presence, and on the date of the transfer of Rs.900,000/- from Ghulam Sarwar's account, his passport showed that he was abroad. As regards the claims of Ghulam Mustafa, Ghulam Murtaza and Ali Gohar , the Banking Mohtasib agreed with the Bank and accepted the Bank's determination of the amount payable to them (Rs. 15,239,940/-, Rs. 4,274,650/- and Rs. 15,522,000/- respectively). Therefore, vide separate decisions dated 17-04-2017, the Banking Mohtasib directed the Bank to credit the account of the complainants with the amount determined, plus compensation under section 82E (1)(c) of the BCO by way of profit applicable/payable on a PLS account from the date of the transac tions in question to the date the credit is actually made. 9. Surprisingly, even though the Banking Mohtasib had agreed with the Bank as regards the complaints of Ghulam Mustafa, Ghulam Murtaza and Ali Gohar, still the Bank made Representations to the President under Section 14 of the FOIRA. All four Representations were dismissed by the President vide separate orders dated 07-08-2017; hence the subject petitions. VI. C.P. No. D-4752 of 2017, HBL v. Federation of Pakistan: 10. The Respondent No.3, Yousuf Adil, made a complaint to the Banking Mohtasib under Section 82D of the BCO stating that in July 2016 when he was in London, he received a call from the Bank informing that four transactions aggregating Rs.600,000/- had been made via the internet from his bank account maintained at an HBL Branch at Karachi. Yousuf Adil denied to have made the transactions, however he acknowledged that he had received a phishing email and while replying to such email he had been duped into divulging some personal data. For this reason, that Yousuf Adil was himself to blame for disclosing his personal data on-line, the Bank denied liability . The funds were transferred in quick succession around mid night of 26-07-2016 from Yousuf's Adil's account and ultimately to an ABL account in Lahore maintained by one Khalid Waheed Bhatti (the culprit), who withdrew/transferred the funds in the morning of 27-07-2016 around 9:30 a.m. leaving behind a nominal balance and thereafter evaded contact by ABL. Per Yousuf Adil, he had informed the Bank of the fraud at 8:30 a.m. Per the Bank, it made its first contact with ABL (the culprit's bank) at 1 1:09 a.m. 11. The Banking Mohtasib held that the Bank was liable to make good Yousuf Adil's loss for the following reasons. Firstly, because the Bank was negligent when it delayed contacting ABL and by delaying action on the complaint of 8:30 a.m. until 11:09 a.m., by which time the culprit had withdrawn/transferred the amount. Secondly, the Bank had left its system vulnerable to unauthorized access by failing to implement the =Two Factor Authentication' (2FA) by the effective date of 01-04-2016 as required by the Regulations for Security of Internet Banking issued by the State Bank vide PSD Circular No.3/2015 dated 21-10-2015, which measure was eventually implemented by the Bank in November 2016 after a delay of seven (07) months. The 2FA was a two-tier security measure that required authentication of an internet banking transaction both by way of a password and a time-token. Per the Banking Mohtasib, had such measure been in place, the complainant's account could not have been accessed by the culprit. Therefore, vide decision dated 20 02- 2017, the Banking Mohtasib directed the Bank to credit Yousuf Adil's account with Rs.600,000/-. Against the order of the Banking Mohtasib, the Bank made a Representation to the President under Section 14 of the FOIRA which was dismissed vide order dated 02-05-2017; hence the subject petition. 12. We have noticed that in all the subject cases, the Bank had, for all intents and purposes, accepted before the Banking Mohtasib that either the Bank it or its employee was at fault. In the case of Kulsoom (C.P. No.D-905/2017), the Bank's internal investigation report had found its Branch Manager to be guilty and had lodged an FIR against him. The Bank had accepted the fact that the photocopy of the deposit slip produced by Kulsoom did correctly mention her account number, the serial number of the slip and the deposit of Rs.600,000/-, and that the handwriting and the signature on the photocopy of the deposit slip was that of the Branch Manager. In the cases of Ghulam Sarwar, Ghulam Mustafa, Ghulam Murtaza and Ali Gohar (C.P. No.D-6672/2017 to C.P. No.D-6675/2017), the internal
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investigation report of the Bank had found the Branch Manager guilty as alleged. In fact, in the cases of Ghulam Mustafa, Ghulam Murtaza and Ali Gohar, the Banking Mohtasib had ordered payment only of that amount which had been determined by the Bank itself as being payable. In the case of Yousuf Adil (C.P. No. D 4752 of 2017) the Bank had accepted that it had acted with delay on the complaint of the unauthorized transaction; and that the Bank had failed to implement Regulations for Security of Internet Banking (PSD Circular No.3/2015) prescribed by the State Bank of Pakistan which would have been a check on the unauthorized electronic fund transfer. It appears that for the reasons aforesaid, Mr. Kashif Hanif, learned counsel for the Petitioner Banks while arguing the matter had confined his attack on the impugned orders only on jurisdictional and constitutional grounds and he did not controvert the findings of fact therein. 13. In order to give context to some of the submissions made by learned counsel, it will be expedient to briefly state the law relevant to this discussion. By the Banking Companies (Amendment) Act, 1997, Act XIV of 1997, a number of provisions of the Banking Companies Ordinance, 1962 were amended, and by Section 15 of the Amending Act, Part IVA i.e. sections 82A to 82G in respect of the Banking Mohtasib were inserted in the Banking Companies Ordinance, 1962 [the BCO]. By the Finance Act, 2007, a number of provisions of the Banking Companies Ordinance, 1962 were again amended, including certain provisions relating to the Banking Mohtasib. The Federal Ombudsmen Institutional Reforms Act, 2013 [FOIRA] was enacted on 20-03-2013 "to make institutional reforms for standardizing and harmonizing the laws relating to institution of Federal Ombudsmen and the matters ancillary or akin thereto: to enhance the effectiveness of the Federal Ombudsmen to provide speedy and expeditious relief to citizens by redressin g their grievances to promote good governance; to enable the Federal Ombudsmen to perform their functions efficiently , they should enjoy administrative and financial autonomy ." The laws which the FOIRA intended to harmonize were Federal legislation in respect Ombudsmen, referred to in section 2(c) of the FOIRA as "relevant legislation?, consisting of the Office of the Wafaqi Mohtasib (Ombudsman) Order, 1983; Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000; the Insurance Ordinance, 2000; the Banking Companies Ordinance, 1962; and the Protection against Harassment of Women at the Workplace Act, 2010. Per section 24 of the FOIRA: "24. Overriding effect.--(1) The provisions of this Act shall have effect notwithstanding anything contained in any other law for the time being in force. (2) In case there is a conflict between the provisions of this Act and the relevant legislation, the provisions of this Act to the extent of inconsistency, shall prevail.? Section 14 of the FOIRA provided for a Representation to the President from an order passed by an Ombudsman. This section 14, by reason of the non-obstante clause contained in the FOIRA, had an overriding effect on section 82E(4) of the BCO which had provided for an appeal to the Governor State Bank of Pakistan from an order passed by the Banking Mohtasib. In contradistinction to section 82E (7) of the BCO, which had allowed a complainant, not being a bank, to file a suit against the bank even after the Banking Mohtasib rejected the complaint, section 18 of the FOIRA reads as follows: ?18. Bar of jurisdiction.--- No court or authority shall have jurisdiction to entertain a matter which falls within the jurisdiction of an Ombudsman nor any court or authority shall assume jurisdiction in respect of any matter pending with or decided by an Ombudsman.? 14. The submissions made by Mr. Kashif Hanif, learned counsel for the Petitioner Banks to challenge the impugned orders on jurisdictional grounds (as distin ct from his submissions on constitutional grounds), the replies of learned counsel for the Respondents, and our finding/decision in seriatim on each of such submissions, follows below . 15. With regards the petitions where the complainants had been defrauded by the Bank's Branch Manager , Mr. Kashif Hanif learned counsel for the Petitioner Banks submitted that firstly the act of the Branch Manager to defraud the complainants was his personal act for which the Bank could not be held vicariously liable; and secondly , that the jurisdiction to determine vicarious liability vested in a civil court, not the Banking Mohtasib.
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On the other hand, Mr. Ayaz Ali Hingoro and Mr. Shahid Ali, learned counsel for the Respondent No.3 (complainants before the Banking Mohtasib) respectively in C.P. No.D-905/2017 and C.P. No.D-6672/2017 to C.P. No.D-6675/2017 submitted that the internal investigation report of the Bank submitt ed before the Banking Mohtasib had clearly found the fraud to have been committed by the Branch Manager , and thus the Bank's vicarious liability stood established. 16. The argument that the Bank was not vicariously liable for the fraud of its employee, and the argument that the Banking Mohtasib did not have jurisdiction to hold the bank vicariously liable, are both misconceived. Firstly , it is settled law that the employer's vicarious liability extends also for the fraudulent acts of the employee if the fraud was perpetuated in =the course of employment', and then it does not matter whether the fraud was for the employer's benefit or for the employee's own . Secondly , the very remedy provided to a complainant against a Bank before the Banking Mohtasib proceeds on the principle of vicarious liability . That intent of the legislature is manifest in the following provisions of the BCO: ?82A (3) The jurisdiction of the Banking Mohtasib in relation to banking transactions shall be to-- (a) enquire into complaints of banking malpractices; (b) perverse, arbitrary or discriminatory actions; (c) violations of banking laws, rules, regulations or guidelines; (d) inordinate delays or inef ficiency and (e) corruption, nepotism or other forms of maladministration. 82B (5) The Banking Mohtasib shall exercise his powers and authority in the following manner:- (a) In relation to all banks operating in Pakistan.-- The Banking Mohtasib shall be authorised to entertain complaints of the nature set out herein below:- (i)...................... (ii) delays or fraud in relation to the payment or collection of cheques, drafts or other banking instruments or the transfer of funds; (iii) fraudulent or unauthorised withdrawals or debit entries in accounts;? 17. Mr. Kashif Hanif, learned counsel for the Petitioner Banks submitted that even if the Banking Mohtasib had the jurisdiction to decide the complaints, he could not have determined the same without recording evidence; that the recording of such evidence was mandatory under sub-section (4)(c) of Section 82B of the BCO; and since that was not done, the Bank was deprived of an opportunity to cross-examine the complainants. On the other hand, Mr. Ayaz Ali Hingoro, learned counsel for the Respondent No.3 (Kulsoom) in C.P. No.D- 905/2017 submitted that when the internal investigation report of the Bank submitted before the Banking Mohtasib had found the Branch Manager guilty of the fraud, the question of recording evide nce did not arise. Similarly , Mr. Shahid Ali, learned counsel for the Respondent No.3 in C.P. No.D-6672/2017 to C.P. No.D-6675/2017 submitted that the amount ordered to be returned by the Banking Mohtasib to the complainan ts was the same that had been determined by the Bank itself in its internal investigation report, and therefore the question of recording evidence did not arise. Mr. Ammar Athar Saeed, learned counsel for the Respondent No.3 (Yousuf Adil) in C.P. No.D- 4752/2017 too submitted that the question of recording evidence never arose because the Bank had admitted before the Banking Mohtasib that it had not implemented the directives of the State Bank within the stipulated date. 18. Section 82B of the BCO provides that: "82B (4) The Banking Mohtasib shall have the power and responsibility-- (a) to entertain complaints from customers, borrowers, banks or from any concerned body or organization; (b) to facilitate the amicable resolution of complaints after giving hearings to the complainant and the concerned bank; (c) to receive evidence on affidavit; (d) to issue commission for the examination of witnesses; and (e) in the event that complaints cannot be resolved by consent, to give finding which shall be acted upon in the manner set out herein." In our view the words "The Banking Mohtasib shall have the power and responsibility to receive evidence on affidavit" in clause (c) of sub-section (4) of section 82B of the BCO is not to say that that the Banking Mohtasib shall decide all1
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and every complaint after the formal recording of evidence. Rather, the intent is to enable the Banking Mohtasib, should he so deem expedient in the circumstances of the case, to take evidence of any party or witness by way of an affidavit. Such intent is manifest when sub-section (4)(c) of section 82B is read with sub-section (3) of section 82D of the BCO which reads as under: "82D (3). The Banking Mohtasib may adopt any procedure as he considers appropriate for investigating a complaint: Provided that he shall not pass any order against a bank without first giving it a notice and an opportunity of a hearing.? Clause (c) was inserted in sub-section (4) of section 82B of the BCO by an amendment in 2007 when sub-section (3) of section 82D was already part of the BCO. Had the intent of the legislature been that complaints before the Banking Mohtasib could, in each and every case, only be decided after the formal recording of evidence, sub-section (3) of section 82D of the BCO would have been omitted. The interpretation of sub-section (4)(c) of section 82B of the BCO being made by learned counsel for the Petitioner Banks would convert the summary nature of proceedings before the Banking Mohtasib to a trial even in cases where the record produced before the Mohtasib is sufficient to hold maladministration. As discussed in para 12 above, given the findings in the Bank's own internal investigation reports and the acknowledgments made before the Banking Mohtasib, the fraud/maladministration was accepted by the Bank, so also the fact that the Bank's employees were acting in =the course of employment' when they committed the fraud/maladministration. Therefore, none of the cases required the formal recording of evidence to establish fraud and vicariously liability. 19. Referring to those decisions of the Banking Mohtasib where he ordered the Bank to pay profit to the complainants on their deposits, Mr. Kashif Hanif submitted (a) that the Banking Mohtasib did not have jurisdiction to award profit to a complainant, which jurisdiction vested only in a civil court; and (b) that as regards the complaint of Kulsoom (C.P. No.D-905/2017), the Banking Mohtasib did not have the jurisdiction to order the Bank to convert the complainant's deposit into a TDR (term deposit). Regards the first submission, that is negated by sub-section (1)(c) of Section 82E of the BCO which enables the Banking Mohtasib ?to pay reasonable compensation to the complainant as fixed by the Banking Mohtasib?. A similar provision empowering the Ombudsman to order payment of compensation also exists in sections 22 respectively of the Establishment of the Office of the Wafaqi Mohtasib (Ombudsman) Order, 1983 and the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. Similarly, the Provincial Ombudsmen Laws also provide for the same power. In fact, in the cases of Ghulam Sarwar, Ghulam Mustafa, Ghulam Murtaza and Ali Gohar (C.P. No.D-6672/2017 to C.P. No.D-6675/2017), the internal investigation report of the Bank had itself recommended that profit on the misappropriated amount was payable to the complainants at the rate payable on a PLS account. In none of the cases before us did the Banking Mohtasib order payment of any abstract profit, but only that profit which was already prescribed for bank deposits. Regards to the second submission, that is a result of a misreading of the Mohtasib's order , which order was "to pay the Complainant the sum of PKR 600,000/- and for opportunity loss, profit at the prevalent rate as applicable on TDR of the same tenure as announced by the Bank from time to time." Thus, it was not that the Mohtasib ordered to 'convert' the deposit to a TDR, but to pay profit on the deposit at the 'rate' applicable to a TDR, for which purpose the deposit was made. 20. Mr. Kashif Hanif, learned counsel for the Petitioner Banks submitted that sub-section (1) of section 82E of the BCO made it mandatory for the Banking Mohtasib to first mediate the dispute, and only on the failure of such mediation could he proceed to give a decision. He submitted that the failure of the Banking Mohtasib to resort to such mediation was a failure to exercise jurisdiction which vitiated the decision. Sub-section (1) of section 82E of the BCO reads as under: "82E. Recommendations for implementation. (1) In the event the Banking Mohtasib comes to the conclusion that the complaint is justified, in part or in whole, he shall try and facilitate an amicable resolution or settlement by resort to mediation and failing that communicate his findings to the concerned bank with the direction....?
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The words in section 82E (1) of the BCO that the Banking Mohtasib "shall try? to mediate, as opposed to 'shall mediate', manifest that the intent is only to equip the Banking Mohtasib with a tool to resolve the dispute, and not to fetter his jurisdiction to decide the matter. The said provision also manifests that the resort to mediation, if any, is envisaged towards the end of the…
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