PADRIWALE Contact us

Court Decisions

Boost for consumer rights
30 July 2008


Two recent judgments have strengthened the rights of consumers in different fields. The first was pronounced by the National Consumer Commission in Reserve Bank of India vs Eshwarappa, rapping the knuckles of the Central Bank for adding to the misery of small depositors. The second decision, from the Supreme Court, dealt with the right of a land owner who enters into an agreement with a builder to raise an apartment building. The RBI case showed how the lethargy of the central bank can ruin middle-class depositors who had invested their life earnings in fixed deposits. The RBI, under Section 35A of the Banking Regulation Act, has the power to issue prohibitory orders against a commercial bank and even stop payment to depositors if the concerned bank is not functioning properly. In this case, the RBI issued such an order against the Maratha Cooperative Bank in Hubli. That was in 2004. Since then, depositors had been knocking at the doors of the district consumer forum, the Karnataka state consumer commission and the National Consumer Commission. The RBI and the co-op bank consistently argued that consumer forums have no jurisdiction to hear the case. Each time, their arguments were rejected. The National Commission’s judgment should put an end to the misery of common investors, unless banks appeal to the Supreme Court and delay payments further. The judgment underlined the fact that much of the distress is caused by the RBI passing an order under Section 35A and sitting over it. Neither does it wind up or liquidate the concerned bank nor does it enable customers to get back their money. Instead, in this case, the RBI had been litigating against depositors for four years, probably ruining several homes. The commission described this as a “gloomy state of affairs”. One mirage of a remedy provided by the law is the invocation of the Deposit Insurance and Credit Guarantee Corporation Act. The act purportedly guarantees a payment of up to Rs 1,00,000 to small depositors. But, the judgment graphically pointed out how this right has been made illusory by tying the knots of procedures. “The Act remains on paper,” the judgment explained, “ because it is framed in such a way that such insurance cover would come into operation when there is a winding up order or liquidation order as provided under Section 16. The whole purpose of extending insurance cover to the small depositors is thereby frustrated, because in the hope of reviving the bank or for other reasons, the RBI does not permit the bank either to operate or does not pass the order for liquidation… This case illustrates how lethargy on the part of the officers, may be that of RBI, can harass small depositors in repayment of the fixed deposit amounts. For years together, the order which is passed under Section 35A continues and the small depositors have to wait for their hard-earned money because RBI and the credit insurance corporation are taking undue advantage of the words which are used in Section 16, namely, winding up or liquidation. On one ground or the other, bureaucracy can delay proceedings at every stage.” The commission asked the liquidator of the bank to pay depositors their money and recover it from the credit guarantee corporation. It also suggested several amendments to both the Banking Regulation Act and the Credit Guarantee Act to make the rules reasonable. It recalled the Supreme Court judgment of 1994 in a case concerning the Lucknow Development Authority, which stated that “An ordinary citizen is hardly equipped to match the might of the State or its instrumentalities…The importance of the Consumer Protection Act lies in promoting the welfare of the society which enable the consumer to participate directly in the market economy”. The Supreme Court then directed the consumer forum in Delhi to reconsider its decision in the light of the broader definition of ‘consumer’

Source : a
  

In the News

view more

Knowledge Based

view more

Court Decisions

view more

Useful Links

view more

Calculators

view more