Acts Prejudicial to the Interests of the Bank: Legal Standards and Judicial Interpretation in India

Acts Prejudicial to the Interests of the Bank: Legal Standards and Judicial Interpretation in India

Introduction

Indian banking service regulations uniformly characterise “doing any act prejudicial to the interests of the bank” as gross misconduct. The clause appears, inter alia, in the bipartite settlements governing workmen, in officer-employee service regulations, and in standing orders of public sector banks. Although the phrase is open-textured, its invocation often results in dismissal, rendering the jurisprudence surrounding it vital both for employee rights and for institutional integrity. This article critically examines the statutory setting, judicial interpretation, procedural safeguards, and emerging challenges concerning this ground of misconduct, drawing upon leading precedent and statutory materials.

Regulatory and Statutory Framework

The Banking Companies (Acquisition and Transfer of Undertakings) Acts 1970/1980, read with Section 19(1) of the Banking Regulation Act 1949, authorise nationalised banks to frame service regulations. Under these delegated pieces of legislation—e.g., the Punjab National Bank Officer Employees' (Discipline & Appeal) Regulations 1977, the Canara Bank Service Code, and the model bipartite settlements—“acts prejudicial to the interests of the bank” are expressly catalogued as gross misconduct attracting major penalties.[1] While no central statute defines the expression, the Reserve Bank of India (RBI) has, under Sections 21 and 35-A of the 1949 Act, issued normative directions emphasising prudential conduct and fiduciary responsibility.[2]

The Concept of “Prejudicial to the Interests of the Bank”

Textual Breadth and the Vagueness Challenge

In A. Gopalakrishna Prabhu v. Chairman, Central Bank of India the Kerala High Court rejected the plea that the clause was constitutionally vague, holding that once management, on the basis of material, concludes that a specified act harms the bank, courts under Article 226 exercise only limited review.[3] The Court implicitly applied the settled principle that a disciplinary provision is not void for overbreadth if its contours can be rationally delimited through evidence and precedent.

Substantive Elements Evolved by Courts

  • Financial Detriment or Risk: Misappropriation, unauthorised advances, or exposure of the bank to civil liability have been treated as self-evidently prejudicial (Punjab National Bank v. Gopal Vasudeva).[4]
  • Reputational Injury: Disorderly conduct in public functions, as in General Manager, Canara Bank v. Central Government Labour Court, justifies the label even without quantifiable loss.[5]
  • Breach of Fiduciary Duty: Granting loans in disregard of internal controls (SBI v. Samarendra Kishore Endow) meets the threshold notwithstanding absence of criminal conviction.[6]
  • Potential Harm: The potential to cause “serious loss” suffices; realised loss is unnecessary (Monoj Kanti Bose v. Bank of India).[7]

Procedural Safeguards and Judicial Review

Limits of Substantive Re-appraisal

The Supreme Court has consistently demarcated judicial review from appellate re-appreciation of facts. In SBI v. Samarendra Kishore Endow the Court reinstated removal because the disciplinary findings were based on “some evidence”—a sufficiency tent that courts should not transgress.[8]

Natural Justice when the Disciplinary Authority Disagrees with the Inquiry Officer

Punjab National Bank v. Kunj Behari Misra crystallised the rule that before recording findings contrary to the inquiry report, the authority must furnish its tentative reasons and hear the employee.[9] This safeguard is crucial where the broad “prejudicial to interest” charge can admit multiple inferences.

Bias and Audi Alteram Partem

The Bombay High Court in Viraj Chetan Shah v. Union of India underscored the “real likelihood” of bias test. Because banks are both prosecutor and judge in disciplinary matters, scrupulous adherence to impartial procedure is imperative lest the process itself become prejudicial to the bank’s interest by undermining public confidence.[10]

Service Abandonment and Prejudice

Even passive conduct such as prolonged absence may prejudice operational interests. In Regional Manager, Central Bank v. Vijay Krishna Neema the Supreme Court invalidated termination for abandonment, not for want of prejudice, but for failure to serve notice as mandated under Clause 16 of the Shastri Award—a telling reminder that procedural compliance undergirds substantive legitimacy.[11]

Interface with Criminal Law

Parallel Criminal Proceedings

The Supreme Court in Indian Overseas Bank v. P. Ganesan clarified that disciplinary enquiries need not await the outcome of criminal trials unless complex questions of fact or law risk conflicting findings.[12] Accordingly, “prejudicial” acts may be processed departmentally even where police investigations are pending.

When Civil or Contractual Breach Is Mislabelled Criminal

In CBI v. Duncans Agro Industries FIRs alleging cheating and criminal breach of trust were quashed because the dispute was essentially civil; yet, the same facts could still invite disciplinary action by the lending banks.[13] The decision demonstrates that absence of criminal culpability does not preclude a finding of prejudice under service law.

Requirement of Statutory Sanction

CBI v. Dr. R.R. Kishore illuminates that procedural shields such as Section 6-A of the DSPE Act, once struck down, cease to protect wrong-doers ab initio.[14] Investigations against senior bank officials for prejudicial acts therefore cannot be thwarted by void statutory impediments.

Fiduciary Character of Banking and the Public Interest

Courts have repeatedly invoked the public-trust doctrine in banking disputes. In Indian Bank v. Blue Jaggers Estates the Supreme Court observed that a bank “is a trustee of public funds” and must use every lawful avenue to recover dues.[15] Similarly, debt recovery tribunals, relying on the same dictum, hold borrowers to strict contractual compliance.[16] Consequently, employee misconduct that jeopardises asset quality or impedes recovery is treated with particular severity.

Vagueness, Proportionality and Constitutional Values

Although A. Gopalakrishna Prabhu upheld the clause, doctrinal developments since Maneka Gandhi v. Union of India require administrative discretion to be not arbitrary. The proportionality review hinted at in Central Bank v. Ravindra regarding interest policy[17] and reaffirmed in disciplinary contexts such as SBI v. Samarendra Kishore Endow suggests that punishment must bear rational nexus to the degree of prejudice caused. Excessive penalties may fail Constitutional scrutiny even when misconduct is made out.

Emerging Trends and Best Practices

  • Codification of Illustrative Acts: Several banks have appended schedules specifying illustrative prejudicial acts (undervaluation of collateral, leakage of confidential data), thereby mitigating vagueness.
  • Forensic Audit Integration: Post-2008 prudential norms require concurrent audits; findings feed directly into disciplinary inquiries, ensuring evidentiary robustness.
  • Strengthened Whistle-blower Mechanisms: RBI’s 2021 master circular on frauds mandates early reporting of staff malfeasance, reinforcing the duty to prevent prejudice at inception.

Conclusion

The jurisprudence demonstrates that “acts prejudicial to the interests of the bank” serve as a necessary residuary category guarding institutional fidelity, but one circumscribed by principles of natural justice, proportionality, and evidence. Courts de-ferentially uphold disciplinary findings where procedures are scrupulously followed and some nexus to financial, reputational, or fiduciary harm is shown. Conversely, opacity, bias, or disregard of statutory safeguards invites judicial correction. As banking grows increasingly complex, the phrase will continue to evolve, its contours chiselled by the twin imperatives of employee rights and systemic stability.

Footnotes

  1. Bipartite Settlements (Workmen) 1966 & 1979; PNB Officer Employees’ (Discipline & Appeal) Regulations 1977, Reg. 3.
  2. Banking Regulation Act 1949, ss 21, 35-A.
  3. A. Gopalakrishna Prabhu v. Chairman, Central Bank of India, Ker HC (1990).
  4. Punjab National Bank v. Gopal Vasudeva, Del HC (2016).
  5. General Manager, Canara Bank v. Central Government Labour Court, Ker HC (2003).
  6. State Bank of India v. Samarendra Kishore Endow, (1994) 2 SCC 537.
  7. Monoj Kanti Bose v. Bank of India, Cal HC (1976).
  8. Ibid.
  9. Punjab National Bank v. Kunj Behari Misra, (1998) 7 SCC 84.
  10. Viraj Chetan Shah v. Union of India, Bom HC (2024).
  11. Regional Manager, Central Bank of India v. Vijay Krishna Neema, (2009) 5 SCC 567.
  12. Indian Overseas Bank v. P. Ganesan, (2008) 1 SCC 650.
  13. CBI v. Duncans Agro Industries Ltd., (1996) 5 SCC 591.
  14. CBI v. Dr. R.R. Kishore, (2023) 15 SCC 339.
  15. Indian Bank v. Blue Jaggers Estates Ltd., (2010) 8 SCC 129.
  16. Punjab National Bank v. Mohd. Rafiq Khan, DRT Allahabad (2023).
  17. Central Bank of India v. Ravindra, (2001) 1 SCC 367.