STATE BANK OF INDIA
DATE OF JUDGMENT 05/05/1978
SARKARIA, RANJIT SINGH
SARKARIA, RANJIT SINGH
1978 AIR 1263 1978 SCR (3)1009
1978 SCC (3) 399
Vicarious liability-- Legal principale witch governs thevicarious liability of an employer for the loss caused to a customer through the misdemeanour or negligence of an employee.
The respondent opened a Savings Bank Account being No. 90001 with the appellant's predecessor, the Imperial Bank of India at its Allahabad Branch, having been introduced to the Bank by one Kapil Deo Shukhla, an employee of the bank and a close neighbour of the respondent and a friend of her husband, Bhagwati Prasad. On a suspicion about the entries in the respondent's Pass Book made by the employees of the Bank, which had been confirming and ratifyingthem from time to time, the respondent sent a notice dated August 13, 1948 to the defendant bank. The appellant bank replied by its letter dated 14-8-1948 explaining the deposit of several items making up to Rs. 1932-2-0 and denied the alleged deposits of Rs. 105, Rs. 4000, Rs. 8000/- and Rs. 100/said. to have been deposited through Kapil Dev Shukla. On November, 30, 1948, the respondent filed a suit in forma pauperis for the recovery of Rs. 1.5,547-10 As. together with pendente lite and future interest from the appellant's predecessors. The Trial Court found, except for the items of Rs. 105 and. Rs. 4000/- entered in the pass-book the respondent had deposited other amounts mentioned in it and that the bank was bound by those entries. Holding that the rules were strictly enforced by the bank and if the bank had accepted an amount larger than the sum of Rs. 5,000/- in contravention of its Rules, the respondent was not debarred from claiming such deposit, the Trial Court decreed the respondent's suit (in respect of two items) for Rs. 10,040-10 As. together with simple interest on this amount from January 1st 1946 to August 14, 1947 @ Rs. 1-8-0 per cent per annum and from August 15, 1947 to December, 1948 at Rs. 7% per annum. It was further ordered that the respondent would' get simple interest on the decretal amount after deducting Rs. 1986-2-As. which have been paid during the pendency of the suit, at 6% per annum. Proportionate costs was also awarded to the respondent. Aggrieved by the said orders, the bank appealed to the Allahabad High Court and the respondent filed cross-objections in respect of the amount of Rs. 4,000/- and Rs. 105/disallowed by the Trial Court. The High Court, on reappreciation of the evidence dismissed the bank's appeal and allowed the respondent's cross objections decreeing the suit for Rs. 14145-10 annas together with simple interest thereon from January 1, 1946 to August 14, 1947 @ Rs. 1-8-0 % per annum and from August 15, 1947 to December 1, 1948 at 6% per annum. It was further directed that respondent could get pendente lite simple interest from the appellant on, the decretal amount at 6% per annum and as the amount of Rs. 1,986-2-0 had been paid to the respondent on September, 1950 it would be deducted from the total amount found due to the respondent and the decretal amount scaled down pro tanto. Allowing the defendant's appeal by certificate and dismissing the plaintiff's claim with regard to Rs. 11,000/- (consisting of items of Rs. 4,000/- plus Rs. 7,000/-) and interest thereon, the Court
HELD : (1) The legal principle which governs the vicarious liability of an employer for the loss caused to a customer through the misdemeanour or negligence of an employee are : (a) The employer is not liable for the act of the servant if the cause of the loss or damage arose without his actual fault or privity or without the fault or neglect of his agents or servants in the course. of their employment; (b) the damage complained of must be shown to have been caused by any wrongful act of his servant or agent done within the scope or course of the servant or agent's employment even if the wrongful Act 1010 amounted to a crime; and (c) a master is liable for his servants fraud perpetrated in the course of master's business whether the fraud was for the master's benefit or not, if it was committed by the servant in the course of his employment. There is no difference in the liability of the master for wrongs whether for fraud or any other wrong committed by a servant in the course of his employment and it is a question of fact in each case whether it was committed in the course of the employment. [1015 G-H, 1016 A, 1017 A-C] Leesh River Tea Co. Lid & Ors. v. British India Steam Navigation Co. Ltd.,  3 All E.R. 593; Lloyd v. Grace Smith & Co.,  A.C. 636 and United Africa Co. Ltd. v, Saka Owoada,  A.C. 130 referred to.
2) In the instant case, the appellant bank was not liable to make good the loss of Rs. 7,000/- (part of Rs. 8,000/- entry) caused to the respondent by the act of K. D. Shukla, who was acting as an agent of the dent and not within the scope of his employment with the bank. Nor could the fact that false and fictitious entries to cover his fraud were made by Shukla in the pass-book of the respondent and in the ledger account of Bhagwati Prasad and Sons make the embezzlement committed by Shukla an act committed in the course of his employment with the Bank. [1022 E-G]
(b) The cheque for Rs. 7000/- drawn by Bhagwati Prasad was not handed over in the normal course of business in the defendant-bank for transfer to respondent's account in the regular manner. K. D. Shukla instead of depositing the cheque with the bank, as per the letter dated 7-10-1946 addressed to the bank manipulated to appropriate it himself. In such a situation, the act which caused the loss to the respondent could not be said to have been committed by Shukla in the course of his employment with the bank. At the most it could be said that the fact of his being an employee of the bank and a friend of Bhagwati Prasad gave him an opportunity to commit the fraud. [1022 B, D-E] Leesh River Tea Co. Ltd. & Ors. v. British India Steam Navigation Co. Ltd.,  3 All E.R. 593 followed.
(c) The onus was on the plaintiff to show that she paid the amount to an employee of the bank and was received by that employee in the course of employment. The false and fraudulent entry about the deposit of Rs. 4000/in the pass book could not shift the onus to the bank to prove the contrary. The alleged deposit of Rs. 4000/- by crossed cheque on 17-9-45 is not supported by the testimony of
Bhagwati Prasad. There was no entry in the cash scroll and no receipt was produced in token of deposit. The entry is obviously false. [1019 C, H. 1020 A]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2476 of
From the Judgment and Decree order dated 3-3-6A of the
Allahabad High Court of Judicature at Allahabad in First
Appeal No. 343 of 1952.
Y. S. Chitale, J. S. Arora, Ashok Grover and G. K. B.
Chowdry for the Appellant.
S. P. Bhargava and M. V. Goswami for the Respondent.
The Judgment of the Court was delivered by
SARKARIA, J.-This appeal on certificate is directed against
a judgment and decree, dated March 3, 1964, of the High
Court of Judicature at Allahabad. It arises out of these
On September 17, 1945, the respondent opened a Savings Bank
Account, being No. 9001, with the appellant's predecessor,
the imperial Bank of India at its Allahabad Branch. She was
introduced to the Bank by one Kapil Deo Shukla, who was an
employee of the Bank, and admittedly a close neighbour of
the respondent and a friend of her husband, Bhagwati Prasad.
On November 30, 1948, the respondent made a petition in
forma pauperis for the recovery of Rs. 15,547/10/- together
with pendente lite and future interest from the Imperial
Bank. This petition was later registered as a regular suit
in 1950. The plaintiff's case, as ,pleaded, was as follows
The plaintiff had, apart from 1,932/2/- admitted by the
defendand-Bank, the under-noted amounts which were
deposited by her :from time to time with the Bank :
Rs.105deposited on September 17, 1945
Rs.4000deposited on September 17, 1945
Rs.8000deposited on December 7, 1945
Rs.100deposited on June 20, 1946
These amounts were entered in the respondent's Pass Book by
the ,employees of the Bank which had been confirming and
ratifying those entries from time to time.
Paragraph 3 of the plaint is material. It may be extracted
"There was a permanent clerk named Kapil Deo
Shukla in the employ of the defendant Bank,
who exercised much influence on other
employees of the Bank and used to work at
different counters. The Bank viewed his
actions with approval and acted with
negligence. The plaintiff as well as other
constituents regarded him as an employee :and
a responsible person of the Bank and quite
often used to hand over the money and letter
of instructions to him, while this clerk used
to obtain the signature of the officer on the
Pass Book as usual. The plaintiff used to
believe that the money had been deposited and
she was satisfied on perusal ,of the Pass
Book. She had never any occasion for sus-
In August 1946, the plaintiff's husband felt some suspicion
in the Bank's affairs. She thereupon sent a notice, dated
August 13, 1948 to the defendant Bank. The Bank replied by
letter, dated August 14, 1948, in which it accepted the
deposit of Rs. 1,932/- and denied the deposit and payment of
the four items detailed above. The defendant-Bank was
responsible for the acts and omissions of its employees
which they did during their service, and if Shukla or any
other employee of the Bank had committed embezzlement and
defrauded the plaintiff, the Bank was responsible for making
good that loss.
The defendant-Bank in its written statement admitted that
Kapil Deo Shukla was one of its employees and he used to
work at the ,counter, but not at the Savings Bank counter,
where the Savings account of the plaintiff was dealt with.
Shukla was no longer in the service of the Bank. The Bank
further pleaded that the amount of Rs. 12,205/- as detailed
above, was never deposited with it, nor
were the alleged deposits constituting this amount ever
confirmed or ratified by it. The Bank further stated that
only an aggregate amount of Rs. 1,932/- had been deposited
by the respondent on the diverse dates, as indicated below :
Rs.50- deposited on September 17, 1945
Rs.400- deposited on January 31, 1946
Rs.432- deposited on February 4, 1946
Rs.1000- deposited on April 23, 1946
Rs.50- deposited on July 23, 1946
The Bank further averred that the plaintiff was introduced
to, the Bank by the said Kapil Deo Shukla who was her close
neighbour and a fast friend of her husband, Bhagwati Prasad,
and that if the plaintiff-respondent selected him as her
agent or instrument for depositing money in the Bank and he
had defrauded her, or if Kapil Deo Shukla acting in
collusion with her husband, showed wrong amounts in her Pass
Book, the Bank was not liable for any loss that might have
accrued to her.
The parties went to trial on these bases
(1) Did the plaintiff deposit with the
defendant the various sums of money mentioned
in Para 4 of the plaint ?
(2) Are these amounts mentioned in the
plaintiff's Pass Book ? If so, is the
defendant bound by the entries therein ?
(3) Did the plaintiff make any deposit in
contravention of any rule of the Bank ? If so,
to what effect ?
On Issues (1) and (2), the trial court found that, except
for the items of Rs. 105/- and Rs. 4,000/- entered in the
Pass Book, the respondent had deposited the other amounts
mentioned in it and that the Bank was bound by those
entries. On Issue No. (3), it was held that the Rules were
not strictly enforced by the Bank, and if the Bank had
accepted an amount larger than the sum of Rs. 5,000/in
contravention of its Rules, the respondent was not debarred
from claiming such deposit.
In the result, the trial court, on July 8, 1952, decreed the
respondent's suit (in respect of two items) for Rs.
10,040/40/-, together with simple interest on this amount
from January 1 1946, to August 14, 1947 @ Rs. 1/8/- per cent
per annum, and from, August 15, 1947 to December 1948 @ Rs.
71-1- per cent per annum. It was further ordered that the
respondent would get simple interest: on the decretal amount
(after deducting Rs. 1,986/2/- which had been paid during
the pendency of the suit) @ 6% per annum. Proportionate
costs were also awarded to the respondent.
Aggrieved, the Batik carried an appeal to the High Court of
Judicature at Allahabad, and the respondent filed cross-
objections in respect of the amounts of Rs. 4,000/- and Rs.
1051-, disallowed by the trial court.
The High Court observed that the disputed amount of Rs.
8,000/shown in the Pass Book consisted of two items, the
bigger of which was an amount of Rs. 7,000/- in the form of
a cheque drawn by Bhagwati Prasad on the account of Bhagwati
Prasad & Sons in Bharat Bank Ltd., Allahabad, and that
Bharat Bank paid the amount of the cheque to Dass Bank Ltd.,
Allahabad, who credited it to the account of Lala Babu alias
Kapil Deo Shukla, the aforesaid employee of the Imperial
Bank. On these premises, the High Court found that the
amount of the cheque was not actually deposited, first, in
the account of Bhagwati Prasad & Sons, nor later in the
Savings Account of the respondent, and that Kapil Deo Shukla
had fraudulently taken the money of the cheque and credited
it in his own account in the Dass Bank Ltd., Allahabad.
"Therefore, the respondent had to suffer because of the
action of Kapil Deo Shukla, an employee of the Imperial
Repelling the contention of the appellant-Bank, the High
Court held on the basis of the evidence of the appellant's
witnesses Mahadeo Prasad and Narbada Prasad-that "it could
not be said that Kapil Deo Shukla was not acting in the
course of his employment in the Bank".
Regarding the entry of Rs. 100/- the High Court held that
the initials against this entry purporting to be of L.
Anthony, bad not been proved to be forged inasmuch as L.
Anthony had not been examined, and that if any fraud had
been committed by Kapil Deo Shukla, the Bank was liable for
In respect of the disputed deposit of Rs. 4,000/-, the High
Court held that the appellant had not, disproved the
statement of Bhagwati Prasad by having the accountant of the
Calcutta National Bank summoned with the accounts relating
to Bhagwati Prasad, and as' such, it did not see any reason
to disbelieve Bhagwati Prasad's statement that the cheque
for Rs. 4,000/- was given to the Bank on September 10,1945
to open a Savings Bank account in the name of the res-
pondent, and that if K. D. Shukla cashed that cheque, also
and had the amount deposited in his own account, the
respondent could not be made to suffer for the fraud
committed by Kapil'Deo Shukla in the course of his
employment in the Bank.
With regard to the item of Rs. 105/- also, the High Court
accepted Bhagwati Prasad's statement that amount ad been
deposited by him on September 7, 1945.
The High Court dismissed the Bank's appeal and allowed the
plaintiff-respondent's cross-objections, decreeing the suit
'for' Rs. 14,145/10/-, together with simple interest thereon
from January 1, 1946 to August 14, 1947 at the rate of Rs.
1/8/- per cent Or annum
and from August 15, 1947 to December 1, 1948 at 6 per cent
per annum. It was further directed that the respondent
could get pendente litse simple interest from the appellant
on the decretal amount at 6% per annum. As the amount of
Rs. 1,986/2 had been paid to the respondent on September 16,
1950, it would be deducted from the total amount found due
to the respondent and the decretal amount scaled down pro
tanto. Costs of both the courts were also awarded to the
Hence, this appeal by the Bank on a certificate granted by
the High Court under Article 133 of the Constitution read
with sections 109 and 110 of the Code of Civil Procedure.
Dr. Y. S. Chitale, appearing for the appellant, contends
that the respondent's case, as laid in the plain,, was that
the plaintiff had entrusted K. D. Shukla, who was their
friend, with moneys from time to time for depositing in her
Savings Bank account. In such a situation, K. D. Shukla
could not be said to have been acting in due course of his
employment or an agent of the Bank but only as an agent of
the respondent, and if K. D. Shukla did not deposit those
amounts. as directed by the plaintiff, but misappropriated
the same and to cover up his fraud made false entries in the
Pass Book, the Bank was not liable. Stress has been laid on
the fact that the disputed amounts. were never delivered by
cheque or otherwise at the Bank's counter. In this
connection, reliance has been placed on the principles
enunciated in Leesh River Tea Co., Ltd. & Ors. v. British
India Steam Navigation Co., Lid.(1); Ruben and Ladenburg v.
Great Fingall(2); and Morris v. C. W. Martin & Sons Ltd.(3)
As against the above, Mr. Bhargav submits that the entries
in the Pass Book showing the deposit of these amounts in the
Savings Bank account of the plaintiff, had admittedly been
made by K. D. Shukla, when he was an employee of the Bank.
It is pointed out that there is evidence on the record to
show that this K. D. Shukla had mani-pulated the accounts of
three other depositors, also, and the Bank had reimbursed
those constituents for the loss, and here is no reason why a
discriminatory treatment should have been meted out to the'
plaintiff. It is argued that evidence on the record
suggests that K. D. Shukla could be called upon to help
other clerks, also, in transactions; with the Bank; that
there could be no collusion between Bhagwatr Prasad and K.
D. Shukla, because no man in his senses, would collude with
another to cause deliberate monetary loss to himself or his
wife.. It is emphasised that according to the statement of
Bhagwati Prasad, the cheque for Rs. 4,000/- drawn by
Bhagwati Prasad on the account of Bhagwati Prasad & Sons for
transfer to the account of the plaintiff,, was handed over
by him at the Bank's counter. With regard to all the
disputed items, it is urged that the entries in the Pass
Book showing-. these deposits in the plaintiff's accounts
were, prima facie, sufficient:
(1)  3 All E.L.R.593.
(2) [1904-07] All E.L.R 460.
(3)  2 All E.L.R. 725.
to establish the plaintiff's claim and cast liability on the
appellant. Our attention has also been drawn to the entries
in the Bank's ledger showing the deposit of this amount of
Rs. 4,000/- in the account of the plaintiff. It is
maintained that if K. D. Shukla or any other employee of the
Bank made these entries falsely in the Pass Book or in the
Ledger, the plaintiff could not be made to suffer and that
the Bank would for that fraud committed by the Bank's
employees in the course of their employment, be liable. It
is contended that in the face of the entries in the Pass
Book, the burden had shifted on the Bank to show, how it was
not liable to make good the loss.
At the outset, it may be noted that the case of the
plaintiff, as adumbrated in the plaint, was different from
what was sought to be made out at the trial. It will bear
repetition that in the plaint, it was pleaded that the
plaintiff "quite often used to hand over the money and
letter of instructions to him (K. D. Shukla), while this
Clerk used to obtain the signatures of the officer on the
Pass Book as usual. The plaintiff used to believe that the
money had been deposited and she was satisfied about such
deposits on perusal of the Pass Book.. She had never any
occasion for suspicion" before August 1946.
At the trial, the plaintiff herself did not appear in the
witness-box, instead. her husband Bhagwati Prasad appeared
as a witness. His version was that it was he, and not his
wife, who used to hand over the money and letter of
instructions for deposit of the same in the plaintiff's
Savings Bank account; and that he had deposited the amounts
in cash or cheque at the counter behind which, at the Same
table, K. D. Shukla and one other clerk worked. Contrary to
the case set up in the plaint, Bhagwati Prasad went to the
length of saying that he did not send or deposit through K.
D. Shukla any money in his wife's account with the defendant
Bank. He equivocated even withregard to the paten, fact
that it was K. D. Shukla who had introduced the plaintiff
and identified her signature on the Account Opening Form
submitted to the Bank. He denied that the plaintiff ever
sent her Pass Book to the Bank for completion through K. D.
Shukla and the latter used to return the same to her after
completion. He, however, conceded
"If he was present in the Bank, I may have
deposited or paid some amount through him."
At this juncture, the witness was confronted with the
contents of paragraph 3 of the plaint. Thereupon, he
admited that what was stated therein was correct. Bhagwati
Prasad further admitted that K. D. Shukla was residing four
or five houses, away from his house and he was known to the
witness for the past 10 or 1 1 years.
Before dealing with the. contentions canvassed, it would be
useful notice the settled legal principles which govern the
vicarious liability of an employer for the loss caused to a
customer through the misdemeanour or negligence of an
The first of these principles is that the employer is not
liable for the act of the servant if the cause of the loss
or damages arose without
his actual fault or privity and without the fault or neglect
of his agents of servants in the course of their employment.
This principle is best illustrated by the decision of the
House of Lords in Leesh River Tea Co. Ltd. & Ors. v.
British India Steam Navigation Co., Ltd. (supra). The facts
of that case were that during her voyage a ship called at an
intermediate port to discharge part of her original cargo
and load some fresh cargo. The shipowners engaged a
stevedore company to discharge and load. A servant of the
stevedore company stole a brass plate, which wasa cover
that could be removed to the access to a storm valve.
Itsremoval rendered the ship unseaworthy as sea water
could enter whenthe ship rolled. The resulting hole in
the ship was concealed by part of the fresh cargo loaded.
On her voyage after leaving the port the ship encountered
heavy weather. Water entered through the hole end damaged
part of the original cargo. In an action for damages by the
owners of the damaged cargo, the shipowners contended that
they were excepted from liability by Art. IV. Rule 2(q) of
the Hague Rules, because the cause of the damage arose
without their actual fault or privity and "without the fault
or neglect of the agents or servants" of the shipowners.
Dealing with this argument, Danckwerts, L.J. observed (at
page 597 ) :
"It seems to me that the vital point in the
case is whether the theft of the brass plate
was made by the stevedore, at Port Sudan, in
the course of his employment by the ship-
owners. He was to be regarded as the agent of
the shipowners for the purpose of unloading
and loading cargo. There is no doubt that
this gave him the opportunity to effect the
theft of the plate; but the stevedore was
concerned with cargo and not with the ship or
parts of the ship. When he deliberately stole
the plate he was acting in a way which was
completely outside the scope of his employment
on behalf of the shipowners. The theft could
not have been prevented by any reasonable
diligence of the shipowners through the
officers and crew of the ship."
Salmon, L.J., speaking in a similar strain (at page 599)
emphasised that the fact that the thief's employment on
board presented him with the opportunity to steal does not
suffice to make the shipowners liable. The conclusion drawn
"For an employee to, be liable, however, it is
not enough that the employment merely afforded
the servant or agent an opportunity of
committing the crime."
It must be shown that, the damage complained of was caused
any wrongful act of his servant or agent done within the
scope or course of the servant's or a s employment,even if
the wrongful act amounted to a crime. For this proposition,
Salmon, L.J. referred to Lloyd V. Grace, Smith & Co.(1).
(1)  A.C. 716.
la United Africa Company Ltd. v. Baka Owoade(1) the Privy
Council laid down that a master is liable for his servant's
fraud perpetrated in the course of master's business,
whether the fraud was for the master's benefit or not, if it
was committed by the servant in the course of his
employment. There is no difference in the liability of a
master for wrongs whether for fraud or any other wrong
committed by a. servant in the course of his employment, and
it is a question of fact in each case whether it was
committed in the course of the employment.
In that case, the appellant-company, general merchants, had
expressly committed to servants of the respondent, a
transport contractor, at his request, goods for carriage by
road, and the servants stole the goods, and the evidence
established that that conversion took place in the course of
their employment. The respondent was held liable to the
appellants for the value of the goods.- The rule in Lloyd v.
Grace, Smith & Co. (supra) was applied.
Now, let us apply these principles to the facts of the
The plaintiff's case, as already noticed, in the plaint was
that the various amounts had been handed over in cash or in
cheque by her to K. D. Shukla, an employee of the Bank for
crediting in her Savings Bank- account with the defendant-
Bank. But Shukla fraudulently misappropriated or converted
the same to his own use.
Therefore, the first question that falls to be considered is
whether the amounts, in question, were handed over by the
plaintiff or on her behalf by her husband, Bhagwati Prasad,
to K. D. Shukla in the course of the Bank's business ? In
other words, was K. D. Shukla, while receiving these amounts
from the plaintiff, acting as an agent of the plaintiff or
of the Bank in the course of his employment ? This question,
further resolves into the issue whether these amounts in
question were handed over in the usual course of business in
the Bank ?
Issue No. 1, framed by the trial court, is wide enough to
cover this point. As already noticed, the trial court
decided this issue, excepting with regard to the items of
Rs. 4,000/- and Rs. 105/-, in favour of the plaintiff. The
High Court, on appeal, decided this issue with regard to the
item of Rs. 4,000/- in favour of the plaintiff.
Since it is contended that the court below has misread the
evidence and has not paid due attention to some of its
features, we propose to reexamine the same ourselves.
The main items shown in the Pass Book, as deposited in the
respondent's Savings Bank Account are of Rs. 4,000/- and Rs.
In regard to the item of Rs. 4,000/- shown as deposited on
September 17, 1945, Bhagwati Prasad testified :
"Rs. 4000/- was deposited by cheque on 17th
September 1945. It was presented in the Bank
on 10th September,
(1) 1955 A.C. 130.
1945...... The counterfoil (Paper No. 4 of
List 41/C) of
Rs. 4000/- relates to this cheque,
showing the amount deposited on 17th September
1945. This is a crose cheque. I had written
a letter in Hindi to the Bank to deposit, the