Karnataka HC Asks RBI To Bring Guidelines For Automatic Credit Of DD Amount To Drawer If Instrument Not Presented To Bank Within Validity Period

The Karnataka High Court has directed the Reserve Bank of India (RBI) to issue necessary guidelines to be followed by Banks in cases where a demand draft is not presented for clearance during its validity period and whether in such cases the amount covered can be automatically credited to the account of the customer on expiry. A single judge bench of Justice Suraj Govindaraj said, “Reserve Bank of India to issue necessary guidelines as regards the status of a demand draft not presented for clearance during its validity and amongst other things, if the amount covered under the demand draft can be automatically credited to the account of the customer on expiry if the demand draft has purchased the same through her bank account.” The court also directed RBI to look into the internal policy of ICICI Bank Ltd in not canceling a demand draft of high value without the consent/No Objection of the payee. It said, “Reserve Bank of India to look into this matter and to consider whether such a policy by the respondent No.2-Bank is proper and justified and if not to take such action as may be necessary against respondent No.2-Bank.” Petitioner Doddaballapur Spinning Mills who holds a current account with the bank had in 2010 secured a demand draft for sum of Rs.50 lakhs in the name of one P. Bache Gowda towards payment to be made to him on account of certain transactions between them. However, the sale deed got terminated. In 2018, the company approached the Bank, with the original demand draft, requesting the bank to cancel the demand draft and credit the amounts into its current account. The same was not done. Following which the petitioner approached the Banking ombudsman. The Ombudsman took up the contention that the dispute between the petitioner and the payee was pending before a Court and as such dismissed the complaint filed by the petitioner.Then the petitioner approached the court, contending that Bank has acted in a completely mala fide manner by not refunding the amounts since 2010 till date.Findings: On going through the records the bench noted that the bank is not able to show which law would permit it to refuse repayment of the amount, except for stating that it is an internal policy of the Bank. It said,“Bank cannot on the basis of an internal policy seek to override the law applicable in returning the amount due to a drawer of the demand draft, when the drawer himself seeks for cancellation of the demand draft by producing the original of the demand draft. The matter would have been different if the original demand draft was not available, it was lost and what was requested was cancellation of a demand draft of which the original was not available.”It added that when there was no objection raised by the payee at any point of time, the Bank could not contend that without the No Objection from the payee the demand draft cannot be cancelled.Court further noted that the demand draft had expired long ago and even if the payee were to present it, the bank would not honour it. Thus, tt said, “It is rather shocking that the bank seeks for no objection from the payee when even if the payee had presented the demand draft the bank would not have honored the demand draft and paid the monies to the payee.”Nevertheless, during the hearing the bank informed that it is ready to refund the amounts.Coming to the conduct of the Bank Ombudsman, Court said the authority had abdicated its duties and completely misconstrued itself. “Respondent No.1 having been established to assist and protect the interest of a customer vis a vis a bank in the event of the bank not performing its duties properly. The Banking ombudsman being an independent, impartial, and free person or office that investigates complaints against Banks, it was for respondent No.1 to have acted on the complaint and acted in the interest of the customer rather than dismissing the complaint.” It added “There is a duty imposed on the ombudsman to act by considering all the facts and the law applicable in the right perspective. I hope and trust that at least in future the respondent No.1 will do so.”Allowing the petition, the court directed the bank to pay 18% interest on the amount from 2018 and directed it to pay a punitive cost of Rs.5 lakhs to be paid within 15 days from today to the petitioner.Appearance: Advocate K.V.Satish for Petitioner.Advocate Sreedevi.K.B for R2, R3. Advocate Kaveesh Sharma for R1. Citation No: 2024 LiveLaw (Kar) 491Case Title: DODDABALLAPUR SPINNING MILLS AND THE BANKING OMBUDSMAN & Others Case No: WRIT PETITION NO. 41048 OF 2019Click Here To Read/Download Order

Karnataka HC Asks RBI To Bring Guidelines For Automatic Credit Of DD Amount To Drawer If Instrument Not Presented To Bank Within Validity Period

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