ASSIGNMENT ON

CASE STUDY ON BANKING OMBUDSMAN IN

INDIA
SUBJECT: - BANKING AND INSURANCE LAW

SUBMITED TO: SUBMITTED BY:

DR. PRAYAS DANSANA CHANDRA SEKHAR MISHRA
ASSISTANT PROFESSOR 4th SEMESTER
ROLL NO.10S22LL02

POST GRADUATION
(DEPARTMENT OF LAW)
SAMBALPUR UNIVERSITY JYOTI VIHAR, BURLA
WHAT IS BANKING OMBUDSMAN?

Banking ombudsman, a quasi-judicial authority is formed with an intent to resolve the

complaints of the customers of the Bank. Section 35A of the Banking Regulation Act, 1949 deals
with Banking Ombudsman Scheme. It came into effect in 1995 and presently the Banking
Ombudsman Scheme 2006 is in operation. The scheme covers not just scheduled Commercial
Banks but also Regional Rural Banks and Scheduled Primary Co-operative Banks. Recently, RBI
also extended the concept of Banking Ombudsman to NBFC’s as well. The Banking
Ombudsman Scheme is like a fast track and inexpensive forum for the customers of the bank for
resolution of their complaints regarding the services rendered by the banks in India. The Banking
Ombudsman creates an onus through Section 35A of the Banking Regulation Act, 1949 to
appoint a banking ombudsman, who is a senior official not below the rank of Chief General
Manager or General Manager appointed by the Reserve Bank of India. The scheme came into
effect from the year 1995 and presently the current operational scheme is Banking Ombudsman
Scheme (amended up to July 1, 2017). The main aim of the scheme is to have a resolution
scheme related to the services rendered by the banks in case the customer is not satisfied with the
same and in cases where there is no solution provided by the banks for settlement of such
complaints and disputes.1

GOALS OF BANKING OMBUDSMAN SCHEME

 To ensure redressal of grievances of users of banking services in an inexpensive, expeditious

and fair manner that will provide impetus to improved customer services in the banking sector on
a continuous basis.2

 To provide feedback/suggestions to Reserve Bank of India towards framing appropriate and

timely guidelines to banks to improve the level of customer service and to strengthen their
internal grievance redressal systems

 To enhance the awareness of the Banking Ombudsman Scheme.

1
https://www.scribd.com/document/498783546/Banking-Ombudsman
2
https://articles.manupatra.com/article-details/A-Brief-Analysis-of-the-Banking-Ombudsman-Scheme-in-India
 To facilitate quick and fair (non-discriminatory) redressal of grievances through use of IT
systems, comprehensive and easily accessible database and enhanced capabilities of staff through
training

WHAT ARE THE POWERS OF THE BANKING OMBUDSMAN?

Very wide powers are conferred on the ombudsman relating to investigations and inquiries into
complaints. He can even act suo moto. He can grant relief because, unlike the power of an
ordinary court, his powers are not limited. The Ombudsman is vested with the following
powers:3

 Call for certified copies of any document relating to the complaint.

 To maintain the confidentiality of the case

 Call for any additional information from the bank concerned with the complaint.

 The proceeding before the Ombudsman is summary in nature.

 The administration of general civil law will be under the supervision of the
Ombudsman.

 The key responsibility of the ombudsman is to protect citizens rights and freedom.

 Hear complaints related to service delivered by the bank, assess those complaints
through recommendation, aid in their resolution, and give the award.

GROUNDS OF COMPLAINT

A complaint on any one of the following grounds alleging deficiency in banking service may be
filed with the Banking Ombudsman having the jurisdiction4:

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

3
https://blog.ipleaders.in/the-banking-ombudsman-scheme-and-its-achievements/
4
https://cleartax.in/s/banking-ombudsman
2. Non-acceptance, without sufficient cause, of small denomination notes tendered for any
purpose, and for charging of commission in respect thereof;

3. Non-issue of drafts to customers and others;

4. Non-adherence to prescribed working hours by branches;

5. Failure to honor guarantee/letter of credit commitments by banks;

6. Claims in respect of unauthorized or fraudulent withdrawals from deposit accounts, or

fraudulent encashment of a cheques or a bank draft etc.,

7. Complaints pertaining to the operations in any savings, current or any other account
maintained with a bank, such as 20 delays, non-credit of proceeds to parties' accounts,
nonpayment of deposit or non-observance of the reserve bank directives, if any, applicable to rate
of interest on deposits.5

8. Complaints from exporters in India such as delays in receipt of export proceeds, handling of
export bills, collection of bills etc., provided the said complaints pertain to the bank's operations
in India;

9. Complaints from non-resident Indian having accounts in India in relation to their remittances
from abroad, deposits and other bank-related matters.

10. Complaints pertaining to refusal to open deposit accounts without any valid reason for
refusal and

11. Any other matter relating to the violation of the directives issued by the reserve bank in
relation to banking service.

5
https://cleartax.in/s/banking-ombudsman
JUDICIAL PRONOUNCEMENTS

CASE STUDY: ISSUES OF DISCOUNTING AGREEMENT

Corporation bank & anr v. Navin j. Shah6

Introduction: In the realm of international trade, discounting agreements play a pivotal role in
facilitating smooth transactions between exporters and financial institutions. However, disputes
may arise when the terms of such agreements are not met or when unforeseen circumstances
hinder the execution of the agreed-upon terms. One such case that sheds light on the intricacies
of discounting agreements is Corporation Bank & Anr v. Navin J. Shah7.

Background: Navin J. Shah, the respondent in this case, was an exporter engaged in
international trade transactions. Seeking to expedite the negotiation of export-related documents
and bills of exchange, Shah entered into a discounting agreement with Corporation Bank, the
appellant bank. Per the terms of the agreement, Shah entrusted the documents to Corporation
Bank, empowering them to negotiate with a foreign bank on his behalf.

The Allegation: Shah alleged that Corporation Bank, despite being entrusted with negotiating
the documents in foreign currency, failed to collect the money as specified. Instead, the bank
collected the funds in local currency, which led to a discrepancy between the agreed-upon terms
and the actual execution of the transaction. Consequently, Shah claimed that Corporation Bank's
actions constituted a deficiency in service, warranting compensation for damages incurred.

Legal Proceedings: The dispute between Shah and Corporation Bank escalated to legal
proceedings, with Shah filing a claim for damages against the bank. In response, Corporation
Bank defended its actions, contending that it had fulfilled its obligations as outlined in the
discounting agreement. The bank argued that it had acted in accordance with the terms of the
agreement by negotiating the documents with the foreign bank, albeit facing unforeseen
challenges in the form of currency conversion difficulties imposed by the Sudanese Government.

Judgment and Analysis: Upon careful consideration of the evidence and arguments presented
by both parties, the Commission rendered its judgment. The Commission held that Corporation
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7
AIR 2000 SUPREME COURT 761
Bank had not committed any deficiency in service as per the terms of the discounting agreement.
Despite encountering obstacles in converting the local currency to U.S. dollars due to
governmental policies, the bank had diligently fulfilled its contractual obligations. It was
observed that Corporation Bank had acted in good faith, endeavoring to execute the transaction
as per the agreed-upon terms, albeit facing external constraints beyond its control.

CASE STUDY: NON-PAYMENT OF PREMIUM

Manohar Singh Chouhan & Ors v. Central Bank of India8

Introduction: The case of Manohar Singh Chouhan & Ors v. Central Bank of India delves into
the ramifications of non-payment of insurance premiums by a bank in the context of a hire
purchase agreement. The central issue at hand pertains to whether the bank's failure to remit the
premium amount to the insurance company constitutes a deficiency in service.

Background: Manohar Singh Chouhan and other complainants availed a loan from Central Bank
of India to purchase a tractor. As part of the purchase process, they also obtained an insurance
policy for the tractor. However, it came to light that the bank had not remitted the premium
amount to the insurance company, rendering the insurance policy ineffective at the time of an
unfortunate accident involving the tractor.

The Allegation: The complainants contended that the bank's failure to fulfill its obligation of
remitting the premium amount resulted in substantial losses for them. Since the insurance policy
was not active due to the non-payment of premiums, they were unable to recover the losses
incurred from the accident.

Legal Proceedings: In response to the alleged deficiency in service, the complainants initiated
legal proceedings against Central Bank of India. They argued that the bank's negligence in
remitting the premium amount constituted a breach of duty, thereby entitling them to
compensation for the losses suffered.

Judgment and Analysis: Upon scrutiny of the hire purchase agreement between the bank and
the complainants, the court deliberated on whether the agreement imposed an obligation on the
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bank to remit the insurance premium. After thorough examination, the court concluded that the
hire purchase agreement did not contain any explicit provision mandating the bank to pay the
insurance premium.

The court emphasized that the absence of such a provision absolved the bank of any liability
concerning the non-payment of premiums. It reasoned that the complainants, as buyers of the
vehicle, were responsible for ensuring the validity of the insurance policy. Since the hire
purchase agreement did not impose a specific obligation on the bank regarding insurance
premiums, the complainants could not hold the bank accountable for the losses resulting from the
ineffective insurance coverage.

CASE STUDY: NON-PAYMENT OF RENT BY A BANK FOR A LEASED

PROPERTY

Balla rama rao v. Banking ombudsman, 20039

Introduction: The case of Balla Rama Rao v. Banking Ombudsman, 2003 10, brings to light a
dispute regarding the non-payment of rent by a bank for a leased property, and the subsequent
contention over the payment of interest on the overdue rent. Central to the case is the question of
jurisdiction, particularly concerning the authority of the banking ombudsman to adjudicate such
matters.

Background: In 1982, a house owned by B. Narayanama was leased to a bank. However, after
the demise of Narayanama, the bank failed to pay rent for the leased property from June 1992 to
February 1997, totaling an amount of 3,09,562 rupees. Balla Rama Rao, the appellant, intervened
and demanded the overdue rent from the bank, which promptly paid the outstanding amount
upon his request.

The Contention: While the bank settled the overdue rent, Balla Rama Rao argued that the bank
should also compensate him for the interest accrued during the period of non-payment, i.e., from

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10
[2003]117COMPCAS201(AP)
1992 to 1997. However, the bank refused to pay any interest on the overdue rent, leading to a
dispute between the parties.

Proceedings: Faced with the bank's refusal to pay interest, Balla Rama Rao sought recourse by
filing a complaint with the banking ombudsman. However, the banking ombudsman rejected the
complaint, citing that the matter fell outside its jurisdiction. Undeterred, Balla Rama Rao pursued
the matter further by appealing to the Andhra Pradesh High Court, seeking redressal for the
denial of interest payment by the bank.

Judgment and Analysis: Upon hearing the appeal, the Andhra Pradesh High Court upheld the
decision of the banking ombudsman, ruling that the matter indeed lay beyond the jurisdiction of
the banking ombudsman. The court emphasized that the dispute pertained to the payment of
interest on overdue rent for a leased property, which did not fall within the purview of the
banking ombudsman's mandate.

The court's decision underscored the limited scope of authority conferred upon the banking
ombudsman, primarily to address grievances related to banking services and transactions.
Matters such as landlord-tenant disputes over the payment of rent and interest thereon were
deemed to be outside the realm of banking-related issues, thereby precluding the banking
ombudsman from adjudicating on such matters.

CONCLUSION

The banking ombudsman scheme is a tool in the hands of the customers of the banking industry
that can be used by them whenever there is a deficiency in service on the part of the bank or
when the customers are not satisfied with the services provided by the banking industry. The
scheme has been a major benefit to the customers as it has given them the power to keep the
banks in a check for the services they are providing.

BIBILIOGRAPHY

https://blog.ipleaders.in/the-banking-ombudsman-scheme-and-its-achievements/

https://cleartax.in/s/banking-ombudsman

https://blog.ipleaders.in/banking-ombudsman-scheme/

https://www.scribd.com/document/498783546/Banking-Ombudsman

https://articles.manupatra.com/article-details/A-Brief-Analysis-of-the-Banking-Ombudsman-Scheme-in-India

https://testbook.com/banking-awareness/banking-ombudsman-scheme#:~:text=The%20Banking%20Ombudsman

%20is%20a,with%20the%20Banking%20Ombudsman%20Scheme.

https://www.legalservicesindia.com/article/2319/Banking-Ombudsman-Scheme-2006.html