Introduction:

The Karnataka High Court, in a case concerning Doddaballapur Spinning Mills and ICICI Bank, has emphasized the responsibility of the Reserve Bank of India (RBI) to establish clear guidelines regarding unclaimed demand drafts. The court dealt with issues of internal bank policies, customer rights, and the role of the Banking Ombudsman. The petitioner sought redress for ICICI Bank’s refusal to cancel a high-value demand draft and refund the amount, despite its expiration and lack of objection from the payee. The case highlights crucial questions about the accountability of banks and regulatory oversight in financial transactions.

Arguments Presented:

Petitioner’s Contentions:

Advocate K.V. Satish, representing Doddaballapur Spinning Mills, argued that the bank’s refusal to cancel the demand draft purchased in 2010 was unjustified. The demand draft, valued at ₹50 lakhs, was issued in favour of P. Bache Gowda as part of a transaction that was later terminated. In 2018, the petitioner approached the bank with the original draft, requesting cancellation and credit of the amount to their current account. Despite this, the bank declined to act, citing its internal policy requiring the payee’s consent or a No Objection Certificate (NOC).

The petitioner alleged that this refusal, spanning over a decade, was a mala fide act, causing financial loss and unnecessary litigation. When the Banking Ombudsman dismissed the complaint because the underlying dispute was pending in court, the petitioner was left with no choice but to approach the judiciary for relief.

Bank’s Defense:

Advocate Sreedevi K.B., representing ICICI Bank, argued that the refusal to cancel the demand draft stemmed from an internal policy aimed at preventing fraud. The policy required an NOC from the payee to ensure that both parties consented to the cancellation. The bank maintained that this procedure was in the best interest of all stakeholders and consistent with industry practices.

• Banking Ombudsman’s Position:

Advocate Kaveesh Sharma, representing the Banking Ombudsman, contended that the decision to dismiss the petitioner’s complaint was based on the fact that a related legal dispute was pending. The Ombudsman argued that its role was limited in cases where complex contractual or transactional issues were already before the courts.

Findings of the Court:

• Internal Bank Policies vs. Customer Rights:

Justice Suraj Govindaraj categorically rejected the bank’s reliance on its internal policy, stating that such policies cannot override statutory or common law rights of customers. The court observed that the bank failed to cite any legal provisions justifying its refusal to refund the amount when the original demand draft and a cancellation request were presented.

• Expired Demand Drafts and Payee’s Consent:

The court highlighted that the demand draft had expired long ago, rendering it legally unenforceable even if the payee had attempted to present it. Therefore, requiring the payee’s consent was illogical and unreasonable. It emphasized that the bank’s policy created unnecessary hurdles for customers seeking rightful refunds.

• RBI Guidelines on Unclaimed Demand Drafts:

The court directed the RBI to issue comprehensive guidelines to address scenarios where demand drafts are not presented for clearance within their validity period. These guidelines should clarify whether unclaimed amounts can be automatically credited back to the drawer’s account, thereby eliminating ambiguities and protecting customer interests.

• Banking Ombudsman’s Lapses:

The court expressed strong disapproval of the Banking Ombudsman’s handling of the complaint. It noted that the Ombudsman’s role is to safeguard customers’ interests and ensure fair practices by banks. By dismissing the complaint without properly examining the facts and legal obligations, the Ombudsman had failed to fulfil its duties.

Court’s Judgement:

The High Court ruled in favour of the petitioner and delivered a scathing critique of the bank’s conduct and the Banking Ombudsman’s ineffectiveness. The court directed ICICI Bank to refund the amount of ₹50 lakhs to the petitioner along with 18% interest from 2018. Additionally, it imposed a punitive cost of ₹5 lakhs on the bank, to be paid within 15 days.

The court further instructed the RBI to review ICICI Bank’s internal policy on demand draft cancellations and take appropriate action if the policy was deemed unjustified. It also mandated the Banking Ombudsman to act with greater diligence and impartiality in the future.