Citi Bank N.A. vs UNIVERSAL TRADING CORPORATION

-THIS appeal by Citi Bank N.A. is directed against the order dated 27.4.1993 passed by the State Commission, Tamil Nadu at Madras allowing the complaint.

CITI Bank operates a scheme known as "CITI-advance" in terms of which, a person may avail of overdraft facilities upon pledge of equity shares and approved securities. Under this facility, a customer may be sanctioned an overdraft limit normally not exceeding 75% of the marketable value of the shares and securities in this regard. By a contract dated 15.10.1990 entered into between the parties herein known as the "Agreement-cum-pledge-cum-guarantee" in terms whereof the CITI bank agreed to grant to the Complainant an overdraft facility against pledge of equity shares, inter alia, of Ballarpur Industries Ltd. The limit sanctioned for the purpose of grant of overdraft facility is subject to review every 15 days or so having regard to the fluctuations in the market value of the shares/securities pledged with the CITI bank. If the market value appreciates, the customer would have the option to avail of a higher limit. If on the other hand, the value of the shares were to depreciate, the CITI bank would require the customer to regularise the shortfall. In this regard clause 7 of the said agreement dated 15.10.1990 provides: "7. If at any time, the value of the said securities falls so as to create a deficiency in the margin requirement specified by the Bank from time to time or if there is an excess over the overdraft facility limit, the borrower shall within seven days of notice from the Bank, deposit with the Bank, additional security in the form of cash or such other securities which may be acceptable to the Bank, failing which, the Bank may at its discretion sell, dispose off or realise any or all of the said securities without being liable for any loss or damage or diminution in value sustained thereby."

As value of the shares pledged by the Complainant decreased substantially towards the end of the year 1991, as a consequence whereof, the sanctioned overdraft limit was well in excess of the then prevailing value of the pledged shares, the Complainant was called upon by notice dated 6.1.1992 to regularise the shortfall in the manner stipulated under the above quoted Clause 7 of the agreement. The Citi bank wrote another letter dated 25.1.1992 to the same effect. The receipt of these two letters/notices is admitted by the Complainant.

According to the Citi bank, the Complainant failed to respond and so the Citi bank being fully entitled to do so in terms of the agreement, placed for sale with its Madras Broker, 1000 equity shares of Ballarpur Industries Ltd. on 29th February, 1992. As the shares of Ballarpur Industries Ltd. were not regularly traded in the Madras Stock Exchange, the shares were ultimately sold in Bombay Stock Exchange on 17.3.1992. A block of 500 shares were sold at the rate of Rs. 360/- per share and the balance for Rs. 350/- per share. After deducting the brokerage the net average value came to Rs. 351.50 per share. The Bombay Stock Exchange normally takes at least two months to effect a settlement of transaction and accordingly the money realised on the sale of shares was ultimately credited on 7.5.1992.

THE Complainant stated in the complaint that as per the notice of the Citibank dated 6.1.1992, the Complainant''s overdrawing or excess was only Rs. 1,75,979/- which could have been comfortably covered by the sale of 500 or 600 shares. THE Complainant''s demand on 25.3.1992 to the Citi bank to close its account with effect from 31.3.1992 went unheaded and a sum of Rs. 4,500/- towards out of pocket expenses for renewal of the account for an additional period of one year was wrongly debited. THE Complainant submits that the action of the Citi bank in withdrawing 1000 shares on 29.2.1992 from the Complainant''s account, effecting sale as alleged and further giving credit for the sale only on 7.5.1992 has deprived to the Complainant of the liquidity of the huge amount of Rs. 4.00 lakhs, being the market value of the shares for more than 2 months and has further made the Complainant to incur huge losses by Citi bank charging interest on the excess over line. THE Complainant alleges that he has been deprived of his right to retain 400 to 500 shares and it is a clear case of mala fide action on the part of the Citi bank and amounts to gross negligence, breach of trust, duty and deficiency in service on the part of the Citi bank. THE Complainant submits that he wrote on 25.3.1992 to the Citi bank to close the account w.e.f. 31st March, 1992, to sell the shares to liquidate the overdrawing and to allow the Complainant to withdraw excess shares pledged with the Citi bank. It is alleged that the action of the Citi bank in withdrawing and selling excess 400 shares ''and not allowing the Complainant to withdraw the excess 1000 shares pledged by it over and above that required to cover overdraft has resulted into loss to the Complainant of Rs. 6,30,000/- which could have been regularised by the sale of shares at the market value of Rs. 450/- per share as on 13.4.1992. THE Complainant claimed a compensation of Rs. 9,30,871.93 under various heads being the difference in the market value of the shares sold, difference in the market value of shares retained by the Citi bank, loss of interest, mental anxiety and anguish etc. THE State Commission framed three points for consideration namely: (1) Whether the Complainant is a consumer within the meaning of the Act? (2) Whether there was any deficiency of service or negligence on the part of the Opposite Party ? and (3) To what amount of compensation, if any, is the Complainant entitled ?

The State Commission held that the Complainant is a ''consumer'' as defined under Section 2(1)(d)(ii) of the Act and the Forum has jurisdiction to entertain this complaint under the provisions of the Consumer Protection Act, 1986. The State Commission further held that there is deficiency in service rendered by the Appellant as the rate at which the shares pledged by the Complainant were sold at the Bombay Stock Exchange did not reflect the true and correct value, that there was undue delay in crediting the sale proceeds of the sale of shares, that the Appellant wilfully disregarded the instructions of the Complainant to close its overdraft and that the Appellant was well aware of the request of the Complainant to close the account, release of shares in excess of value required to cover the overdraft, expressions of inablility to burden interest, query as to delay in giving credit to sale proceeds as also request for particulars of shares sold. The State Commission granted the following reliefs: (1) It directed the Appellant to pay to the Complainant Rs. 52.050/- being the difference in market value of Rs. 400/- per share and the rate at which credit has been given by the Opposite Party i.e. Rs. 347.95 for 1000 shares sold by it. (2) The Opposite Party was directed to pay to the Complainant a sum of Rs. 2,28,000/- being the difference in the market value of Rs. 400/- in April, 1992 and the then market value of Rs. 280/- for the excess of 1900 shares being held by the Opposite Party. (3) It directed the Opposite Party to pay the Complainant a sum of Rs. 4500/- debited by the Opposite Party as out of pocket expenses for renewal of the Complainant''s account, whereas renewal was objected to by the Complainant. (4) The Opposite Party was directed to pay an amount of Rs. 1.00 lakh to the Complainant for the loss, injury and mental agony suffered by the Complainant due to the negligence and deficiency of service on the part of the Opposite Party. (5) Rs. 2,000/- as costs.

WE heard Shri T.R. Andhyarujina, the learned Counsel for the Appellant but did not have the advantage of hearing of the Counsel for the Respondent (Complainant) who later submitted written arguments. It is the responsibility of the Consumer Forums to entertain bona fide complaints of deficiency in service by the Banks, but whether it would be possible to render justice on such complaints would depend on the questions of facts and law involved to be determined within the time frame set for the disposal of the complaints. This Commission has held in M/s. Special Machines, Karnal v. Punjab National Bank & Ors., I (1991) CPJ 78 (NC): "It is no doubt true that the forums constituted under the Act are vested with the power to examine witnesses on oath and to order discovery and production of documents. But such power is to be exercised in cases where the issues involved are simple such as the defective quality of any goods purchased or any shortcoming or inadequacy in the quality, nature and manner of performance of a service which the respondent has contracted to perform for consideration. Even in such cases, if it appears to the concerned Forum under the Act that the issues raised cannot be determined without taking elaborate, oral and documentary evidence it is open to it to decline to exercise jurisdiction and refer the party to his ordinary remedy by way of suit."

The case set up by the Citi bank is that at the time when the shares were sold, the market value was subject to considerable fluctuations and it was not possible for the Appellant to specify the exact number of shares that should be sold to meet the requirements and the situations as then prevailing, that there is a specific clause in the agreement between the parties that in the event of sale of the securities, the rate or the adequacy of the consideration shall not be called into question and that it was not open to the Complainant to assail the rate at which the shares were actually sold or to calculate the exact number of shares to be sold to realise the deficit in the account. As to what was the prevailing market rates of the shares at the relevant time is a question of fact to be determined on the basis of the documentary evidence. It may be of daily stock market quotation which only gives opening, high, low and closing but what was the rate at the particular time of each transaction had to be determined on the basis of the evidence of the brokers who handled the transactions of sale/ purchase. The price of shares keep on fluctuating during the course of trading on the floor of the stock exchange and the rate would fluctuate from hour to hour having regard to the demand and the availability of particular script. The conclusion drawn by the State Commission that the rate at which the shares pledged by the Complainant were sold at the Bombay Stock Exchange did not reflect the true and correct value is not supported by any valid material on the record. The Complainant''s own case is that it could be either Rs. 363/- or Rs. 388/- per share, but there was no legal material that the market price was Rs. 400/- on which the sale should have taken place. Again the inference drawn by the State Commission that there was a nexus between the Citi bank and its broker is wholly unwarranted and supported by any valid material. Other similar observations are totally uncalled for having regard to the banking practice and procedure consistent with the contract of the parties. It was also the case of the Citi bank that the damages can be awarded only with a view to place the injured party in the position which he would have occupied had offending party performed its obligation under the contract, that the contract between the parties does not cast upon the Appellant any obligation to sell shares on behalf of the Complainant and therefore, the question of Appellant being in breach of its obligation does not arise at all, that the question of the Complainant unilaterally closing his overdraft facility without taking necessary steps to liquidate his outstanding before hand, does not arise at all and that the Complainant to take the necessary steps in this regard, ought to have given clear cut instructions to sell the balance shares.

IN view of the questions of fact and law involved in this case, we are of the considered opinion that an elaborate enquiry into the market value of the shares at the relevant time and the settlement of accounts between the parties as a result of sale/market value of the shares and the outstandings or as to when the account of the Complainant should have been closed or whether there was any contract between the parties authorising the Citibank to sell excess shares or whether the Complainant has suffered any damages on account of the breach of contract, can be satisfactorily adjudicated only in regular Civil Court and not before the Forums under the Consumer Protection Act. The appeal is allowed, the impugned order of the State Commission is set aside and the complaint is dismissed leaving the parties to bear their own costs. It will be open to the Complainant to seek his remedy elsewhere. Appeal allowed.