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Hemant Agarwal (ha21@rediffmail.com Mumbai : 9820174108)     28 June 2010

Pay Rs 10 lakh to customer, HC tells bank

Dear All,


The following judgement can be used in the Consumer Courts as well.  This relates to "deficiency in services",  which is also a subject matter under the Consumer Protection Act.  Consumers (customers)  can file for "additional" remedy before the Consumer Courts,  since the CPAct, overrides the Banking Act and the Banking Ombudsman Scheme.



Please note the specific wordings of the judgement,  as highlighted in yellow.



Please post your comments and opinions, over here.



Keep Smiling ... Hemant Agarwal


Pay Rs 10 lakh to customer, HC tells bank
(reproduced from  "Times of India", Mumbai Edition on 28th June, 2010, page no. 03)


Mumbai: The Bombay high court has ruled that Canara Bank was liable to pay damages to the tune of Rs 10 lakh for honouring cheques, despite the customer giving instructions to stop cheque payment.


   A division bench of Justice F I Rebello and Justice R V More upheld the banking ombudsman’s finding that the bank was responsible for “deficiency of service’’.


   The judges dismissed the bank’s interpretation of the rules that the complainant customer has to prove the quantum of loss caused to him by a third party as a result of the deficiency in service. “All that the complainant must establish is the loss suffered by him on account of deficiency in service by the bank,’’ said the judges.


   Though the banking ombudsman had ordered Canara Bank to shell out over Rs 12 lakh in damages to Mumbai based businessman Uttam Rathod along with interest, the high court did not agree. According to rules, the court pointed out, the ombudsman could award a maximum compensation of Rs 10 lakh.


   Under the Banking Ombudsman Scheme enacted in 1995, an ombudsman was appointed for redressal of grievances against deficiency in banking services concerning loans, advances and accounts. A customer has to file a complaint with the ombudsman within a year of the bank rejecting his representation. The ombudsman has two months to bring about a settlement, failing which he can pass an order after hearing the parties. The compensation, which cannot exceed Rs 10 lakh, becomes final only after the customer submits a letter of acceptance within a month.


   The case deals with eight undated cheques of Canara Bank issued by Rathod to Oxford Industries. Following a dispute, Rathod gave stop-payment instructions to the Mazgaon branch of the bank in October 2001. Two months later in December, Rathod found out that the bank had honoured the cheques and Rs 12.59 lakh had been debited from his current account. 


   Initially, the bank told Rathod to wait for some time when he claimed a refund. Three months passed and when there was no response from the bank, Rathod approached the ombudsman. When the bank did not agree with the settlement, the ombudsman in November 2004, directed Canara Bank to pay Rathod Rs 12.59 lakh as compensation along with interest. 


   The bank approached the high court and argued that the ombudsman had not recorded any finding on the exact loss suffered by Rathod over the transaction with a third party. They also disputed over the fine amount, contending that under the law, the ombudsman could award damages of a maximum of Rs 10 lakh.


   “The ombudsman acts more as an arbitrator on whom specific powers are conferred to deal with matters pertaining to deficiency of service,’’ said the HC. It added that though the ombudsman had jurisdiction to entertain a claim irrespective of the amount claimed, his power was limited to awarding compensation for an amount of not more than Rs 10 lakh. The court then went into the issue of unless the complainant proves loss at the hands of the third party, he would not be entitled to any compensation. The judges ruled in the negative, saying the the loss that is to be established is in deficiency of service by the bank and not the loss the complainant suffered at the hands of the third party.


 3 Replies

ravi shankar sharma (advocate)     28 June 2010

thanks a lot for this useful information.

prashant1314 (HR Learner)     28 June 2010

Very Infomative Thanks!!!!

harsh asthana (advocate)     28 June 2010

Thanks it was a very informative posting

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