STATE BANK OF INDIA SURAT vs N. RAVEENDRAN NAIR

THIS is an appeal against the Order of the Kerala State Consumer Disputes Redressal Commission, Thiruvanantha puram passed in Complaint No. 50of 1990. The facts are that the present respondent- Mr. N. Raveendran Nair, who is engaged in wholesale business in textiles in Venganoor, remitted a sum of Rs. 98,000/- at the State Bank of Travancore, Venganoor Branch and obtained a Demand Draft dated May 12,1990 payable at State Bank of India, Surat Branch, Gujarat. The com-plainant purchases textiles direct from the manufacturers and distributes them to retailers. With that object he had obtained the above draft. He came to Surat for purchasing textile goods on May 21, 1990. He presented the draft before the State Bank of India, Surat Branch. The said Bank refused to Honour the Demand Draft and issued dishonour Memo to the complainant. As a result, the complainant could not purchase the goods for which he had gone to Surat and consequently he could not supply them to his customers as promised. Thereby his credibility as a reliable business man was damaged. In the complaint, he claimed a compensation of Rs. 50,000/- for the damage to his credibility. He further claimed a sum of Rs. 10,000/- for loss of profit. He was stranded penniless at a far off place. He was forced to trace out some friends and take some finance for his return and thus, he had to spend Rs. 5,000/- for his journey and stay at Surat. He also claimed a sum of Rs. 50,000/- as damages for pain and mental agony. The appellant, who was the Opposite Party in the Complaint filed its counter version. It admitted the presentation of the draft by the complainant, but contended that though the draft bore the signatures of two officials of the issuing branch, the specimen signature number of one of these officials was missing. According to the appellant, "As per instructions laid down by the State Bank of India in view of the Reserve Bank of India directives and to prevent incidence of frauds and malpractices the demand draft for mote than Rs.50,000/- requires signatures of two officials of the issuing branch with their specimen signature numbers. In the absence of these the paying bank can refuse to honour such instruments." Following the above instructions the demand draft presented by the complainant was dishonored. The dishonor was not done with any mala fide intentions to harm the complaint. It was done in good faith and in accordance with the rules and regulations laid down as per Reserve Bank of India.

THE complainant adduced oral as well as documentary evidence before the State Commission. THE Opposite Party had sent its version to the State Commission by post. It did not appear in person or through Counsel before the Commission. THE State Commission framed the following is-sues: (1) Whether the dishonour of the demand draft by the opposite party was wrongful? (2) Whether the service rendered by the opposite party was defective? (3) Whether the complainant had suffered any loss due to the defective service of the opposite party and is he entitled to any compensation?

Under issue No. 1, it was held that the dishonour of the draft by the State Bank of India, Surat branch was wrongful. Under issue No. 2, it was held that the "service" rendered by the Opposite Party, i.e., the State Bank of India, Surat Branch was defective one in terms of the Consumer Protection Act, 1986. The Complainant was awarded a sum of Rs. 19,500/- as compensation and costs. The breakup of this amount is as follows: (a) Rs. 2,500/- as damages for pain and mental agony; (b) Rs. 5,000/- as compensation for damages to the credibility and goodwill of the claimant. (c) Rs. 10,000/- as loss of profit considering the fact, that it only work out to 10% of the amount for which the complainant would have purchased textiles from Surat and that was only a normal rate of profit in textile business. (d) Rs. 1,500/- were awarded to the complainant as he must have incurred expenses for the fruitless journey and on his stay at Surat. (e) Rs. 500/- were awarded towards the cost of the proceedings.

Feeling aggrieved by the above award, the State Bank of India, Surat Branch has come before this Commission in appeal.

IT may be mentioned that in the Memorandum of Appeal, the appellant, State Bank of India, Surat Branch had taken an objection to the effect that the State Bank of Travancore, Venganoor Branch was a necessary party to the proceedings. The Counsel for the respondent prayed for permission to implead the State Bank of Travancore as a supplementary party to this appeal. Vide Order dated 25th October, 1991, this Commission granted that prayer and issued notice to the State Bank of Travancore, Venganoor Branch. The State Bank of Travancore, Venganoor Branch filed its version averring that Section 63 of the State Bank of India (Subsidiary Banks) Act,1959, empowered State Bank of India to make regulations, inter alia, providing for delegations of powers and functions to Officers and other employees of the Subsidiary Banks including State Bank of Travancore and in pursuance of that provision, State Bank of India has framed Subsidiary Banks General Regulation, 1959. As per Regulation 55 of the Subsidiary Banks General Regulation, the Board of the Subsidiary Bank has power to issue a notification in the Gazette of India specifying therein the powers of officers of the Bank. In accordance with Regulation 55, the Board of the State Bank of Travancore has published a notification in the Gazette of India dated July 12,1986, in terms of which the Branch Manager has powers to issue demand draft for an unlimited amount. That power of the Branch Manager has not been amended so far. The directions of Reserve Bank of India advising all banks to issue demand drafts for amounts exceeding Rs. 50,000/- under two signatures of the Branch officers for minimising the incidence of frauds and malpractices involving Bank''s officials has never been understood as mandatory, warranting dishonour of instruments in case it was not issued under two signatures. Moreover, subsequently the Reserve Bank of Indiavide its letter No. BP. BC.28/c.496(1)-86, dated 7thMarch, 1986 allowed deviation from the two signatures discipline on DD''s in exceptional circumstances. The Demand Draft dated May 12,1990 for Rs. 98,000/- was purchased by the com-plainant respondent - Mr. Raveendran Nair, pay-able at State Bank of India, Surat Branch. The Demand Draft was signed by the Branch Manager and Accountant of the Branch. The number of the specimen signature of the Accountant was not mentioned in the Draft as it was not circulated by that time. The Accountant had earlier signed three Demand Drafts drawn on the State Bank of India, Surat Branch (numbers and dates of which are given in Para 4 of the version) along with the Branch Manager and those had been accepted by the State Bank of India, Surat Branch. The State Bank of Travancore, has issued a circular No. 12of 1989 following the draft circulars issued by the Central Office of the State Bank of India. In the Administrative Circular it was made clear that incase Draft for amount exceeding Rs. 50,000/- is issued with one signature by an issuing branch, the drawer branch should not refuse payment of such instrument if it is otherwise in order. The drawee branch was also advised to contact the issuing branch by telegram/telephone and obtain confirmation from the issuing branch regarding the payment of the instruments. Thus, the procedure regarding two signature on Demand Drafts for an amount exceeding Rs. 50,000/- is only directory and branches are not justified in dishonoring such Demand Drafts without contacting the issuing branch and getting a confirmation. In fact the Venganoor Branch had confirmed issuance of the Demand Draft by telegram dated 22nd May, 1990in response to a telegraphic enquiry from State Bank of India, Surat Branch (this enquiry was with respect to the draft in dispute). The State Bank of Travancore, Venganoor Branch reiterated that it was justified in issuing the Demand Draft for Rs.98,000/- drawn, on State Bank of India, Surat bearing signatures of the Manager and the Accountant of the Branch for the reasons that: (i) The Manager had power to issue Demand Drafts for an unlimited amount and his power was not curtailed in any way by circular issued by the Bank to its office to issue Demand Draft signed by two authorized officers; (ii) The two signatures discipline introduced by RBI was only directory and the branch offices were never advised to dishonour D.Ds bearing single signature of an authorized officer. RBI itself allowed deviation from two signatures in special circumstances; (iii) The Surat Branch of State Bank of India already accepted D.Ds signed by the Accountant and they had the signature of the Accountant of the Venganoor Branch and, therefore, the Venganoor Branch did not expect dishonoring of the D.D. for Rs.98,000/- by the Surat Branch on the ground that the specimen signature number of the Accountant was not available on the Demand Draft.

THE State Bank of India, Surat Branch, filed a rejoinder to the version of State Bank of Travancore. THE power of the Branch Manager to sign Demand Drafts for unlimited amount was not disputed. Dispute was raised only with regard to signing of the Demand Drafts in accordance with the prevailing practice adopted by the Banks in view of RBI guidelines. It was also pleaded that the demand draft in question with signature of an official, whose specimen signature had not been circulated at that time, had given reason to the State Bank of India, Surat Branch for some suspicion while dealing with the draft in question. It was admitted by the Appellant, i.e. the State Bank of India, Surat Branch that a telegram was sent on 21st May, 1990 to the State Bank of Travancore, Venganoor Branch i.e. on the same day on which the draft was presented for payment, to obtain confirmation of issuing of the draft by them (i.e. State Bank of Travancore, Venganoor) in view of the instructions of the appellant-Bank, but unfortunately the payee (i.e. Mr. Raveendran Nair) did not come to the appellant-Bank nor enquired after21st May, 1990. It was admitted that the Venganoor Branch had confirmed the drawing of the draft by telegram dated 22nd May, 1990. It was pleaded that the payee suffered not on account of the negligence of the appellant- Bank, but on account of then egligence of the State Bank of Travancore, Venganoor Branch. After hearing the arguments advanced on behalf of the parties, the Registrar of this Commission was asked to address a communication to the Reserve Bank of India about explaining the correct position which obtained under relevant circulars. The Reserve Bank of India wrote that on account of appreciable increase in the number offrauds malpractices and unauthorised operations involving bank''s funds and personnel, all scheduled commercial banks were advised vide Circular DBOD. No. BP. BC. 111/C. 469(W)-85,dated 2nd September, 1985 that while issuing cheques, drafts, MTs etc. two officials should jointly sign for value of Rs. 10,000/- and above. However, as some banks expressed difficulties in adopting the two signature system, the earlier instructions were reviewed and all scheduled banks were advised, vide circular DBOD. No. BP. BC. 28/C.469(W)-86 dated 7th March, 1986 that the system of double signatures had been conceived with a view to minimizing the incidence of frauds and malpractices involving bank''s officials and it was reiterated that adherence to this system is in the interest of banks themselves. Banks were also advised to evolve suitable systems and procedures, keeping in view the above instructions and allow deviation from the two signature discipline only in exceptional circumstances. The RBI also wrote in their letter as regards mentioning of specimen signature number on the D.D., that it was an internal procedure evolved by the banks as a safety measure and RBI has not issued any instructions in this regard. The Reserve Bank of India also enclosed with the letter both the circulars referred to above.

IN the present case, the demand draft issued by the State Bank of Travancore, Venganoor Branch bore the signatures of the Branch Manager and the Accountant. The specimen signature number of the Branch Manager had also been given on that demand draft. Such number of the Accountant had not been given as it had not been circulated at that time. Thus the question that arises is whether the State Bank of INdia, Surat Branch was justified in dishonoring the demand draft presented by the complainant Shri Raveendran Nair. We are of the opinion that the appellant, State Bank of INdia, Surat Branch Was negligent in rendering "service" while dishonoring that draft, for the reason given below : The State Bank of INdia, Surat had earlier honoured the Demand Drafts issued by the State Bank of Travancore, Venganoor Branch which did not bear the specimen signature number of the Accountant on three occasions prior to the presentation of the disputed draft. The bank cannot be permitted to be whimsical while honouring one draft and dishonouring another draft of the same nature. The Counsel for the appellant argued that the present draft was for a very large amount and therefore, the appellant-bank become suspicious. Earlier drafts must also be above Rs. 50,000/- as those were signed by two persons i.e., the Manager and the Accountant. Therefore, this argument of the Counsel for the appellant had no force. It is true that the Reserve Bank of INdia had issued certain guidelines, but it has also permitted the issuance of Demand Draft etc. under one signature in exceptional cir-substances. The guidelines of Reserve Bank of INdia do not lay down anything about the validity of the Demand Draft. IN our opinion, the Demand Draft would not become invalid if those guidelines about two signatures discipline were not strictly followed. It was for the drawer bank to satisfy itself about the validity of the draft. After the issue of those guidelines the various Banks had issued separate regulations, notifications and instructions, as noticed earlier. Moreover, the guidelines did not lay down anything about mentioning specimen signature number of the person/persons signing the Demand Drafts of the value in question. IN the present case, the State Bank of INdia, Surat Branch did send at elegram on May 21,1990 about the confirmation of the draft and the confirmation was received on May 22, 1990. The allegation of the State Bank of INdia, Surat that the payee did not come after May 21, 1990 and there-fore, payment could not be made to him does not appeal to us because there is nothing on the file to show that the State Bank of INdia, Surat Branch had asked the payee to come on the next date of the presentation of the draft. On the other hand, the appellant-Bank had issued Objection Memo to payee on May 21,1990 remarking "Specimen signature number of second Official''s signature required." After that Objection Memo had been issued to the Payee, he was not expected to come back to the appellant-Bank on a subsequent date to enquiry from the appellant- Bank on a sub-sequent date to enquiry from the appellant-Bank if any confirmation had been received from the Venganoor Branch of State Bank of Travancore.

THE Counsel for the appellant Mr. S.K. Dholakia, argued that "deficiency" has been defined in Section 2(1)(g) as follows : "deficiency" means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been under-taken to be performed by a person in pursuance of a contract or otherwise in relation to any service." According to him, there was no law under which the appellant-Bank was required to obtain the confirmation about the Demand Draft. However, as noticed earlier, the banks had evolved some internal procedure to enquire about the validity of the draft if it was in violation to the guidelines issued by the Reserve Bank of India. In pursuance of that internal procedure, the appellant-Bank had sent the telegram to the Venganoor Branch enquiring about the validity of the draft. THErefore, even if no duty had been imposed by any law upon the appellant, it must be held that the Bank had undertaken to perform such a duty for providing the service of honoring a valid draft exceeding Rs. 50,000/- in value. The State Bank of Travancore cannot beheld negligent by reason of its not mentioning the specimen signature number of the Accountant as it had not been circulated by that time. The State Bank of Travancore is a Subsidiary and Associate Bank of the State Bank of India. As the earlier drafts issued by Venganoor branch of the State Bank of Travancore had been accepted by the State Bank of India, Surat Branch, the former Bank could not expect that the draft in question would not be honoured.

For the foregoing reasons, we do not find any force in the present appeal and dismiss the same. The appellant is Ordered to pay Rs. 500/- as costs to the respondent No. 1, Shri Raveendran Nair. Two month''s time from the receipt of this Order is given to the appellant Bank to comply with, the Order of the State Commission. Appeal dismissed with costs.