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BANKING AND CONSUMER PROTECTION ACT

Definition of Banking
Historical
Priests Goldsmiths

Modern
Receiving Deposits in various Accounts Lending Money Agency Services, e.g., Payment of Premium against insurance policy
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Utility Services
Factoring Services, i.e., Realising Book Debts Mail Transfers/Telegraphic Transfers Credit Cards ATMs Tele-Banking Merchant Banking (Now to be under separate Asset Management Co.)

CUSTOMER VS. CONSUMER


To be a customer, some sort of an Account is necessary with the Bank. A consumer need not have an Account, e.g. in case of a Bank Draft or Credit Card
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OBLIGATIONS OF THE BANK


Contractual Obligations
-As per the terms and conditions of the Contract, e.g.
24 hours banking can draw cash from anywhere in India bank guarantees letters of credit

Statutory Obligations
A. To honor customers cheques provided:
a) presented at the branch where Account is kept. b) presented during business hours. c) presented within reasonable time (Sec.84 N. I. Act) d) there is sufficient balance including credit limit, if any. e) It is not materially altered f) It is not post-dated g) Amount in figure and words do not differ.
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Position regarding crossed cheques


General Crossing vs. Special Crossing Account Payee crossing vs. Not-Negotiable Crossing Protection to collecting Banker (Sec. 131)
Crossed cheques As an agent for the depositor Without Negligence (Account should have been properly introduced)

Once a bearer always a bearer

Protection available to Paying Banker with respect to Forged Endorsements (Section 85)

B. Obligation to maintain secrecy


Not to disclose balance loud Tourniers Case Not to disclose to spouse

Dishonour of Cheques by Banks


Where sufficient funds are available Where sufficient funds are not available (Sec. 138)
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Conditions of Section 138


1. The cheque has been dishonoured due to insufficiency of funds in the account maintained by him with a banker for payment of any amount of money to another person from out of that account. 2. The payment for which the cheque was issued should have been in discharge of a legally enforceable debt or liability in whole or part of it. 3. The cheque should have been presented within 6 months from the date on which it is drawn or within the period of validity, whichever is earlier. Post-dated Cheques?

4. The payee or the holder in due course of the cheque should have given notice demanding payment within 30 days from the drawer on receipt of information of dishonour of cheque from the bank. 5. The drawer is liable only if he fails to make the payment within 15 days of such notice period. 6. The payee or holder in due course of the cheque dishonoured should have made a complaint within one month of cause of action arising out of Section 138. [Cause of action arises on the 16th day of the notice period]
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It may be noted that the holder of a cheque shall be presumed to have received the cheque for discharge, in whole or in part, of any debt or other liability (Section 139). Penalty:
Imprisonment upto 2 years Fine upto double the amount of the cheque or both .

Inchoate Instruments
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Deficiency of Service
Section 2(1)(g) of C.P. Act means any fault, imperfection, shortcoming or inadequacy in 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.
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Loans vs. Limitation Period


Part-payment Acknowledgement of liability Deposit by the bank itself Balance confirmation statements

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Grounds of Complaint
As per the revised Banking Ombudsman Scheme, 2006, a customer can make a complaint against deficiency in bank services such as: a) non-payment or inordinate delay in the payment or collection of cheques, drafts, bills etc.; b) non-acceptance, without sufficient cause, of small denomination notes tendered for any purpose, and for charging of commission in respect thereof; c) non-acceptance, without sufficient cause, of coins tendered and for charging of commission in respect thereof;
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d) non-payment or delay in payment of inward remittances; e) failure to issue or delay in issue of drafts, pay orders or bankers cheques; f) non-adherence to prescribed working hours; g) failure to honour guarantee or letter of credit commitments; h) failure to provide or delay in providing a banking facility (other than loans and advances) promised in writing by a bank or its direct selling agents;

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i)

delays, non-credit of proceeds to parties accounts, non-payment of deposit or nonobservance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in any savings, current or other account maintained with a bank; j) delays in receipt of export proceeds, handling of export bills, collection of bills etc., for exporters provided the said complaints pertain to the banks operations in India; k) complaints from Non-Resident Indians having accounts in India in relation to their remittances from abroad, deposits and other bank-related matters;
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l)

refusal to open deposit accounts without any valid reason for refusal; m) levying of charges without adequate prior notice to the customer; n) non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on ATM/Debit Card operations on credit card operations; o) non-disbursement or delay in disbursement of pension (to the extent the grievances can be attributed to the action on the part of the bank concerned, but not with regard to its employees);
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p) refusal to accept or delay in accepting payment towards taxes, as required by Reserve Bank/Government; q) refusal to issue or delay in issuing, or failure to service or delay in servicing or redemption of Government Securities; r) forced closure of deposit accounts without due notice or without sufficient reason;
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s) refusal to close or delay in closing the accounts; t) non-adherence to the fair practices code as adopted by the bank; and u) any other matter relating to the violation of the directives issued by the Reserve Bank in relation to banking or other services.

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A complaint on any one of the following grounds alleging deficiency in banking service in respect of loans and advances may be filed with the Banking Ombudsman having jurisdiction:
a) non-observance of Reserve Bank Directons on interest rates; b) delays in sanction, disbursement or nonobservance of prescribed time schedule for disposal of loan applications;

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c) non-acceptance of application for loans without furnishing valid reasons to the applicant; and d) non-observance of any other direction or instruction of the Reserve Bank as may be specified by the Reserve Bank for this purpose from time to time. (3) The Banking Ombudsman may also deal with such other matter as may be specified by the Reserve Bank from time to time in this behalf.
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Procedure for filing complaint


Any person who has a grievance against a bank on any one or more of the grounds mentioned above may, himself or through his authorised representative (other than an advocate), make a complaint to the Banking Ombudsman within whose jurisdiction the branch or office of the bank complained against is located. Provided that a complaint arising out of the operations of credit cards, shall be filed before the Banking Ombudsman within whose territorial jurisdiction the billing address of the card holder is located and not the place where the bank concerned or the credit card processing unit is located.
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No complaint to the Banking Ombudsman shall lie unless:


a) the complainant had, before making a complaint to the Banking Ombudsman, made a written representation to the bank and the bank had rejected the complaint or the complainant had not received any reply within a period of one month after the bank received his representation or the complainant is not satisfied with the reply given to him by the bank;
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b) the complaint is made not later than one year after the complainant has received the reply of the bank of his representation or, where no reply is received, not later than one year and one month after the date of representation of the bank; c) the complaint is not in respect of the same subject-matter which was settled or dealt with on merits by the Banking Ombudsman in any previous proceedings whether or not received from the same complainant or along with one or more complainants or one or more of the parties concerned with the subject-matter;
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d) the complaint does not pertain to the same subject-matter, for which any proceedings before any court, tribunal or arbitrator or any other forum is pending or a decree or Award or order has been passed by any such court, tribunal, arbitrator or forum; e) the complaint is not frivolous or vexatious in nature; and f) the complaint is made before the expiry of the period of limitation prescribed under the Indian Limitation Act, 1963 for such claims.

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Award by the Banking Ombudsman


1) If a complaint is not settled by agreement within a period of one month from the date of receipt of the complaint or such further period as the Banking Ombudsman may allow the parties, he may, after affording the parties a reasonable opportunity to present their case, pass an Award or reject the complaint.
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2) The Banking Ombudsman shall take into account the evidence placed before him by the parties, the principles of banking law and practice, directions, instructions and guidelines issued by the Reserve Bank from time to time and such other factors which in his opinion are relevant to the complaint. 3) The award shall state briefly the reasons for passing the award. 4) The Award passed under sub-clause (1) shall specify the amount, if any, to be paid by the bank to the complainant by way of compensation for the loss suffered by him and may contain any direction to the bank.
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5) Notwithstanding anything contained in subclause (4), the Banking Ombudsman shall not have the power to pass an award directing payment of an amount which is more than the actual loss suffered by the complainant, as a direct consequence of the act of omission or commission of the bank, or ten lakh rupees whichever is lower. 6) In the case of complaints arising out of credit card operations, the Banking Ombudsman shall, while determining the amount of compensation payable, take into account the loss of the complainants time, expenses incurred by the complainant, financial loss, harassment and mental anguish suffered by the complainant.
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7) A copy of the Award shall be sent to the complainant and the bank. 8) An Award shall not be binding on a bank against which it is passed unless the complainant furnishes to it, within a period of 15 days from the date of receipt of copy of the Award, a letter of acceptance of the Award in full and final settlement of his claim in the matter. If the complainant does not accept the Award passed by the Banking Ombudsman or fails to furnish his letter of acceptance within the said period of 15 days or within such further time not exceeding a period of fifteen days that may be granted by the Banking Ombudsman, the Award shall lapse and be of no effect.
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9) The bank shall within one month from the date of receipt by it of the acceptance in writing of the Award by the complainant under sub-clause (8) or within such time not exceeding a period of fifteen days that may be granted by the Banking Ombudsman, comply with the Award and intimate compliance to the Banking Ombudsman.

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Case Law
1. In State Bank of India vs. N. Raveendran Nair a demand draft Rs.98,000/- issued by State Bank of India, Travancore on its Surat Branch.
The payment refused because the person signing the draft, the capacity in which he signed was not mentioned. Bank held liable. Likewise, where advice does not reach the drawee branch and payment, if refused, will entail liability. Similarly, if branch code mentioned is wrong.
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Forgery of Signatures
Bank held liable (Bubna vs. United Bank of India). Also in, Babu Lal vs. State Bank of Bikaner,

Wrong Credit to another Account


Plea as to oral instructions not admitted by Supreme Court; directed to re-credit the amount with interest. (M/s. Hyderabad Commercials v. Indian Bank

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2. Madhabi Mondal vs. General Manager, Citi Bank


More time sought for repayment Refused by the bank Held, no deficiency of service.

3. Ashok Prabhakar vs. SBI


Failure to finance small-scale unit. Held, no deficiency of service. (Also, in A.R. Narayanan vs. Manager, UCO Bank)
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4.Roshan D. Chinoy vs. Chairman & Managing Director, Central Bank of India
Loss of specimen signature and Customer asked to furnish fresh signature Held, no deficiency of service.

5. B.N. Rajguru vs. SBI


Dishonour of a bank draft One of the officers of the drawer bank failed to sign Held, deficiency of service. Damages of Rs.15,000/- with interest @ 18% p.a. from the date of complaint till the date of its payment.
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6. Bank of India vs. Dr. M.N. Shukla Stop payment instructions received by the bank before payment.
Money paid due to inadvertence. Bank Held liable, for deficiency of service. Argument that the customer genuinely owed the money and thus no loss to him, the money not accepted.

7. SBI vs. Anup Kumar Dhima (State Commissioner, HP)


Bank entrusted by Co. to collect applications for shares with money
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Complainants application was received by bank before due date. Banks failure to remit the same to the company, it was held to constitute deficiency of service. Co. not liable to the applicant.

8. Guhati Coop. Urban Bank Ltd. vs. Santosh Kumar Tiwari


Account Payee, Not-Negotiable refund orders were allowed by the Banks to be encashed by third parties allowing them to open accounts in fictitious names.
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Held, complainants were not consumers, since they did not hire services of the bank. 9.PNB vs. Tej Rajinder Singh
Either or survivor account Bank refused payment because survivor was a surety in respect of another debt. Held, deficiency of service.

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