National Consumer Disputes Redressal
Reserve Bank Of India vs Eshwarappa & Anr. on 24 July, 2008
Revision Petition No NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI REVISION PETITION NO. 2528 OF 2006 (Against the order dated 29.03.2006 in Appeal No. 755/ 2006 of the State Commission Karnataka ) Reserve Bank of India ........ Petitioner Vs. Eshwarappa & Anr. ........ Respondents REVISION PETITION NO. 2529 OF 2006 (Against the order dated 27.03.2006 in Appeal Nos. 756 & 757/ 2006 of the State Commission Karnataka ) Reserve Bank of India ........ Petitioner Vs. Eshwarappa & Anr. ........ Respondents REVISION PETITION NO. 2530 OF 2006 (Against the order dated 27.03.2006 in Appeal Nos. 756 & 757/ 2006 of the State Commission Karnataka ) Reserve Bank of India ........ Petitioner Vs. Eshwarappa & Anr. ........ Respondents REVISION PETITION NO. 462 OF 2006 (Against the order dated 09.01.2006 in Appeal No. 1992/ 2005 of the State Commission Karnataka ) Maratha Co-op. Bank Ltd. ........ Petitioner Vs. Bhimsena Tukaramsa Miskin ........ Respondent REVISION PETITION NO. 463 OF 2006 (Against the order dated 15.02.2005 in Appeal No. 108/ 2005 of the State Commission Karnataka ) Maratha Co-op. Bank Ltd. ........ Petitioner Vs. Subhas ........ Respondent REVISION PETITION NO. 2254 OF 2006 (Against the order dated 04.10.2005 in Appeal No. 1566/ 2005 of the State Commission Karnataka ) Maratha Co-op. Bank Ltd. ........ Petitioner Vs. Ramdas Bhsole ........ Respondent REVISION PETITION NO. 2255 OF 2006 (Against the order dated 04.10.2005 in Appeal No. 1567/ 2005 of the State Commission Karnataka ) Maratha Co-op. Bank Ltd. ........ Petitioner Vs. Eshwarappa Shettar ........ Respondent REVISION PETITION NO. 2256 OF 2006 (Against the order dated 04.10.2005 in Appeal No. 1568/ 2005 of the State Commission Karnataka ) Maratha Co-op. Bank Ltd. ........ Petitioner Vs. Saraswati R Bhosle. ........ Respondent REVISION PETITION NO. 2746 OF 2006 (Against the order dated 29.03.2006 in Appeal No. 755/ 2006 of the State Commission Karnataka ) Maratha Co-op. Bank Ltd. ........ Petitioner Vs. Eshwarappa Ari ........ Respondent REVISION PETITION NO. 2747 OF 2006 (Against the order dated 06.06.2006 in Appeal No. 1009/ 2006 of the State Commission Karnataka ) Maratha Co-op. Bank Ltd. ........ Petitioner Vs. Savitri Desaigoudar ........ Respondent REVISION PETITION NO. 2748 OF 2006 (Against the order dated 27.03.2006 in Appeal No. 757/ 2006 of the State Commission Karnataka ) Maratha Co-op. Bank Ltd. ........ Petitioner Vs. Eshwarappa Ari ........ Respondent REVISION PETITION NO. 2591 OF 2007 (Against the order dated 28.02.2007 in Appeal No. 343/ 2007 of the State Commission Karnataka ) Maratha Co-op. Bank Ltd. ........ Petitioner Vs. Basangouda R Kandagal ........ Respondent BEFORE: HON'BLE MR. JUSTICE M.B. SHAH, PRESIDENT HON'BLE MRS. RAJYALAKSHMI RAO, MEMBER For the RBI Mr. M. Anand, Sr Advocate Mr. H. S. Parihar, Advocate For all the matters in RP NEMO Nos.462, 463, 2254, 2255, 2256 2746, 2747, 2748/2006 & 2591/ 2007 For the Respondent NEMO In RP Nos.2258, 22529, 2530 462,463, 2254, 2255, 2256, 2746, 2747, 2748/ 2006 For the Respondent In RP No. 2591/2007 Mr. S. K. Sharma, Advocate Dated the _24TH July, 2008 O R D E R M.B.SHAH, J., PRESIDENT I. These Revision Petitions are filed by the Reserve Bank of India and Maratha Co-operative Bank Ltd. and it is repeatedly contended that once a prohibitory Order under Section 35A of the Banking Regulation Act, 1949 is passed, the Consumer Fora would have no jurisdiction to entertain the complaint and pass an order directing the Bank to pay the amount. In our view, the said submission is without any substance for the reasons stated below: For this purpose, it would be necessary to reiterate that section 3 of the Consumer Protection Act, 1986 specifically provides that provisions of the Consumer Protection Act, 1986 shall be in addition to and not in derogation of the provisions of any other law for the time being in force. Moreover, similar provision exists in section 2 of the Banking Regulation Act, 1949, which reads as under: 2. Application of other laws not barred.- The provisions of this Act shall be in addition to, and not, save as hereinafter expressly provided, in derogation of the [Companies Act, 1956(1 of 1956], and any other law for the time being in force. In the present case, there is no law or rules or regulations which bar the jurisdiction of the Consumer Fora. Law on the subject is settled by the Apex Court. In Kishore Lal v. Chairman, ESI Corpn.,(2007) 4 SCC 579 ( Para 17) the Apex Court held as under: 17. It has been held in numerous cases of this Court that the jurisdiction of a consumer forum has to be construed liberally so as to bring many cases under it for their speedy disposal. In the case of M/s. Spring Meadows Hospital and Another v. Harjot Ahluwalia and Another, AIR 1998 SC 1801, it was held that the CP Act creates a framework for speedy disposal of consumer disputes and an attempt has been made to remove the existing evils of the ordinary court system. The Act being a beneficial legislation should receive a liberal construction. In State of Karnataka v. Vishwabarathi House Building Co-op. Society and Others, AIR 2003 SC 1043, the Court speaking on the jurisdiction of the consumer fora held that the provisions of the said Act are required to be interpreted as broadly as possible and the fora under the CP Act have jurisdiction to entertain a complaint despite the fact that other fora/courts would also have jurisdiction to adjudicate upon the lis. These judgments have been cited with approval in paras 16 and 17 of the judgment in Secretary, Thirumurugan Cooperative Agricultural Credit Society v. M. Lalitha and Others, (2004) 1 SCC 305. The trend of the decisions of this Court is that the jurisdiction of the consumer forum should not and would not be curtailed unless there is an express provision prohibiting the consumer forum to take up the matter which falls within the jurisdiction of civil court or any other forum as established under some enactment. The Court had gone to the extent of saying that if two different fora have jurisdiction to entertain the dispute in regard to the same subject, the jurisdiction of the consumer forum would not be barred and the power of the consumer forum to adjudicate upon the dispute could not be negated. Secondly, the prohibitory order issued under Section 35A of the Banking Regulation Act, 1949, inter alia, provides as under: The Maratha Cooperative Bank Ltd., Hubli, as from the close of business on February 3, 2004, shall not, without prior approval in writing from the Reserve Bank of India, grant or renew any loans and advances, make any investment, incur liability including borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations or otherwise, enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except to the extent and in the manner provided hereunder: (i) to (v) .. (vi). Payment of premium payable to the Deposit Insurance and Credit Guarantee Corporation (vii) .. (viii) Shall not incur or extinguish any other liability unless specifically approved in writing by the Reserve Bank of India. Mere reading of the aforesaid prohibitory order would indicate that there is no prohibition in filing complaint under Consumer Protection Act, 1986 or suit by a depositor. It only prohibits payment of any amount to the depositors. Such being the case, there is and there cannot be any prohibition to the Consumer Fora entertaining a complaint under the Consumer Protection Act, 1986 and crystallizing the amount due and payable to the aggrieved consumer(s) who are depositors of the bank in question. Hence, the main contention of the RBI that the Consumer Fora have no jurisdiction to decide the matter is without any substance and is rejected. II. To what extent can the Consumer Protection Act, 1986 come to the rescue of a consumer who finds himself in a helpless position, because: - he, a middle class or a poor employee, invested his savings in a cooperative bank on the promises of the bank to pay one or two per cent more interest than what is offered by the nationalized banks; - the amount invested may be for the marriage ceremony of his/her daughter or son, for education of the children, for medical treatment of the members of his/her family, to meet any other exigencies in life and/or for various such other purposes; - before the fixed deposit matures, in public interest, the RBI issues a notification under Section 35A of the Banking Regulation Act, 1949 and prohibits the bank not to repay the proceeds of the FDRs despite their maturity; - What is the remedy available to the poor investor/consumer in such a situation? - That too, in a case, where the prohibitory order issued by the RBI remains in force for years together - Is there anyone to look at the consequences? III. Further, the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (hereinafter referred to as the DICGC Act) provides insurance cover to small depositors. The said Act remains on paper because the Act is framed in such a way that such insurance cover would come into operation when there is a winding up order or liquidation order as provided under Section 16 of the said Act. The whole purpose of extending insurance cover to the small depositors is thereby frustrated, because in the hope of reviving the bank or for other reasons, the RBI does not permit the bank either to operate or does not pass the order for liquidation. IV. Hence, for finding out a reasonable solution to the problems faced by the poor or middle class or poor employees who invested their money in a cooperative bank, this Commission passed several orders from time to time. However, these could not achieve any result, because of the stone-walling approach of all concerned. The said orders are referred as under: Various Orders A. On 3.8.2007, the following order was passed : From the record, it appears that because of the directions issued by the Reserve Bank of India (RBI), the Bank is not in a position to refund the amounts payable on or after the date of maturity of the FDRs. Most of the depositors are from lower middle class who had deposited their hard earned money for getting the higher rate of interest from the Bank. After passing of the Order under Section 35A of the Banking Regulations Act, there is total negligence on the part of the officers of the Bank in not ensuring that appropriate action is being taken either for winding up of the bank or for revival and for withdrawing its order. Such delay causes lot of harassment to the depositors. The depositors are required to produce on record medical certificates and medical bills for getting the money released. The concerned officers discharge their duty as usual with utmost delay and without any concern for the suffering of employees/poor persons who have deposited their life savings with the Bank. If prompt action is taken, at least the amount up to Rs.1 lakh, payable by the General Insurance Corporation, can be released in favour of the depositors on the basis of statutory insurance cover, or, in the alternative, concerned bank can restart its functioning. It appears that the officers of RBI are not in a position to curtail the delay for one or other reason. In such a situation, for getting relief, consumers all over the country are knocking the doors of the consumer fora because they are hard-pressed. However, to find out a solution, fix the matter for final disposal on 29th October 2007 at 2.30 PM. B. Thereafter, on 26.11.2007, the following order was passed: Heard the learned counsel for the parties. In all these matters the question which requires consideration is what should be the time limit or the period during which operation of the direction issued under Section 35-A of the Banking Regulation Act, 1949 should remain in force? Whether it can remain in force for years together or for a reasonable period. In our view, when no time limit is prescribed under the law, concept of reasonable period is adopted/accepted by the law laid down by the Apex Court. The result would be, after lapse of reasonable time the RBI either should cancel the licence of the Bank or, if possible, lift the ban so that Bank can be revived and made functional. C. Thereafter, on 28.2.2008, the following order was passed: Heard the learned counsel for the parties. This case illustrates how lethargy on the part of the officers, may be that of RBI, can harass small depositors in repayment of the fixed deposit amounts. Admittedly, in the present case, on 21.1.2004, RBI passed an order under Section 35A of the Banking Regulation Act, 1949 restraining Maratha Co-operative Bank Ltd. from repaying the fixed deposit amounts beyond Rs.1000/-. The consumers preferred complaints before the District Forum for return of the fixed deposit amount on maturity. That amount was not paid. Appeals were preferred before the State Commission. The State Commission dismissed the Appeals by holding that it is the liability of the Bank to pay the amount deposited by the complainants. Against that order, RBI has preferred Revision Petitions on the ground that the orders passed by the District Forum as well as by the State Commission violate the directions issued by the RBI. Learned senior counsel, Mr.Anand, appearing for the RBI submitted that the stand taken by the RBI is in conformity with the law laid down by this Commission as well as by the Apex Court. He further pointed out that by order dated 23.1.2008, licence of Maratha Co-operative Bank has been cancelled by RBI and official liquidator has been appointed by the State Government by order dated 2.2.2008. He states that the Deposit Insurance & Credit Guarantee Corporation (DICGC) would pay the statutory amount as provided under Section 16 of the Deposit Insurance & Credit Guarantee Corporation Act, 1961 (DICGC Act) after following the procedure provided under Section 17 of the Act. Learned counsel for Maratha Co-operative Bank Ltd. contends that because of the direction issued by RBI under Section 35A of the Banking Regulation Act, the amount cannot be paid to the complainants. He states that against the order passed by the RBI cancelling the licence, the bank has preferred Appeal before the Secretary to the Govt. of India, Deptt. Of Finance. From the facts stated above, it is apparent that from 21.2.2004, small depositors are not getting refund of their amount and the whole purpose of giving the insurance cover to the small depositors under the DICGC Act is frustrated. For years together, order which is passed under Section 35A continues and the small depositors have to wait for their hard-earned money because RBI/ DICGC is taking undue advantage of the words which are used in Section 16, namely, winding up or liquidation. That is to say, unless winding up or liquidation order is passed, the DICGC keeps quiet and does not reimburse the small investors. The maximum limit for payment under the said Act, is only up to Rs.1 lakh. Section 16 of the DICGC Act reads as under: (1) Where an order for the winding up or liquidation of an insured bank is made, the Corporation shall, subject to the other provisions of this Act, be liable to pay to every depositor of that bank in accordance with the provisions of section 17 an amount equal to the amount due to him in respect of his deposit in that bank at the time when such order is made : Provided that the liability of the Corporation in respect of an insured bank referred to in clause (a) or clause (b) of sub-section (1) of section 13 or clause (a) or clause (b) of section 13C shall be limited to the deposits as on the date of the cancellation of the registration : Provided further that the total amount payable by the Corporation to any one depositor in respect of his deposit in that bank in the same capacity and in the same right shall not exceed one thousand and five hundred rupees. Provided further that the Corporation may, from time to time, having regard to its financial position and to the interest of the banking system of the country as a whole, raise, with the previous approval of the Central Government, the aforesaid limit of one thousand and five hundred rupees. (2) Where in respect of an insured bank a scheme of compromise or arrangement or of reconstruction or amalgamation has been sanctioned by any competent authority and the said scheme provides for each depositor being paid or credited with, on the date on which the scheme comes into force, an amount which is less than the original amount and also the specified amount, the Corporation shall be liable to pay to every such depositor in accordance with the provisions of section 18 an amount equivalent to the difference between the amount so paid or credited and the original amount, or the difference between the amount so paid or credited and the specified amount, whichever is less : Provided that where any such scheme also provides that any payment made to a depositor before the coming into force of the scheme shall be reckoned towards the payment due to him under that scheme, then the scheme shall be deemed to have provided for that payment being made on the date of its coming into force. (3) For the purposes of this section, the amount of a deposit shall be determined after deducting therefrom any ascertained sum of money which the insured bank may be legally entitled to claim by way of set off against the depositor in the same capacity and in the same right. (4) In this section, - (a) original amount in relation to a depositor means the total amount due by the insured bank immediately before the date of coming into force of the scheme of compromise or arrangement or, as the case may be, of reconstruction or amalgamation to the depositor in respect of his deposit in the bank in the same capacity and in the same right : Provided that where under the proviso to sub-section (2), the scheme is deemed to have provided for any payment being made on the sate of its coming into force, the amount of such payment shall be included in calculating the original amount : (b) specified amount: means one thousand and five hundred rupees, or as the case may be, the amount fixed by the Corporation under the third proviso to sub-section (1). It is true that on one ground or the other, bureaucracy can delay proceedings at every stage. For 4 years, depositors were required to wait and litigate before the District Forum and the State Commission as well as before this Commission. It was contended that till January 2008, no order was passed for winding up or liquidation of the insured bank and since the direction issued by the RBI was in existence, the deposited amount was not to be refunded. Now that statutory hurdle is over. Despite this, Mr.Anand submits that the amount would be paid after following the procedure prescribed under Section 17 because liquidator has to submit the list of the creditors. It appears that this procedure would take further long time. However, in the present case, the amount payable by the Maratha Co-operative Bank Ltd. is quantified by the District Forum as well as by the State Commission. In these set of circumstances, RBI should not find any difficulty in directing the DICGC to pay the minimum amount at the earliest. In this view of the matter, Notice be issued to Deposit Insurance & Credit Guarantee Corporation returnable on 27th March 2008 with a direction that a responsible officer of the Corporation shall personally remain present before this Commission on that date. Meantime, it would be open to the DICGC to pay up to Rupees one lakh to each of the depositor as provided under Section 16 of the DICGC Act. V. In view of the above stated gloomy state of affairs, the question that requires consideration is: Whether there should be reasonable time limit for continuing the prohibitory orders issued under Section 35A of the Banking Regulation Act, 1949? It is true that an order under Section 35A is an administrative order binding on the bank concerned. However, that administrative order affects a large number of depositors, may be, small or poor, and this causes a lot hardship particularly to such persons. Hence, the pertinent question is whether it can be justifiable if the prohibitory order continues beyond reasonable time to the detriment of the interests of such depositors of small or limited means. It is established law that administrative powers in order that they are not abused are required to be exercised within a reasonable time. The aforesaid principle would apply in the present case because the Legislature has conferred statutory powers on the RBI under Section 35A. That power is to be exercised, inter alia, in public interest and to prevent the affairs of any banking company being conducted in detrimental to the interests of the depositors. In Central Bank of India vs. Ravindra & Ors. [(2002) 1 SCC 367], the Apex Court held: The power conferred by Sections 21 and 35A of the Banking Regulation Act, 1949 is coupled with duty to act. . Further, the RBI is one of the watch dogs of finance and economy of the nation. It is and it ought to be aware of all relevant factors including credit conditions as prevailing which would invite its policy decisions. To act is the duty of the RBI and therefore, not to act at appropriate time which causes a lot of hardship, inconvenience and loss would amount to deficiency in service. In the aforesaid context, if there is inaction, lethargy/delay in taking appropriate action within a reasonable time the depositors/consumers cannot be left in the lurch. For dealing with such a situation, the following law laid down by the Apex Court would be applicable. Dealing with the general principles of judicial review and reasonableness of the administrative order, in the case of Union of India v. S.B. Vohra, (2004) 2 SCC 150, at page 172, the Apex Court held that: 28. The broad principles of judicial review as have been stated in the speech of Lord Diplock in Council of Civil Service Unions v. Minister for the Civil Service22 i.e. illegality, irrationality and procedural impropriety, have greatly been overtaken by other developments, as for example, generally not only in relation to proportionality and human rights but also in the direction of principles of legal certainty, notably legitimate expectations. ..
47. In a matter of this nature the appellant, with a view to show that its action is reasonable, was bound to perform its duties within a reasonable time. Reasonableness being the core of Article 14 of the Constitution of India would imply that the constitutional duties be performed within a reasonable time so as to satisfy the test of reasonableness adumbrated under Article 14 of the Constitution of India.
Further, in case where there is no period of limitation fixed by a statute, the act is required to be done within a reasonable time. For this, the Apex Court in Pune Municipal Corporation vs. State of Maharashtra, (2007) 5 SCC 211 at 223, para 30, the Apex Court observed thus:
Where the law does not prescribe limitation, the court would import the concept of reasonable time. However, what is the length of reasonable time would depend upon the facts and circumstances of each case and no rule of universal application can be laid down.
It is true that in estimating reasonable time there cannot be any fixed yardstick. But, at the same time, it cannot be a process to be prolonged for years together. If a banking company is required to be revived continuous efforts should be made by the authority concerned and the same should be continuously monitored and decided within a reasonable time. If it cannot be revived within that reasonable time, the banking licence should be cancelled and bank should be ordered to be wound up or liquidated.
Thereafter, as soon as the liquidation order is passed, it is the duty of the DICGC to pay the amount covered by the insurance or the standard prescribed by it. Again, to say that the Liquidator is not doing anything and, therefore, the DICGC would not pay, would apparently frustrate the provision of providing statutory insurance cover to the depositors. Somebody responsible enough and with the authority and means to expedite, must monitor all these aspects. If that is not done, the depositors/consumers of the banking service are left without any remedy. For the rich it may not cause any difficulty, but for a poor investor, it is a torture.
To say that to mitigate the hardship in hard cases, a Committee is appointed and that Committee grants some relief to the depositors depending upon their requirement is, in our view, a vicious circle. For getting refund of their money they have to go begging from one place to another, file one application after the other, wait for long for their turn. All this can be avoided if proper orders are passed expeditiously.
Finally, to see that some amount paid to the consumer/depositor on the basis of the insurance cover, as the order of winding up passed, we heard the learned Counsel Mr.Anand on behalf of the DICGC. He submitted that the DICGC would pay the amount when it is crystallized by following the procedure prescribed under Section 17 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961. In our view, such a stand creates hurdles and obstructions in getting the refund of the money invested. The Liquidator takes years for crystallizing the amount payable by the bank and the purpose of insurance cover is frustrated. It is very difficult for the consumer to cross such hurdles easily.
In our view, considering the delay in litigating from one fora to the other fora and suffering by small investors it is apparent that , the observation made by the Apex Court in the case of Lucknow Development Authority vs. M.K.Gupta, (1994) 1 SCC 243 would aptly apply to the present case. The Court, inter alia, observed: An ordinary citizen or a common man is hardly equipped to match the might of the State or its instrumentalities. The Court further observed, In fact, to meet the 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 Act lies in promoting the welfare of the society which enable the consumer to participate directly in the market economy.
In our view, we would add that the dream of enabling the consumer to participate directly in the market economy can be fulfilled only if there is awareness on the part of the persons who are discharging their statutory powers.
Considering the aforesaid situation, there is no alternative but to direct the Liquidator to abide by the final order passed by the Consumer Fora, namely, the District Forum or the State Commission and to make payment of the amount which is crystallized by the said Fora, within a period of six weeks from today.
That amount which is paid could be recovered from the DICGC on the basis of the insurance cover and not to delay this payment any further.
The Revision Petitions are disposed of as above.
Before parting with the Order, we direct the Registrar of this Commission to send a copy of this order to the (i) Secretary, Ministry of Consumer Affairs, Food and Public Distribution, Department of Consumer Affairs, Krishi Bhavan, New Delhi and (ii) the Secretary, Ministry of Law and Justice, Shastri Bhavan, New Delhi, to find out solution to the problems faced by small investors. May be by suitably amending Section 35A of Banking Regulation Act, 1949 prescribing some time during which it would remain in operation and Section 16 of the Deposit Insurance and Credit Guarantee Corporation Act, so that after lapse of some period of the prohibitory Order under Section 35A, DICGC can be asked to pay minimum amount, may be upto Rs. 1.00 lakh, to the small investors. If the bank is revived the same can be recovered from the bank, if not revived, it would be a statutory liability as contemplated under the Act.
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..J. (M.B. SHAH) PRESIDENT Sd/-
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(RAJYALAKSHMI RAO) MEMBER