1. The writ petition is filed seeking writ of mandamus declaring the order of the Banking Ombudsman-respondent No.2 dated 23-5-1998 directing the 3rd respondent to pay a sum of Rs.13,07,135/- to the petitioner on furnishing one surety as arbitrary and illegal and direct the respondents authorities to pay the petitioner the aforesaid amounts withinterest from 18-12-1996 at 18% permission annum.
2. The facts leading to the writ petition are that the petitioner was awarded subcontract by M/s Hyderabad Agricultural Co-operative Association, Hyderabad (for short the 'HACA') for supply of building material for Social Welfare hostels. The petitioner was paid a sum of Rs.13,07,135/-by demand draft dated 17-12-1996 by HACA on State Bank of Hyderabad, Guntur branch. The said Bank draft along with some other blank cheques were missing. Therefore, he made a complaint to the police and also intimated the loss of draft and cheques to the State Bank of Hyderabad at Hyderabad and Guntur branch. Later on, he came to know that on 18-12-1996, the draft was encashed in Karur Vysya Bank Limited, Guntur branch, the 3rd respondent herein. It is submitted by the petitioner that a fake bank account was opened in the name of the petitioner in 3rd respondent bank in Guntur branch on 18-12-1996, the bank draft was encashed on the same day. The process of opening the bank account and encashment on the same day was contrary to the guidelines issued by the Reserve Bank of India. Thus, on account of the negligence on the part of the 3rd respondent, the petitioner incurred a toss of Rs.13,07,135/-. Therefore, he filed a complaint before the 2nd respondent-Ombudsman. The complaint was registered and after enquiry, the learned Ombudsman passed Orders on 23-5-1998 directing the 3rd respondent-Bank to pay a sum of Rs.13,07,135/- with interest from 18-12-1996 till the date of payment at the rate applicable to the Fixed Deposits. The amount was directed to be paid to the petitioner against indemnity and one surety whose worth shall be twice the amount than the draft and also costs of Rs.6,000/-. It is stated that the directions insofar as it relates to release of the amount on furnishing the surety was illegal. Even though the Order of the 2nd respondent becamefinal, the amounts have not been paid. Therefore, the writ petition is filed to direct the 3rd respondent to pay the amount without insisting on the furnishing the surety.
3. The 3rd respondent-Bank filed a counter stating that one M. Jojayya Chowdary went to the Branch at Guntur on 18-12-1996 and requested to open a current account in the name of M/s. Royal World Exims & Agencies styling himself to be the sole proprietor. He was accompanied by one Mr. T. Narayana Rao, a partner of M/s. Vijaya Chillies Corporation, which is having a current account and another person by name Mr. M. Srinivas, sole-proprietor of M/s. Sai Baba Trading Company, who was also an account holder. A current account was opened by M. Jojayya Chowdary on 18-12-1996. The demand draft for Rs.13,07,135/- was deposited by him as he requested payment against clearing, after ascertaining the genuineness of the instrument, he was allowed to draw the amount. Subsequently, a complaint was filed by M. Jojayya Chowdary stating that the current account was not opened by him and some fraud was played by opening a current account by forging his signatures and police complaint was also lodged by M. Jojayya Chowdary, which was enquired by the police and it was found that there was no lapse or mistake on the part of the Branch Manager. However, he filed a complaint before the Ombudsman alleging that there was negligence on the part of the 3rd respondent-Bank and claimed the amount. The learned Ombudsman after enquiry, however, passed an Order directing the payment of money with interest. But, however, the 3rd respondent submits that the Order itself is illegal and contrary to taw and there was no negligence on the part of the Bank as held by the Supreme Court in Indian Overseas Bank v. Industrial Chain Concern, : (1990)1SCC484 . It is further submitted that the directions of theBanking Ombudsman-2nd respondent are only recommendatory and it cannot be statutorily enforced. After the award was passed, the Reserve Bank of India has to issue directions to the concerned Bank for implementing the award. The 3rd respondent Branch sought permission to question the award before the competent Court and still the matter has not been cleared by the Reserve Bank of India. Therefore, the writ petition is premature.
4. The Reserve Bank of India-1st respondent filed a counter stating that in public interest and in the interest of the banking policy, the institution of the Banking Ombudsman was established for the redressal of the grievance in banking service concerning the loans and advances and for other specific matters. Accordingly, Reserve Bank of India framed a scheme by virtue of the powers conferred under Section 35-A of the Banking Regulation Act (called Banking Ombudsman Scheme, 1995). Under the scheme, the award passed by the Ombudsman is required to be complied within one month from the date of receipt of the award. The petitioner also stated that he was prepared to furnish the surety and also furnished a letter on 16-6-1998 to the 3rd respondent Branch and in the meanwhile, the 3rd respondent-Bank has sent a letter to the 1st respondent-Reserve Bank of India stating that the award was not acceptable. The 3rd respondent approached the 1st respondent for permission to challenge the award. However, the award was not complied with and the 3rd respondent preferred an appeal before the Reserve Bank of India, which is pending. In the meanwhile, the writ petition was filed. The Banking Ombudsman becomes functus officio after passing the award and it has only to inform the Reserve Bank of India whether the award was complied with or not. It is also stated that there are serious disputes with regard to the question of fact and law. Therefore, it has to be decided in aproper proceedings before the competent forum.
5. The question that calls for consideration in the writ petition is whether the award passed by the Banking Ombudsman can be enforced in the writ petition?
6. The learned senior Counsel for the petitioner Mr. T. Bali Reddy submits that the petitioner has made two prayers in the writ petition. As far as the direction to pay the amount to the petitioner oh furnishing the sureties concerned, such a direction is arbitrary and illegal inasmuch as, the amount belonged to the petitioner itself and therefore, the question of furnishing surety for releasing the amount does not arise and such a direction is illegal and therefore, he sought for a direction for payment of the amount without insisting the furnishing the surety. He further submits that even otherwise the petitioner is entitled for the amount under the award as it become final and binding.
7. The learned Counsel for the 3rd respondent-Bank Mr. Deepak Bhattacharjee submits that the Bank has not accepted the award and that it has intimated the Reserve Bank of India that it is not accepting the award and sought the permission of the Bank to challenge and since permission is yet to be issued, it cannot be said that the award has become final and enforceable.
8. The learned Counsel for theReserve Bank of India submits that the scheme has a statutory force and the award has to be complied with in pursuance of the provisions of the scheme.
9. The Banking Ombudsman Scheme, 1995 was framed by the Reserve Bank of India by virtue of the powers vested under Section 35-A of the Banking (Regulation) Act, 1949. The said Regulation reads thus:
'Section 35-A. Power of the Reserve Bank to give directions :--(1) Where the Reserve Bank is satisfied that,--
(a) in the public interest; or
(aa) in the interest of banking policy; or
(b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or
(c) to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.
(2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect'.
10. Therefore, under the aforesaid provision, the Reserve Bank of India is entitled to issue directions in the interest of the public and also in the interest of the banking policy and for various other reasons mentioned in the said provision to the banking companies. Therefore, any directions issued by the Reserve Bank of India under Section 35-A have a statutory force and they are binding on the banking companies. Under the scheme, the Banking Ombudsman is appointed by the Reserve Bank of India. He has the powers to receive the complaints relating to the provisions of the banking services, considersuch complaints and facilitate their satisfaction or settlement by agreement by making recommendations or award in accordance with the scheme. The complaints of various natures as mentioned in clause 3 of the scheme will be enquired by the authority. Under clause (20), the Ombudsman shall pass an award and its complaints are contained therein. Clause (20) is extracted below for proper appreciation of the issue:
'20. Award by the Banking Ombudsman:--
(1) Where the complaint is not settled by agreement or recommendation as provided in Clause (18) or (19) as the case may be, within a period of two months from the date of receipt of the complaint or such extended date as may be considered necessary by him, the Banking Ombudsman shall inform the parties of his intention to pass an Award.
(2) It shall be open to the parties to submit any further representations or evidence in support of their case within a period of 15 days from the date of notice referred to in sub-clause (1).
(3) The Banking Ombudsman shall pass an Award after affording the parties reasonable opportunity to present their case. He shall be guided by the evidence placed before him by the parties, the principles of banking law and practice, directions, instructions and guidelines issued by the Reserve Bank from time to time and such other factors which in his opinion are necessary in the interest of justice.
(4) An Award shall be in writing and shall state the direction/s, if any, to the bank for specific performance of its obligations and the amount awarded to the complainant by way of compensation for the loss suffered by him along with a summary of the reasons for making the award:
Provided that the Banking Ombudsman shall not award any compensation in excess of that which is necessary to cover the loss suffered by the complainant as a direct or for an amount exceeding rupees ten lakhs, whichever is lower.
(5) A copy of the award shall be sent to the complainant and the bank named in the complaint.
(6) An Award shall not be binding on a bank against which it is passed unless the complainant furnishes to it, within a period of one month from the date of Award, a letter of acceptance of the award in full and final statement of his claim in the matter. Within fifteen days from the date of receipt by it, of the acceptance in writing of the Award by the complainant, the bank shall comply with the Award and intimate the compliance to 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 in pursuance to sub-clause (6).'
11. In the instant case, the award was passed by the 2nd respondent and according to the counter filed by the Reserve Bank of India, the petitioner-complainant accepted the award and thus the award became binding as far as the petitioner is concerned. But, however, it is the case of the 3rd respondent-Bank that it has not accepted the award and that it has sought for the permission of the Reserve Bank of India for challenging the award. As can be seen from the scheme, no permission is contemplated under the scheme, and it is only after the acceptance is made by the complainant, the Bank shall comply with the award and intimate the compliance to the Banking Ombudsman. There is no provision for challenging the award. However, if there is non-compliance on the part of the Bank, the Ombudsmanshall report the same to the Reserve Bank of lndia.
12. The learned senior Counsel appearing for the petitioner, however, submits that the circulars issued by the Reserve Bank of lndia under Section 21 or 35 of the Banking (Regulation) Act are statutory in nature and or required to be complied with. He refers to the decision of the Supreme Court reported in Canara Bank v. Mangesh Sitaram Chandekar, : AIR1998SC3000 and para 11 which is extracted below;
'That the circulars issued by the Reserve Bank of lndia under Section 21 or 35 of the Banking Regulation Act, 1949 are statutory in nature and are required to be complied with by the banks is not in any doubt. An Ombudsman appointed under the Scheme is obliged to regulate the working of the banks and issue directions to them to carry out the directions and circulars issued by the Reserve bank of India under Section 21 or 35 of the Act. The view taken by the learned Ombudsman to the effect that the loans granted by the banks to their landlords for construction/renovation of premises which are taken on lease or rent by the banks cannot be termed as 'term loans', as in the words of the learned Ombudsman 'only those loans which are taken for commercial purposes can be construed to be term loans', is clearly erroneous and does not appeal to us'.
13. On the other hand, the learnedCounsel for the 3rd respondent-Bank submits that the very award of the Ombudsman is illegal and contrary to law. The findings of the Ombudsman that the Bank was negligent is absolutely unfounded. He refers to various decisions on this aspect to establish that there was no fault on the part of the Bank and on the other hand, there was complete compliance of the circulars issued by the Reserve Bank of lndia regarding the openingor the Bank accounts etc. But, I am not inclined to go into this aspect as the award of Ombudsman is not challenged in this writ petition, the only direction sought for is payment of money without insisting on furnishing surety. To that extent challenge was made. Hence this Court need not go into the legality or otherwise of the award passed. Under these circumstances, the only issue that arises for consideration is whether the directions could be issued to the 3rd respondent-Bank to comply with the Order of the Ombudsman.
14. It is not in dispute that the award has been passed and it became final, as far as the petitioner is concerned. But, as far as the 3rd respondent is concerned, it is his case that he sought permission from the Reserve Bank of India and the same is awaited. In this regard, it is to be noted that the scheme itself was framed in pursuance of Section 35-A of the Banking (Regulation) Act. Therefore, any scheme framed in pursuance of Section 35-A, has a statutory! force. The award passed by the Ombudsman also equally takes the colour of a statutory) direction as any directions issued by the Ombudsman shall be treated as if the directions under Section 35-A of the Act. Therefore, such directions are equally statutory in nature and they have to be complied with, unless the award is challenged before the appropriate authority or Court. Under the scheme no appeal is provided against the award. The circular issued by the Reserve Bank of lndia dated 21-2-1998 is clear on this aspect which says that the scheme seeks to establish a system of expeditious and inexpensive resolution of customer complaints relating to banking services concerning loans and advances and other specified matters. It is also stated that since the Banking Ombudsman Scheme was formulated to get fair and speedy and inexpensive resolution to the customers, it was expected that the award of the Ombudsman is accepted and implementedby the Banks and in very exceptional cases, where it is likely to create precedents to the Bank and banking system, bank should refer the matter to the Reserve Bank of India before contesting in any manner the award passed by the Ombudsman. Pending amendment to the scheme, the Reserve Bank of India directed to treat these instructions as the directions under Section 35-A of the Act. Even though, Bank has referred the matter to the Reserve Bank of India seeking permission, the Reserve Bank of India has in turn stated that when the matter was receiving the attention, the writ petition was filed, therefore, no Orders could be passed.
15. The learned Counsel for the 3rd respondent, however, further submits that no writ could be issued against Ombudsman, as the institution is not amenable for writ jurisdiction, since it is neither State nor instrumentality of the State. I need not decide this issue for the reason that what is being sought in the writ petition is implementation of the award. The learned senior Counsel fairly concedes that there is no challenge whatsoever in the award, but the petitioner only interested to get the amount under the award having accepted the award as per the scheme. Under these circumstances, in view of the submission made by the learned Counsel for the Reserve Bank of India that the matter is receiving the attention of the Bank and the fact that the award is in favour of the petitioner and that the interest of the 3rd respondent-Bank is fully protected by the indemnity clause, the writ petition is disposed of with a direction that the 3rd respondent shall comply with the award of the 2nd respondent within a period of four weeks, pending the directions that may be issued by the 1st respondent-Reserve Bank of India in pursuance of representation made by the 3rd respondent-Bank on 8-6-1998. No costs.