K.K. Dube, J.
1. By this petition under Article 226 of the Constitution of India, the petitioners seek to challenge the right to recover from them the loss incurred to the Bank in refunding the mutilated notes by the petitioners 2 to 4.
2. Petitioner No. 1 is an association of officers employed by the State Bank of India. This association is espousing the cause of the cashiers in general and want to canvass that the cashier of the State Bank of India would incur no personal liability in exchanging the mutilated notes. The facts and the circumstances leading to the order for realising the loss from the cashiers would differ from case to case and there is no common cause of a general nature, which the petitioner No. 1 could ventilate, and the petitioner No. 1 would have no locus standi in the case. We would, however, proceed to consider the case of the three petitioners.
3. All the three petitioners are Head Cashiers and were posted at all material times at the Civil Lines Branch of the State Bank of India. It is undisputed that the petitioners, M.P. Gupta, R.C. Namdeo and H.S. Verma, exchanged a considerable amount of mutilated notes of the denomination of less than Rs. 100 between the period from 6-2-1976 to 10-8-1978. When these mutilated notes were remitted to Reserve Bank of India, they were refused payment causing loss to the State Bank of India. M.P. Gupta, R.C. Namdeo and H.S. Verma had exchanged notes of the value of Rs. 40,782, Rs. 2,150 and Rs. 241 respectively. The notes were imperfect defective and mutilated. When the remittance was sent to Reserve Bank of India, which contained these notes, the Reserve Bank, in presence of the officers of the State Bank, sorted out the imperfect notes from the notes that could be paid by the Reserve Bank. Thereafter, the above notes were sent to the Claims Department of the Reserve Bank of India. The State Bank was advised and was informed that if they so desired, they could send their representative to be present at the time of the scrutiny by the Claims Department. In course of time, these notes were scrutinized by the Claims Department of Reserve Bank of India, who found that out of the notes thus remitted, notes of the value of Rs. 28,091 exchanged by M.P. Gupta, notes of the value of Rs. 390 exchanged by R.C. Namdeo and notes of the value of Rs. 5 exchange by H.S. Verma could not be accepted by them. The State Bank of India is realising this amount from the aforesaid cashiers by deducting from their salary in convenient instalments. It is not in dispute that the above notes refused (sic) payment by the Reserve Bank of India were exchanged by the petitiones concerned as aforesaid. It was possible to know from the packets of the notes exchanged by each of the cashiers as to which of them had accepted those notes from the chit attached to such packets bearing the signatures of the cashiers concerned.
4. The three petitioners contend that the Manager (Accounts) of the State Bank of India was delegated the authority by the Reserve Bank of India to exchange the mutilated bank notes. The Head Cashiers were orally authorised to exchange these mutilated notes by the State Bank of India. The defective notes exchanged by them had to be later scrutinised by the Manager (Accounts) at his convenience before they were sent for remittance to the Reserve Bank of India. The Manager (Accounts) never took any objection as to the acceptance and exchange of the above bank notes and, therefore, it would be deemed that the notes had been exchanged under the authority of the Manager (Accounts). The decision of the Manager (Accounts) to exchange the notes was final under Rule 21 of the Reserve Bank of India (Note Refund) Rules, 1975. Secondly, it is contended that natural justice required that the petitioners were issued notice before rejecting the notes; and lastly, it is urged that the amount cannot be deducted from their salary without an enquiry being made by the bank in which they were given proper opportunity to represent their case.
5. In exercise of powers conferred by proviso to Section 28 of the Reserve Bank of India Act, 1934 (2 of 1934), read with Clause (q) of Sub-section (2) and Sub-section (1) of Section 58 of the said Act, the Central Board of Directors of the Reserve Bank of India, with the previous sanction of the Central Government, made rules prescribing the circumstances in, and the conditions and limitations subject to which the value of lost imperfect or mutilated notes may be refunded as a matter of grace. These rules are called the Reserve Bank of India (Note Refund) Rules, 1975. By virtue of Section 28 of the Reserve Bank of India Act, no person has a right to recover from the Reserve Bank of India or the State Bank of India the value of any lost, stolen, mutilated or imperfect bank notes, The Note Refund Rules prescribed the conditions under which the Reserve Bank of India could exchange the mutilated and the imperfect notes.
6. The Deputy Governor, Reserve Bank of India, under the delegated authority from Governor of the Reserve Bank of India, issued orders in exercise of powers conferred by Clause, J of Rule 2 r/w Sub-rule (1) of Rule 21 of the Reserve Bank of India (Note Refund) Rules, authorising all Managers by , whatever name called of office or branch of State Bank of India to pay any claim in respect of a note, which satisfied all the conditions specified in Rule 9. This order has been annexed as Annexure-A of the petition. The order has been made for facilitating the exchange of imperfect notes, subject to the condition that it satisfied the requirements provided under Rule 9. it would be seen from these rules and the instructions issued from time to time by the Reserve Bank of India that the defective notes, for which the State Bank was delegated the power to refund, was in respect of such notes as clearly fell within 5, 8 & 9 of the rules. As far as the soiled notes or imperfect notes were concerned, there is absolutely no difficulty, as these notes preserved all the characteristics and the identifying marks of a note and the soiled note gave a worn outlook because of the constant use. A mutilated note is a note of which a portion is missing or is composed of pieces, It may be stated that we are here concerned with the exchange of mutilated notes. Such notes as satisfied the conditions under Rule 9 were called slightly mutilated notes. The bank was not authorised to exchange any note which did not satisfy conditions laid down under Rule 9.
7. The rules elaborately lay down that mutilated notes have not to be accepted unless they satisfied the conditions mentioned under Rule 9. The delegation by the Reserve Bank of India is only confined to such notes. This would be clear from Rule 10, which lays down that save as provided in Rules 7, 8 & 9, a claim on account of any imperfect or mutilated note of the denomination of one hundred rupees or less, shall not be paid. There is, therefore, no substance in the contention that the cashiers were free to exchange the notes under the delegated authority from Reserve Bank of India.
8. Even in cases of those notes, which the bank was authorised to exchange, a rigid procedure had to be followed. Firstly, the notes to be exchanged passed the tests laid down in the check list supplied. The slightly mutilated notes composed of two halfs, both were to be branded with a rubber stamp bearing words 'mutilated', 'imperfect' or 'half notes', as the case may be. Thereafter, a payment order had to be obtained from the Manager, who is being authorised in this behalf by the Reserve Bank of India. The authorised officer affixed a seal of the pay order with his signature underneath. Even if such slightly mutilated notes were accepted by the Bank on proper scrutiny satisfying the conditions under Rule 9. it was further required that the notes should bear the stamp of the bank making the payment with the name of the cashier making the payment on it. This was done so, because the Reserve Bank of India reserved its right to refuse payment even in cases of such notes. This position is clear from the circulars containing the Reserve Bank of India circulars. In any case, the cashiers could not have entertained claims in respect of notes which had not come within Rule 9 of the Refund Rules, which were forbidden to be refunded and for which there was no authority delegated by the Reserve Bank of India. After the slightly mutilated notes had been exchanged by the bank, they had to be kept in separate packets and when they were remitted to the Reserve Bank of India, they had to be sent by insured post separately packed. Until the notes were accepted by the Reserve Bank of India, the bank making the payment and consequently the officer making such payment continued to be responsible for exchanging the notes. The notes exchanged were in no case to be mixed up with the other notes or even with the soiled notes, either when they were kept in the Bank's Chest or when they were remitted to the Reserve Bank of India.
9. It is undisputed in this case that no such procedure was followed as has been indicated above. The three petitioners had not obtained the necessary pay order from the authorised officer of the bank for making payments, They had not kept the notes in separate bundles, but had mixed them with other soiled notes to avoid detection. It clearly shows that they were not exchanging the notes under any authority or delegated power, but were exchanging the notes unauthorisedly. When such remittance reached Reserve Bank of India, it naturally objected and in the presence of the officer of the State Bank of India, the notes were sorted out. The Reserve Bank of India found that a large number of notes were mutilated and, as already stated above these notes were sent to the Claims Department. The Reserve Bank of India informed the State Bank of India that a large number of such mutilated notes had been received by them and also informed that the bank could send such person as they desired to be present at the time of scrutiny before the Claims Department of the Reserve Bank of India. It would appear from the return, and which averments have not been denied, that the bank asked the three cashiers to remain present at the time of scrutiny if they so desired. The three cashiers did not respond, but merely stated that they are taking up the matter before their Union, The bank officer had remained present at the time of scrutiny of the notes by the Claims Department. The State Bank was interested in the payment of the money in respect of these notes. It is not the petitioner's case that the Claims Department had wrongly rejected the mutilated notes or had done so maliciously. In such circumstances, no exception could be taken to the scrutiny by the Claims Department wherein the above estated number of notes were considered wholly unacceptable and unworthy of payment.
10. The petitioners have tried to contend that the State Bank did not permit them to be present at the time of the scrutiny by the Claims Department. But this appears to be wholly unfounded and wrong. The 'Annexure-F had been written by the Currency Officer of the Reserve Bank of India in a totally different context. The 'Annexure-F filed by the petitioners is a communication sent by the Reserve Bank of India not in connection with the present mutilated notes, but in some other connection. It appears, some other notes had been personally sent by one of these cashiers for which the Reserve Bank of India had intimated under the aforesaid Annexure-F. That intimation, however, has nothing to do with the present case. The petitioner's grievance that though they had been required by the Reserve Bank of India to be present at the time of scrutiny, but the State Bank did not permit them, is wholly unfounded.
11. Much emphasis has been laid on Rule 21 by the learned Counsel for the petitioner. Rule 21 lays down that decision of the Prescribed Officer of the bank in regard to any claim under this rule shall be final and no appeal from the said decision shall lie to any other officer or authority. By this rule, a claimant is prohibited from challenging the decision of the Prescribed Officer and no appeal was provided from such decision. It is difficult to see how the cashiers, who were not the claimants, could get benefit of the above provision. Under the above rule, if any notes were unauthorisedly rejected by the bank, the claimant could not file an appeal under the rules. That seems to be the purport of the rule. If the payment had been made, the rule was not attracted at all. The rule was not meant to give any protection to a defaulting cashier or an officer of the bank when he, in disregard of the instructions and the provisions contained in the rules, made payment of a mutilated note which ought not to have been done. When payment of such note was refused by the Reserve Bank of India, the officer concerned remained responsible for such payment even though inadvertently made. The rules are quite stringent as regards the paying banker's responsibility and if the notes had been unauthorisedly exchanged, there was no protection clause in the rules, much less, in Rule 21. Therefore, even if the erring cashiers' contenions, that they had the implied authority to exchange the notes, were accepted, the eventual responsibility for wrong payment of the notes was not avoided. We do not think that it is necessary in detail to refer to the procedure contained in the rules and the instructions of the Reserve Bank of India. We are clearly of the view that the cashiers were not acting under any delegated authority to refund such mutilated notes as did not fall under Rules 7, 8 & 9. They were clearly acting in excess of their authority and also in clear disregard of the procedure in this behalf. We are also of the opinion that there is nothing in the rules as would protect them from the liability incurred by them in wrongly refunding the mutilated notes.
12. The procedure adopted in remitting the currency notes and having it examined before the Claims Department of the Reserve Bank of India does not leave any scope for criticism. Moreover, as already stated, the scrutiny and the counting had been done before a responsible officer of the State Bank of India. The petitioners have at no time made any grievance to the State Bank that they were not allowed to represent before the Claims Department. This point is being raised by them for the first time. The State Bank of India, in fact, had informed the three cashiers that they could remain present at the time of scrutiny' if they so desired. No grievance can now be made that the rejection by the Claims Department was behind the back. It would be seen that apart from the fact that they had not availed of the opportunity of remaining present at the time of scrutiny, they cannot make much out of this grievance for the reason that they had accepted the notes in utter disregard of the procedure laid down. We do not think that any useful purpose would have been served even if the petitioners had remained present at the time of scrutiny by the Claims Department, as an officer of the bank was already there to represent the bank's interest and it has not been alleged that such officer did not perform his duties properly.
13. We then come to the other important point in the case whether the bank could deduct the loss suffered by them from the salaries of the delinquent cashiers. The State Bank of India is a statutory body created under the State Bank of India Act. The service conditions of the employees are regulated by the State Bank of India (Supervisory Staff Service) Rules. The rules enjoin that the employees shall abide by the code of conduct and discipline prescribed under the rules. Rule 118 requires that in case of the appointment of Head Cashier or Chief Cashier, they shall execute an agreement in the form prescribed and such cashiers shall be bound by the terms of agreement which shall have effect notwithstanding anything contrary contained in the rules. The conditions of contract would have an overriding effect over any service conditions provided under the rules. This has to be so provided in the nature of things. Under the special terms of the contract of service, it is wholly permissible to realise the amount from the cashiers. Clause 6 of the agreement executed by the petitioners makes them responsible to the bank for the safe custody of all billion, cash securities and other properties belonging to or deposited with the branch of the bank. Clause 6 provides that they would be unconditionally liable for all and any losses, damages, costs, expenses and charges, which may be sustained or incurred by the bank by reason of the loss of any property and for the receipt of bad or base coin or money or any forged or fraudulently altered currency notes or by reason of payment of any money or delivery of any securities for money or property. The petitioners under the contracts executed by them are thus liable for the loss to the bank because by accepting bad currency notes by them, they had put the bank to a loss which was recoverable from them. It is in terms of the contract of service that the above amount is being realised. It is not it dispute that notes of the value of Rs. 28,091 exchanged by M.P. Gupta, notes of the value of Rs. 390 exchanged by R.C. Namdeo and notes of the value of Rs. 5 exchanged by H.S. Verma were refused payment by the Reserve Bank of India and that such notes had been refunded by the aforesaid cashiers. The above cashiers are liable for the amount under the Refund Rules as also under Clause 6 of the contract executed by them. No departmental enquiry for such a claim was necessary as the bank was not seeking to take a departmental action against them. Under the terms of the agreement, the cashiers remained responsible for the loss in particular cases indicated under Clause 6 and the bank is seeking to enforce the terms of the clause by realising the amount from the petitioners.
14. We do not think that the petitioners have any case for interference in these proceedings under Article 226 of the Constitution of India. The petition is accordingly dismissed with costs. Counsel's fee Rs. 200. The cost awarded would be apportioned half and half between respondent Nos. 1 to 4 and respondent No. 5.