In a recent judgment of Shailesh Vishwanath Jambhale v/s The General Manager, State Bank of India, Mumbai & Others, the Bombay High Court ruled in favor of a practicing advocate who had challenged his placement on the "Caution List" by the Indian Banks’ Association (IBA) and the State Bank of India (SBI). The petition, filed under Article 226 and 227 of the Constitution of India, sought the removal of the Petitioner’s name from the list after allegations of negligence in the preparation of Title and Search Reports for properties secured by loans.
Background:
The Petitioner, a practicing advocate, had been empaneled as a Panel Advocate for the State Bank of Hyderabad (now merged with SBI) in 2012. His responsibilities included preparing Title and Search Reports for properties on which loans were being sanctioned by the bank. Between October and December 2014, the Petitioner submitted reports regarding three different properties. Subsequently, a fraud was discovered related to loans sanctioned against these properties.
In response to the fraud, SBI issued show-cause notices to the Petitioner in June 2015 and June 2016, asking him to explain the lapses in the Title and Search Reports. The Petitioner denied any negligence in his work. In 2018, the Indian Banks’ Association (IBA) informed the Petitioner that his name had been placed on the "Caution List" following the guidelines issued by the IBA in 2009.
Reasons for Placement on the Caution List:
The IBA cited several reasons for placing the Petitioner on the Caution List:
- Failure to obtain certified copies of documents and compare them with those submitted by the borrower, leading to the use of fake title deeds.
- The Petitioner admitted to examining only photocopies of documents rather than the original documents.
- Negligence in properly comparing the documents with records at the Sub-Registrar’s office.
- His negligence led to a fraudulent mortgage and loan scam amounting to Rs.4.69 crores, which caused a significant financial loss for the State Bank of Hyderabad.
Petitioner’s Arguments:
The Petitioner contended that he had acted diligently in preparing the reports and had followed the procedure required for such work. He asserted that the allegations of negligence were incorrect. The Petitioner also pointed out that he had been engaged by the bank for several years and had submitted reports that were in the bank’s favor on various occasions. Additionally, he claimed that the placement on the Caution List since 2016 had severely impacted his professional career, as no bank would engage him for legal work.
The Petitioner relied on past judgments, including one from the Nagpur Bench of the Bombay High Court, to support his request for the removal of his name from the Caution List.
Respondents' Defense:
SBI, in its response, defended the placement of the Petitioner on the Caution List, stating that he had been negligent in his professional duties. The bank cited the affidavit filed by IBA and argued that the Petitioner’s actions had contributed to the fraud.
Court’s Analysis and Decision:
The Bombay High Court reviewed the facts and documents submitted by both parties. The court noted that the Petitioner’s Title and Search Reports clearly stated that they were based on photocopies of the documents, which were provided by SBI. At the time of submission, the bank was well aware that the reports were based on photocopies rather than original documents. Therefore, the court concluded that the bank had been informed of the nature of the reports and could not now accuse the Petitioner of negligence based on the same.
The Court also pointed out that SBI had its own set of guidelines for verifying mortgage properties, which the bank had not followed in this case. These guidelines required the bank's officials to inspect the property and obtain an encumbrance certificate, duties that were not performed by the bank, thus shifting the responsibility away from the Petitioner.
Further, the court highlighted that the Petitioner had not been involved in the fraud itself or in sanctioning the loans. SBI had not initiated criminal proceedings against him, which supported the Petitioner’s stance that he had not been negligent in his duties.
The Court also observed that the Petitioner had already suffered for the last eight years due to being placed on the Caution List, with no professional work from banks during this period. Given the facts and the Petitioner’s claim of no criminal involvement or negligence, the Court ruled that keeping the Petitioner on the Caution List indefinitely would be unjust.
Conclusion:
The Bombay High Court ruled in favor of the Petitioner, directing the IBA to remove his name from the Caution List. The Court emphasized that the allegations of negligence were not substantiated and that the bank’s own lapses in following due procedures had contributed to the fraud. Moreover, the Petitioner had already faced significant professional setbacks for eight years due to his placement on the list.
The Court’s judgment highlights the importance of fair procedures and due diligence on the part of both legal professionals and financial institutions. It also demonstrates the Court’s willingness to rectify actions that have caused disproportionate harm to individuals, especially when they have already suffered consequences over an extended period.
