The Banking Sector plays an increasingly important role in daily markets involving catering to the needs of huge number of consumers. With time it has expanded and grown to levels starting, post liberalization policies in 1991. Today, the Indian Banking Sector comprises of accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise as given under 5 (b) of Banking Regulation Act, 1949.
This sector is the fastest growing due to huge Indian population and market involved. As the financial services industry has become more entrepreneurial and innovative, its risk and product diversification has grown posing significant challenges for Indian regulators, who strive to develop clear rules and fair regulations for both customers and banks to reconcile its services with the satisfaction level of customers.
In course of business of banking, a banker undertakes to perform such services as buying and selling securities on his behalf, collecting cheques, dividends, bills or promissory notes on his behalf and acting as a trustee, attorney, executor, correspondent or a representative of a customer. The services provided in the Indian Banking Sector are those available to potential users and equivalent to those covered under 2 (1) (o) of Consumer Protection Act, 1986 (hereinafter referred as “Act, 1986”). Indian Government enacted the abovementioned Act,1986 as the name suggests, to protect the interest of the consumers and to provide them a mechanism for easy, quick and cheap redressal of grievances against the mighty and unscrupulous producers/ traders and service providers.
The government relied highly on the guidelines passed in United Nations General Assembly through resolution No. 39/248 on 8/4/1985. These guidelines relate to consumer protection and provide the framework for the Governments of the developing countries, for formulation of consumer protection policies and legislation.
On any dispute arising out of the banking services, where the person against whom a complaint has been made, denies or disputes the allegations contained in the complaint, can seek protection under the Act, 1986. A comprehensive framework for dispute resolution has been enshrined under the Act, 1986. It has three-tier system to deal with consumer complaints,
A). District Forum: it operates at the district level and deals with consumer complaints pertaining to the value of goods or services and compensation not exceeding Rs. 20 lakhs.
B). State Commission: it operates at the state level and deals with complaints of the value exceeding Rs. 20 lakhs but not exceeding Rs. 100 lakhs. it also hears appeals against the orders of the District Forum.
C). National Commission: it functions at the National level for the complaints of the value exceeding Rs. 100 lakhs and hears against the orders of the State Commission.
Banks provide value added services to the general public and act as service providers to people using their services or to their consumers. And therefore, their consumers are the one who hires or avails of any services for a consideration but does not include a person who avails of such services for any commercial purpose.
In general parlance, the consumer shall include any person who buys goods for consideration, uses such goods but does not include a person who obtains such goods for resale or for any commercial purpose in addition to services. The Banking Sector caters only to the consumers availing its Banking services and not goods. For example, in banking transactions, a customer of a bank is the one, who has a bank account with the bank or a person who purchases a bank draft, hires locker facility or obtains bank guarantee from a bank (Punjab and Sind Bank v. Manpreet Singh). It includes the prospective consumers too, who have agreed to purchase any goods, therefore, the persons making applications for shares by tendering the application to specified banks appointed by a company for that purpose are consumers of bank.
Any consumer availing banking services can file complaint before any abovementioned consumer forums only if the banking services availed are in accordance with 2 (1)(o) of Act, 1986 and are found to be defective (having fault, imperfect or having shortcoming in the quality, quantity, potency, purity or standard which is required to be maintained by or under any law for the time being in force or under any contract, express or implied or as is claimed by the trader in any manner whatsoever in relation to any goods), deficient ( means having fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service) in nature or have been over charged or are unfair or are restrictive trade practices.
Before instituting a complaint before the available consumer forums, one has to qualify as a valid consumer/customer of any banking transaction. To constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business. In Mathews v. Williams, Brown & Co. it was held that, in order to constitute a person as customer of a bank, she/he should have some sort of an account with the bank, but that the initial transaction in opening an account did not set up the relation of a banker and customer, and that there had to be some measure of continuity and custom equalizing to a regular banking business. In usual course, banker and Customer maintain debtor and creditor relationship where Bank provides credit facilities to the Customer (Velji Lakhamsey & Co. v. Dr. Banarji (1955) 25 Comp Cas 395).
On certain occasion, this relationship reverses and becomes creditor and debtor relationship where the bank grants overdraft facilities to the customer or grants loans. Bank can itself be the customer of another bank (Importers and Company Ltd. V. Westminster Bank Ltd. (1927) 2 KB 297). It functions as an agent of the customer. Not only this but, there exists bailment relationship between bank and customer where the bank acts as an advisor. There may be lessor and a lessee relationship too between the Bank and other party amounting as a customer of the bank. Insurance services provided by the Bank cannot be ignored and are included for considering the person availing it to be a customer of Bank.
Consumer Forum Procedure
A systematic hierarchy is followed from district to national level for entertaining consumer complaints all over India. The lowest forum for instituting the consumer complaints is the District Forum. It has to within 21 days of the admission of complaint ask the opposite party to present its side within the next 30 days and thereafter dispose of the matter with requisite remedy. Any person aggrieved by the order of District Forum may appeal before the State Commission within a period of thirty days from the date of order. No proceedings conducted shall be questioned on grounds of compliance of natural justice.
State Commission is second in the hierarchy for instituting consumer complaints. It will hear to appeals against the orders of any District Forum within the State and can also hear the complaints where the cause of action, wholly or in part may arise or where the opposite party resides or conducts its business or has branch office. The orders of State Commission are appealable.
National Commission is the highest forum having jurisdiction to entertain the appeals against the orders of any State Commission. The District Forum, State Commission or the National Commission shall not entertain any complaint unless it is filed within the two years form the date on which the cause of action has arisen.
Deficiency In Banking Services In Different Situations
Over the time consumer complaints have been instituted for deficiencies in banking services. The Act, 1986 has helped in bringing transparency, for fair competition and for preventing the business to indulge in unfair practices or fraud. So, any person who owns an account in the Bank or takes a service from bank becomes its customer and he can file a complaint for deficiency or regarding unfair practices by the banks. Since, the establishment of Consumer Forum many situations have been found where Banks were held liable for deficiency in their services.
The stoppage of operation of account without prior intimation, closing of account without the instructions of the account older would amounts to deficiency of services. A bank is liable for the loss of contents kept in the locker and can be held liable for deficiency in its services. Refusal of cheque book facility to a customer, wrongful dishonor of cheques due to negligence or mistake on the part of the Bank, wrongful dishonor of Demand Drafts due to lapse or omission on the part of officials of the Bank amounts to deficiency of services.
Negligent act of bank or its staff during the course of employment amounts deficiency of banking services, failure of cashier to deposit the amount collected at the counter, rude behavior, non-returning of dishonoured cheque (where the complainant was unable to take action against the drawer without the instrument), transfer of money of a depositor from his account and deposit in the account of another customer in the absence of directions from the customer amounts to be deficiency in banking services. Misappropriation by employee from the complainants account maintained with the bank was made amounts the negligence and deficiency in service of the officials of the bank.
Taking of discharge voucher/ receipt from customer under threat, duress, coercion and undue influence and amounts as a deficient service. Failure/ delay in repaying deposits i.e. withholding of amount due on a fixed deposit after its maturity, or delayed payment of term deposits on maturity, inordinate delay in payment of proceeds of premature encashment deposits amounts as deficiency in services of bank. Refusal to grant loans or causing delay in releasing installments of sanctioned loan amounts to deficiency in bank services. In daily course of banking business, the interest granted by banks should not exceed the prescribed limit of RBI, they have a duty to inform about this to depositor failure of which would amount to deficiency in service.
If the banks fail to return the security documents even after repayment of the whole loan, they shall be liable of deficiency of services. Failure of bank to honour bank guarantee on demand would amount deficiency in service. 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. Permission of withdrawal of a huge amount from the account of the complainant on the basis of a duplicate passbook and cheque book, it was held that complainant is a consumer and permissions for withdrawal from his account by another amounts gross negligence on part of bank and deficiency in its services.
Deposit of remittances in NRE account instead of FCNR account, although the correspondence addressed by the complainant clearly indicated the intention of the complainant that the amounts should be credited to the FCNR account amounts deficiency. Sending of money/ amount to some other bank instead of according to instruction by the complainant amounts to be a deficient service.
Loss of cheque in transit, delay in sanctioning of loan leading to loss and inconvenience, denial of advantages in his foreign currency/ rupee bank accounts, delay in refund of money of the deposit certificate due to negligence of Bank, refusal of encashment of demand draft on the ground that the signature of one or two officials of the bank was missing, non-credit of the proceeds of the cheque deposited to bank to the account of the account holder, misappropriation done by the agent of bank in collecting amounts to deposit in accounts opened with bank, retain someone’s money and deny that person the right of interest on that amount (equivalent to unfair trade practice), non-payment of interest on excess amount deposited in violation of PPF rules, etc amounts as deficient services. Today, with the advancement of technology, banks have been found liable for deficient services when the customers bank accounts are hacked by third party/hackers and loss has incurred upon the bank account holders.
Consumer Protection Act & Other Remedies Available For Deficient Banking Services
Till 1995 Act, 1986 safeguarded the interest of the customers but in 1995 Government introduced the mechanism called Ombudsman Scheme (as amended up to 1st of July 2017) in addition to the then existing Act, 1986. The scheme is used as a mechanism for dispute resolution in relation to deficiency in banking services provided, the complaint falls under the category listed in the scheme or else the consumer shall be deprived of his right to complaint. This scheme was later modified by the RBI to bring under its ambit, “the governance system for protection of consumers”. The scheme follows a strict protocol while disposing a complaint.
The Banking Ombudsman as appointed has jurisdiction over all commercial banks, regional banks and scheduled primary cooperatives in India. The Ombudsman provides a forum for financial consumers to seek redress for the most common complaints against banks. The compensation that can be sought from the Ombudsman appointed is beyond Rs. 20 lakhs (Two Million). The scheme is covered under Limitation Act, 1963 and therefore complaint has to be made before the expiry of the period of limitation.
Consumer Forum has to before entertaining any complaint made before them decide upon the jurisdiction to be exercised or not. Many times it emerges to be a overlapping issue whereby, jurisdiction of Ombudsman, Consumer Forum or Civil Court can be looked upon for grievance redressal for deficiency in banking services. A consumer complaint cannot be entertained if the matter is sub judice before Civil Courts. In cases involving acute disputes of facts, interpretation of law and rights and obligations of parties under various statutes taking of oral evidence, adducing of voluminous documentary evidences, scrutiny and assessment of evidences the matter, lengthy and full scale trial, the examination of numerous witnesses the redressal has to be sought before Civil Court.
The Consumer Forum cannot entertain such matters as it decides matter in summary jurisdiction. It is responsibility of the Consumer Forum to entertain bona fide complaints of deficiency in service by the banks and financial institutions, keeping, however, in view the limitations of the Consumer Forum, whether it would be possible for the Forum to render justice in such complaints or it would be expedient to leave the parties to seek redressal in the Civil Courts, while also keeping in view the questions of facts and law and the time frame within which the Forum has to dispose of the complaints. Ideally, if looked upon the remedies available against consumer complaints largely depend upon the amount of claim made by the complainant, nature of remedy sought by the complainant, place where the incident has occurred or where the defendant resides and lastly the nature of transactions that are complained off.
References
- What is banking ombudsman scheme?, https://www.indianeconomy.net/splclassroom/banking-ombudsman-scheme/.
- Consumer Protection in the Banking Sector, https://racolblegal.com/consumer-protection-in-the-banking-sector/.
- Present Status of Consumer Protection In Indian Banking Sector, https://www.mondaq.com/india/dodd-frank-consumer-protection-act/865580/present-status-of-consumer-protection-in-indian-banking-sector.
- https://cms.rbi.org.in/cms/IndexPage.aspx?aspxerrorpath=/cms/cms/indexpage.aspx.
This article has been written by Shriya Kesharwani, BBA LLB (Hons.) at GNLU.
Also Read – How To Lodge A Complaint In Consumer Forum?
