Contract Law

State Bank of India v. Shyama Devi

AIR 1978 SC 1263; (1978) 3 SCC 399

Facts

Shyama Devi gave money and cheques to an employee of the State Bank of India, named Shukla, for deposit into her account.
Shukla was personally known to her.
The money was handed over outside the bank’s prescribed deposit procedure.
No proper deposit slips, official receipts or counter acknowledgements were obtained.
Shukla misappropriated the money instead of depositing it.
Shyama Devi sued SBI, arguing that the Bank was vicariously liable for the wrongful act of its employee.
She contended that Shukla sometimes assisted with banking work and appeared capable of receiving deposits.
SBI argued that he had acted privately, outside the scope of his employment and without actual or apparent authority.

Whether the Bank was liable for money misappropriated by its employee.
Whether the employee received the money in the course of employment or in a purely personal capacity.

A principal or employer may be liable for the fraud or wrongful act of an agent or servant committed:
within actual authority;
within apparent authority created by the principal;
in the course of employment.
The employer is not liable merely because the wrongdoer is an employee.
The wrongful act must be sufficiently connected with the authorised functions.
Private conduct undertaken outside official procedure and for personal purposes does not ordinarily bind the employer.

Receiving deposits informally from acquaintances outside the Bank’s established process was not part of Shukla’s assigned duty.
The Bank had a formal procedure requiring:
deposit forms;
delivery at authorised counters;
verification;
official receipts.
Shyama Devi did not follow those safeguards.
She dealt with Shukla because of personal trust rather than because SBI had represented that he was authorised to collect money privately.
The fact that he occasionally helped at other counters did not establish authority to receive deposits outside official channels.
His employment merely provided the opportunity to commit the fraud; it did not make the fraudulent act part of his employment.
The Court distinguished between:
an authorised transaction performed dishonestly; and
a private transaction wholly outside authorised functions.
An employer may be liable in the first situation, but not ordinarily in the second.
No holding out by SBI was proved, and the Bank had not received the funds or obtained any benefit from them.

The Supreme Court held that SBI was not liable.
Shukla had received and misappropriated the money outside the course of his employment.
Use this case for: an employer is not vicariously liable where an employee’s fraud is committed through a private transaction outside actual or apparent authority.