1 SSK IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2159 OF 2005 Canara Bank, ) A Body Corporate, constituted under ) The Banking Companies (Acquisition ) And Transfer of Undertaking Act V ) of 1970 having its Head Office at ) Bangalore, Karnataka State and ) having their Customer Service ) Section, Circle Office, Mumbai City, ) 2nd Fl. Kohinoor Bldg., Opp. ) Sidhivinayak Temple, Prabhadevi, ) Mumbai – 25 and Branches amongst ) others at Mazgaon, Mumbai. ) ....Petitioners Versus 1. Shri Uttam Rathod ) Properietor of M/s. Rishi Impex ) Flat No.301, Girnar Apartment, ) Kalachowki, Mumbai – 400 033. ) 2. Banking Ombudsman ) Maharashtra & Goa, ) Garment House, Ground Floor ) DR. Annie Besant Road, Worli, ) Mumbai – 400 018. ) 2 3. Oxford Industries Ltd. ) Sherbanoo Bldg., 4th Floor, ) B-Block, 111, Maharshi Karve Road ) Mumbai – 400 020. ) ....Respondents Mr. H. Toor with Mr. Dipankar Das a/w. Ms.Kavita Anchan i/b. M/s. M. V. Kini & Co., Advocates for the Petitioners. Mr. Zal Andhyarjina i/b. M/s. Bharat Vaishnav & Co., Advocate for Respondent No.1. CORAM : FERDINO I. REBELLO & R. V. MORE, JJ. DATE OF JUDGMENT : 10th JUNE, 2010. JUDGEMENT (Per Ferdino I. Rebello, J.) : Rule. By consent of the parties, heard forthwith. 2. This petition arises from an Order passed by the Banking Ombudsman in terms of the Banking Ombudsman Scheme 1995 (which herein after shall be referred to as “the Scheme”). The Respondent No.1 herein was the Complainant in Complaint No. 88/2002-2003. The Complainant was holding a Current Account bearing No.16199 of Canara Bank, Mazgaon Branch, Mumbai - 400 010. In routine course of business, the Petitioners issued 8 undated cross cheques totalling in an amount of 3 Rs.12,58,681/- in favour of M/s. Oxford Industries Limited. As there was a dispute between the Complainant and M/s.Oxford Industries due to non- fulfillment of supply of specified goods, the Respondent No.1 on 5th October, 2001 issued Stop Payment Instructions to the Petitioners at their Mazgaon Branch, where the Respondent No.1 was holding the Current Account. The instructions were duly received and acknowledged by the Bank. The Respondent No.1 came to know that on 18th December, 2001, the Petitioners inspite of clear-cut instructions to “stop payment”, honoured the cheques for an amount of Rs.12,59,881/- by illegally and unauthorizedly debiting the account of Respondent No.1. In response to the communication by the Ombudsman. The Petitioners admitted that Respondent No.1 had given stop payment instructions in respect of the 8 cheques as set out in the complaint in Current Account No.16199. 3. On 28th December, 2001, the Respondent No.1 through his Advocate sent a legal notice to the Petitioners asking them to refund the amount immediately. The Respondent No.1, however, received a letter from the Petitioners’ Advocate to wait for sometime. According to the Respondent No.1, as the Bank deliberately and intentionally did not return the amount, the Respondent No.1 visited the Bank on several occasions and every time he was asked to wait for sometime. It is also the Complainant’s grievance that the Petitioners were deducting interest on loan granted to Respondent 4 No.1. The Respondent No.1 had requested the Bank that they should not deduct any interest till the settlement of the claim. It is not necessary to refer to other averments to the same effect. 4. The Respondent No.1 then represented to the Bank under the provisions of section 3(a) of the 1995 Scheme and though three or four months had passed, as the amount had not been returned, in these circumstances, filed a complaint in the matter of deficiency in service. It was set out that the deficiency was under clause 13(vi) of the 1995 Scheme. The Respondent No.1 claimed for refund of the amount of Rs. 12,59,881/- alongwith interest of Rs.66,508/- as on 31st May, 2002. 5. The Petitioners filed their reply before the Banking Ombudsman on 28th August, 2002. According to the Petitioner, Canara Bank had sanctioned loan to the Complainant and advised him to close Current Account No.16199 and open a New Current Account No.5899 and therefore, on or about 25th October, 2001, a new account was opened. All cheques bore the date 4th October, 2001 except one cheque which bore the date- 21st July, 2001. The Respondent No.1 was sanctioned OD/OCC limit of Rs. 35,00,000/-. Whenever a new OD/OCC Account is sanctioned, the Bank opens a new OD/OCC Account and operations are conducted in the new 5 account and the option of continuing/closing of the Account is left to the customer. According to the Petitioners, Respondent No.1 informed that the Current Account can be converted in OD/OCC Account and wanted to have further cheque-books for the purpose of issuing cheques to creditors by means of post-dated cheques. The Respondent No.1 was informed that on transfer of account, the customer is requested to surrender the existing cheque book in order to issue a new cheque book. According to the Petitioners, the Respondent No.1 replied that he had already issued some of the cheques to his suppliers and if any of those cheques are dishonoured, it would lead to unnecessary business complications and the business would come to a grinding halt. According to the Petitioners, the Respondent No.1 purposefully concealed the fact that the cheques were issued without mentioning any dates. Reference for that purpose is made to various dates on the cheques. It is the contention of the Petitioners that this would show that not only misleading instructions were given by Respondent No.1 but the purported dispute between the Supplier and Respondent No.1 had been sorted out and dates had been allowed to be put by the Supplier himself after settling the issue. The Respondent No.1 was contacted immediately, when the cheques were presented for clearing, as he was one of the VIP customers and informed about the presentation of the cheques that were stopped, of course with difference in dates. According to the Petitioners, they were informed by Respondent No.1 that 6 dispute with the supplier was over and the cheques can be passed, despite the different dates. When the Bank sought confirmation, they were informed that it will be given on the next date, however, they failed to get the letter. It is, therefore, the case of the Petitioners that they were careful and not liable for any payment as demanded by Respondent No.1 and there was no deficiency in service on their part. 6. The learned Ombudsman first held discussions with the Petitioners and Respondent No.1 which are reflected in the Order of Recommendation dated 30th June, 2003. Among the recommendations were that, the Bank shall pay to the Respondent No.1 an amount of Rs. 12,59,881/- and also refund the interest charged by it on the sum of Rs.12,59,881 from 18th December, 2001 till the payment at the interest rate, the Bank applied to the cash credit account from time to time. As the Bank did not agree to the same, an award came to be passed on 4th November, 2004 which was communicated to the parties by the Ombudsman by his communication of 4th November, 2004. It is this order, which is the subject matter of the present petition. 7. At the hearing of this petition, on behalf of the Petitioners, it is submitted by their learned Counsel that: (i) The Ombudsman could have awarded relief only in the 7 sum of Rs.10,00,000/- . In the instant case, he has awarded more than Rs.10,00,000/-. The claim was for more than Rs.10,00,000/-. It was, therefore, not within the jurisdiction of the Ombudsman to have made the award which is without authority of law and/or jurisdiction and consequentially liable to be set-aside. (ii) It is specifically set out that under clause 20(4) proviso, the Ombudsman shall not award any compensation in excess of that which is necessary to cover the loss suffered by the Complainant as a direct consequence of the commission or omission of the bank, or for an amount exceeding Rs.10,00,000/- whichever is low. In the instant case, it is submitted that Ombudsman has not recorded a finding of the loss suffered by the Complainant as a direct consequence of the commission or omission of the Bank. In the instant case, the Supplier himself has informed the Petitioners that there was no dispute with the Respondent No.1. On this count also, it is submitted that the learned Ombudsman misdirected himself in law and consequentially the award is liable to be set-aside. 8. On the other hand, on behalf of the Respondent No.1, the learned 8 Counsel submits that the award of the Ombudsman is within jurisdiction. In the instant case, he submitted that the Ombudsman who passed the award was entertaining a Complaint within his territorial jurisdiction and secondly, the claim fell within clause 13 of the 1995 Scheme. Though the Petitioners in their Complaint have set out clause 13(vi), infact, it falls under clause 13(vii). A typographical error cannot result in holding that the Ombudsman had no jurisdiction. Under the proviso to clause 20(4), though the power of the Ombudsman to award compensation is limited to Rs.10,00,000/- that would not mean that the Ombudsman cannot entertain a Complaint for loss of deficiency of service for more than Rs.10,00,000/-. If such Complaint is received, the amount that can be awarded is restricted to a maximum of Rs.10,00,000/-. The learned Counsel has drawn our attention to the objects of the scheme and the purpose for which it has been notified. In so far as the second contention is concerned, it is contended that, what the Complainant must show is the loss suffered by him on account of the action of the Bank. The dispute between him and a third party is irrelevant, so far as the jurisdiction of Ombudsman is concerned and that has no bearing on the deficiency in service. The loss contemplated in proviso to clause 4 of clause 20, it is submitted, is the loss suffered on account of the act of omission of the Bank. In the instant case, it is submitted that the Bank themselves admitted that the amounts were paid though there were clear instructions of stop payment. In these circumstances, it is submitted that 9 the award of the Ombudsman can be saved by reducing the amount awarded to the sum of Rs.10,00,000/-, which was the maximum which the Ombudsman could award in proportion of the loss suffered. It is submitted that considering the scheme, purpose and object thereof, it would be inequitable considering the long passage of time to deny the Petitioners, the benefit of the award, which can be brought within jurisdiction. 9. Based on these contentions, submissions and issues, we now propose to dispose of the controversy. The first question for our consideration is, whether the Ombudsman’s passing an award for an amount more than Rs.10,00,000/ results in award being a nullity at law and that was not open to the Court, in the exercise of its extraordinary jurisdiction to bring the award within jurisdiction by limiting it to Rs.10,00,000/-? The scheme has been framed under section 35(A) of the Banking Regulation Act, 1949 by the Reserve Bank of India. Being satisfied that it was necessary in public interest and in the interest of banking policy to provide for a system of Banking Ombudsman for redressal of grievances against deficiency in banking services concerning loans and advances and other specified matters. The object of the scheme is to enable resolution 10 of complaints relating to provisions of banking services and to facilitate the satisfaction and settlement of such complaints. Clause 5 of the scheme sets out the territorial jurisdiction of the Ombudsman. Clause 12 gives the general powers and duties of the Banking Ombudsman, which are to receive complaints relating to provision of the banking services and to consider such complaints and facilitate their satisfaction, or settlement by agreement, by making a recommendation or award in accordance with the scheme. In other words the cause of action arises from deficiency of service by the Bank to the customer. The quantum of loss suffered by the Customer vis-a-vis the third party is immaterial. Even if the loss suffered is more than Rs. 10,00,000/- in so far the scheme is concerned, damage for deficiency of service against the Bank is restricted to Rs.10,00,000/-. 10. Clause 13 sets out the authority of the Banking Ombudsman which includes as under: a) All complaints concerning deficiency in services such as : (vii) complaints pertaining to the operation in any saving, current or any other account maintained with a Bank, such as delays, non-credit of proceeds to parties accounts, non- payment of deposit or non-observance of Reserve Bank directives, if any, applicable to rate of interest on deposits; 11 Clause 16 is the procedure for filing a complaint. Sub-clause (3) sets out that no complaint to the Banking Ombudsman shall lie unless: (b) the complaint is made not later than one year after the bank had rejected representation or sent its final reply on the representation of the complainant. (d) the complaint is not 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 of dismissal has already been passed by any such Court, Tribunal, Arbitrator or Forum. What is also relevant is clause 20 which reads as under : 20. Award by the Banking Ombudsman – (1) Where the complaint is not settled by agreement or recommendation as provided in clauses 18 or 19 as the case may be, within a period of two months from the date of receipt of the complaint or such extended date as may be considered necessary by him, the Banking Ombudsman shall inform the parties of his intention to pass an award. (2) It shall be open to the parties to submit any further representations or evidence in support of their case within a period of 15 days from the date of notice referred to in sub- clause (1). 12 (3) The Banking Ombudsman shall pass an award after affording the parties reasonable opportunity to present their case. He shall be guided by 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 necessary in the interest of justice. (4) An award shall be in writing and shall state the direction(s), if any, to the bank for specific performance of its obligations and the amount awarded to the complainant by way of compensation for the loss suffered by him alongwith summary of the reasons for making the award; Provided that the Banking Ombudsman shall not award any compensation in excess of that which is necessary to cover the loss suffered by the complainant as a direct consequence of the commission or omission of the bank, or for an amount exceeding rupees ten lakhs, whichever is lower. (emphasis supplied) (5) A copy of the award shall be sent to the complainant and the bank named in the complaint. (6) An award shall not be binding on a bank against which it is passed unless the complainant furnishes to it, within a period of one month from the date of the award, a letter of acceptance of the award in full and final settlement of his 13 claim in the matter. Within fifteen days from the date of receipt by it, of the acceptance in writing of the award by the complainant, the bank shall comply with the award and intimate the compliance to the Banking Ombudsman. (7) The Banking Ombudsman shall report to the Reserve Bank the non-compliance by the bank of an award which became binding on it pursuant to sub-clause (6). Therefore, reading of the provisions of the scheme would clearly indicate that the scheme contemplates conferment of jurisdiction in respect of territorial jurisdiction and subject matter. There is nothing like pecuniary jurisdiction except in the matter of granting relief and this becomes all the more clear as no complaint to the Banking Ombudsman shall lie unless the Complainant has first made a representation to the Bank. The Complaint can be of the loss suffered on account of deficiency and it can be more that Rs.10,00,000/- Also, the Complaint has to be made not later than one year of the Bank rejecting the representation or sending its final reply to the complaint or representation. Secondly, as soon as the complaint is received, if the complaint is not settled by agreement within a period of one month from the date of receipt of the complaint, the Ombudsman makes a recommendation or reference to what in his opinion is fair in all these complaints. The Ombudsman can proceed to pass an award only in the 14 event, the complaint is not settled by an agreement or recommendation. In so far as the settlement and recommendations are concerned, the scheme does not lay out the outer limit. It is only in so far as the award is concerned that the scheme sets out that the Ombudsman can make a award for an amount which is necessary to cover the loss suffered by the complainant as a direct consequence of the commission or omission of the bank or for an amount exceeding Rs.10,00,000/- whichever is lower. In other words, though in the complaint, it may be open to the Complainant to demand more compensation while passing the award, there is restriction on the Ombudsman granting compensation which is limited to a maximum of Rs.10,00,000/-. The language of proviso to clause 20(4) of the scheme would make it clear that the Ombudsman can award compensation for loss suffered but whatever may be the loss suffered, even if the loss, as in the instant case is over Rs.10,00,000/-, by virtue of the proviso cannot award more than Rs.10,00,000/-. Sub-clause 6 of clause 20 further makes it clear that this award would not be binding on the Bank, unless the Complainant furnishes to it, within a period of one month from the date of the award, a letter of acceptance of the award in full and final settlement of the claim in the matter. Thus, the purported object of the scheme appears to be, in so far as the deficiency in services is concerned, whatever may be the amount of 15 loss suffered by a Claimant on account of deficiency in service by the Bank, nonetheless, the Ombudsman cannot award compensation of more than Rs.10,00,000/-. In our opinion, this by itself would show that the restriction to pass an award of more than Rs.10,00,000/- only limits does not pertain jurisdiction of the Ombudsman in the matter of grant of relief. In other words, an Ombudsman does not cease to have jurisdiction, if the amount claimed is more than Rs.10,00,000/-. However, the relief that can be granted cannot exceed Rs.10,00,000/-. 11. Our attention is invited to the judgment of the Supreme Court in the case of Oriental Carbon and Chemicals Limited and Anr. Versus Banking Ombudsman, Calcutta and Ors. reported in AIR 2007 Calcutta 276. The learned Counsel for the Petitioners contends that the Calcutta High Court has taken a view that if the Complaint exceeds Rs.10,00,000/-, the Ombudsman would have no jurisdiction. The learned Single Judge considering the provisions of the Banking Ombudsman Scheme 2002, where the language is more or less similar to the case of 1995 Scheme, noted that the Ombudsman had taken a view that he cannot entertain a claim more than Rs.10,00,000/-. When the matter came up before a learned Single Judge of the Calcutta High Court, the learned Judge did not interfere with the award. The Court however, held that the Ombudsman has no jurisdiction in respect of claim for compensation for an amount 16 more than Rs.10,00,000/- and if an award is passed, the Ombudsman exceeds his jurisdiction and as such the order is a nullity and in excess of its jurisdiction. The learned Division Bench noted that the appellants had not challenged this finding, the only question in appeal was whether the appellants were entitled to claim the relief by way of refund of excess amount of interest alleged to have recovered. Thus, though a learned Single Judge of the Calcutta High Court has taken the view canvassed on behalf of the Petitioners herein, the Division Bench of the Calcutta High Court had no occasion to answer the issue as it was not argued before them. In our opinion, it will not be possible to accept the ratio of the said judgment. Jurisdiction as known to Civil Law, basically pertains to pecuniary, territorial and subject matter. In so far as the scheme is concerned, it imports the principles of jurisdiction pertaining to territorial and subject matter. Ombudsman to that extent is not a Court. Ombudsman acts more in the nature of an Arbitrator on whom specific powers are conferred to deal with matters pertaining to deficiency of service. Thus, once the Complaint pertains to deficiency in service, though the Ombudsman has jurisdiction to entertain a claim irrespective of the amount claimed, his power is limited to award compensation for an amount not more than Rs.10,00,000/-. 12. The Counsel for the Respondent No.1 had sought to rely on the 17 judgment of the Supreme Court in the case of Durga Hotel Complex versus Reserve Bank of India and Ors. (2007)5 SCC 120. Before the Supreme Court, really speaking, the controversy was the effect of other proceedings pending and the jurisdiction of the Arbitrator to entertain a complaint. Considering clause 16 of the Scheme of 2002, it was held that the Ombudsman is an authority or tribunal with limited jurisdiction and that the foundation to exercise the jurisdiction would be lost when a court, arbitrator or tribunal or any other competent forum is moved on the same subject matter. This judgment in our opinion, irrespective of the contentions raised on behalf of the Respondent No.1 would not be of assistance in deciding the controversy pertaining to jurisdiction. The scheme as noted is framed under the regulations. The proviso limits the power to make an award. Does that mean that if such an award is made in excess of the power conferred, the entire award is a nullity at law? In our opinion, it will not be possible to take such a stand or accept such a view. Once the Ombudsman exercises jurisdiction, merely because he grants compensation in excess of what he can grant, does not make the award a nullity at law that could be exceeding jurisdiction. It would be open to a Superior Court or Tribunal to correct that error and bring that award within jurisdiction. In our opinion that would be a proper construction to be given. In these circumstances, we reject the first contention as raised by the above Petitioners. 18 13. We then come to the other submission on behalf of the Petitioners. We have already referred to the scheme and its purported object. The entire scheme is to resolve a dispute between a Bank and its customer. Clause 13 provides what are those services, if not provided, can be said to result in deficiency of service. A dispute between a customer and a third person who had supplied goods to the customer and disputes by such Company with the customer, can it result in holding that the Ombudsman until such time as the complainant proves loss at the hands of the third party would not be entitled to any compensation. In our opinion, this view is ruled out by two specific provisions. Firstly, the complaint has to be made within one year after the Bank has rejected the representation or sent its final reply on the representation of the complaint. It is impossible to imagine that where there is a conflict between the complainant and the supplier, the complainant would be in