Supreme Court Rules on Public Sector Bank FDR Liability

In a recent case, the Supreme Court of India addressed the issue of liability of public sector banks in relation to the issuance of Fixed Deposit Receipts (FDRs). The Bench consisted of Hon’ble Justice Rohinton Fali Nariman and Hon’ble Justice Navin Sinha.

The facts of the case involved a businessman who had deposited a huge sum of money in a public sector bank, securing an FDR in return. However, the bank failed to repay the amount on maturity and was subsequently declared a defaulter. The businessman then approached the Consumer Fora, seeking compensation for the monetary loss suffered due to the failure of the bank to repay the amount. However, the Consumer Fora rejected the complaint on the ground that the bank was a government sector bank and therefore not a ‘consumer’ as per the provision of the Consumer Protection Act, 1986.

The businessman then approached the National Consumer Disputes Redressal Commission (NCDRC), but the Commission also dismissed the complaint on the same ground. The NCDRC held that the bank was providing a service to the businessman for a consideration, i.e. the interest on the FDR, and therefore it could not be considered as a consumer under the Act.

Aggrieved by this, the businessman approached the Supreme Court.

After examining the relevant laws and judicial precedents, the Supreme Court dismissed the appeal and held that public sector banks are not ‘consumers’ as per the Consumer Protection Act, 1986.

The Court stated that the purpose of the Act is to protect the rights and interests of consumers, and the intention of the legislature was to keep the Act limited to the private sector. The Court recognized that commercial transaction between banks and their customers do not fall within the scope of the Act, as it was not intended to govern contractual relationships between a customer and a bank.

Referring to previous decisions of the Court, the Bench stated that the legislature has intentionally excluded public sector banks from the definition of a ‘person’ as defined in Section 2(1)(d) of the Act.

The Court also took note of the fact that public sector banks already have a grievance redressal mechanism in place and are strictly regulated under the various banking laws. It observed that the inclusion of public sector banks within the ambit of the Act would lead to unnecessary interference with their functioning.

The Court also noted that a strict liability standard cannot be imposed on public sector banks, as it would have a detrimental effect on their financial stability and potentially cause a systemic risk.

In conclusion, the Supreme Court held that public sector banks cannot be considered as consumers under the Consumer Protection Act, 1986, and therefore cannot be held liable for the issuance of FDRs. However, this decision does not provide immunity to banks in cases of deficiency in providing services to their customers.

This decision is significant as it lays down a clear law on the liability of public sector banks in relation to FDRs. It also highlights the distinction between private and public sector entities and their application under the Consumer Protection Act, 1986.

Furthermore, this decision reaffirms the regulatory system in place for the banking sector and provides clarity on the role of consumer fora in dealing with disputes involving public sector banks. It also emphasizes the need for customers to exercise caution while dealing with banks and conduct due diligence before entering into any financial transactions.

In light of this judgment, it is advisable for customers to be aware of the legal position before approaching the Consumer Fora with grievances related to public sector banks. Moreover, it serves as a reminder for public sector banks to maintain transparency and adhere to regulatory guidelines while dealing with their customers.