Protection of the consumers is an issue of paramount consideration in the modern economic world order. With globalization having permeated into all strata of the society, lending a make over to the concepts of trade and business, the face of consumerism too has undergone a substantial change. It can be adduced without any hint of doubt that consumers are the real driving force of the economy and thus the sustenance of the present economic order relies, to a large extent, upon the adequate protection and welfare of the consumers. However, it has been noted time and again that although consumer is portrayed as the cornerstone of a successful economy, there have been oft repeated incidents of exploitation of the consumers, leading to a constant urge of a panacea.
It is interesting to note that protection of the consumers has been a cause of concern dating back to the Vedic ages .There were criminal offences prescribed for the cases of adulteration of foodstuff, charging of excessive prices and selling of forbidden good etc. Later Kautilya’s Arthashastra prescribed certain standards viz., a Director of Trade as a preventive measure for cases of exploitation of the consumers ; sowing the seeds of consumer welfare and awareness along with the objective of protection. Thus, one notes that protection of the interests of the consumers isn’t a recent phenomenon and has been in existence since time immemorial. With the passage of time, the concept of consumer protection attained new heights which led to a codification of such welfare legislations, both at the domestic as well as international levels.9 April,1985 is a red letter day in the history of consumer protection movement as the United Nations General Assembly adopted general guidelines on Consumer Protection (General Assembly resolution 39/248) which were a representative of seven years of negotiations and discussions among Governments worldwide, governmental agencies and the private players. The highlighting feature of the guideline was the recognition of the fact that consumer protection hinged on the promotion of just, equitable and a sustainable economic and social development.
At the municipal level too, the issue of consumer protection has given significant attention. The Constitution of India, since its very inception has recognised the significance of securing to all the citizens an economic justice, thereby enshrining the same in the Preamble.Further, Article 38 directs the State to secure a social order for the protection and welfare of the citizens. Article 39(b) enjoins upon the state the duty to ensure that ownership and control of the resources are distributed with the objective of attaining common good. In the post independence era, a number of consumer welfare oriented legislations were enacted with an over all objective of protecting the interests of the consumers in different spheres. For instance, the Industries (Development and Regulation Act) 1951 was legislated with an objective to protect and regulate the development of the Industries as well as the interests if the consumers as envisaged under the Industrial Policy Resolution, 1948. The Monopolies and Restrictive Trade Practices Act, 1969 was enacted with the objective to ensure that the operation of an economic system did not result in the concentration of economic power, detrimental to the common interests. However, the year 1986 will always be considered to be the Magna Carta of consumer movement in India as the Consumer Protection Act,1986 (hereinafter the Act) was brought into force. This was the first legislation of its kind in India which solely aimed at remedying the pitiable plight of the consumers who were often victims of unfair trade practices and faulty services rendered to them. The Act was to provide “for better protection of the interests of the consumers and to make provisions for the establishment of consumer councils and other authorities for the settlement of consumers’ disputes and for matter connected therewith”. Thus, in a nutshell, the Act attempts at redress the grievances of a helpless consumer when faced with the power of organized business. An important aspect of the Act is the fact that by defining consumer wide enough so as to include any person who buys goods for consideration or hires services but excludes those who obtain goods for resale or any commercial purpose ; it acts in furtherance of its objective to protect the layman consumer who is otherwise helpless. In the landmark case of Lucknow Development Authority v. M.K Gupta ,the Hon’ble Supreme Court, speaking through Sahai J., noted that
“the Consumer Protection Act, 1986 meets long felt necessity of protecting the common man from such wrongs for which the remedy under ordinary law for various reasons has become illusory. The importance of the Consumer Protection Act, 1986 lies in promoting the welfare of the society by enabling the consumer to participate directly in the market economy. The enactment in the unbelievable yet harsh realities appears to be a silver lining which may in due course of time succeed in checking the rot.”
Thus it can be undoubtedly stated that this benevolent social legislation aims at a speedy disposal of various consumer disputes by creating an efficient framework and thus reiterating the veracity of the maxim: caveat venditor.
II. BANKING SERVICES AND THE CONSUMERS
In order to be able to appreciate the amalgamation of the banking services and the redressal of such service related grievance, it would be prudent to take a look at the development of banking scenario at both international and domestic levels.
The word bank can be etymologically traced to the Italian word ‘banco’ which means bench. It is probably so named because the early Italian bankers used to render their banking services on benches in the street. During the age of the Egyptians the gold used to be deposited in the temples for safe keeping and thus acted as safety vaults.However,on the downside, this practice made the money lay idle and thus during the period of Hammurabi, in around 18th Century, loans were made by the temple priests thereby circulating the money in the business process. A more sophisticated form of banking was found in Greece where money lenders would accept the payment at one Greek City and arrange for credit in another, thereby lending the practice a more sophisticated touch. Modern banking system and practices emerged in about 1200 A.D in Italy, marking a new era in the history of mankind. Florence had a lion’s share in the new trade, thanks to florin, the famous gold coin which was minted in 1252 for the first time. Later saving banks and industrial banks emerged. The savings bank aimed at providing a safe place for the working class to save for retirement whereas the industrial banks were established with an objective to provide long term loans to the industries.
In India, the early Presidency Banks were amalgamated into the Imperial Bank of India by the Imperial Bank of India Act, 1920.The bank has no powers of issuing currency notes but held Government balances and also manage the public debt. The Reserve Bank of India Act was passed in 1934 since there was a long felt need of a central bank. The Reserve Bank of India started functioning on 1 April, 1935; regulation of the currency notes and keeping of the reserves with a view to securing monetary stability as one of its chief objectives. Later, as per the recommendations of the All India Rural Credit Survey Committee (1951-52), on 1 July, 1955, the Imperial Bank was nationalised and renamed as the State Bank of India. Subsequently, the banks were nationalised in 1969 and again in 1980. Currently, there are 27 public sector banks, 34 private sector banks and 39 foreign banks in the commercial sector and 29 state co-operative banks, 367 District Central co-operative banks and 92000 Primary Agriculture Societies in the co-operative sector.
In the course of development of the banking scenario in India, the welfare concern of the customers of the bank was not considered to be a main stream issue which required immediate attention. The Banking Companies Act, 1949, however, provided for the protection of the interests of the depositors. But apart from such piece meal solutions, there was a complete absence of any substantial legislation towards customers and customer related services. There was particularly an absence of any customer grievance machinery which was a glaring loophole in the banking scenario. In order to remedy the situation, the Reserve Bank of India launched “The Banking Ombudsman Scheme 1995” with the primary objective of resolving the complaints relating to the bank services so rendered. Section 16 of the Scheme provides for a detailed procedure for the redressal of grievances and Section 20 empowers the Ombudsman to make award by serving a due notice to the parties concerned.However, inspite of the lofty ideals nurtured by this legislation, it seems the customers as well as the bankers have failed to enjoy the benefit conferred as well as to realise the advantages as envisaged in the scheme. As Prof.Elumalai observes, the reasons for the same could be because as per the provisions of the scheme, the recommendations made by the Banking Ombudsman are not binding on the parties to the dispute. This left the parties with an option to follow or not to follow the recommendations as per their own whims and fancies and thus not achieve the enshrined ideals.
Also the fact that as per the provisions of the Scheme, the acceptance of recommendation by the complainant should be in full and final settlement of his claim against the bank acted in furthering the apathy towards the Scheme. Further, equalizing conferment of benefit on one party with conferment of liability on the other too acted as a factor contributing towards the failure of the Ombudsman Scheme.
III. APPLICABILITY OF THE CONSUMER PROTECTION ACT, 1986 IN THE BANKING SERVICES
As noted above, the absence of any comprehensive legislation to specifically take care of the grievances of the customers in the banking sector, they have always sought recourse to the Consumer Dispute Redressal Commissions which are set up as per the provisions of the Act.Now, a fundamental and pertinent concern at this juncture is whether the customers of bank and the services rendered by the bank can be construed to be consumers and services as envisaged by the provisions of the Act. Thus, an examination of the relevant sections in this regard is necessary.
According to S 2 (1) (o) of the Act, service has been defined to mean service of any description and includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, etc., but does not include the rendering of any service free of charge or under a contract of personal service.Thus,such an inclusive definition of services is a clear indicator of the intent of the legislators to consider banking service as an important service among all other services which have been enlisted therein. Also it is important to note that as per S 2(1) (c) of the Act unfair trade practices, deficiency in services as well as over charging of prices, inter alia,can form the subject matter of the complaint.Hence,a harmonious interpretation of S 2(1) ( c),(d) and (o) of the Act reveals that a customer of a bank 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 are all “consumers”
and can prefer complaints under the Act for “deficiency in service” on the part of the bank or for “restrictive trade practice” or “unfair trade practice” adopted by the bank. Since its inception till September 2007, the State and the National Consumer Dispute Redressal Commissions have adjudicated a total of 1136 cases pertaining to the issue in the banking sector.
In the case of Vimal Chandra Grover v. Bank of India ,the important question for consideration before the Apex Court was whether a customer who availed of overdraft facility by pledging shares could be construed as a consumer within the ambits of the Act. The Hon’ble Court observed that the over draft facilities extended to a customer was in return of a consideration paid and squarely fell within the meaning of the word services under the Act. Thus, such a customer was also a consumer within the provisions of the Act.
The recent case of Major Rajendra Gopalan Menon v. State Bank of India ,the National Consumer Dispute Redressal Commission, the apex body created by the Act, observed that a beneficiary of a pension scheme was too a consumer within the definition of consumer under the Act. The decision was given by taking into account the observations of the Supreme Court in the matter of Regional Provident Commissioner v. Shri Kumar Joshi.
Similarly in Chairman&Managing Director, UCO Bank v. M.R.Pandit , it was noted by the Hon’ble Commission that a an employee who takes a Voluntary Retirement with an agreement that 50 % of the benefit is to be paid in cash and the remaining 50 % as a fixed deposit for five years was also to a consumer within the meaning of the Act. Thus, any subsequent change in the agreed rate of interest on the fixed deposit was a valid ground for the complainant to lodge a complaint before the authorities. However, the National Commission observed in the case of Krishna Kumar Gupta v. General Manager, Bank of India that non grant of pension to a bank employee where such an employee has taken a premature retirement doesnot confer upon him the status of a consumer of banking services since he was not a consumer who hired the services of a bank. Thus, from the analysis of the abovementioned case laws, it becomes clearly evident that for a customer of the bank to be a consumer under the Act, the rendering of services by the bank in return of a consideration is a pre requisite.
IV.DEFICIENCY OF SERVICES AND CONSUMER PROTECTION
As stated above, there can be several instances where the banks in question are called in for the alleged deficiency in service rendered by them. The United Nations Guidelines for Consumer Protection too seeks to promote and encourage high levels of ethical conduct among those who are engaged in the production and distribution of goods and services to the consumers. Thus, deficiency in the services rendered is an important ground which calls in for protection of consumer welfare. This section would thus attempt to review certain case laws pertaining to the issue of deficiency in services rendered by the banks and the subsequent action taken.
In State Bank of India v. Raveendran Nair ,the National Consumer Dispute Redressal Commission observed that a bank draft was refused to be honoured since the signature of one of the two officials was missing. According to the Commission, the same was due to the fault of the bank officials themselves and therefore amounted to a deficiency of services rendered by the bank. A princely sum of Rs.19, 500/- was awarded as compensation on the grounds of mental agony and inconvenience caused.
Likewise, in the case of Malti Bhat v. State Bank of India , issuance of an unsigned demand draft by the bank which resulted in depriving the candidate from appearing in an examination was held to be a case of deficiency of services rendered and was thus awarded Rs.25,000/- by the State Consumer Dispute Redressal Commission.
A compensation of Rs.15, 000/- was awarded by the National Consumer Dispute Redressal Commission along with an interest of 13% p.a. from the date of the issuance of the first draft where the bank dishonoured a draft twice. It was noted by the Apex body that the harassment caused to the complainant has to be taken into account while deciding the quantum of compensation to be awarded.Moreover, the request to issue a second draft cannot be considered to be a waiver of interest in law.
It is interesting to note that a refusal to issue a duplicate draft for Rs. 1.92 Crore, lost while travelling, in spite of having completed all required formalities along with the imposition of unreasonable conditionalities like depositing 25% of the value of Demand Draft as a margin money amounted to a case of deficiency of services on the part of the bank thereby resulting in an award of Rs. 50,000/- as compensation.
Deficiency of services rendered by the banks can also be seen in the cases of cheques issued to or by the banks. In the case of Central Bank of India v. Biju Hazarika, the Apex body noted that the issuance of a cheque book in the name of the account holder to one of the employees of the bank resulting in the withdrawal of huge amount from the account in question by fraudulently forging the signature of the account holder will be held as a deficiency of services provided. Signature verification too has been held to be an extremely important matter in the case of issuance of cheque books. Issuance of a cheque book without comparing the specimen signature and a subsequent clearance of the cheque to a fraudster without verifying the signature amounts to damage caused to the account holder due the fault of the bank. Interestingly, banks can also be held liable because of the negligent acts of the courier services which failed to deliver the cheque to the drawee bank. In UCO Bank v. Surendra Kumar Bara , the issue before the Orissa State Commission was that the complainant had opened an account with the bank under a scheme called Laghu Bachat Yojana. An agent of the bank used to collect the deposits from the complainant periodically and make entries in the passbook issued by the bank under his initial. The agent of the bank misappropriated a part of the money. The Commission directed the bank to refund the amount misappropriated by its agent along with interest and also to pay compensation for mental agony, harassment and cost of litigation.
Likewise, banks can also be held responsible for deficiency of services if they fail to return dishonoured cheques on the grounds of misplacing it in transit. The redressal is through payment of compensation as was observed in Harmohinder Kaur v. State Bank of Patiala . Dishonouring a cheque on vague and ambiguous grounds resulting in the account holder facing criminal charges would also amount to a deficiency of services provided by the bank as held in Manager, North Malabar Gramin Bank v.M.Balakrishnan .
V.CONCLUSION
Today, in the height of malpractices rendered in various sectors seeks to accentuate the challenge of safe guarding the interests of the empowered consumer, an expression that despite its phenomenal popularity in terms of usage, is however not a novel lexical creation. An analysis of various judgements of cases of alleged consumer protection brings into light the fact that not only have banks been held responsible for a deficiency of services on various grounds but also the complainants have been awarded with a high compensation on the grounds of mental agony and the harassment so faced. With an unprecedented growth in the service sector as a whole and the banking sector particularly, the role of redressal mechanisms have increased by manifolds. A pertinent point to be noted in this regard is the fact that there has been an absence of any substantial legislation in the field of consumer protection in the banking services. Thus, by reading into the Act, the instances of consumer malpractice, there seems to have been sown seeds of hope for millions of David against Goliath.
In the landmark judgement of Lucknow Development Authority v. M. K.Gupta the Court also observed that public authorities acting in violation of the constitutional or statutory provisions oppressively are equally accountable for their behaviour before the authorities which have been created under statutes like the Act. These hierarchical authorities are empowered to adjudicate upon a complaint by the consumer for the value of goods or services, as the case may be. Moreover, the concept of providing compensation should be construed as widely as possible because the Act is a consumer friendly legislation and a constructive approach towards the same is helpful in realising the objectives set forth by the Act.
It should be noted that courts have been generous in granting compensation in the cases of consumer protection, widening its ambit by including the factors of mental agony and harassment is also an indicator of the fact that the modern consumer is an empowered consumer and has a adequate redressal mechanism to seek recourse from. Any other interpretation of the provisions of the Act would lead to the defeat of the very object of the Act.
Drawing from international experience, it can also be suggested that the example set forth by the United Kingdom where a voluntary banking code states that the banks must proactively contact the customers, who, they believe may have problems on the basis of the information held by them, be followed. Thus, the new comprehensive code seeks to highlight a commitment that the banks will lend responsibly and also help any customer, who can be seen as a prospective victim of financial difficulties. This mechanism surely accentuates the concept of consumer protection in the banking sector. The code also seeks to prohibit a closure of the customer’s account, current or savings, merely because a complaint has been lodged by them. It can undoubtedly be said to be a step forward in the field of consumer protection jurisprudence.
However, there have been instances where frequent conflicts have arisen while interpreting the provisions of the Act particularly in the cases of banking services. Mostly, they are dealt on an ad hoc basis without any overarching legal authority per se. Hence, there is an urgent need of for detailed and a coherent understanding of the problems faced by the customers of a bank by means of a comprehensive legislation. The need of the hour is thus a separate legislation to take care of the motley of problems faced by the consumers in this regard and remedying them. It will provide more teeth to the area of consumer jurisprudence, safeguarding their interests. There is also a dire need of enlightening the consumers, particularly in the rural areas, about the rights and possible remedies they have against a bank in the cases of deficiency of services provided by them. Only then will the consumer be crowned as the king again.
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The Law of Consumer Protection in India,Gurjeet Singh, Deep and Deep Publications ,New Delhi,1996,p 3
Kautliya’s Arthashastra ,M.B.Chande ,Atlantic Publishers and Distributors, New Delhi,1998,p 259
Consumer Protection Act and Banking Service,K.Elumalai,Law Publishers Pvt.Ltd.,Allahabad,2008,p 18
Ibid
[1] The Law of Consumer Protection in India,Gurjeet Singh, Deep and Deep Publications ,New Delhi,1996,p 6
[1] The Monopolies and Restrictive Trade Practices Act,1969 available online at : http://www.helplinelaw.com/docs/mrtpact/mrtp1.shtml (last visited on 15 October,2008)
[1]Section 2(1)d),The Consumer Protection Act,1986
[1] AIR 1994 SC 784
[1] Ibid at para 2
[1] The World Book Encyclopedia,Volume-2,World Book Inc.,1992,Chicago
[1] History of Banking, available online at:
http://www.historyworld.net/wrldhis/PlainTextHistories.asp?historyid=ac19 (last visited on
15October,2008)
[1] Ibid
[1] The World Book Encyclopedia,Volume-2,World Book Inc.,1992,Chicago
[1]Consumer Protection Act and Banking Service,K.Elumalai,Law Publishers Pvt.Ltd.,Allahabad,2008,p 27
[1] The Reserve Bank of India Act,1934,available online at:
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/54435.pdf (last visited 17 October,2008)
[1] State Bank of India Act,1950 ,available online at:
http://www.statebankofindia.com/uploads/files/STATE1.pdf (last visited 17 October,2008)
[1]Consumer Protection Act and Banking Service,K.Elumalai,Law Publishers Pvt.Ltd.,Allahabad,2008,p 24
[1] The Banking Ombudsman Scheme,1995,available online at
: http://www.rbi.org.in/scripts/PublicationsView.aspx?Id=1848 (last visited on 15 October,2008)
[1]Consumer Protection Act and Banking Service,K.Elumalai,Law Publishers Pvt.Ltd.,Allahabad,2008,p 36
[1] Ibid
[1] Ibid at p. 37.It is also to be noted that taking into consideration the abovementioned shortcomings of the Scheme, the Reserve Bank of India modified the Scheme in 2002 and 2006.They are available online at:
rbidocs.rbi.org.in/rdocs/Publications/PDFs/29807.pdf
and www.icicibank.com/pfsuser/customer/Banking_Ombudsman_Scheme.pdf respectively.
[1] Applicability of Consumer Protection Act to the Banking Sector, Subash Agarwal,available online at : icai.org/resource_file/10467feb05991-995.pdf (last visited on 15 October,2008)
[1]Consumer Protection Act and Banking Service,K.Elumalai,Law Publishers Pvt.Ltd.,Allahabad,2008,p 23
[1] AIR 2000 SC 2181
[1] 2006 (1) C.P.R 237 N.C. The complainant had retired from the Army and was entitled to receive pension as collected by the Controller of Defence Accounts (Pension). The bank however was not collecting and crediting the pension due to his account and dearness allowance which were accruing in his favour. The State Consumer Dispute Redressal Commission had dismissed the complaint on the ground that the complainant in question was not a consumer as per the Act.
[1] (2000) 1 SCC 98
[1] 2004 (2) C.P.R. 108(N.C)
[1] 2003 (1) C.P.R 256 (N.C)
[1] 1992 (2) C.P.R 400
[1] 1992 (2) C.P.R 122
[1] T.K.Soni v. Punjab National Bank ,1992(1) C.P.R 688
[1] Soya Udyog v. State Bank of India,1995 (1) C.P.R 336
[1] 2003 (1) C.P.R 340
[1] Abdul Razak v. South Indian Bank Ltd. 2003(1) C.P.R.145
[1] State Bank of Patiala v. Vishwas Ahuja 2004 (1) C.P.R. 575
[1] 2004 (3) CPJ 472 as cited in Applicability of Consumer Protection Act to the Banking Sector, Subash Agarwal,available online at : icai.org/resource_file/10467feb05991-995.pdf (last visited on 15 October,2008)
[1] 1999 (2) C.P.R. 553
[1] 2002 (2) C.P.R 380
[1] AIR 1994 SC 784
[1] New Banking Code seeks Greater Consumer Protection, available online at:
http://www.guardian.co.uk/money/2008/mar/31/banks.debt (last visited on 17 October,2008)
