Case Note & Summary
The case involves a dispute between Canara Bank (the petitioner) and Shri Uttam Rathod (respondent no.1), a proprietor of M/s. Rishi Impex, who held a current account with the bank's Mazgaon branch. In the routine course of business, the bank issued eight undated cross cheques totaling Rs.12,58,681/- in favor of M/s. Oxford Industries Ltd. Due to a dispute over non-fulfillment of supply of goods, the respondent issued stop payment instructions to the bank on 5th October 2001, which were duly received and acknowledged. Despite these instructions, on 18th December 2001, the bank honoured the cheques and debited the respondent's account for Rs.12,59,881/-. The respondent filed a complaint before the Banking Ombudsman, who passed an award directing the bank to credit the amount with interest. The bank challenged the award by way of a writ petition, primarily on the ground that the complaint was barred by limitation under Clause 16(3)(c) of the Banking Ombudsman Scheme 1995, which requires complaints to be filed within one year from the cause of action. The court examined the scheme and held that the limitation period is directory and not mandatory, and the Ombudsman has discretion to entertain delayed complaints in the interest of justice. On merits, the court found that the bank had clearly received stop payment instructions but still honoured the cheques, constituting negligence. The court upheld the Ombudsman's award, including the direction to pay interest, and dismissed the petition.
Headnote
A) Banking Law - Banking Ombudsman Scheme 1995 - Jurisdiction - Clause 16(3)(c) - Limitation - The Banking Ombudsman has jurisdiction to entertain a complaint even if filed beyond one year from the cause of action, as the limitation period under Clause 16(3)(c) is directory and not mandatory, and the Ombudsman can condone delay in the interest of justice. (Paras 6-10) B) Banking Law - Stop Payment Instructions - Bank's Liability - Wrongful Debit - A bank is liable to compensate a customer for wrongful debit of cheques despite valid stop payment instructions, as the bank owes a duty to act in accordance with the customer's instructions and is guilty of negligence if it fails to do so. (Paras 2-5) C) Banking Law - Banking Ombudsman Scheme 1995 - Award - Interest - The Banking Ombudsman can award interest on the amount wrongfully debited, as it is a consequential relief to compensate the customer for the loss suffered due to the bank's negligence. (Para 11)
Issue of Consideration
Whether the Banking Ombudsman had jurisdiction to entertain the complaint and whether the bank was liable for honouring cheques despite valid stop payment instructions.
Final Decision
The High Court dismissed the writ petition and upheld the award of the Banking Ombudsman, directing the bank to credit the amount wrongfully debited with interest.
Law Points
- Banking Ombudsman Scheme 1995
- Stop Payment Instructions
- Bank's Liability for Wrongful Debit
- Jurisdiction of Banking Ombudsman
- Limitation under Clause 16(3)(c) of the Scheme
