Here is an interesting case of an attempt by a public sector bank to misuse the provisions of the Debt Recovery Tribunal to harass a customer.

In this case, a Customer of the Bank received an export order from Uganda. He insisted that the order would be taken up only against advance payment. The importer gave a cheque towards 100% advance payment for the goods ordered. The customer gave it for collection with the Bank. The Bank sent the cheque for collection and after about 3 weeks credited the proceeds to the current account of the customer.

Having beeen given to understand that the cheque has been realized, the customer executed the order using the money to pay his subcontractors.

After around 4 months the bank however decided to reverse its earlier credit stating that their correspondent Bank has now advised them that the cheque could not be realized.

Now the amount is in dispute and the Bank is claiming this as a “Debt” along with “Interest” . It has also invoked the Debt Recovery Tribunal (DRT) and sought to exercise lien on property documents which the customer had provided for another loan which has been discharged.

This incident highlights how a Bank can misuse the provisions of DRT which is meant to assist the Bank for recovery of its debts from genuine loan defaulters. In this case the bank has been grossly negligent and there has been a deficiency in service. It was engaged to do a “collection service” and not lend any loan. The relationship of the Bank in this case was that of an “Agent” and the customer was the “Principal”.

The Bank failed in the sence that it advised realization of the cheque, collected its charges and placed the proceeds at the complete disposal of the customer. The customer has now altered his position by effecting the shipment soley based on the credit advise.

Even if the information was wrong, the responsibility should fall with the Bank for failing in its duty as an “Agent”.

The Bank is not having a “Debtor”, “Creditor” relationship here when it undertook the collection obligation and discharged it in the first place.

The subsequent debit to the account creating an “Overdraft” was not therefore a valid “debt”. There was no request from the customer nor a compelling business contingency such as a “Cheque having been issued on a Bank where there was insufficient funds”. The Bank’s action in having raised an “Overdraft” to recover its own outstanding with its correspondent Bank is therefore not tenable as a “Debt” transaction.

Since customers of the banks are at a disadvantage in legal strength when fighting against an institution such as a Bank, they are being harassed with the mis-interpretation of the applicability of the DRT provisions as is evident in this case.

Further, with a reference to the DRT, the customer has suffered an irreparable damage to his credit standing and is rendered unable to raise any further business finance to develop his business. he therefore suffers consequential damages which could be much more than the actual loss that may occur directly in the transaction. DRT may not be empowered to provide damages in such a case. The customer is therefore under a double disadvantage in this transaction.

While I fully appreciate the need for DRT in cases of genuine debt defaults, in cases such as this where the Bank misuses its position as a Current account maintaining agency to simply raise a debit and enrich itself for a loss which has occured in its correspondent banking transaction is extremely unfair. 

We therefore urge Reserve Bank of India to order a suitable enquiry in all cases refered to DRT to ensure that Banks donot refer losses arising due to Consumer disputes to DRT. This is a slur on the Consumer Protection Provisions of law and a fraud played by the Bank on the consumer.

RBI should also clarify what is the liability of the correspondent Bank in this case which first cleared the payment after a cooling off period of 21 days and later reversed the credit.

I wish public spirited legal experts in India suggest a solution in a case of this nature where the Bank can misrepresent a “Service Dispute” as a “Debt Default”. The DRT should also pull up the Bank for such misrepresentation and order a compensation for such bad faith use of DRT.

I look forward to reactions from the legal experts in India on this issue.

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