Consumer Protection Act and its Impact on Banking Sector

Author:
Shriya Tiwari
Assistant Professor
NIT Graduate School of Management,
Nagpur
Email:shriyatiwari@nitgsm.edu.in
Ph:9823160177
Co Author:
Dr.Ujwala S.Dange
Head Of Department, MBA
Priyadarshini College of Engineering,
Nagpur
Email:hodmba.pce@Itjss.net
Ph:9823719865


The Indian Banking Sector is faced with multiple and concurrent challenges such as increased
competition, rising customer expectations and diminishing customer loyalty. The expectations of
the customer have been growing. Broadly, these expectations are swift service with minimal
response time, efficient service delivery, tailor made (customized) and value added
services/products to suit the customer specific needs, hasselfree procedures and policies and
minimal transaction costs and pleasant/ personalized service.
Banks need to think out of the box where box is representative of all tested and experimented
things in the past. They would have to think out of the boundaries of current practices, products
and services.
With customers having vast knowledge of financial services and products and with ongoing
slogans like Caveat Emptor and Jago Grahak Jago customer has actually become the
King. With this per view it is all the more essential to be aware of the policies and procedures
and the Act by which these are governed.
This objective of the paper is to highlight the applicability of Consumer Protection Act to
Banking Sector and also make the readers aware on the procedure of redressal of their grievances
pertaining to Banking transactions.
Consumer Protection Act, 1986
The Act suggests, protecting the interest of the consumers and to provide them a mechanism for
easy, quick and cheap redressal of grievances against the mighty and unscrupulous
producers/traders and service providers.

Following three-tier quasi judicial machinery has been provided under the Act to deal with
consumer complaints

(a) District Forum- It operates at the district level and deals with consumer complaints pertaining
to the value of goods or services and compensation not exceeding Rs. 20 lakhs.

(b) State Commission- It operates at the state level and deals with complaints of the value
exceeding Rs. 20 lakhs but not exceeding Rs. 1 crore. It also hears appeals against the orders of
the District Forum.

(c) National Commission- It functions at the national level for the complaints of the value
exceeding Rs. 1 crore and hears appeals against the orders of the State Commission.

Complaints in relation to any goods or services may be preferred before the abovementioned for
a by the consumer himself or by any recognized consumer association where the consumer is a
member or where there are a number of consumers having the same interest, one or more
consumers on behalf or for the benefit of all the consumers so interested. Complaints may also
be preferred by the Central or the State Government.

As per section 2(1) (c), of the Act, following may form the subject-matter of complaint-
an unfair trade practice or a restrictive trade practice adopted by any trader;
Defect in the goods purchased;
Deficiency in service;
over-charging of price;

In the context of the subject matter of the present article, it is important to note two important
definitions provided in the Act. Service [Section 2(1)(o)] has been defined in the Act 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.
As per section 2(1)(g), deficiency means any fault, imperfection, shortcoming or inadequacy in
the quality, nature and manner of performance required to be maintained under any law or in
pursuance of a contract or otherwise.

Applicability of the Act to Banking Sector

Consumer, according to section 2(1)(d) of the Act, includes a person who hires or avails of any
service for a consideration. Thus, 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.

Case Reference:

In Vimal Chandra Grover vs.Bank of India [2000 (2) CPJ 11 (SC): AIR 2000 SC 2181], it was
argued before the Supreme Court on behalf of the bank that the appellant, who took overdraft
facility from the bank by pledging shares, is not a consumer within the meaning of the
Consumer Protection Act. The Supreme Court repelled the arguments of the bank and held that
bank is rendering service by providing overdraft facilities to a consumer, which is not without
consideration. Bank is charging interest and other charges as well in providing the service.
Provision for overdraft facility is certainly a part of the banking and falls within the meaning of
service as provided in section 2(1)(o) of the Act.


Jurisdiction not applicable (ousted)

In certain cases, it has been held that Consumer Protection Act does not apply to banks. Some of
such specific instances are enumerated below:

a) Reserve Bank of India: In Virendra Prashad vs. reserve Bank of India [1991 (1) CPJ 336
(NC)], a complaint was filed before the National Commission stating that the complainant was
eligible for certain advantages in his foreign currency/rupee bank accounts but these facilities
were denied by his bankers on the instructions from the RBI. The National Commission held that
there was no contract of service between the complainant and the RBI and the RBI was merely
discharging its statutory function. Therefore, it was outside the purview of the Consumer
Protection Act.
b) Aspirant to a post: Where Complaint is not a Consumer
c) Employer-employees dispute: Where Complaint is not a Consumer
d) Tenant-Landlord dispute: Where Complaint is not a Consumer

Instances where banks held liable for deficiency in service

In a large number of cases, banks have been pulled up for deficiency in service and
compensation has been awarded to complainants by the Consumer Courts. Some of the important
cases are analyzed here under:

a) Wrongful dishonor of Bank Draft:SBI vs. N. Raveendran Nair [1992 (2) CPR 400]
b) Non-credit of cheque collected:Sovintorg (India) Ltd. vs. SBI [1999 (2) CPJ 4 (SC)]
c) Non-issuance of proper receipt: Where the bank did not adjust the loan repaid in its books
nor issue proper receipt to the complainant, the award of compensation by the District
Forum for deficiency in service was confirmed by the Chattisgarh State Commission in
Jila Sahakari Kendriya Bank vs. Sarda Ram Nayak [2004 (2) CPJ 534].
d) Payment of lower rate of interest: In Abha Bhanthia vs. SBI [2004 (2) CPJ 138]
e) Default by banks agent: In Uco Bank vs. Surendra Kumar Bara [2004 (3) CPJ 472]
f) Interest not paid on excess amount deposited in violation of PPF rules: SBI vs. P.S.
Krishnan [2004 (2) CPJ 579], of Tamil Nadu State Commission


Analysis of the various judgments of the Consumer Courts reveals that they have not only been
awarding the value of the goods or services for the defect and deficiency in service but also the
compensation for the mental agony and harassment.

Another weapon which the Consumer has against the Bank rendering financial services is THE
BANKING OMBUDSMAN SCHEME, 2006 which was introduced with the objective
enabling resolution of complaints relating to certain services rendered by banks and to facilitate
the satisfaction or settlement of such complaints.


PROCEDURE FOR REDRESSAL OF GRIEVANCE

Grounds of Complaint
Any person may file a complaint with the Banking Ombudsman having jurisdiction on any one
of the following grounds alleging deficiency in banking including internet banking or other
services. Example-(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; and many more
mentioned under Clause 8 of the Scheme.

Procedure for filing complaint
Any person who has a grievance against a bank on any one or more of the grounds mentioned in
Clause 8 of 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.

SETTLEMENT OF COMPLAINT BY AGREEMENT:

a) AWARD BY THE BANKING OMBUDSMAN if a complaint is not settled by
agreement within a period of one month from the date of receipt of the complaint.

OR

b) REJECTION OF THE COMPLAINT

It is mandatory for banks to display Salient Features of the Scheme for Common Public
Knowledge.

CONCLUSION

In a battle against the injustice, a consumer is a small fry against the monolith bank. But the
justice seems to have prevailed under the aegis of the Consumer Protection Act. The provision
in our opinion enables a consumer to claim and empowers the Commission to redress any
injustice done to him. Any other construction would defeat the very purpose of the Act. The
Commission or Forum in the Act is thus entitled to award not only value of the goods or services
but also to compensate a consumer for injustice suffered by him.