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Saura Patil   12 June 2021

Banking related

Learned Counsel, 

My father works in a band and this question. A person applies for a vehicle loan from a branch of the bank. And if the dealer whose quotation is given for the said loan opens a bank account for the dealership in another branch of the same bank and spends the money for personal use and if the person who has taken the vehicle loan isn't given possession of his vehicle, can the branch of the bank and the employee of the bank from the which the loan DD was cleared and money was used for personal expenditure be held personally responsible or liable?

Thank you in advance!



 11 Replies

SHUBHANGI GUPTA   12 June 2021

ghouufgpi is joud
1 Like

Sankaranarayanan (Advocate)     12 June 2021

State the facts clearly 

G.L.N. Prasad (Retired employee.)     12 June 2021

There are several actual cases that has taken places known to me personally.  A fraudulent dealer of a reputed Automobile company at Hyderabad accepts such banker's demand draft in his name from the borrower, credits in his account and later lures borrower to go and take delivery of vehicle at GOA and assures that he can save at least 5% of vehicle cost, as taxes were less. Another suggestion is that that particular model is not readily available with them and it may take two months to get such vehicle from the manufacturer, and as it is readily available in God, he can take immediate delivery.  The borrower goes there, never finds such dealer and returns back, a dealer can never be contacted, bank demands inspection of the vehicle for the invoice, Temp Registration, duplicate copy and other formalities and innocent and illiterate lorry driver fails to submit the same.

The Banker escapes the liability by simply stating that the borrower has submitted an invoice and given specific authorization to issue demand draft of such reputed dealer and their duty ends there.  Delivery of vehicles by dealers is no concern to them.

Legally it is the stand as bank carried outstanding instructions of a borrower and it is the responsibility of the borrower to get delivery of the vehicle.

In those cases, the borrower being influential filed a Police complaint, got the dealer arrested when he is spending his night with an extra artist, arrested, beaten and the amount recovered.

The lesson learned by the banker is that he should provide demand draft number, get confirmation of Engine No. Chasis No allotted to the borrower and then send the amount and strictly instructing the borrower not to part with DD unless the vehicle is delivered.

Now the remedy in your case is filing a police complaint as immediately as possible and also give notice to the Manufacturer that appointed such dealer.'s fraudulent dealing    This should be done with the help of a local advocate..  The banker is not concerned with such fraud of a dealer.

Dr J C Vashista (Advocate)     13 June 2021

Facts posted are not clear to make proper opinion and oblige.

SIVARAMAPRASAD KAPPAGANTU (Retired Manager)     13 June 2021

It depends upon various other circumstantial evidence. In such matters, the bank conducts an investigation and if in such investigation it is found that the Bank Manager was hand in glove with the so-called Dealer, he shall be held responsible.

G.L.N. Prasad (Retired employee.)     13 June 2021

@Sivaramprasad Kappagantu:  The reply of investigation against manager and allegation that he might be hand in glove with the borrower is shocking,, unheard of, when the sanctioning authority, monitoring authority is ultimately the manager, and the entire advance must be shown as loss asset and declaration of fraud in a branch is negative rating and the Audit grading has to be 'C'.  It is suicidal for the bank manager and I have seen several instances, and Bank focuses not on fraud but on recovery, and the Police conduct investigation to arrest the most reputed dealer and bring pressure..  Unless the superior is insane and sadist, they do not torture a manager with a Vigilance inquiry.

SIVARAMAPRASAD KAPPAGANTU (Retired Manager)     13 June 2021

May be if it's an isolated case investigation may not be ordered. If there are series of such instances, investigation shall take place.

G.L.N. Prasad (Retired employee.)     13 June 2021

With due apologies, sorry sir, it can never happen in a bank.  Once bitten twice shy holds good, once a dealer is blacklisted by the bank, they circulate the case and caution all branches to be careful and if the Manufacturing company response is not favorable, they stop advancing against vehicles manufactured by that company.  The investigation or bank role is not the present issue. In the quoted case by me the vehicle loan was sanctioned by a higher authority, the fraudulent dealer is his own brother in law, and the manager is not aware of the relationship, brought pressures and got the dealer arrested through the police to help the borrower, within a week the manager was transferred to some other distant branch as an accountant.  Only after making inquiries, the fact was learnt.

The replies are indeed a deviation from the main issue, the query by the member before the expert is simple: 

What the poor borrower can do, as the vehicle is not delivered, and the financing bank is pressing for inspection of the vehicle and on recovery.

P. Venu (Advocate)     13 June 2021

Why "if" - is this not a real time query?

T. Kalaiselvan, Advocate (Advocate)     13 June 2021

The vehicle loan was sanctioned on the basis of the quotation for the purchase of vehicle  given by the dealer and submitted by the borrower to the bank.

The bank after satisfying with all credentials.including the repaying capacity of the borrower, has sanctioned the loan.

Therefore neither the bank staff nor the bank manager can be held for this fraudulent act done by the dealer of the vehicle.

Whatever, it becomes the responsibility of the borrower to repay the loan to the bank though he can take action against the dealer through a police complaint for cheating as well as through the consumer forum for deficiency in service.

The bank has sanctioned loan to the borrower and not to the dealer, hence bank is not an aggrieved party neither the bank can be held responsible if the dealer has cheated the buyer.

The bank is no where involved in this acts of fraud committed by th dealer hence no blame can be mad against the bank for this debacle..

Moreover the bank can recover the loan from the borrower hence there is no loss to the bank by any means for any reason.



G.L.N. Prasad (Retired employee.)     14 June 2021

Bank takes a prescribed authorization letter from a borrower asking the bank to remit the proceeds of vehicle loan sanctioned through Bank DD in favor of dealer on .................(Place) for the invoice price and collect margin money from borrower's account.  (This is part of the documentation process in every bank).  The bank acts only as per the authorization letter of the borrower and after the dealer gives an intimation of Engine No....and Chasis NO.....allotted to the borrower.. There is no relationship between dealer and banker to suspect the connivance of the banker. 

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