GUJARAT STATE CO-OP. AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD. vs BRANCH MANAGER, STATE BANK OF MYSORE

BY way of this complaint, the Gujarat State Co-operative Agricultural and Rural Development Bank Limited seeks to have following reliefs granted against the opponent State Bank of Mysore. "[A] Direct the opponents to pay to the complainant Rs. 5,91,781/- being the amount of interest for the quarter ending September, 1996 which has been wrongly deducted by the opponents as explained hereinabove together with interest @ 18% p.a. thereon from the date of deduction till the date of payment. [B] Direct the opponents to pay to the complainant Rs. 69,117/- being the amount of interest @ 14.5% p.a. wrongly recovered by the opponent from the complainant on the interest of Rs. 5,91,781/- as explained above together with interest @ 18% p.a. from the date of recovery till the date of payment. [C] Direct the opponent to pay to the complainant Rs. 2,68,374/- being the amount of loss of interest which the complainant has suffered and which amount complainant was entitled to get on the amount of the quarterly interest and which the opponents were liable to pay as per the terms and conditions of the F.D.R. placed with them. [D] Direct the opponents to pay to the complainant Rs. .... towards the financial inconvenience, tension and harassment caused to the complainant. [E] Direct the opponents to pay to the complainant Rs. 10,000/- being the cost of this complaint.

WE need not exert ourselves in reproducing the facts which are not in dispute by setting out the rival pleadings separately. Suffice it to say that following brief facts are not in dispute between the two parties. The complainant Bank invested Rs. 5,00,00,000/- [Rupees five crores] with the opponent Bank carrying interest @ 12% p.a. for a period of one year commencing from 26.8.1996 and the interest was payable in one slot. The dispute centres around the manner in which the interest was payable to the complainant Bank by the opponent Bank. According to the complainant, by letter dated 26.8.1996, the Manager of the opponent Bank clarified that the opponent Bank was ready to take Rs. 5,00,00,000/- at 12% interest to be paid quarterly in one slot with a note appended below the communication indicating that interest would be paid in September, 1996; December, 1996, March, 1997; and June, 1997. This would mean that first instalment of interest was payable in September, 1996 for the months of August and September, 1996, during which period the deposit actually remained with the opponent Bank. There is no difficulty with regard to the next three quarterly instalments which can be worked out at Rs. 15 lakhs each. The final instalment would be Rs. 15 lakhs less the amount payable in September, 1996. There is a lot of correspondence between the parties but we need not refer to such correspondence as it was the contention of the opponent Bank pointed out to the complainant Bank while the deposit was subsisting that quarterly interest could not be paid as per the guidelines of Reserve Bank of India. Accordingly, by letter dated 1.1.1997 [Annexure-D], the opponent Bank called upon the complainant Bank to return the quarterly interest of Rs. 5,91,781/- paid in September, 1996 to the complainant Bank in view of the Reserve Bank of India [RBI] guidelines operating contrary to payment of quarterly interest in respect of such deposits. According to the complainant Bank this requisition from opponent Bank was contrary to the aforesaid communication addressed by the opponent Bank to the complainant Bank at the time when the deposit was given by the complainant Bank. The xerox copy of the F.D.R. indicates that issue price was Rs. 5,00,00,000/- and face value was Rs. 5,60,00,000/-. Deposit Receipt does not indicate payment of quarterly interest but speaks about period of deposit to be one year and rate of interest to be 12%. Therefore, the complainant Bank''s case essentially revolves round the communication addressed by the Manager of the opponent Bank at the time when the deposit was taken from the complainant Bank. WE have referred to that communication. During the course of the period, the complainant Bank had an occasion to call back the money with interest @ 12% p.a. as according to the complainant Bank, there was a breach of the aforesaid communication on the part of the opponent Bank in not honouring the payment of interest every quarter. At the conclusion of the period of deposit, the opponent Bank returned Rs. 5,53,39,102/-. Thus, the opponent Bank repaid Rs. 69,117/- less than what the opponent Bank ought to have repaid. According to the opponent Bank it was entitled to deduct such amount by way of interest @ 14.5% on the erroneously paid amount of Rs. 5,91,781/- in September, 1996. According to the complainant Bank, this deduction could not have been made and was also not warranted by any further RBI directive/guideline speaking about recovery of interest on mistakenly paid amount of interest. By communication/notice dated 1.9.1997, therefore, the complainant in terms and specifically demanded from the opponent Rs. 69,117/- illegally deducted by the opponent Bank while returning the aforesaid deposit with interest. The opponent Bank seeks to defend the claim of Rs. 69,117/- on the basis of the RBI guidelines as also communication dated 26.8.1997 inter alia stating that as per the advice received by the opponent Bank from its controlling authority, the opponent Bank recovered 14.5% for 249 days on Rs. 5,91,781/-, i.e. Rs. 69,117/-, while making repayment of aforesaid FDR with interest. The questions in the aforesaid background which we are required to determine are whether the complainant Bank is entitled to interest on the non-payment of quarterly instalments of interest for the quarters ending December, 1996, March, 1997 and June, 1997 and whether the opponent Bank is entitled to deduct Rs. 69,117/- from the repayment amount of the aforesaid FDR on its maturity.

We have heard the learned Advocates appearing for the rival Banks and we are of the considered opinion that the RBI guidelines were binding upon at least the opponent Bank and it could not be said that there was any deficiency in service in not paying quarterly interest commencing from the quarter ending December, 1996 till up to the quarter ending June, 1997. The RBI guidelines are quoted in letter dated 27.1.1997 issued by the opponent Bank and addressed to the complainant Bank. They read as under : "(i) Each certificate of deposit should be for a minimum of Rs. 25 lacs and thereafter in multiplies of Rs. 5 lacs; (ii) Minimum and maximum period of deposit should be 3 months and one year respectively; (iii) C.Ds. to be issued at discounted value-rate to be approved by the Head Office; (iv) Premature closure of C.D. not permitted; (v) No quarterly interest can be paid on C.D. (vi) No loan against C.D. could be extended."

IT can also be seen that the aforesaid guidelines do not speak about recovery of interest erroneously paid as quarterly interest. IT would have been open for the opponent Bank to refer the matter to RBI with regard to the condonation of first lapse. The opponent Bank could as well have taken action against the erring officer/manager. However, since guidelines do not speak about recovering interest, much less interest @ 14.5%, the deduction of Rs. 69,117/- from the maturity value of the FDR which even according to the aforesaid guidelines was payable could not have been made. We have referred to the provision contained in Section 5(c) defining ''Banking Company'' read with definition of Banking in the preceding clause, authority of the RBI to give directions contained in Section 35A and bar of award of compensation with regard to claims inter alia covered under Section 35A of the Banking Regulation Act, 1949. In this connection reference has also been made on behalf of the opponent Bank to following note appearing in Bhakti''s Banking and Consumer Protection by Amar K. Ramani, 1998 Edition at page 312. "3.3.14(1) : Whether directives of RBI are binding on the Banks. Navdeep Co-op. Bank v. Acharya Maharaj, II (1995) CPJ 52 [NC], [order of St. Commission in Acharya Maharaj v. Navdeep Co-op. Bank, III (1992) CPJ 184 {G} reversed] RBI issued certain directives under Section 35-A of the Banking Regulation Act, 1949 prohibiting the Bank from making any payment or discharge of any liability or obligation of a sum exceeding 10% of the total balance in every SB or Current A/c, etc. The St. Commission held that even if the RBI has prohibited the Bank, if the dispute between the parties is a complaint within the meaning of Section 2 of the Act, the Commission cannot refuse to grant relief, which it can grant under Section 14 of the Act. NC while allowing the appeal, held that the Bank was bound by the directives of RBI and Consumer Authority cannot interfere in it. Similar view has been taken in Virendra Prasad v. RBI, I (1991) CPJ 336 (NC)."

WE have taken into consideration the legal position flowing from the above provisions of the Banking Regulation Act, 1949 and decisions of Honourable National Commission referred to in the above passage. However, recovery of interest on the amount of quarterly interest already paid is not warranted by any of the above guidelines. Besides, it is an admitted fact that the opponent''s manager wrote above referred letter to the complainant under drive for mobilisation of deposits. He put his offer of quarterly payable interest in black and white. Any prudent Bank Manager would refer to the RBI guidelines before making such offer in writing which he did not and in our opinion it is clear case of deficiency on the part of the manager and the opponent Bank is vicariously liable for payment already made. Thus it is a clear case where a Bank Manager makes misrepresentation to collect deposits without going through the RBI guidelines. Further there is nothing on record to show that some inquiry was held in this matter at the Bank level to find out how such mistake could be made. It is a different matter that the Bank holds inquiry against the erring manager or erring official into the matter or pray for condonation of the lapse or mistake as the case may be, before the RBI. In above view of the matter, our answer to the aforesaid questions will be partly in favour of refund of Rs. 69,117/- and partly against granting of any other relief prayed for by the complainant. The consequence of the aforesaid outcome of the matter will be to pass following order. ORDER The opponent Bank is directed to pay to the complainant Bank Rs. 69,117/- with interest @ 10% p.a. from the date of complaint till payment. In the facts and circumstances of the case and in view of the aforesaid legal position, there shall be no order as to costs. The opponent Bank shall pay to the complainant the aforesaid amount within six weeks from today. Complaint disposed of.