Fraud Allegations Against Branch Manager are a Defense, Not Ground to Stay SBI Recovery Suit: DRAT [Read Order]

The Debts Recovery Appellate Tribunal (DRAT) has dismissed an appeal filed by borrowers against the State Bank of India, holding that allegations of fraud against a bank's branch manager cannot be used to stall debt recovery proceedings. The tribunal held that these cannot be a ground to stay recovery suit by SBI.

Justice Anil Kumar Srivastava held that such fraud claims constitute a defense for the borrowers to raise before the Debt Recovery Tribunal (DRT), but they do not warrant a stay of the suit or the impleading of the individual bank employee as a necessary party.

The appellants, Smt. Sumitra Devi Jat and others, were facing recovery proceedings from the SBI for a loan sanctioned in 2012. They appealed a DRT order which had refused to stay the proceedings or add the branch manager, Shri Banwari Lal Chouhan, as a respondent. The borrowers argued that the manager had defrauded them by obtaining signatures on blank papers and that a criminal case was pending against him.

The bench viewd that “If fraud was played upon the appellants or they had lodged some criminal First Information Report against the Branch Manager who sanctioned the loan to the appellants, that could be a ground of defence for the appellants. Pendency of a criminal case cannot be a ground to stay the proceedings in the O.A. filed under Section 19 of the RDB Act. Criminal case will be decided by the competent Court on its own merits, which will have no bearing on the result of the O.A. filed by the bank under Section 19 of the RDB Act.

Further, the issue of fraud is concerned, it can be a defence for the appellants, which they will be at liberty to prove before the Ld. DRT, but the Branch Manager who sanctioned the loan cannot be said to be a necessary party as the bank itself filed the O.A. The Branch Manager is an officer/employee of the bank where only a Master-Servant relationship exists.”

However, the DRAT rejected these contentions, stating that the manager, as an employee of the bank, shares a master-servant relationship with the institution and cannot be considered a necessary party when the bank itself is the plaintiff. The Tribunal further clarified that the outcome of a separate criminal case would have no bearing on the civil recovery suit filed under Section 19 of the RDB Act.

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Accordingly, the appeal was dismissed. The DRAT, while noting the original application was pending since 2012, directed the DRT to dispose of the matter expeditiously without granting any further adjournments, underscoring that procedural defenses must be argued within the main proceedings rather than used to delay them.

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