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Judgment
MR. Justice Ashok Bhan, President-Petitioner which was Opposite Party No. 1 before the District Forum was a Co-operative Society registered under the provisions of Maharashtra Co-operative Societies Act, 1960. Petitioner was granted banking licence by the Reserve Bank of India to do banking business under the Banking Regulation Act, 1949 (for short, Regulations Act) as applicable to the CO-operative Banks on 11th October, 1976. Under the Regulations Act Petitioner was permitted to carry on banking business, operating Saving Accounts, Current Accounts, to advance loans, to issue cheques, bankers cheques, demand drafts, etc. and to do all other banking work. Complainants - Respondent Nos. 1 and 2 (hereinafter referred to Respondents Nos. 1 and 2) invested below mentioned amount by way of deposits with the Petitioner-Bank. S. No. Name of Deposit Scheme Receipt No. Amount Deposited Date of Deposits Due date 1. Cumulative Deposit 05351 25,000 15.3.2005 15.3.2006
CUMULATIVE Deposit 0008262 1,35,726 13.3.2001 13.3.2006
MONTHLY income Deposits 0006764 1,00,000 21.2.2003 21.7.2005 2. Respondent Nos.1 and 2 filed an application dated 30th August, 2004 requesting Petitioner-Bank to prematurely encash their deposits. Petitioner-bank after taking the application into consideration issued Demand Draft No.044498 dated 20th September, 2004 in the sum of Rs. 3,23,390 during the working hours of the Petitioner-Bank towards release of premature deposits to the Respondent Nos.1 and 2. Respondent Nos. 1 and 2 having received the Demand Draft dated 20.9.2004, presented the same to their banker United Western Bank on 22.9.2004 for collection of the same. 3. After closing hours on 20th September, 2004 between 7.00 p.m. to 7.30 p.m. Petitioner Bank received directions under Section 35A of the Banking Regulations Act, 1949 from the Respondent No. 3 herein-Reserve Bank of India (for short, RBI) whereby Petitioner-Bank had been precluded with effect from the close of business on 20th September, 2004 from incurring any liability including borrowal of funds and acceptances of fresh deposits or granting/renewing any loans/advances or making any payments or discharging any liability or obligations except in accordance with the provisions of the directives. It was directed that from the closing of the business from 20.9.2004 the Petitioner-Bank shall not without prior approval in writing from the RBI grant/renew any loans and advances, make investments, incur liability by way of borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment whether in discharge of liabilities and obligations or otherwise, enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties-assets to the extent and in the manner provided therein.
IN view of the guidelines issued by the RBI under Section 35A of the Regulations Act, Petitioner-Bank informed Respondent Nos. 1 and 2 that it could not honour the draft in question and returned the same to them.
ON 22nd November, 2004, Respondent Nos. 1 and 2 filed an application on the ground of hardship for release of the said amount with the Petitioner-Bank. On 6.1.2005 the said application was forwarded to RBI. However, screening committee of the RBI rejected the said application.
RESPONDENT Nos. 1 and 2 thereafter filed complaint before the District Consumer Disputes Redressal Forum (for short, District Forum), Nagpur against the alleged deficiency in service of the Petitioner-Bank for not paying the amount of the Demand Draft to them. The Petitioner-Bank filed its written statement taking the preliminary objection that the complaint was not maintainable on the ground that Respondent Nos. 1 and 2 being the members of the Cooperative Society i.e. the Petitioner-Bank, had an alternative remedy under Section 91 of the Maharashtra Cooperative Societies Act. It was pointed out that in view of the directives imposed by RBI vide order dated 16.9.2004 effective from the closing hours of business on 20.9.2004. Petitioner - Bank was precluded from incurring any liability including borrowal of funds and acceptances of fresh deposits or granting/renewing any loans/advances or making any payments or discharging any liability or obligations except in accordance with the provisions of the directives. That the Petitioner-Bank could not make the payment of Demand Draft till the withdrwal of the restrictions by the RBI or till the proposal of the Respondent Nos.1 and 2 was considered by the RBI whichever was earlier. That the delay in processing the premature withdrawal of the deposit was due to the peculiar situation i.e. the rush of the other depositors to withdraw their deposits.
DISTRICT Forum vide its order dated 26th September, 2005 partly allowed the complaint and directed the Petitioner to pay the amount of Demand Draft dated 20.9.2004 of Rs.3,23,390 to the Respondent Nos.1 and 2 along with interest @ 18% w.e.f. 20.9.2004. The District Forum in paragraph 14 of its order observed'': "In our opinion it was obligatory on the part of O.P.No.1 bank to honour this D.D. because payment of D.D. is as good as payment of cash. Had it been a cheque we would have understood critical situation that due to the directions of RBI the O.P. No.1 bank was not able to honour the bankers cheque. But as it is a case of a D.D. issued prior to the receipt of order from the RBI and even prior to the application of the said circular it was necessary for the bank to honour this draft and therefore there is a deficiency in service on the part of O.P. Bank."
BEING aggrieved by the order of the District Forum, the Petitioner-Bank filed an appeal before the Maharashtra State Consumer Disputes Redressal Commission (for short, the State Commission). The State Commission by the impugned order has rejected the said Appeal. While rejecting the Appeal, the State Commission observed: "A letter of RBI dated 16.9.2004 at page No. 69 of complaint was pressed into service by the Counsel for appellant bank to contend that because of this letter they had stopped payment of demand draft and therefore there is no deficiency of any kind in service on their part. However, if one peruses the letter dated 16.9.2004 issued by RBI to the Chief Executive of the appellant bank, it prevented the bank from the close of business on 20.9.2004 from incurring any liability including borrowal of funds and acceptance of fresh deposits or granting/renewing loans/advances or making any payments or discharging any liability or obligation except in accordance with the provisions of the directive. This letter specifically mentions that directive contained therein will be operative w.e.f. close of business on 20.9.2004. It is admitted position that the bank had issued demand draft on 20.9.2004 during its normal banking hours. It cannot lie in the mouth of appellant bank to argue that they had issued this demand draft after the close of banking hours of the bank. It would necessarily follow that demand draft issued in favour of respondent No. 1 was rightly and legally issued on 20.9.04 towards discharge of its liability vis-a-vis complainants (respondent Nos. 1 and 2) for paying back their deposit amounts prematurely and this was permissible to the bank even after receipt of letter of RBI dated 16.9.2004, which bank alleges to have received at about 7 to 7.30 p.m. on 20.9.2004. The letter of RBI was received by the appellant bank in the evening on 29.9.2004 i.e. certainly after close of banking hours. But the demand draft was given to respondent No. 1 during the banking hours on the same day. So prohibition contained in RBI letter dated 16.9.2004 by no stretch of imagination can be held attracted to the instant transaction and still the bank illegally withheld payment by not honouring demand draft it had issued in favour of respondent No. 1. Thus there was clear cut deficiency in service on the part of appellant bank and learned District Consumer Forum rightly passed order directing the appellant bank to pay the amount."
HOWEVER, the State Commission reduced the rate of interest from 18% to 9%.
NOT satisfied with the Order passed by the Fora below, the Petitioner-Bank filed the present Revision Petition. Initially, the Revision Petition was dismissed by this Commission on 15.11.2006. Being aggrieved by the said order dated 15.11.2006, the Petitioner Bank as well as RBI preferred SLP (C) No.6355/2007 and SLP (C) No. 7396/2007 respectively. The Supreme Court passed the following order dated 23.11.2007: "Leave granted. Having heard learned Counsel for the parties, we are of the opinion that in this particular case RBI were the party respondents, were not heard by the National Commission. Ultimately moratorium was imposed by the RBI. In the circumstances, we set aside the impugned judgment and direct the CMWP No.5942/07 to stand revived. The matters will be placed for direction before the National Commission on 21.1.2008 when the Counsel for RBI will appear. The appeals stand allowed accordingly."
THE Reserve Bank of India during the pendency of present Revision Petition, by its Order dated 30th August, 2009 cancelled the licence of the Petitioner-Bank on being satisfied that allowing the Petitioner-Bank to carry on banking business any further would be detrimental to the interests of the present and future depositors.
THE Commissioner for Co-operation and Registrar of Co-operative Societies, Maharashtra State, Pune has also during the pendency of this Revision Petition ordered winding up of the affairs of the Petitioner-Bank under Section 110-A(ii) of Maharashtra Co-operative Societies Act, 1960 and appointed a Board of Liquidators consisting of three members.
AFTER passing of the said order, the Petitioner-Bank moved a Miscellaneous Application No. 132/2010 before this Commission to add the said liquidator as a party to the present Revision Petition. This Application was allowed. Liquidation and winding up proceedings of the Petitioner-Bank are in progress. Vide communication dated 20th September, 2010, DICGC (Deposit Insurance Credit Guarantee Corporation) has sanctioned claim of Rs. 47,58,75,588.81 to disburse the same to the depositors of the Petitioner-Bank as per the provisions of DICGC Act.
COUNSEL for the Petitioner contends that the directives issued by the RBI under Section 35 of the Regulations Act are binding on the Petitioner. That in view of the directions issued by the RBI, the Demand Draft issued by the Petitioner could not be encashed after 20th of September, 2004. That the State Commission has erred in holding that since the Demand Draft had been issued during the working hours on 20.9.2004 and the guidelines were issued after closing of the banking hours on 20th September, 2004, the prohibition contained in the RBI letter was not applicable to the instant transaction and, therefore, there was deficiency in service on the part of the Petitioner. That the issuance of a Demand Draft in banking practice is regarded as a matter of purchase and ordinarily the relationship between the holder of Demand Draft and the bank issuing it is that of debtor and creditor. That the State Commission has clearly erred in directing the Petitioner to make the payment of the Demand Draft in question treating the same as good as cash. That the Demand Draft being in the nature of a cheque is payable on demand under the Negotiable Instruments Act. In support of his submission, Counsel for the Petitioner relied upon the judgment of the Supreme Court of India in the case of Punjab and Sind Bank v. Vinkar Sahakari Bank Ltd. and Ors., VI (2001) SLT 602=IV (2001) CCR 50 (SC)=AIR 2001 SC 3641, and the judgment of this Commission in the case of Navdeep Co-operative Bank Ltd. v. Acharya Maharaj Shree Tejendraprasadji Devendraprasadji Pande and and Anr., II (1995) CPJ 52 (NC)=First Appeal Nos. 466, 467 and 468 of 1992, decided on 13.1.1995.
AS against this, learned Counsel for the Respondent Nos. 1 and 2 contended that the alleged deficiency in service is on account of delay of 20 long days in the preparation/issuance of the Demand Draft from the date of application for premature withdrawal of the deposits and not on account of the dishonour of the Demand Draft. That had the Petitioner-Bank issued the Demand Draft in time, Respondent Nos. 1 and 2 would have encashed the same well before the issuance of the guidelines by the RBI. The case made out in paragraphs 18 and 19 in the written notes of submission by the Respondent Nos. 1 and 2 is under: "18. That, these respondents submit that their case is not of dishonour of the demand draft but a specific case of deficiency of services. It has been proved and therefore there is a clear cut finding of the learned Forum, which has been upheld by the Appellate Commission that the petitioner bank was found to be deficient in providing services to these respondents. As stated earlier, in the age of information technology, the banks issue premature encashment on the very day. The 20 days time taken by the petitioner bank in issuing the demand draft clearly shows deficiency in service. 19. That, it is submitted that dishonour of demand draft was never a case of these respondents and, therefore these respondents did not file any criminal complaint, in respect of dishonour of demand draft. The case reported in A.I.R. 2001 Supreme Court 3641, relied upon by the petitioner bank is therefore not applicable to the present case at all."
COUNSEL for the Respondents 1 and 2 submitted that the Petitioner-Bank is liable to compensate for the deficiency on their part. Countering this submission, Counsel for the Petitioner- Bank submitted that the Petitioner could not make the payment because in the month of August 2004 news had started publishing in the local newspapers about the precarious financial conditions of the Petitioner-Bank. Large number of depositors had started rushing to the Petitioner-Bank at its various branches for matured and prematured withdrawal of their deposits. Because of the heavy rush, Petitioner Bank could not prepare the Demand Drafts in time. Counsel for the Parties have been heard at length.
THREE Member Bench of this Commission in Navdeep Cooperative Bank Ltd. (supra) had held that the Bank like the Petitioner is bound by the directives issued by the Reserve Bank of India and if the payment is not made in terms of the prohibition created then the Bank could not be held guilty of deficiency in service. It was observed as under: "It is evident that the Appellant-Bank was bound by the directive of the Reserve Bank of India and was, therefore, prohibited from making payment of the deposits on their maturity. It cannot therefore be held to be guilty of deficiency in service when it did not make any payment because of the directive from the Reserve Bank of India. We, therefore, allow the appeal and dismiss the order of the State Commission. There is no order as to costs."
THE point which needs to be considered in this Revision Petition is as to "What is the effect of issue Demand Draft prior to coming into force of RBI directions under Section 35A of Banking Regulation Act". For answering this question it is necessary to understand the nature and status of Demand Draft in the light of the provisions of Negotiable Instruments Act, 1881. It is to be seen whether the draft issued is as good as cash or it is a negotiable instrument which creates relationship of creditor and debtor and is to be encashed on demand. The Supreme Court of India in Punjab and Sind Bank (supra) has held that "Pay Order drawn by bank is a ''Cheque/Bill of Exchange'' thus a negotiable instrument". It has been held that Section 131A which was introduced in the Statute by Act 33/1947, makes all the provisions for crossing of cheques applicable to Draft as well. It has further been held that the said section is intended to widen the scope of crossed drafts as to contain all incidences of crossed cheque. The Supreme Court in the judgment has affirmed the view taken by the Calcutta High Court in the case of Birbhum Central Co-operative Bank/Pioneer Bank, AIR 1956 Cal. 615, in which it was held: "It is well settled that a banker''s draft is a bill of exchange and as such it is a negotiable instrument. The issue of a draft is regarded in banking practice as a matter of purchase and ordinarily the relationship between the holder of Demand Draft and the bank issuing it is that of debtor and creditor. The holder of the draft is a creditor and his remedy is on that draft."
THE Supreme Court also affirmed the following view taken by the Kerala High Court in Palai Central Bank Ltd., AIR 1962 Ker. 210, wherein it was held: "However, that might be, there is no denying that a demand draft is nothing more or less than a negotiable instrument governed by the provisions of the Negotiable Instruments Act; and on the face of it the obligations it creates are nothing more than ordinary debt."
THE Supreme Court did not approve the view taken by the Single Judge of the Bombay High Court in Maturi Sanyasilingam v. Exchange Bank of India and Africa Ltd., AIR 1948 Bom. 1, wherein it was held that the demand draft issued by the branch of a bank to its Head Office or vice versa is not a cheque nor a bill of exchange.
THE Supreme Court while approving the view taken by the Calcutta High Court and Kerala High Court and overruling the view taken by the Bombay High Court, in paragraph 16 in the case of Punjab and Sind Bank (supra), held as under: "16. We are of the opinion that the High Courts have taken the correct view in the above decisions. However, Mr. Shekar Naphde, learned Senior Counsel for the respondents, invited our attention to the decision of a Single Judge of the Bombay High Court in Maturi Sanyasilingam v. Exchange Bank of India and Africa Ltd. (supra), wherein it was held that the demand draft issued by the branch of a bank to its Head Office or vice-versa is not a cheque nor a bill of exchange. But learned Single Judge expressed the opinion that a demand draft may be a bill of exchange if it is issued by one bank drawn on another. The said observation was made in the wake of the contention that the collecting bank could claim protection under Section 131 of the Act. The said decision of the Bombay High Court cannot hold good because the Negotiable Instruments Act was amended by incorporating Section 131-A in the said Act."
DEMAND Draft to the Respondent Nos. 1 and 2 was issued on 20th September, 2004 which was presented by them to their banker on 22nd September, 2004 by which time the directives of the RBI had come into operation. Since the Petitioner-Bank was precluded from incurring any liability including borrowal of funds and acceptances of fresh deposits or granting/renewing any loans/advances or making any payments or discharging any liability or obligations except in accordance with the provisions of the directives after the closing hours on 20th September, 2004, the Demand Draft could not be honoured which was deposited for realization on 22nd September, 2004 only because of the restrictions imposed by the Reserve Bank of India. The Banker''s Draft has been held to be a bill of exchange and as such it is a negotiable instrument. In banking practice issue of a Draft is regarded as a matter of purchase and ordinarily the relationship between the holder of Demand Draft and the bank issuing is that of debtor and creditor. Since the directions issued by the RBI were binding on the Petitioner, it cannot be said that there was any deficiency in service on the part of the Petitioner-Bank. The Fora below have clearly erred in taking a contrary view.
WE have recorded the above finding in view of the submissions made at the Bar. Counsel for the Respondent Nos .1 and 2 has clearly stated that the Respondents have not alleged any deficiency in service on account of dishonouring the Demand Draft. According to him, deficiency on the part of the Petitioner-Bank was in not preparing the draft within 2-3 days of the application filed by the Respondent Nos. 1 and 2 seeking premature encashment of the deposits made by them.
IN the month of August, 2004 during regular intervals news had started publishing in the local newspapers about precarious financial condition of the Petitioner-Bank. Number of depositors started rushing to the Petitioner-Bank at its various branches for matured and pre-mature withdrawal of their deposits with the fear that they will not be able to get back their deposits invested with the Petitioner. Because of heavy rush and panic in the depositors for withdrawal of their matured and premature deposits at the various branches and at the head office, the situation and circumstances were not normal and officers and staff had to face and handle the members/depositors at large who rushed during the said period. According to the Petitioner, it had paid approximately Rs. 32 crores during this period. As large number of depositors have made applications for premature encashment of their deposits, there may have been some delay in preparing the Demand Draft. But it cannot be said that this was due to deficiency on the part of the Petitioner. We do not find any substance in this submission of the learned Counsel for the Respondent Nos. 1 and 2 that there was deficiency on the part of the Petitioner in not preparing Demand Draft within 2-3 days of their filing application for pre-mature withdrawal of the deposits made by them.
FOR the reasons stated above, we accept this Revision Petition, set aside the orders passed by the Fora below and dismiss the complaint. However, this Order shall not debar the Respondent Nos.1 and 2 from getting their deposits as per the scheme prepared by the Petitioner-Bank.