Banking:Disputes Redressal Agencies Under the Consumer Protection Act
Executive Summary
The Disputes Redressal Agencies (District Forums, State Commissions and National Commission ) under the Consumer Protection Act,1986 adjudicate upon the complaints of consumers relating to defaults in products and deficiency in service. `Service’ as defined in the Act includes the provision of facilities in connection with banking.
2. The decisions of the State Commissions, the National Commission, and the Supreme Court (as the final authority), on different aspects of banking and other services offered by banks have been reported in various law journals. A short compilation of the decisions from 1995 to 2005 has been made with a view to giving a brief account of the principles laid down in these cases. Each case is given separately along with the citation for enabling access to the full text of the case, whenever necessary.
3. The principles laid down by the various decisions of the Consumer Commissions and the Supreme Court and included in the compilation can be summarized as under:
i. Failure /Delay in repaying deposits
Withholding of the amount due on a fixed deposit after its maturity, amounts to deficiency in service. Delayed payment of term deposits on maturity also amounts to deficiency in service. The principle applies to cases of inordinate delay in payment of proceeds of premature encashment of deposits as well.
ii. Payment and Collection of Cheques/Drafts
Wrongful dishonour of cheques due to the negligence or mistake on the part of the bank has been held to amount deficiency in service. Dishonour of DDs due to the lapse or omission on the part of the officials of the bank like non-affixation of signatures, failure to mention code number etc. have also been held to be amounting to deficiency in service.
iii. Loans and Advances
Refusal to grant loans
Matters concerning the eligibility of parties to any credit assistance, viability of the project and continuation of the credit facilities or the operation of the account by any party, are within the discretion of the financial institution/bank depending upon various factors like financial discipline and past history of borrower and his ability to pay the loan , if such discretion is exercised bonafide. Even though the bank has the right to refuse or grant loan, causing undue delay in releasing the installments of the sanctioned loan might be held to amount to deficiency in service.
Interest
Charging interest at a rate higher than the rate stipulated in the loan agreement would also amount to deficiency in service. Interest cannot be claimed in a consumer case under section 34 of the Code of Civil Procedure as these provisions are not applicable .However, based on the underlying principles of justice, equity and good conscience, the Forums and Commissions can grant appropriate interest in each case. Although banks cannot give interest exceeding that prescribed by the Reserve Bank, they have a duty to inform the depositor about this , the failure ofwhich, would amount to deficiency in service.
iv. Security for loans
Non-return of documents
Bank are liable for deficiency in service in cases were they fail to return the security documents even after repayment of the whole loan.
Insurance of security
Banks are not bound to insure the security taken for a loan unless the loan agreement provides for insurance and as such, failure to insure does not amount to deficiency in service. Further, merely because the owner of a vehicle has given the cheque for insurance premium to the bank along with monthly installment of loan taken for purchase of the vehicle, liability arising out of an accident to third parties cannot be shifted to the bank.
v. Lien
Banks have a right to exercise lien under section 171 of the Indian Contract Act against the dues from constituents/customers. However, the banks cannot exercise lien over the personal account of a customer on the ground that money was due to the bank in another account where he acts in a different capacity, if there is no agreement to that effect.
vi. Bank Guarantee
The failure of a bank to honour bank guarantee is a deficiency in service. However, in cases where a demand was made not in accordance with the conditions of the guarantee and therefore, the guarantee was not honoured, it would not amount to deficiency in service.
vii. Locker
A bank is liable for loss of articles kept in the locker with the bank. The bank cannot contract out of its responsibilities in relation to a locker by describing the agreement as that between a landlord and a tenant. When locker was found emptied and contents lost, the banks have been held liable for deficiency in service. However, in some such cases, the disputes were left open to be decided by the Civil Court after taking detailed evidence.
viii. Security in bank’s premises
A bank is responsible for deficiency in service for lack of security in its premises and loss caused to customers accordingly. This is on the ground that ensuring the safety of the money to be deposited and/or withdrawn inside the bank premises is implicitly a part of the service rendered by a bank to a customer.
ix. Consumer Forum- Jurisdiction and Procedure
A consumer complaint may not be entertained by the Consumer Forums when the matter is sub-judice before a competent Civil Court.
A person who acts as surety for another and does not hire/avail service from the bank, is not a consumer of the bank and therefore,his complaint may not be entertained .
x. Voluminous Evidence- Complicated Questions of Law and Fact
In cases involving complex questions of facts and interpretation of laws and rights and obligations of parties under various Statutes, the complainants have to seek redressal of their grievances before Civil Courts not the Consumer Forum. Similar is the case when elaborate evidence is required to be taken.
xi. Limitation
A bank may exercise lien under section 171 of Contract Act even where the debt is barred by limitation.
A consumer can initiate proceeding against a banker for non-release of securities even after the expiry of the period of limitation. This is based on the principle that the banker holds any goods as security from a customer as trustee and the security is not intended to be transferred to him, nor can he acquire any title to it, except on the basis of legal proceedings.
xii. Other Banking Services
Operation of Account
The stoppage of operation of account of a partnership firm on account of an arbitration award and the subsequent legal opinions obtained by the bank would not amount to deficiency in service.
Closing of account
Closing of account without the instructions of the account holder would amount to deficiency in service.
Refusal of Cheque book
The refusal to provide cheque book facility to a customer on the ground of not maintaining the minimum balance in his account may not amount to deficiency in service.
Service charges
An increase in charges levied by a bank for its services doe not fall within the provisions of the Consumer Protection Act. A bank may levy charges for issuance of MICR cheques, so long as it is not against the directives of the Reserve Bank. This cannot be termed `unilateral’ and taking the consent of each customer does not arise.
Rendering of account
A demand for rendering of accounts of transactions with a bank is not within the scope of the provisions of the Consumer Protection Act.
Succession Certificate
It has been held that there is no deficiency in service on the part of a bank in insisting that the children of a deceased account holder should produce a succession certificate before releasing the amount to them in accordance with the Succession Act and the Reserve Bank guidelines.
Insistence on denomination of notes
A customer cannot as of right insist for a particular denomination of notes, as the notes provided by the bank are legal tender and therefore, no deficiency in service in failing to comply with the demand.
Forgery of Power of Attorney
Once a registered power of attorney is produced before the bank, the bank does not have to make any further verification of signature. As the bank is not expected to verify signature, it cannot be held responsible for negligence in verification of signature. The failure in respect of an act which does not form part of the service cannot be considered as a deficiency in service.
Compliance of RBI directions
It has been held that the Consumer Forum may not direct the banks to make payment to a depositor contrary to the directions issued by RBI under section 35A of the Banking Regulation Act or allow the directions issued by RBI to be flouted.
Vicarious Libaility
A bank is bound by the act of negligence of its staff during the course of employment. Thus where the bank cashier fails to account for the money deposited with him at the counter, the bank would be liable.
Rude behaviour
A bank may be held liable for deficiency in service owing to rude behavior of its officials and be ordered to pay compensation for the mental agony and discomfort caused.
Notice before auction
A notice to pay or face auction without making any earlier demand for repayment of loan and without giving date of auction was held to constitute deficiency in service.
Non-return of dishonoured cheque
The failure to return a dishonoured cheque has been held to be deficiency in service where the complainant was unable to take action against the drawer without the instrument.
Strike
A bank may not be liable to pay compensation for suspension of business due to illegal strike by the employees and when no loss is caused due to the negligence of the bank. However, in a case when the strike by award staff was not such as to paralyse work and when the officers and other employees were willing to work and still the salary accounts were not credited, it was held that the bank was liable for deficiency in service.
Bank Guarantee :
A complaint was filed alleging deficiency in service in not paying the amount of bank guarantee on demand. The defense plea was that the demand was not in accordance with terms of guarantee. It was held that where bank guarantee provided conditions for its invocation then Bank would not be deficient in service in not making payment under the bank guarantee if conditions were found not fulfilled. M.P.Minerals Ltd Vs. Bank of India & ors - 2003 (1) CPR 96 (NC)
The bank was alleged to have failed to issue bank guarantee despite sufficient security and the complainant suffered financial loss. It was held that the non-issuance of bank guarantee despite security deposit with the bank would amount to deficiency in service and the complainant would be entitled to interest on that security amount. M/s.Anand Lubricating & Pneumatic Systems Ltd. Vs. State Bank of India - 2003 (2) CPR 53
Banking Service
The grant of relief of rendition of accounts in relation to transactions with the Bank is not within the scope of the provisions of the Consumer Protection Act and the averments in the petition do not make out any deficiency in the service rendered by the Bank. The rendition of accounts by the Bank and the recovery of amounts that may be found due as a result of settlement of accounts are reliefs that can be obtained only by recourse to a suit in the Civil Court. M/s. House of Dubary Vs. New Bank of India and others 1991(1) CPR 216 (NC).
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