In a big blow to two nationalized banks, the Supreme Court has punished the two banks, namely, Indian Bank and Bank of Baroda, for the banks’ officials being involved with scams. In a directive to the banks, the SC asked them to release the funds to those cooperative societies and credit banks which were allegedly involved in the multi-crore fixed deposit scam.

However, the court has asked the banks to approach the CBI for any help to ascertain which cooperative society and credit bank was involved in the scam before disbursing the loan and the exact amount of that loan. Allegedly, a large number of officers of the banks were involved in a scam involving loans against Fixed Deposit Receipts (FDRs) running into crores of Rupees.

The bench headed by Justice SB Sinha, set aside the earlier judgement of the Gujarat High Court, saying that 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.

The banks are to release the funds latest by the first week of June.