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SC asks Indian Bank, BoB to release funds to coop societies
May, 31st 2008

The Supreme Court has directed two nationalised banks, Indian Bank and Bank of Baroda, to release funds to cooperative societies and credit banks allegedly involved in a fixed deposit scam by June first week.

The court, however, asked the banks to seek CBI's help to ascertain which cooperative society and credit bank was involved in the scam before disbursing the loan.

Allegedly, a large number of officers of the banks were involved in a scam involving loans against Fixed Deposit Receipts running into crores of Rupees.

While setting aside the Gujarat High Court judgement recently, a bench headed by Justice SB Sinha said the bank being a 'State' within the meaning of Article 12 of the Constitution of India with the assistance of CBI should make all attempts to ascertain as to which of the cooperative societies or cooperative banks were not involved in the scam and release the amount in their favour subject to certain precautions.

"Once the liability of the bank is determined, the bank may invest the said amount in its own account and issue fresh FDRs thereafter. Whereas the bank may keep the original FDRs with itself, it may issue the duplicate copies thereof to the eligible cooperative bank," the court said.

The bench also said that any cooperative society can avail of loan facilities for running their business from banks, which may release the same on a condition that the FDR amount would remain with them.

"Banks are constructively liable for acts of their employees. We will also assume that the banks are liable to pay the amount under the contract for which the FDRs were issued," the judgement said.

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