Criminal Trident Pack: IPC, CrPC and IEA by Sr. Adv. G.S Shukla and Adv. Raghav Arora
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Pvt_RajKing (Private)     18 August 2011

Worth approaching competition commission?


I recently came across an interesting practices by banks in which the banks cunningly liverage Banker's General lien on securities of gullible & illeterate farmers.

These farmers usually get crop loans available either thru the government programme or thru sugar factories. The loan is given after deducting the insurance whose terms and conditions are never disclosed to the farmers. They simply deduct the insurance premium and give the balance to the farmers. The farmers sometime may not be able to pay the loan either due to loss of crop (rain, fire etc) or lower return of grains/produce. Once in a while the government comes up with a waiver programme to waive off such outstanding loans.. Such loand are generally unsecured in nature as it is only against the crop (produce of that season)

If in the meantime, the farmers approach the banks with secured loan against properties such as gold ornaments, the bank happily gives them a loan after securing such gold ornaments and never tells the farmers that the  banks will create a liean against such ornaments for securing other outstanding loans with them. The illiterate farmer goes ahead and signs the pledge documents without understanding all those terms and conditions that is one sided and is against him. Few months later he goes to the bank to payup that gold loan and ask for return of the ornaments and the bank tells them that he must pay his crop loan to get the ornaments returned.. The farmer gets a shock of his life and the entire family is put to undue hardships. Sometime these farmers use ornaments of friends and family and get trapped into this issue..

Now apparently the bak has the legal right to extend a general lien on customer's dues to them on other loans (u/s 171 of Contrat Act) but the issue is that this a trap from the farmers point of view because the farmer was never told that the bank can and will extend a lien on his gold ornaments if he has other loans due to the bank. Had he been told then he probably would not have given his/friends ornaments as security or may he would have negotitated it such that it excludes the general lien right of the bank... But having not articulated the hidden right of the bank to etend a general lien, the farmers are getting trapped and are under undue disadvantage.

The above practice is something that almost all banks does as they use a standard terms and conditions that gives undue advantage and the customers have no say in it (which is again illegal as per the contract act).

Now the question is, can we make an effective case with the Competition Comission to take such a case and inquire? Will such a case be a fitting case for the Competition Comission to deal with? If not why not?

Thanks for your considered views and any research material you may be able to proivde.


 6 Replies

Democratic Indian (n/a)     18 August 2011

Compitition Commission of India has been created under Compitition Act 2002. Can you please enumerate as to what objectives of Compitition Act 2002 or what Sections of Compitition Act 2002 are getting violated by these practices by Banks and why?

Are their any directives against such practices already issued by RBI and banks are not following? If not you may also write about it to RBI for the same and follow it up with RTI.

Pvt_RajKing (Private)     18 August 2011

I was thinking of section 4(2)(a) of the CC Act which has been recently applied against DLF. I think section 4(2)(d) would be equally applicable here. I do feel the question of 'dominant position' might be dicey here but it was the case in DLF also. The explanantion provided in the act for the dominant position seem to be broad enough to cover this case is what I feel.

Also, section 3 of the act amy also be applicable if the commission would recognize the existence of tacit agreements among the banks to follow certain practices that is prejudicial to consumers....

Those were my thoughts...

Democratic Indian (n/a)     18 August 2011

Your idea does not seem bad. But the matter needs to be explored and studied deeper. Can you please provide the link where I can read the complete judgment of Supreme Court related to the DLF case.

Meanwhile let us also see what is the opinion of other members of this forum in this matter. You may also send a pm to J.P. Shah requesting his opinion in this thread. He is very knowledgeable related to working of banks and related laws and used to be a regular contributer at LCI. Following is the link to his profile

Pvt_RajKing (Private)     18 August 2011

Thanks. Here it is:

You can also see other orders from CCI at:

I will contact Mr.Shah.


Thanks again!!!

J. P. Shah (RTI & CONSUMER ACTIVIST)     18 August 2011

In this case bank is legally right but ethically wrong. I do not think Competition Commission will have any jurisdiction over this type of issue. Here bank officers are taking disadvantage of ignorance of farmers and faith farmers repose in bank officers. Farmers having signed all papers the law operates. The only remedy is to educate farmers on this issue by consumer activists. There is no legal remedy available to farmers. However if crop loan or other term loans are regular, bank cannot withhold ornaments after repayment in full of gold loans. 

Pvt_RajKing (Private)     19 August 2011

Thanks Mr.Shah. Technically you are right but it is for protecting against unethical practices that we have forums like CCI. I would really appreciate if you can take a look at the DLF case (the link is above). There too the question is one of unethical.. DLF added unreasonable terms and conditions and it was not open to the buyers to negotiate as such on them.. similarly when banks use printed pledge forms with standardised terms and conditions and use it against illiterate and gullible people it is the same. The only think to worry about is whether they have taken advantage of their dominant position to do the same, which requires some broad definition which the comission has used in DLF's case. But I think if we take a view of dominant position with respect to the consumer then it should be easy to decide as most of small towns have very limited banks and ordinary peple don'k bank with multiple banks (to open the accounts).... I am just thinking aloud and I want additional ideas to rope them into CCI jurisdiction....

Also you said:

"However if crop loan or other term loans are regular, bank cannot withhold ornaments after repayment in full of gold loans. "

Could you please explain this? Because this may be very helpful... what are regular loans? I think these loans should be regular only. Once I know the definition of regular loans, I can come back to you on that... Please help me with this.


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