1. What Counts as Banking Misconduct?

Under Bipartite Settlement 1996 - Clause 19.5 and Officers' Service Regulations, Gross Misconduct includes:

Financial:

• Temporary misappropriation of customer funds, even if returned later
• Fictitious debits, forging vouchers, exceeding sanction limits
• Fabricating false documents for deposits

Operational:

• Indiscriminate lending to fictitious persons causing loss
• Fraudulently debiting crop insurance and crediting to KCC without borrower knowledge
• Theft of funds as Cashier/Clerk

Integrity:

• Conviction involving moral turpitude - mandatory termination under Section 10(1)(b)(i) of Banking Regulation Act
• Assault, insubordination - Clause 19.5(c)
• Securing appointment by impersonation - appointment void ab initio, no right to continue

2. Legal Framework for Termination in Banks

1. For Workmen (Clerk/Sub-staff): All India Industrial Tribunal (Bank Disputes) Award - Sastri Award, Desai Award, Bipartite Settlement 1966, 1996. Clause 19 lays down inquiry + punishments: a) dismissal b) discharge c) removal etc.
2. For Officers: Bank Officers' Conduct Regulations, 1982 - Reg 16(3)(a) for probationary termination, Reg 24 for major penalty.
3. Constitutional: Bank is State under Article 12 if public sector - must follow natural justice.

3. Procedure Bank Must Follow - Or Termination Fails

Supreme Court in Bank of Baroda vs Probationary AGM (2026 judgment by Justice J.K. Maheshwari) held:

Bank cannot terminate probationary officer citing poor performance when real basis is alleged misconduct without proper disciplinary inquiry

Mandatory steps:

• Charge Sheet with specific allegations
• Suspension pending enquiry
• Domestic enquiry by independent officer - employee can cross-examine
• Second show-cause on proposed punishment
• Appellate remedy

If bank uses Para 522(1) of Bank Award to simply terminate permanent employee without enquiry claiming "loss of confidence" - it will be tested. In Chartered Bank, Bombay v. Chartered Bank Employees' Union (1960 INSC 68 / 1960 3 SCR 441) - Bank terminated Assistant Cashier Colsavala under 522(1) without enquiry. Tribunal held it invalid if it was actually punitive. Supreme Court said: If termination is stigmatic, enquiry is mandatory.

4. Leading Case Laws - Banking Misconduct Termination

A. Misappropriation Even If Small Amount = Dismissal Justified

State Bank of India v. S.N. Goyal (2008 INSC 576)
Branch Manager temporarily misappropriated customer funds. Even though he returned money, SC upheld termination - temporary misappropriation is gross misconduct. Amount irrelevant, breach of trust is relevant

Syndicate Bank vs B.S.N. Prasad (Criminal Appeal 6327 of 2024)
Branch Manager, Mudigubba 2007-08, made fictitious debits to crop insurance accounts, withdrew from SKCC accounts without knowledge, siphoned Rs.1,10,000 from 4 customers. Dismissed in 2012. SC upheld dismissal, held acquittal in criminal case does not bar departmental action. Standard of proof in departmental enquiry is preponderance of probability, not beyond reasonable doubt.

D. Padmanabhudu vs Bank of India (1994)
Account Clerk misappropriated Rs.4000 paid by customers for deposit and fabricated false documents. Karnataka HC upheld dismissal - banking requires highest integrity.

Indian Overseas Bank vs Om Prakash Lal Srivastava (2022 INSC 69)
SC upheld dismissal for fraud - held disciplinary proceedings require lower standard of proof than criminal trial

B. Loss of Confidence Doctrine

Sudhir Vishnu Panvalkar v. Bank of India (06.05.1997)
Permanent employee terminated for misconduct involving moral turpitude on ground of loss of confidence. SC upheld - in banking, loss of confidence itself is a ground where disciplinary rules don't explicitly provide

State Bank of India v. Workmen (1990 INSC 254)
Clerk at Gadchiroli branch - question was whether discharge with one month's pay was retrenchment or punishment. SC clarified disciplinary discharge vs retrenchment

C. Forfeiture of Gratuity & Pension

Union Bank of India vs C.G. Ajay Babu (2004 dismissal)
Branch Manager dismissed on 03.06.2004. Question: Is forfeiture of gratuity automatic on dismissal under Payment of Gratuity Act 1972? SC held forfeiture only if misconduct causes loss and involves moral turpitude - requires specific order under Section 4(6)

Bank employee assault case (Civil Appeal 5922/2024) dated 03.04.2025
Employee dismissed in 1998 for assaulting colleague under Clause 19.5(c) of Bipartite Settlement 1996 - denied pension. SC analyzed whether denial valid under Bipartite Settlement

D. Fraud Through Impersonation / Illegal Lending

Vijaya Bank vs M. Ravindra Shetty (Writ Appeal 7791/2003)
Senior Manager dismissed for indiscriminately lending to fictitious persons causing huge loss - conviction for moral turpitude leads to mandatory termination

Bank of India v. Bhimsen Gochhayat (12.08.2009)
Sweeper promoted to daftary involved in forgery and attempted fraud in 1982. SC held acquittal in criminal case does not preclude departmental proceedings - both are independent

Punjab and Sind Bank v. Raj Kumar (2024 LiveLaw Del 1078 - LPA 410/2023)
HC held harsher punishment of dismissal compared to lighter punishment for co-delinquent in same incident unsustainable - doctrine of parity.

5. Key Principles Emerging from Cases

1. No need to prove actual loss: In banking, potential risk to trust is enough.
2. Criminal acquittal ≠ Reinstatement: SC in 2024-25 judgments: "Acquittal in criminal proceedings does not preclude disciplinary action"
3. Judicial Review Limited: Writ court cannot act as appellate authority. Can interfere only for procedural violation, violation of natural justice, or perverse finding
4. Probation cannot be misused: If real reason is misconduct, bank must hold enquiry, cannot use "unsatisfactory performance" clause
5. Past service irrelevant in fraud: Long service, appreciation letter for preventing Rs.19.20 lakh fraud earlier, does not condone later fraud.