BANKING OMBUDSMAN SCHEME

A PROJECT ON

BANKING OMBUDSMAN

SUBMITTED TO MR. MANWENDRA MA NWENDRA KUMAR TIWARI TIWARI (FACULTY OF BANKING LAW)

SUBMITTED BY ANOOP KUMAR 

ROLL NO. 11

DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY  (LUCKNOW)

CONTENT

PREFACE INTRODUCTION. BANKING OMBUDSMAN. CHARACTERISTICS OF THE BANKING OMBUDSMAN. BANKING OMBUDSMAN SCHEME, 2006. CASES AGAINST THE BANKS. BANKING OMBUDSMAN SCHEME- HOW DIFFERENT FROM THE SCHEMES OF 1995 AND 2002. CONCLUSION. BIBLIOGRAPHY.

PREFACE

Thee aim Th aim of this this proj projec ectt is to intro ntrodu duce ce the reade eaderr to the the topi opic BANK BANKIING OMBUDSMAN. The project also deals with the policy adopted by the RBI and the  plethora of case laws. Thanks are due to staff at the Dr. RMLNLU library, the faculty of the Banking Law in Dr. RMLNLU, as well as to a number of colleagues who have directly or  indirectly given pointers to how this project should proceed. I would also like to thank  my father, who provided me with case materials and his invaluable blessings.

ANOOP KUMAR 

INTRODUCTION.

In India, the institution of Banking Ombudsman was introduced in 1995, though the Banking Ombudsman Scheme 1995. The scheme was introduced by the Reserve Bank of 

India to provide provide expeditious expeditious and inexpensive inexpensive forum to bank customers customers for resolution resolution of  their complaints relating to deficiency in banking services. The Scheme has been brought into force by way of direction issued by the Reserve Bank in terms of Section 35A of the Banking Regulation Act, 1949. Section 35A of the said statue lays down as follows: (1) Where the Reserve Bank issatisfied 35A. Power of the Reserve Bank to give directions. — (1) that—  (a) in the public interest; or  (aa) in the interest of banking policy; or  (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or  (c) to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, company, as the case may be, shall be bound to comply with such directions. (2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect.

It was a mechanism to look into the banking customer grievances. After the review of the scheme, a new scheme came into picture in 2002 and further further in 2006. Over the past five years, around 36,000 complaints have been dealt by the Banking Ombudsmen. The Scheme lays down the whole areas of the banking ombudsman institution. The issues of appointment, dismissal, authorities, functions, etc., have been dealt with in the scheme. The Scheme was revised in 2002 mainly to cover Regional Rural Banks and to  permit review of the Banking Ombudsmens’ O mbudsmens’ awards against banks by the Reserve Bank. Ba nk. At the time of introduction of the Scheme of 2002, there were 15 Offices of Banking Ombudsman across the entire country. The 2002 scheme was introduced with a view to widen the scope and extent of the Banking Ombudsman. The 1995 scheme has been revised in the years 2002 and 2006 to make several changes in the old scheme and to extend the scope of the same.

BANKING OMBUDSMAN.

Banking Ombudsman is a quasi judicial authority functioning under India’s Banking Ombudsman Scheme 2006, and the authority was created pursuant to the a decision by

the Governm Government ent of India India to enable enable resolu resolutio tion n of compla complaint intss of custom customers ers of banks banks relating to certain services rendered by the banks. The Banking Ombudsman Scheme was first introduced in India in 1995, and was revised in 2002 and 20061. In the wake of the failure in the efficient services of the banks, the RBI brought a scheme for the prompt, efficient and courteous services and also to protect the rights of the customers. The Banking Ombudsman is an official authority to investigate the complaint from the customers and address the complaint and thereby bring the solution among the aggrieved parties. So the Banking Ombudsman plays the role of a mediator and serves the purpose of reconciliation. The Banking Ombudsman has been defined under clause 4 of the Banking Ombudsman Scheme, 20062. Clause 4 lays down that: 4. APPOINTMENT & TENURE

(1) The Reserve Bank may appoint one or more of its officers in the rank of Chief General Manager or General Manager to be known as Banking Ombudsmen to carry out the functions entrusted to them by or under the Scheme. (2) The appointment of Banking Ombudsman under the above Clause may be made for a period not exceeding three years at a time.

CHARACTERISTICS OF THE BANKING OMBUDSMAN.

1. The Banking Banking Ombuds Ombudsman man is a quasi quasi judicial judicial author authority ity.. It has power power to summon summon  both the parties - bank and its customer, to facilitate resolution of complaint through mediation. 2. All Scheduled Scheduled Commerc Commercial ial Banks, Banks, Regional Regional Rural Rural Banks and Scheduled Scheduled Primary Primary Co-operative Banks are covered under the Scheme. 3. The Banking Banking Ombudsman Ombudsman has power to consider consider complai complaints nts from from Non-Re Non-Resid sident ent Indians having accounts in India in relation to their remittances from abroad, deposits and other bank-related matters. 4. Th Thee Banki Banking ng Ombud Ombudsm sman an does does not charge charge any fee for for reso resolv lvin ing g custo custome mers rs’’ complaints.

1 2

http://en.wikipedia.org/wiki/Banking_Ombudsman_Scheme Clause (4) of the Banking Ombudsman Scheme, 2006.

5. No complai complaint nt can be made before before a Banking Banking Ombudsma Ombudsman n on the same subject subject matter for which any proceedings before any court, tribunal or arbitrator or any other forum is pending or a decree or award or a final order, has already been  passed by any such competent court, tribunal, arbitrator or forum.

BANKING OMBUDSMAN SCHEME, 2006. Scope Scope of the Sch Schem eme. e. In 2006, the Reserve Bank of India announced the revised

Banking Ombudsman Scheme with enlarged scope that included customer complaints on certain new areas, such as, credit card complaints, deficiencies in providing the promised services services even by banks' sales agents, agents, levying levying service service charges without prior notice to the customer and non adherence to the fair practices code as adopted by individual banks. Application Application of the Scheme. The scheme is applicable to all commercial banks, regional

rural banks and scheduled primary cooperative banks having business in India. Funding . Unlike the old scheme, the revised Banking Ombudsman Scheme is fully

staffed and funded by the Reserve Bank instead of the banks. Filing complaints. Under the revised Banking Ombudsman Scheme, the complainants

can file their complaints in any form, including online. Appeal . The bank customers would also be able to appeal to the Reserve Bank against

the awards given by the Banking Ombudsmen. Forum for the complaints . The 2006 scheme provides a forum to bank customers to

seek redressal of their most common complaints against banks, including those relating to credit cards, service charges, promises given by the sales agents of banks, but not kept by  banks, as also, delays in delivery of bank services. customers can complain about non-payment non-payment or any New areas of Complaint. The bank customers inordinate delay in payments or collection of cheques towards bills or remittances by

 banks, as also non-acceptance of small denomination notes and coins or charging of  commission for acceptance of small denomination notes and coins by banks. Provisions of the Scheme. The Banking Ombudsman Scheme 2006 provides a wide

scope and extent to the schemes of 1995 and 2002. Many new changes have been made in the old scheme. The most essential provisions of the scheme are as follows:

1. Appoint Thee Sect Sectio ion n 4 of the the sche scheme me prov provid ides es for for the the Appointmen mentt and tenu tenure. re. Th appointment of one or more of the officers of the Reserve Bank of India in the rank of Chief General Manager or General Manager to be known as Banking Ombudsmen to carry out the functions entrusted to them by or under the Scheme. Their tenure would be not more than a period of five years.

2. Location of the office. Generally, Generally, the office of the banking ombudsman is located at the place specified by the Reserve Bank of India. For the expedite disposal of  the complaints, a banking ombudsman may hold office at such places, under his  jurisdiction which he deems fit for the disposal of the complaints3.

3. Powers and Jurisdictions . The scheme lays down the following provisions4 dealing with powers and functions of the Banking Ombudsman: •

Authority of each Banking Ombudsman extends to the territorial limits entailed  by the Reserve Bank of India.

•

The Banking Ombudsman has power to receive and consider complaints relating to the the defi defici cien enci cies es in bank bankin ing g or othe otherr serv servic ices es file filed d on the the grou ground ndss of  complaints5. He has to facilitate their satisfaction or settlement by agreement or  through conciliation and mediation between the bank concerned and the aggrieved  parties or by passing an Award Award in accordance acc ordance with the Scheme.

•

The Bankin Banking g Ombudsm Ombudsman an exercis exercises es general general powers powers of superi superinte ntenden ndence ce and control over his Office and is responsible for the conduct of business thereat.

3

Clause 5 of the Banking Ombudsman Scheme, 2006. Clause 7 of the Banking Ombudsman Scheme, 2006. 5 Clause 8 of the Banking Ombudsman Scheme, 2006. 4

•

The Office of the Banking Ombudsman draws up an annual budget for itself in consultation with Reserve Bank and exercises the powers of expenditure within the approved budget on the lines of Reserve Bank of India Expenditure Rules, 2005.

•

The Banking Ombudsman has to send to the Governor, Reserve Bank, a report, as on 30th June every year, containing a general review of the activities of his Office during the preceding financial year. He has to furnish such other information as the Reserve Bank may direct and the Reserve Bank may, if it considers necessary in the public interest so to do, publish the report and the information received from the Banking Ombudsman in such consolidated form or otherwise as it deems fit.

4. Grounds of complaints. Clause 8 of the scheme lays down the following grounds on whic which h a bank bankin ing g cust custom omer er may may seek seek the the redr redres essa sall from from the the bank bankin ing g ombudsman: •

 Non-payment or inordinate delay in the payment or collection of cheques, drafts,  bills, etc.;

•

 Non-acceptan  Non-acceptance, ce, without without sufficie sufficient nt cause, of small denomination denomination notes tendered for any purpose, and for charging of commission for this service;

•

 Non-acceptance, without sufficient cause, of coins tendered and for charging of  commission for this service;

•

•

•

 Non-payment or delay in payment of inward remittances; Failure to issue or delay in issue, of drafts, pay orders or bankers’ cheques;  Non-adherence to prescribed working hours;

•

Failure to honour guarantee or letter of credit commitments;

•

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;

•

Delays, non-credit of proceeds to parties' accounts, non-payment of deposit or  non-ob non -obser servanc vancee of the Reserv Reservee Bank Bank directi directives ves,, if any, any, applica applicable ble to rate rate of  interest on deposits in any savings, current or other account maintained with a  bank ;

•

Delays in receipt of export proceeds, handling of export bills, collection of bills etc., for exporters provided the said complaints pertain to the bank's operations in India;

•

Refusal to open deposit accounts without an y valid reason for refusal;

•

Levying of charges without adequate prior notice to the customer;

•

 Non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank  on ATM/debit ATM/debit card operations op erations or credit card operations;

•

 Non-disbursement or delay in disbursement of pension to the extent the grievance can be attributed to the action on the part of the bank concerned, (but not with regard to its employees);

•

Refusal to accept or delay in accepting payment towards taxes, as required by Reserve Bank/Government;

•

Refusal to issue or delay in issuing, or failure to service or delay in servicing or  redemption of Government securities;

•

Forced Forced closur closuree of deposit deposit account accountss without without due notice notice or without without suffic sufficien ientt reason;

•

•

•

Refusal to close or delay in closing the accounts;  Non-adherence to the fair practices code as adopted by the bank; and Any other matter relating to the violation of the directives issued by the Reserve Bank in relation to banking or other services.

5. Procedure for filing complaint. Clause 9 of the Banking Ombudsman Scheme, 2006 lays down the procedure to file a complaint before the Banking Ombudsman as well as the conditions in which a complainant can not approach the banking ombudsman. 1.

Any pe person who who has has a grievance nce agai again nst a bank on any any one one or mor more of the the

grounds mentioned in the Scheme may, himself or through his authorized 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. But the complaint arising out of the operations of credit cards, has to 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.

2.

The comp omplaint in writing has to be duly si signed ned by th the comp omplainant or his his

authorized representative. The complainant has to show the copies of the documents, which he proposes to rely upon and a declaration under Clause 9(3) of the scheme. He has to mention the following things in the complaint: 

the name and the address of the complainant,



the name and address of the branch or office of the bank against which the complaint is made,



the facts giving rise to the complaint,



the nature and extent of the loss caused to the complainant, and

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The relief sought sough t for.

A complaint can also be made made through electronic means. The Banking Ombudsman also enterta entertains ins complai complaints nts covere covered d by this this Scheme Scheme receive received d by Central Central Governm Government ent or  Reserve Bank and forwarded to him for disposal. 3.

Foll Follow owin ing g cond condiition tionss have have to be fulf fulfil ille led d for for maki making ng a comp compla laiint bef before ore the

Banking Ombudsman: 

Before making a complaint to the Banking Ombudsman, the complainant had to, make a written representation to the bank. If the bank rejects 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.



The complaint should be made before one year, from the day the complainant has received the reply of the bank to his representation or, where no reply is received,  before one year and one month from the date of the representation to the bank;



The complaint does not touch upon 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;



Thee compl Th complai aint nt does does not pert pertai ain n to the the same same subj subjec ectt matt matter er,, for for whic which h 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;



The complaint is not frivolous or vexatious in nature; n ature; and



The complaint is made before the expiry of the period of limitation prescribed under the Indian Limitation Act, 1963 for such claims.

6. Appeal. If the customer is not satisfied with the award of the Banking Ombudsman, he can approach to the RBI, to the appellate authority called Deputy Governor. Still he is not satisfied, after approaching to the RBI, he can go to the High Court6. CASES AGAINST THE BANKS .  Balla Rama Rao v. Banking Ombudsman, 2003.

A house in the name of B. Narayanama was given on lease to the bank in 1982. Subsequently, the lady died. The Bank did not pay rent from June 1992 to Feb. 1997. Balla Ramarao, the appellant approached the bank. Bank immediately paid the amount Rs. 3,09,562. Balla contended that the interest should also be paid for the period of 1992 to 1997. The bank refused to pay interest. The appellant approached to the banking ombudsman. But he rejected the complaint, holding no merit in the case as it was outside the jurisdiction of the banking ombudsman. Balla approached to the Andhra Pradesh high court. The high court rejected the appeal, finding that it was outside the jurisdiction of the  banking ombudsman.  M/s.Anand Lubricating & Pneumatic Systems Ltd. Vs. State Bank of India 7  . The bank 

was alleged to have failed to issue bank guarantee despite sufficient security and the complainant complainant suffered suffered financial financial loss. It was held that the non-issuan non-issuance ce of bank guarantee guarantee despite security deposit with the bank would amount to deficiency in service and the complainant would be entitled to interest on that security amount.

6

7

Clause 14 of the Banking Ombudsman Scheme, 2006. 2003 (2) CPR 53.

complainant’s The AGM, State Bank of India, Pondicherry & Ors V/s N.Ganesan 8. The complainant’s son remitted an amount on 5.04.1997 from abroad to be credited to his NRI account with appella appellant nt bank. bank. The remit remittan tance ce was not confir confirmed med till till 22.04. 22.04. 199 1997. 7. Appellant Appellant bank   pleaded that non- confirmation was due to failure of computers. The issue is whether this delay on the part of the bank amounted to deficiency in service. The Commission in appeal observed that bank officials could have verified vouchers and cheques received by  post or confirmation and could have given correct reply within a reasonable time. It was held that failure of the bank to confirm remittance received from outside country within a reasonable period amounts to deficiency in service. Vettivel Pillai V/s Senior Manager Canara Bank 9 . The appellant was having open cash

credit facility from 1994 with respondent bank and had issued two cheques of which one was encashed and the other was dishonored. Respondent bank averred that appellant had overdrawn account. It was held that when there was credit in favour of the complainant, dishonour of the cheque issued by the complainant could not be said to be bonafide. Respondent bank was held guilty of deficiency of service and appellant was held entitled for compensation. Corporation Bank & Anr V/s Navin J. Shah 10 . Respondent, who is an exporter under 

discounting agreement entrusted documents relating to export and bills of exchange with appellant appellant bank to negotiate negotiate the same through a foreign foreign bank. Respondent’ Respondent’s allegation allegation is that the bank had failed to collect money in foreign currency indicated in documents but instead collected in local currency, hence there was deficiency in service on the part of  the appellant bank and hence a claim for damages was made. In appeal, the Commission held that there was no deficiency of service on the part of the bank as the appellant bank, acting for an on behalf of the respondent, had negotiated the documents as provided under agreement. However the conversion of local currency in U.S. $ became difficult on account of policy of Sudan Government. It was observed that all that was required to be done under terms of the agreement and under contract had been done by the two banks.  Anthony C. Vaz V/s M/s Himachal Futuristic Communication Ltd & Anr 11 . Dividend 8

2000(3) CPR 423 SCDRC (Pond). 2000(2) CPR 261 SCDRC (Ker). 10 2000(2) CPR 13 (SC) . 9

11

2000(2) CPR 83 SCDRC (Goa).

warrants were issued by respondent No.1 and were sought to be encashed by respondent  No.2, Banker at Panaji. The appellant appellant filed a complaint complaint before the District Forum as the warrants were returned unpaid with the remarks ‘No advice’ despite a letter dispatched to them by Industrial Financial Branch of SBI, Chandigarh. Respondent No.2 took the defense that they cannot honour dividend warrants unless they received intimation from local Head Office at Mumbai. The State Commission however held that refusal to clear  the dividend warrant was deficiency in service as question of respondent No.2 having no authority to honour the warrants could not arise in view of the letter from Industrial Financial Branch of SBI, Chandigarh. Respondent No. 2 and Respondent No. 1 were held to be jointly liable .   Brijesh Kumar & A.R.Lakshmanan Vs. Canara Bank & anr 12 . The Bank charging,

unilaterally without prior information or consent of the Bank Customer, for providing their services by supply of MICR Cheque. Consumer Forum and State Commission held it as deficiency of service but National Commission held that it was related to pricing and not in jurisdiction of the Consumer Fora to decide. The Supreme Court held that the charges by bank for issuance of MICR cheques is not against the directives of the Reserve Bank of India. The question of it being unilateral or with the consent of each customer do not arise.  India Export Corporation & ors Vs. Chairman-cum-MD, Syndicate Bank & ors 13 . The

complainant withdrew overdraft facility sanctioned to him by the bank only after availing facility to the extent of Rs.1,20,000/-. The facility was availed by the complainant for   business purpose. It was held that where complaint alleging banking service deficiency was found connected with commercial purpose, the consumer complaint would not be maintainable.

12

2003 (1) CPR 296 (SC).

13

2003 (3) CPR 106 (NC).

Col. D.S.Sachar Vs. Zonal Manager, Punjab & Sind Bank, Cahndigarh & anr 14  . Cash

was snatched from the hands of the complainant/appellant at the gate of the respondent  bank. The appellant alleges that the absence of security on the gate and the non-provision of steps like siren/alarm system etc. amounts to deficiency in service on the part of the respondent bank. The State Commission held that the non-provision of security on the gate of the bank on the date of occurrence viz. snatching of cash in bank premises cannot  be held to be amounting to deficiency in service hired by complainant.   Ratancha Ratanchand nd Morarkar Morarkar Vs. Bank of Maharas Maharashtra htra15 . The complainant had deposited

amount for issue of pay order in favour of a particular firm. However, the said pay order  was cancelled by the bank and was issued in favour of another party. It was held that when the bank has acted in good faith in cancellation of bank pay order and issuance of  fresh pay order in favour of another party on the request made by Manager of the complainant firm, there would be no deficiency in service. complainants have  Manohar Singh Chouhan & Ors Vs. Central Bank of India 16  . The complainants  purchased a tractor after taking loan from the respondent bank. The respondent bank did not remit the premium amount to the insurance company with which the complainants have insured their tractor as a result of which the loss suffered when the tractor met with an accid accident ent coul could d not not be reco recover vered ed from from the the Insu Insura ranc ncee comp company any.. The issu issuee for  for  consideration is whether non-payment of premium amount by the bank amounted to deficiency in service. It was held that when hire purchase agreement between the bank  and buyer of vehicle with the help of bank loan did not contain a condition creating obligation on the part of the bank to remit premium for insurance policy, complainant  buyer of vehicle could not no t hold bank guilty of deficiency in service. BANK BANKIN ING G

OMBU OMBUDS DSMA MAN N

SCH SCHEME EME-

SCHEMES OF 1995 AND 2002.

14

2003 (3) CPR 203 SCDRC (Chandigarh).

15

2004 (1) CPR 66 (NC). 2004 (1) CPR 285 SCDRC(MP).

16

HOW HO W

DIFF DIFFER EREN ENT T

FRO FROM

THE TH E

The extent and scope of the new Scheme is wider than the earlier Scheme of 2002. The new Scheme Scheme also also provid provides es for online submissio submission n of complai complaints nts.. The new Scheme Scheme additionally provides for the institution of an 'appellate authority' for providing scope for  appeal against an award passed by the Ombudsman both by the bank as well as the complainant.

CONCLUSION.

Though the Banking Ombudsman Ombudsman Scheme was introduced introduced in the year 1995, with a view to do away away with with the the bank bankin ing g cust custom omer er compl complai aint nts, s, the the schem schemee was was amend amended ed in subsequent years of 2002 and 2006. But the banks do not seem to have adopted the norms for their efficient functioning, that is the reason behind the increasing consumer cases against the banks, which are governed under the scheme.

BIBLIOGRAPHY. Text.

1. Tanna annan, n, M L, Tanna annan' n'ss Bank Bankin ing g Law Law and and Prac Practi tice ce in Indi India, a, 21st edn., 2007, Wadhwa and Wadhwa, Nagpur. 2. The

Banking

Ombudsman

Scheme,

2 00 6,

(available

at

http://www.icicibank.com/pfsuser/customer/Banking_Ombudsman_Scheme.pdf ) URLs.

1. http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=159 2. http://en.wikipedia.org/wiki/Banking_Ombudsman_Scheme 3. http://pnbindia.com/BANK%20REGULA http://pnbindia.com/BANK%20REGULATION%20ACT TION%20ACT.pdf  .pdf