Karur Vysya Bank vs Royal World Exims and Agencies and Others

S.R. Nayak, J.—This writ appeal is directed against the order of the learned single judge dated September 27, 2000 made in W. P. No. 31052 of 1998 (Royal World Exims and Agencies v. Reserve Bank of India), That writ petition was filed by M/s Royal World Exims and Agencies, the first respondent herein seeking the following relief :

"Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed herein the High Court will be pleased to issue an appropriate writ or order or direction more particularly in the nature of writ of mandamus declaring the order of respondent No. 2 dated May 23, 1998, in directing respondent No. 3 to pay the amounts of Rs. 13,07,135 on the petitioner furnishing one surety whose worth is twice the amounts of the draft as arbitrary and illegal and direct the respondent-authorities to pay the petitioner an amount of Rs. 13,07,135 with interest from December 18, 1996, at 8 per cent. per annum."

The learned judge disposed of the writ petition directing the Karur Vysya Bank Ltd, Guntur Branch, Guntur, the third respondent in the writ petition and the appellant herein to comply with the award passed by the Banking Ombudsman, Hyderabad, the second respondent in the writ petition, within a period of four weeks pending directions that may be issued by the Reserve Bank of India in pursuance of the representation made by the appellant/the third respondent-bank on June 8, 1998.

Learned counsel appearing for the appellant would firstly contend that the writ petition filed by M/s. Royal World Exims and Agencies is not maintainable inasmuch as the award passed by the Banking Ombudsman is not executable. Learned counsel would also contend that the appeal, thereby meaning the representation made by the appellant-bank dated June 8, 1998, is pending before the Reserve Bank of India for consideration and, therefore, it is not permissible for the writ petitioner to seek execution of the award by securing the kind of direction now obtained by it at the hands of the learned single judge. Learned counsel would also contend that his client is left with no legal remedies to obtain stay of the award passed by the Banking Ombudsman and looking from that angle also, it is not appropriate for this court to issue a direction to the appellant-bank to comply with the award passed by the Banking Ombudsman. On the other hand, Sri T. Bali Reddy, learned senior counsel for the writ petitioner would support the order of the learned single judge.

The Banking Ombudsman is a creature of the Banking Ombudsman Scheme, 1995 (for short "the Scheme"), sub-paras. (5), (6) and (7) in para. 20 of the Banking Ombudsman Scheme read as follows :

"(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 its, 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 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 any bank of an award which became binding on it pursuant to Sub-clause (6)".

In the instant case, it is an admitted fact that after the Banking Ombudsman passed the award the writ petitioner filed a letter of acceptance of the award in full and final settlement of its claim in the matter. If that is so, by force of the provisions of sub-para. (6) of para. 20 of the Scheme, the award passed by the Banking Ombudsman became binding on the parties. In other words, the appellant-bank is under an obligation to discharge the liabilities arising out of the award passed by the Banking Ombudsman in favour of the holder of the award. Since the award passed by the Ombudsman is binding on the parties as envisaged under sub-para. (6) of para. 20 of the Scheme, the next question to be considered is whether the Scheme itself provides for any mechanism or forum for executing the award, in the event of non-compliance with the award. Learned counsel for the appellant-bank is not in a position to refer to any provisions of the Scheme providing for a forum or to a mechanism by resorting to which the award passed by the Banking Ombudsman could be executed. However, learned counsel, drawing our attention to sub-para. (7) of para. 20 of the Scheme and the letter of the Reserve Bank of India bearing Ref. RPCD No. BOSBC.90/13-1-01/97-98 dated February 21, 1998, would maintain that in the case of non-compliance with the award passed by the Banking Ombudsman, only the Reserve Bank of India could take steps to execute the award and it is not permissible for the writ petitioner to rush to this court under Article 226 of the Constitution to execute that award particularly having regard to the fact that the representation made by the appellant-bank against the award of the Banking Ombudsman is pending consideration before the Reserve Bank of India.

Sub-para. (7) of para. 20 of the Scheme obligates the Banking Ombudsman to report non-compliance with the award by the concerned bank to the Reserve Bank of India and this is the only obligation which flows from sub-para. (7) of para. 20 of the Scheme and nothing more and nothing less. Sub-paras. (7) does not deal with the execution of the award passed by the Banking Ombudsman in the event of non-compliance by the concerned bank at all. The letter of the Reserve Bank of India dated February 21, 1998 reads as follows :

"Reference RPCD No. BOS. BC.90/13/0/01/97-98 Date 21-2-1998 Banking Ombudaman Scheme 1995 Implementation of the award given by the Banking Ombudsman

As you are aware, Banking Ombudsman Scheme, 1995, which was notified by the Reserve Bank of India vide RPCD No. 1070/BOS-94-95, dated June 14, 1995, in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 (10 of 1949), has been in operation since June 1995. The Scheme seeks to establish a system of expeditious and inexpensive resolution of customer complaints relating to banking services concerning loans and advances and other specified matters.

We observe that there have been fair and amicable settlements of a very large number of cases referred to the Banking Ombudsman. Cases are also examined by the RBI when they are referred by the Banking Ombudsmen under Clause 20(7) of the Scheme on non-implementation of awards. However, in some very rare cases the banks have challenged the verdicts of the Banking Ombudsman in the courts of law. Since the Banking Ombudsman Scheme was formulated to get speedy and inexpensive resolution of the customer''s complaints, it is expected that the award of the Banking Ombudsman is accepted and implemented by the banks. In very exceptional cases where the implementation of the award is likely to create bad precedents for the bank and the banking system. Banks should refer the matter to the RBI, before contesting in any manner, the award given by the Banking Ombudsman. The above instructions are issued in terms of the power conferred upon the RBI by Section 35A read with Section 56 of the Banking Regulation Act, 1949 (10 of 1949).

A suitable amendment to the Scheme will follow in due course. Please acknowledge receipt."

We are at a loss to understand the relevance of the said letter to which our attention is drawn by learned counsel in support of his contention in the decision-making. In this letter also, the Reserve Bank of India has not opined that in the case of non-compliance with an award passed by the Banking Ombudsman, the Reserve Bank of India would take steps to execute such award. Be that as it may, in construing the provisions of the Scheme, any instruction that may be issued by the Reserve Bank of India in exercise of its executive power could hardly be a valid aid or guidance. The resultant position is that the Scheme does not provide for any mechanism or forum to execute the award passed by the Banking Ombudsman in the event of non-compliance with such award by the concerned bank. At the same time, there cannot be any controversy that in terms of sub-para. (6) of para. 20 of the Scheme, once an award is accepted by the concerned party by filing a letter of acceptance in full and final settlement of the claim in the matter, it becomes executable. In the absence of any forum or mechanism under the Scheme, it cannot be said that the writ petitioner cannot invoke the jurisdiction of this court under Article 226 of the Constitution for appropriate relief in the case of non-compliance with the award. Further, the contention of learned counsel for the appellant is that if the award made by the Banking Ombudsman is executable after the submission of the letter of acceptance, the writ petitioner could have executed the said award in a civil court. It may be so. But, the question is whether this court should decline to exercise the discretionary power under Article 226 of the Constitution when a beneficiary under the award invokes the power of this court complaining that under the Scheme there is no forum to execute the award complaining about non-compliance with the award despite it has become final and binding. Although power under Article 226 is discretionary, there is no good reason for this court to refuse the relief in this case. Be that as it may, the learned judge in his discretion thought it appropriate to entertain the writ petition and issue a direction to the appellant-bank to comply with the award. The discretionary order made by the learned judge cannot lightly be interfered with by the Division Bench.

We do not find any merit in the other contention of learned counsel for the appellant that since the representation of the appellant-bank made against the award passed by the Banking Ombudsman is pending before the Reserve Bank of India there is no justification to issue a direction to the bank to comply with the award. Because, firstly the representation of the appellant dated June 8, 1998, is extra-legal in nature and non-statutory and secondly, this plea was addressed to the learned single judge and the learned single judge after noticing the fact that the writ petitioner has furnished necessary bank guarantee, did not think it appropriate to refuse relief on that count.

Therefore, we do not find any substantive ground to interfere with the discretionary order made by the learned single judge. The writ appeal fails and it is accordingly dismissed with no order as to costs.