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2006 DIGILAW 856 (PAT)

United Commercial Bank v. Banking

2006-09-18

NAVANITI PRASAD SINGH

body2006
Judgment Navaniti Prasad Singh, J. 1. With consent of parties, the two writ applications have been heard together in details for final disposal at the stage of admission itself. 2. The first writ application that is CWJC No. 15675 of 2004 has been filed by United Commercial Bank ("UCO Bank" for short) challenging the validity of the order dated 31.03.2003 passed by the Banking Ombudsman under the Banking Ombudsman Scheme 1995 (hereinafter referred to as "the Scheme") in relation to a dispute as between UCO Bank and the Bihar State Food and Civil Supplies Corporation (hereinafter referred to as "the Corporation"). The second writ application that is CWJC No. 11680 of 2004 has been filed by the Corporation for implementation of the award/order dated 31.03.2003 passed by the Banking Ombudsman which is impugned in the first writ. 3. Heard Shri S.D. Sanjay, learned Counsel for the UCO Bank, Shri R.S. Pradhan, Senior Advocate for the Corporation and Shri Tarakant Jha, learned Senior Advocate on behalf of the Reserve Bank of India. 4. The question for consideration before this Court is whether the Banking Ombudsman under the Scheme had the jurisdiction to entertain the complaint of the Corporation and whether the said complaint is not entertainable in view of the provisions of Clause 16(3)(a) of the Scheme having been laid more than a year after Bank had rejected the representation of the Corporation as well as in terms of Clause 16(3)(d) of the Scheme which bars a complaint on same subject matter for which any proceeding before any Court, Tribunal or Arbitrater is pending or a decree has already been passed by any such Court, Tribunal or Arbitrater. The question of enforceability of award would be consequential upon whether the award itself is legal and valid. 5. As noticed by the Apex Court in the case of United Commercial Bark V/s. Bank of India and Ors. -, the facts of the case are somewhat complicated. In the said decision as between the same parties, the facts have been detailed and, therefore, I will not refer to them in much detail except to point out the controversy which led to the impugned order of the Banking Ombudsman. -, the facts of the case are somewhat complicated. In the said decision as between the same parties, the facts have been detailed and, therefore, I will not refer to them in much detail except to point out the controversy which led to the impugned order of the Banking Ombudsman. M/s Godrej Soap Limited (not a party in these proceedings before this Court) had in 1978 agreed to supply the Corporation one thousand metric tonnes of "Sizola" brand pure mustard oil for a total value of approximately rupees eighty six lacs. The contract provided, inter alia, that the Corporation will open a letter of credit with the Bank for the said amount. Bank of India, Bombay was the bankers for M/s Godrej Soap Limited and UCO Bank was the bankers of the Corporation. Under the terms of letter of credit, on dispatches of mustard oil in specified lots, the documents had to be submitted by M/s Godrej Soap Limited through their bankers Bank of India to UCO Bank. UCO Bank was then bound under the letter of credit to pay the amount to the Bank of India for deliveries effected by Godrej Soap Limited. It would, thus, be seen that by virtue of letter of credit, there was a contractual obligation as between the two banks and as between the buyer and seller that is the Corporation and the Godrej Soap Limited, there was a contract for buying and selling mustard oil. It appears that M/s Godrej Soap Limited despatched, from time to time, certain quantities of mustard oil and presented the documents to their bankers for release of payment from UCO Bank on basis of letter of credit. UCO Bank in turn, agreed to honour the documents "under reserve". This expression "under reserve" in normal banking terms specifies "it was paid under reserve on account of discrepancies". It, in simple language means, that it is being paid under protest and if discrepancieS in documents is material, the payment is likely to be recalled which would be honoured. It would, thus, be seen that Godrej Soap Limited got virtually full payment of about rupees eighty six lacs. It appears that UCO Bank then approached the Corporation who rejected the consignments and instructed UCO Bank not to honour the letter of credit. UCO Bank, thereafter required the Bank of India to return the amount paid with interest. It would, thus, be seen that Godrej Soap Limited got virtually full payment of about rupees eighty six lacs. It appears that UCO Bank then approached the Corporation who rejected the consignments and instructed UCO Bank not to honour the letter of credit. UCO Bank, thereafter required the Bank of India to return the amount paid with interest. Godrej Soap Limited, apprehending that such a demand would be made, instructed Bank of India not to refund the amount but again apprehending that Bank of India would be bound to refund as it had received the money "under reserve", it filed a suit in the original jurisdiction of the Bombay High Court and prayed for an injunction against UCO Bank. In the said suit, Bank of India, UCO Bank and the Corporation were made a party. An ex parte ad interim injunction was obtained which was later confirmed and, thereafter, UCO Banks Letters Patent Appeal in the Bombay High Court summarily dismissed. In the meantime, in the said suit, receiver was appointed who took the return deliveries of mustard oil and sold the same and the sale proceeds amounting to about rupees eighteen lacs was apparently given to Godrej Soap Limited. At this time, the Corporation filed Money Suit No. 236 of 1979 before Subordinate Judge I, Patna for money decree against UCO Bank which had tried to appropriate money from the account of the Corporation with UCO Bank on the plea that the contract relating to letter of credit was a distinct and independent contract from that of the contract for sale and purchase of mustard oil and the Corporation having repudiated the purchase, UCO Bank ought not to have honoured the letter of credit or paid any amount under the letter of credit and consequently recovered it from the Corporation. This money suit was ultimately transferred to the original side of the Bombay High Court by orders of the Apex Court to be tried alongwith the suit instituted there by Godrej Soap Limited. 6. From the aforesaid facts, it would be seen that UCO Bank had honoured the letter of credit and paid substantial amount on behalf of the Corporation and by virtue of the injunction from Bombay High Court could not get the same back. 6. From the aforesaid facts, it would be seen that UCO Bank had honoured the letter of credit and paid substantial amount on behalf of the Corporation and by virtue of the injunction from Bombay High Court could not get the same back. UCO Bank, accordingly, preferred an appeal to the Apex Court against the order of injunction restraining it from recalling the money paid "under reserve" from Bank of India. The Apex Court, by the judgment referred to above, vacated the order of injunction thereby UCO Bank became entitled to and received back the money paid by it "under reserve" but after being out of pocket for a considerable time. 7. In the said suit before the Bombay High Court ultimately a decree was passed in favour of Godrej Soap Limited as against UCO Bank and the Corporation for an amount of rupees eighty six lacs + interest from 1981 when money was refunded to UCO Bank. The appeal of UCO Bank and apparently the Corporation is pending. It would, thus, be seen that there is a decree of competent Court as against the UCO Bank in respect of liability of the Corporation towards Godrej Soap Limited, it is for meeting this eventual liability that UCC Bank exercised bankers lien as contemplated u/s. 171 of the Contract Act over money lying to the credit of the Corporation in the savings account maintained in UCO Bank at Patna and also over certain fixed deposits of the Corporation with the UCO Bank. 8. It appears that the Corporation being unable to operate its saving account which has substantial money because of the lien exercised by the Bank requested the Bank to withdraw the lien. It protested that no lien could be extended over the money of the Corporation with the Bank without the consent of the Corporation and, as such, should withdraw its lien. As far back as in 1993 itself, the Bank refused to withdraw the lien and permit the Corporation to release the said funds. It protested that no lien could be extended over the money of the Corporation with the Bank without the consent of the Corporation and, as such, should withdraw its lien. As far back as in 1993 itself, the Bank refused to withdraw the lien and permit the Corporation to release the said funds. Then in 1995, the Corporation filed Money Suit No. 17 of 1995 in the Court of Subordinate Judge I, Patna against UCO Bank for declaring the bankers lien over their savings account to be ultra vires, null and void and for a decree of about rupees eighty six lacs and for money decree in respect of amount lying in the said sayings bank of about rupees seventy eight lacs + interest of different substantial amounts. The said Money Suit was subsequently dismissed for default. The Corporation much later filed a miscellaneous case for restoring the said money Suit alongwith application for condonation of delay. 9. From the aforesaid facts, it would be seen that UCO Bank had suffered a decree from the Bombay High Court which alongwith the interest would come to over Rs. 2.62 crores and had, thus, exercised bankers lien over the money lying with it of the Corporation as the liability was incurred because of and on behalf of the Corporation. The Corporation, in turn, was resisting the exercise of bankers lien in Patna Civil Court. From this, it would be seen that the entire matter with regard to liability of UCO Bank and its consequential lien were subject matters of disputes between different Courts and the request of corporation to remove the lien was rejected by the UCO Bank as far back as in the year, 1993. It is at this juncture that the Corporation decided to move the Banking Ombudsman under the Scheme by an application/complaint dated 11.02.2001 which was registered as Complaint Case No. 290 of 2001. On notice by the Ombudsman, UCO Bank appeared and protested vide their application dated 09.03.2002 clearly stating that the application of the Corporation ought to be dismissed inasmuch as all matters were before the Court and in such matters, the jurisdictions of the Ombudsman is excluded. It was also sought to be argued that in terms of the limitation provided, the matter could not be entertained at this late stage. However, the Ombudsman tried to get the matter settled but efforts for reconciliation failed. It was also sought to be argued that in terms of the limitation provided, the matter could not be entertained at this late stage. However, the Ombudsman tried to get the matter settled but efforts for reconciliation failed. He passed the impugned order dated 31st of March, 2003 (Annexure-3 to the first writ application). A perusal of the impugned order would show that the Banking Ombudsman took a sort of affront to the UCC Banks unwillingness to reconcile and settle the dispute before him. While doing so, he noticed that the UCO Bank had been reminding the Ombudsman of pending civil litigations in respect of same subject matter but ignored all those objections of the UCO Bank and has directed the UCO Bank to release the entire amount standing in the credit of the Corporations saving account alongwith interest and further directed the Bank to allow operations of the saving account after taking indemnity only. The effect of this order was that the bankers lien as being legally enforced by the UCO Bank was ordered to be lifted and the Corporation compensated for the statutory exercise of bankers lien by way of interest for the period 1978 onwards. 10. The award having been made, for reasons best known to the Ombudsman, he did not forward the same to the Reserve Bank of India when the Corporation complained of its non-compliance. Rather the UCO Bank itself petitioned Reserve Bank of India for review and ultimately Reserve Bank of India, instead of directing implementation of award, gave liberty to UCO Bank to challenge the award in a Court of law, thus; virtually refusing to implement the award. It is this award and the consequential non-implementation which has brought the two parties to this Court by the two writ applications as aforesaid. 11. In order to appreciate the contentions, relevant provisions of the Scheme, as it then stood, may be quoted: 2. Object of the Scheme.- The object of the Scheme is to enable resolution of complaints relating to provisions of banking services and to facilitate the satisfaction, or settlement of such complaints. 12. General.- The Banking Ombudsmans powers and duties will be,- (a) to receive complaints relating to the provision of banking services; (b) to consider such complaints and facilitate their satisfaction, or settlement by agreement, by making a recommendation, or Award in accordance with this Scheme. 12. General.- The Banking Ombudsmans powers and duties will be,- (a) to receive complaints relating to the provision of banking services; (b) to consider such complaints and facilitate their satisfaction, or settlement by agreement, by making a recommendation, or Award in accordance with this Scheme. Clause 13 of the Scheme deals with the jurisdiction of Ombudsman and, inter alia, confers him jurisdiction to decide all complaints concerning deficiency in banking services as between Bank and any person who has grievance against the Bank. 16. Complaint.-( 1) ... (3) No complaint to the Banking Ombudsman shall lie unless: (a) ... (b) The complaint is made not later than one year after the bank had rejected the representation or sent its final reply on the representation of the complainant. (c) ... (d) The complaint is not the same subject-matter for which any proceedings before any Court, Tribunal or Arbitrator or any other forum is pending or a decree or Award or order of dismissal has already been passed by any such Court, Tribunal, Arbitrator or forum. Clause 19 of the Scheme then deals with recommendation for settlement and Clause 20 of the Scheme provides for Award by the Banking Ombudsman in case no settlement can be arrived. 20. Award by 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). 12. From the provisions of the Scheme aforesaid, it would be seen that ordinarily, the dispute of the nature, referred to above, would certainly lie to the Banking Ombudsman but in the facts of the present case, in my opinion, the Banking Ombudsman had no jurisdiction in the matter. This is so because firstly it is to be seen that it was way back in 1993 that the Bank had refused to remove the lien over the account of the Corporation. This is so because firstly it is to be seen that it was way back in 1993 that the Bank had refused to remove the lien over the account of the Corporation. Further, the Corporation, being aggrieved by the actions or inactions of the UCO Bank, had filed a suit in the year, 1995 before the Subordinate Judge I, Patna making a grievance against the wrongful exercise of bankers lien but chose to move the Ombudsman only in 2001 that is after a most eight years of first apparent refusal of the Bank or six years after instituting the suit and, as such, in terms of Clause 16(3)(b) of the Scheme, the complaint was clearly barred Secondly and more importantly, it would be seen that there were series of litigations pending inter party both at Bombay - and at Patna in respect of the "same subject matter". I am fortified by decisions of this Court on the issue that when matter is pending before a Court, the Ombudsman will have no jurisdiction. The decisions are since been reported in the case of Durga Hotel Complex V/s. Reserve Bank of India 2004(2) PLJR 441 and the decision in appeal therefrom since reported in 2005(1) PLJR 51 . I may also point out that the legislature have used the expression "same subject matter" in Clause 16(3)(d) of the Scheme as against same issues. "Same subject matter" would be a term of wider import than same issues and in the present case, the matter before the Bombay High Court and the Patna Civil Court would cover the dispute as before the Ombudsman being in respect of the "same subject matter". UCO Bank had suffered a decree and had statutory right to protect itself by exercising bankers lien in terms of sec. 171 of the Contract Act. It is well settled that for exercising bankers lien u/s. 171 of the Contract Act, no permission or consent is required from the account holder. It is the sole prerogative of the Bank and it is a statutory right which the Bank was legitimately exercising. It could not be termed even otherwise as any deficiency in service. 13. I, therefore, find that on both counts, the order/award of the Ombudsman was not in accordance with law. He had no jurisdiction to entertain the complaint. It is the sole prerogative of the Bank and it is a statutory right which the Bank was legitimately exercising. It could not be termed even otherwise as any deficiency in service. 13. I, therefore, find that on both counts, the order/award of the Ombudsman was not in accordance with law. He had no jurisdiction to entertain the complaint. He has no-jurisdiction to after statutory rights and/or contractual rights as he has done in the present case having a misplaced sympathy towards the Corporation. It must be remembered that UCO Bank is a Bank in public sector and the Corporation is also a State instrumentality and interest of both the parties have to be seen. UCO Bank was exercising its legitimate statutory right to safeguard its money. I, therefore, have no hesitation in quashing the award of the Ombudsman. 14. I may also note that the action of the Reserve Bank of India in not taking any action against UCO Bank is also a pointer to the fact that Reserve Bank of India which exercises statutory power under the Banking Regulation Act, 1949 did not take any steps to implement the award rather gave leave/liberty to UCO Bank to challenge it in a Court of law. It would be seen from the provisions of Clause 20(7) of the Scheme that the non-compliance by any Bank of an award made by the Banking Ombudsman is to be reported to Reserve Bank of India. The purpose of this is that Reserve Bank of India has power of superintendence over Banks under the provisions of the Banking Regulation Act, 1949 and if it finds that the award we appropriate then it can issue statutory directions for its implementation. In the present case, it chose not to do so. This clearly shows that even Reserve Bank of India was clearly of the opinion that the award should not be enforced. 15. While ending, I may also mention that for reasons best known, the Banking Ombudsman did not report non-compliance to Reserve Bank of India of its award. Both the parties that is UCO Bank and the Corporation, had brought it to the notice of the Reserve Bank of India. 15. While ending, I may also mention that for reasons best known, the Banking Ombudsman did not report non-compliance to Reserve Bank of India of its award. Both the parties that is UCO Bank and the Corporation, had brought it to the notice of the Reserve Bank of India. UCO Bank sought a review because under Clause 20(7) of the Scheme, as I have indicated, Reserve Bank of India was obliged to take action if it found award worth implementing and at this stage, the aggrieved party could pursuade it to review the award and pursuade it not to ask for its implementation . It is under this provision that UCO Bank had moved Reserve Bank of India. 16. In the result, CWJD No. 15675 of 2004 filed by UCO Bank is allowed and the award is set aside. Consequently, I find no merit in CWJC No 11680 of 2004 filed by the Corporation for implementation of award and it is dismissed.