ANALYSIS OF

BANKING
OMBUDSMAN
SCHEME

BY

A.MARISPORT M.L(Business Law)

marisportt@gmail.com
 ANALYSIS UF BANKING OMBUDSMAN SCHEME

History andDevelopment of The banking ombudsman scheme:

The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking

Regulation Act1, 1949 by RBI with effect from 1995 to provide an expeditious and

inexpensive forum to bank customers for resolution of their complaints relating to

banking services. The Scheme covered banking services rendered by scheduled

commercial banks and scheduled primary cooperative banks2. The objective of the

Banking Ombudsman Scheme is to be a visible and reliable system of dispute resolution

mechanism for bank customers. The Ombudsmen generally resort to conciliation or

mediation for settlement of complaints.

The Banking Ombudsman Scheme was revised in 2002 to cover Regional Rural

Banks and to permit a review of the Banking Ombudsman’s Awards against the banks by

the Reserve Bank. The Scheme was further revised in 2006 giving it a much wider scope

by including several new areas of customer complaints. The Banking Ombudsmen

currently have their offices in 15 Centers spread across the country and are fully funded

by the Reserve Bank. The Banking Ombudsmen are serving Officers of Reserve Bank in

the rank of Chief General Managers and General Managers.

1
Under this section RBI has the power make regulations relating to banking services.

2
This is inserted in the amendment rules 2002.
Constitution, powers and functions of banking ombudsman

Appointments tenure:

The Reserve Bank may appoint one or more of its officers in the rank of

Chief General Manager or General Manager to be known as Banking Ombudsmen to carry

out the functions entrusted to them by or under the Scheme. The appointment of Banking

Ombudsman may be made for a period not exceeding three years at a time. 3

Location of office:

The office of the Banking Ombudsman shall be located at such places as may be

specified by the Reserve Bank. In order to expedite disposal of complaints, the Banking

Ombudsman may hold sittings at such places within his area of jurisdiction as may be
4
considered necessary and proper by him in respect of a complaint or reference before him.

Jurisdiction, powers and duties of banking ombudsman :

1. The Reserve Bank shall specify the territorial limits to which the authority of each

Banking Ombudsman appointed under the Scheme shall extend.

2. The Banking Ombudsman shall receive and consider complaints relating to the

deficiencies in banking or other services filed on the grounds mentioned in the

scheme and facilitate their satisfaction or settlement by agreement or through

3
Sections 4,5,6 of 2002 ombudsman scheme & section 4 of 2006 scheme.

4
Section 7, 8 of the 2002 ombudsman scheme & section 5 of 2006 scheme.
 conciliation and mediation between the bank concerned and the aggrieved parties or

by passing an Award in accordance with the Scheme.

3. The Banking Ombudsman shall exercise general powers of superintendence and

control over his Office and shall be responsible for the conduct of business their own

office.

4. The Office of the Banking Ombudsman shall draw up an annual budget for itself in

consultation with Reserve Bank and shall exercise the powers of expenditure within

the approved budget on the lines of Reserve Bank of India Expenditure Rules, 2005.

5. The Banking Ombudsman shall send to the Governor, Reserve Bank, a report, as on

30th June every year, containing a general review of the activities of his Office during

the preceding financial year and shall furnish such other information as the Reserve

Bank may direct and the Reserve Bank may, if it considers necessary in the public

interest so to do, publish the report and the information received from the Banking
5
Ombudsman in such consolidated form or otherwise as it deems fit.

Complaint handling procedure BY the banking ombudsman

Grounds of complaints which banking ombudsman is entitled to here:

The Banking Ombudsman can receive and consider any complaint relating to the

following deficiency in banking services (including internet banking):

1. non-payment or inordinate delay in the payment or collection of cheques, drafts,

bills etc.;
5
Section 10, 11 of 2002 scheme & section 7 of 2006 scheme.
2. non-acceptance, without sufficient cause, of small denomination notes tendered for

any purpose, and for charging of commission in respect thereof;

3. non-acceptance, without sufficient cause, of coins tendered and for charging of

commission in respect thereof;

4. non-payment or delay in payment of inward remittances ;

5. failure to issue or delay in issue of drafts, pay orders or bankers’ cheques;

6. non-adherence to prescribed working hours ;

7. failure to provide or delay in providing a banking facility (other than loans and

advances) promised in writing by a bank or its direct selling agents;

8. delays, non-credit of proceeds to parties accounts, non-payment of deposit or non-

observance of the Reserve Bank directives, if any, applicable to rate of interest on

deposits in any savings,current or other account maintained with a bank ;

9. complaints from Non-Resident Indians having accounts in India in relation to their

remittances from abroad, deposits and other bank-related matters;

10. refusal to open deposit accounts without any valid reason for refusal;

11. levying of charges without adequate prior notice to the customer;

12. non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on

ATM/Debit card operations or credit card operations;

13. non-disbursement or delay in disbursement of pension (to the extent the grievance
 can be attributed to the action on the part of the bank concerned, but not with regard

to its employees);

14. refusal to accept or delay in accepting payment towards taxes, as required by Reserve

Bank/Government;

15. refusal to issue or delay in issuing, or failure to service or delay in servicing or

redemption of Government securities;

16. forced closure of deposit accounts without due notice or without sufficient reason;

17. refusal to close or delay in closing the accounts;

18. non-adherence to the fair practices code as adopted by the bank or non-adherence to

the provisions of the Code of Bank s Commitments to Customers issued by Banking

Codes and Standards Board of India and as adopted by the bank ;

19. non-observance of Reserve Bank guidelines on engagement of recovery agents by

banks; and

20. any other matter relating to the violation of the directives issued by the Reserve Bank

in relation to banking or other services.

21. A customer can also lodge a complaint on the following grounds of deficiency in

service with respect to loans and advances

1. non-observance of Reserve Bank Directives on interest rates;

2. delays in sanction, disbursement or non-observance of prescribed time

schedule for disposal of loan applications;

 3. non-acceptance of application for loans without furnishing valid reasons

to the applicant; and

4. non-adherence to the provisions of the fair practices code for lenders as

adopted by the bank or Code of Bank’s Commitment to Customers, as the

case may be;

5. non-observance of any other direction or instruction of the Reserve Bank

as may be specified by the Reserve Bank for this purpose from time to

time.

6. The Banking Ombudsman may also deal with such other matter as may be

specified by the Reserve Bank from time to time.

Circumstances in which complaint not be considered by the Ombudsman :

Complaint will not be considered if:

a. One has not approached his bank for redressal of his grievance first.

b. One has not made the complaint within one year from the date one has

received the reply of the bankCC or if no reply is received if it is more than

one year and one month from the date of representation to the bank.

c. The subject matter of the complaint is pending for disposal / has already

been dealt with at any other forum like court of law, consumer court etc.

d. Frivolous or vexatious.

e. The institution complained against is not covered under the scheme.

 f. The subject matter of the complaint is not within the ambit of the Banking

Ombudsman.

g. If the complaint is for the same subject matter that was settled through the

office of the Banking Ombudsman in any previous proceedings.6

procedure for filing the complaint before the Banking Ombudsman:

One can file a complaint with the Banking Ombudsman simply by writing on a plain

paper. One can also file it online. One may lodge his/ her complaint at the office of the

Banking Ombudsman under whose jurisdiction, the bank branch complained against is

situated. For complaints relating to credit cards and other types of services with

centralized operations, complaints may be filed before the Banking Ombudsman within

whose territorial jurisdiction the billing address of the customer is located.

details which are required in the complaint:

The complaint should have

i. the name and address of the complainant,

ii. the name and address of the branch or office of the bank against which the

complaint is made,

iii. facts giving rise to the complaint supported by documents, if any,

6
Section 12 of 2002 scheme & section 8 of 2006 scheme.
 iv. the nature and extent of the loss caused to the complainant,

v. the relief sought from the Banking Ombudsman and

vi. a declaration about the compliance of conditions which are required to be

complied with by the complainant.

limit on the amount of claim and compensation :

The amount, if any, to be paid by the bank to the complainant by way of

compensation for any loss suffered by the complainant is limited to the amount arising

directly out of the act or omission of the bank or Rs 10 lakhs, whichever is lower. The

Banking Ombudsman may award compensation not exceeding Rs 1 lakh to the

complainant only in the case of complaints relating to credit card operations for mental

agony and harassment. The Banking Ombudsman will take into account the loss of the

complainant’s time, expenses incurred by the complainant, harassment and mental

anguish suffered by the complainant while passing such award.7

Situations of rejection of complaints by banking ombudsman:

The Banking Ombudsman may reject a complaint at any stage if it appears to him that a

complaint made to him is:

• not on the grounds of complaint referred to above

• compensation sought from the Banking Ombudsman is beyond Rs 10 lakh .

7
Section 13 of 2002 scheme & section 9 of 2006 scheme.
 • requires consideration of elaborate documentary and oral evidence and the

proceedings before the Banking Ombudsman are not appropriate for

adjudication of such complaint

• without any sufficient cause

• that it is not pursued by the complainant with reasonable diligence

• in the opinion of the Banking Ombudsman there is no loss or damage or

inconvenience caused to the complainant. 8

Complaint handling procedure:

Generally on receipt of any complaint, the Banking Ombudsman endeavors to

resolve the complaint by agreement between the complainant and the bank named in the

complaint through a process of conciliation or mediation. For the purpose of such

resolution of the complaint, the Banking Ombudsman follows such procedures as he may

consider appropriate and he is not bound by any legal rule of evidence. If a complaint is

not settled by agreement within a period of one month from the date of receipt of the

complaint or such further period as the Banking Ombudsman may consider necessary, he

may 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

8
Section 19 of 2002 scheme & section 13 of 2006 scheme.
 interest of justice.

• the steps involved in complaint handling by the banking ombudsman are

Receipt of complaints

 Decision to handle or not

 Acknowledgement of those covered under the Scheme

 Return of those that cannot be handled under the Scheme

 Call for comments from Banks 9

 Promote a settlement through conciliation 10or pass an award11

Appeal:

If one is not satisfied with the decision passed by the Banking Ombudsman, one can

approach the appellate authority against the Banking Ombudsmen’s decision. Appellate

Authority is vested with a Deputy Governor of the RBI. One can also explore any other

recourse and/or remedies available to him/her as per the law. The bank also has the

option to file an appeal before the appellate authority under the scheme.

time limit for filing an appeal

If one is aggrieved by the decision, one may, within 30 days of the date of receipt of

the award, appeal against the award before the appellate authority. The appellate

9
Section 14 of 2002 scheme & section 10 of 2006 scheme.

10
Section 15 of 2002 scheme & section 11of 2006 scheme..

11
Section 16 of 2002 scheme & section 12 of 2006 scheme.
 authority may, if he/ she is satisfied that the applicant had sufficient cause for not making

an application for appeal within time, also allow a further period not exceeding 30 days.

Appeal handling procedure

The appellate authority may

i. dismiss the appeal; or

ii. allow the appeal and set aside the award; or

iii. send the matter to the Banking Ombudsman for fresh disposal in accordance with

such directions as the appellate authority may consider necessary or proper; or

iv. modify the award and pass such directions as may be necessary to give effect to

the modified award; or

v. pass any other order as it may deem fit.12

Enforcement of the award passed by the banking ombudsman

A copy of the Award shall be sent to the complainant and the bank named in the

complaint. An Award shall not be binding on a bank against which it is passed unless the

complainant furnishes to it, within a period of 15 days from the date of receipt of copy of

the Award, a letter of acceptance of the award in full and final settlement of his claim in

the matter. If the complainant does not accept the Award passed by the Banking

Ombudsman and fails to furnish his letter of acceptance within such time without making

any request for extension of time to comply with such requirements his complaint shall

be rejected by the Banking Ombudsman . Provided that in the event of the complainant

making a written request for extension of time, the Banking Ombudsman may subject to
12
Section 14 of 2006 scheme. Here the 2002 scheme provide a review of ombudsman award by review
authority under sections 17, 18.
his being satisfied with the explanation as furnished by the complainant about his

inability to consider the Award and furnish his letter of acceptance, grant extension of

time up to further period of fifteen days for such compliance.13

13
Section 16 of 2002 scheme & section 12 of 2006 scheme.
Some examples of cases handled by banking ombudsman

Case 1

The complainant had availed a housing loan of Rs 3,40,000/-from the bank at a

fixed rate of interest of 8% per annum at quarterly rests on highest monthly reducing

balance. The complainant alleged that the bank had subsequently increased the rate of

interest to 12.75% contrary to terms of sanction of the loan. The bank submitted that

the customer was sanctioned loan at fixed interest rate, but as per their extant

instructions and internal circular, the interest rates are to be reset at the end of every

two years on the basis of interest rates prevailing at that time. Accordingly, the fixed

interest rates were changed from 8% to 12.75%. During the course of the proceedings

before the Banking Ombudsman, the bank re-worked the applicable interest at the

contracted rate of interest and refunded the excess amount of Rs 17,936/-, by credit to

the complainant's account. However, the bank contended that going forward, the reset

interest rate would be applicable. The complainant was also given an exit option, which

was not acceptable to him. If the interest rates are subject to periodical rests, it is only

fair and reasonable that the same is explicitly stated in the loan agreement and sanction

letter in an unambiguous and transparent manner. Further, in choosing to provide a

fixed rate loan to the customer, the bank has consciously decided to carry the interest

rate risk associated with the product. The loan also carried a higher interest rate

compared to floating rate product as a premium towards the interest rate risk. BO

passed an Award advising the bank to strictly abide by the terms and conditions of the

original arrangement and not give effect to their proposal to increase interest rate on
the loan, unless explicitly consented to by the complainant in writing. The bank was

also advised to pay an amount of Rs 1,000 to the complainant towards the cost of

pursuing this remedy to his grievance. The bank has implemented the Award.

Case 2

The complainant was maintaining a current account and approached the bank

to convert his current account to cash credit account. For the said purpose he had

pledged NSC amounting to Rs.1,20,000/-. Subsequently the bank neither sanctioned

him a cash credit limit nor returned the certificates. In the meantime the certificates

were matured for payment and he requested the bank to return the certificates. The

bank failed to return the certificates stating that the certificates had been misplaced.

The complainant approached us with a request to redress his grievances. On taking

up the matter with the bank, the bank assured to take up the matter with the post

office for issue of duplicate NSCs. On receipt of the duplicate NSCs from the concerned

post office, the complainant was compensated for the loss of the original certificates.

The complainant submitted a letter of satisfaction to the BO.

Case 3

A complaint relating to non-credit of cheque amount into the account of the

complainant was received. The complainant had reportedly taken up the matter

with the bank several times but there was no response by the bank towards

credit of the cheque amount. The complainant approached the BO for resolution

of his grievances. On receipt of the complaint, BO questioned the bank as to

what action had been taken on the complaint by them. The bank reported that

the cheque in question was lost in transit resulting in non-credit of the cheque

amount to the complainant's account. At the instance of BO, the bank took up

the matter with UTI Mutual Fund, Patna by submitting letter of undertaking

and death certificate. The Mutual Fund issued a duplicate cheque and the

amount was credited to the complainant's account. The complainant submitted a

letter of satisfaction.

Case 4

A complainant approached the BO alleging that the bank from which he had

availed a housing loan had been charging a higher rate of interest . Initially he

applied for a housing loan of Rs.8,50,000/-at the fixed rate of interest. The rate

of interest applicable on the loan was 9.25% as per the brochure provided by the

bank. However, the complainant alleged that the loan was sanctioned at an

interest rate of 9.75% without explaining about the terms and conditions of the

loan at the time of sanction. On taking up the case with the bank, the bank
 informed BO that the higher rate of interest charged on the loan had since been

rectified by the bank's data center and excess interest charged on the loan was

adjusted and credited to the complainant's account.

Case 5

BO received a complaint where the complainant alleged that on her

husband's death, she approached the concerned bank on November 27, 2008 for

payment of family pension and all the formalities were completed as required by

the bank. The Treasury Officer had converted the pension into family pension and

advised the bank on October 18, 2008 to make payment to the widow. Though she

had been approaching the bank there was no response from the bank. BO

questioned the bank as to what action had been taken by them on the complaint. On

persuasion, the bank redressed the grievances and paid the family pension to the

complainant .

Case 6

The complainant was maintaining Priority Banking Savings accounts with a

private sector bank. This account was opened a year back with average quarterly

balance requirement of Rs.l lakh and the customer was promised several services,

which were allegedly not provided to him. These services included cheque collection

from his residence, valet parking at the branch, use of office for personal meetings,

credit card facility, demat services, portfolio services and timely response to
transaction queries. It was observed that the bank had introduced the priority

banking service product without first ensuring that its branches were properly

equipped to provide the promised services to all such customers. The bank was also

found deficient in as much as it had not communicated to the customer the various

conditions linked to the promised services. It was not considered fair that the

customer was made to maintain an average quarterly balance of Rs. 1 lakh without

providing all the promised services. Thus, had the customer maintained a normal

savings bank account with average quarterly balance requirement of Rs.5000/-, he

would have had an opportunity to invest Rs.95,000/-in fixed deposit to earn higher

interest. BO passed an award against the bank for payment of interest at fixed

deposit rate of interest applicable at the time of opening the account plus 2% (with

quarterly compounding) from the date of opening of account to the date on which

the bank pays the interest.

Case 7

A cheque drawn by the EPF Department on the ABC Bank's Nasik

branch forRs.21.36 lakh was sent to XYZ Bank, New Delhi for credit to the account

of the complainant. The amount was not credited to the complainant's account

advising that it had not received the cheque. The complainant, however, obtained

the Proof of Delivery from Post Office in support of the claim that it was delivered

to the XYZ bank.. It transpired that the XYZ bank had actually misplaced the

cheque before sending it for collection to ABC Bank and it had already furnished an

affidavit to the EPF Department reporting the misplacement of the cheque and

requesting for a duplicate cheque. With the intervention of BO, the bank credited
an amount of Rs. 18,894/-as interest on the delayedpayment since date of deposit of

the cheque.

Case 8

The complainant was holding a credit card of a foreign bank. He complained

that a caller from the bank persisted in selling Medical Insurance Benefit Scheme to

the card holder though he as well as his family members did not require the same.

After a few days he received a policy in the name of his son and daughter without

taking his approval. When he called up the bank in June 2006, he was assured that

the policies would be cancelled and later it was confirmed as well. But after a few

days, he was advised to send a cancellation request by fax. The statement received

showed unpaid balance. The complainant again sent two faxes in August and

September 2006 for cancellation of the policies. In the conciliation meeting held by

BO on 19 January 2009, the bank official stated that there was a recorded

telephonic conversation with an Insurance Company and the bank had debited the

account of the customer on the mandate received by the Insurance Company. There

was no written mandate with the bank from the customer for debiting his account

for premium of the policies of the Insurance Company. The bank failed to resolve

the complaint for 2/3 years. However, with the intervention of BO, the debits of

Rs.23,246/-were reversed. Case 9 The complainant maintaining an account at Bank

A attempted a withdrawal of Rs.25,000/-from Bank B's ATM, but no cash was

dispensed. However, his account was debited. He immediately complained to Bank

A and then to Banking Ombudsman subsequently. Bank A retrieved the JP log of

20.4.2008 from Bank B, which was not legible and confirmed that the transaction

was successful. However, BO observed that the JP log appeared to be of 20.1.2008

and not of 20.4.2008, the reply was that actually the digit was 4 but appearing as 1

because of faulty printing. As we were still not convinced and insisted for a legible

copy of JP log, Bank A informed after one month that they had received the

amount from Bank B and the complainant's account had been credited. In fact,

Bank B had possibly misinformed Bank A.

Case 10

An employee of a PSU had availed a housing loan of Rs 385000/-from

XYZ Bank, under the tie-up arrangement between the bank and the PSU. The

loan was offered at fixed rate of 7.5%. The bank subsequently increased the rate

of interest from 7.5% to 8.5% and changed the EMI. When the matter was taken

up with the bank, he was informed that as per the terms and conditions and the

MOU, the fixed rate applicable for housing loan is 'adjusted interest rate' on the

date of the agreement. The 'adjusted interest rate' was 'quoted rate' +/-changes

in the BPLR of the bank on the date of agreement between the bank and the

employees of the PSU. At the time of sanction of the loan, the BPLR was 11.50%

so the 'adjusted interest rate' would be 8.5% and therefore the bank had

charged the interest accordingly which would be reset after 5 years i.e. from

26.9.2006. As the bank's response was not convincing, he approached the BO.

On calling for their comments, the bank informed that they were charging the

interest in terms of the MOU entered between the bank and the PSU and that it
was in sync with the terms and conditions of the loan. BO advised the bank to

furnish copies of the sanction letter, agreement with the complainant and copy of

the MOU. On scrutinizing the aforesaid documents, it was observed that the

rate of interest mentioned in the agreement at clause 7 was 8.5% (Fixed) and at

clause 6 which was applicable to Floating rate, no entries were made. The

sanction letter indicated 8.5% at fixed rate for 5 years to be reset after 5 years.

Scrutiny of housing loan passbook disclosed that the bank was charging 7.5 %

fixed interest from November 26, 2006 for 168 months at an EMI of Rs 3710/.

The bank had not carried out the documentation of the loan properly, as there

was a discrepancy in the housing loan passbook and the agreement with respect

to rate of interest. The increase in EMI was not justifiable. Therefore, BO passed

the benefit of doubt to the complainant and directed the bank to consider the

rate of interest at 7.5% fixed for 5 years and reset thereafter and refund the

excess EMI recovered. Bank complied with the order of BO.

Durga Hotel Complex Vs. Reserve Bank of India and Others.

Fact of the case:

Banking ombudsman Award Legality of Clause 16 of the Banking ombudsman

Scheme, 1995 Sanction of Loan by Respondent-Bank to Appellant firm Part amount

disbursed Additional advance sought by Appellant refused Respondent-Bank recalled

loan after crediting original loan sanctioned from account of Appellant Appellant

made complaint before Banking ombudsman (BO) Respondent-Bank approached

Debts Recovery Tribunal (DRT) for recovery of loan Respondent-Bank questioned

jurisdiction of BO to entertain Appellants complaint BO rejected the contention and

decided the matter in Appellants favour Respondent-Bank challenged the award of

BO on ground that subject matter of adjudication was beyond its jurisdiction

Meanwhile, Appellant filed Writ Petition for enforcement of award Single judge

decided in Respondent-Banks favour Letters Patent Appeals filed by Appellant

dismissed Hence, present appeal Whether BO acted outside its jurisdiction in passing

the award when the subject matter had already been referred to the DRT Held, BO is

an independent and non-partisan officer acting as an alternative to adversary system

for resolution of disputes When the subject matter of complaint lying before BO is

taken to Court, Tribunal, Arbitrator or any other competent forum, subject matter is

taken away from the purview of BO to an adjudicatory forum under an adversarial

system The foundation of complaint filed before the BO gets lost in that case Even if

BO initially had jurisdiction, the same taken away when the matter was referred to
DRT Accordingly, in present case BO has no jurisdiction to deal with matter High

Court justified in interfering with the award of the BO Appeal dismissed

Judgement:

Civil Banking ombudsman Jurisdiction Clause 13 (b) of the Banking ombudsman

Scheme, 1995 Respondent-Bank questioned jurisdiction of Banking ombudsman

(BO) to entertain Appellants complaint BO rejected the contention and passed an

award in Appellants favour Whether the subject matter of complaint within the

purview of the BO Held, Clause 13(b) of the Scheme provides that ombudsman could

entertain complaints concerning loans and advances only insofar as they relate to non-

observance of directives of Reserve Bank on interest rates, delays in sanction/non-

observance of prescribed time schedule for disposal of loan applications and non-

observance of any other directives of Reserve Bank, as may be specified from time to

time It was not the case where Respondent bank was guilty of non-observance of the

abovementioned directives of the Reserve bank Directions issued by BO while

passing the award outside the jurisdiction as given under Clause 13 (b) Accordingly,

BO had no jurisdiction to deal with matter Appeal dismissed

Ratio Decidendi:

1. The jurisdiction of Banking ombudsman is laid down in Clause 13 (b) of the Banking

ombudsman Scheme and it would not have jurisdiction on subject matters outside the

purview of that provision.

2. When the subject matter of complaint lying before Banking ombudsman is taken to

Court, Tribunal, Arbitrator or any other competent forum, Banking ombudsman loses

the jurisdiction to deal with that matter.

UCO Bank rep. by the Chief Manager, Chennai Main Branch. Vs Digboi

Refinery, Indian Oil Corporation Ltd., (Assam Oil Division) and Banking

ombudsman

Facts of the case:

the petitioner Bank, the bank issued Guarantee No. 579/94 on 6.12.1994 at the

request of M/s.AICAM Engineering Ltd. for Rs. 22,61,171.40 favouring Indian Oil

Corporation {Ltd. towards advance payment and security deposit in relation to

contract work of fired heaters for Digboi Refinery Project. This guarantee was

originally valid until midnight ]of 5.12.1995. Similarly, the petitioner issued another

guarantee to Indian Oil Corporation Ltd., Assam Oil Division, Digboi on 18.12.1996

bearing No. 387/96 for Rs. 19,76,368/- against a contract work of erection of

equipment machinery fabrication and related civil and structural works for Digboi

Reformer Project valid upto the midnight of 7.3.1997. The petitioner bank received

two separate letters on 9.3.1998 from the first respondent, calling upon the petitioner

bank to extend the guarantees for a further period upto September, 1998 or to treat the

same as letters of invocation. Since the claim letters were filed on/lodged with the

petitioner after the expiry of both the Guarantees, that is, on 9.3.1998, when the

Guarantees were no longer in force and the bank was already released and discharged

from all liabilities thereunder irrespective of whether original guarantees were

returned or not, the claims were rejected by the petitioner bank and the first

respondent was advised accordingly by its letter dated 30.6.1998. The first

respondent preferred a complaint with the second respondent/banking ombudsman

claiming deficiency of service on the part of the petitioner bank in not settling the

claim filed after expiry of the Guarantees. The second respondent gave an award on

31.3.1999 that the petitioner should pay the amounts under both the guarantees

totalling a sum of Rs. 35,13,306/- forthwith and also to pay compensation of Rs.

5,000/- to the complainant. Aggrieved by the order of the banking ombudsman, the

petitioner filed the writ petition before thigh Court.

judgment

the learned Judge, after finding no merit in the issue raised for consideration, accepted

the decision of the Banking ombudsman and dismissed the writ petition filed by the

bank. Hence, the writ appeal. Ombudsman’s order was upheld by the high court and

and supreme court.

makant Choure Vs Banking ombudsman and OrS.

In this case the court held that ombudsman not have the power to order to give

the money for the victim who spend to his council for representing this case before

the banking ombudsman.

Balla Rama Rao v. Banking Ombudsman

A house in the name of B. Narayanama was given on lease to the bank in 1982.

Subsequently, the lady died. The Bank did not pay rent from June 1992 to Feb. 1997. Balla

Ramarao, the appellant approached the bank. Bank immediately paid the amount Rs.

3,09,562. Balla contended that the interest should also be paid for the period of 1992 to 1997.

The bank refused to pay interest. The appellant approached to the banking ombudsman. But

he rejected the complaint, holding no merit in the case as it was outside the jurisdiction of the
banking ombudsman. Balla approached to the Andhra Pradesh high court. The high court

rejected the appeal, finding that it was outside the jurisdiction of the banking ombudsman.

R. Lakshmanan, Indian Overseas Bank rep. by its Chief Manager and V. Indira

Stephen Vs. Indian Overseas Bank Nungambakkam Branch rep. by its Chief

Manager and Ors.

Order of Bank Release of Amount Clause 16(3)(d) of Banking Ombudsman

Scheme, 1995 Present writ petition filed to direct respondent to release awarded

amount passed by Banking Ombudsman in petitioner’s favour Held, award of

Banking Ombudsman has to be set aside on technical grounds that proper and

necessary parties were not impleaded to proceedings Further, criminal complaint was

pending, as a result of which jurisdiction of Ombudsman stood divested in terms of

Clause 16(3)(d) of Scheme Aallegations made by petitioner are disputed questions of

fact which could not have been gone into Ombudsman without impleading proper and

necessary parties and causing an enquiry into those facts Therefore, Ombudsman

order is liable to be set aside Writ petitions dismissed

Review of Banking Ombudsman Scheme

Data on 1997-2002

Complaints Received

As against 6062 complaints received during the period 1998-99 (April-March), the

number of complaints received during 1999-2000, 2000-01 and 2001-02 stood at

4994, 5803 and 5907 respectively. As compared to the complaints received during

1998-99, there is a decrease of 2.5% during 2001-02. Average complaints per year per

office decreased marginally from 404 to 394 during the above period.

Period No. of Offices of No. of Average No.

Banking complaints of complaints

1998-99 Ombudsman
15 received
6062during per404.1
office
1999-2000 15 4994 332.9
2000-01 15 5803 386.9
15 5907 393.8
Analysis of complaints received

(subject-wise)
 Particulars 1998-99 1999-2000 2000-01 2001-02
Deposit Accounts 1830 1687 1617 1662
Loans and Advances 1904 1844 1930 1982
Delay in collection of cheques/bills 1198 943 999 1062
Non-issue of duplicate drafts 198 138 170 130
Miscellaneous 2334 2188 2262 2186
Total 7464* 6800* 6978* 7022*

(1402) (1806) (1175) (1115)

*No.of complaints includes previous year's pending complaints as indicated in

brackets.

Besides the miscellaneous complaints, the maximum number of complaints dealt with

during the period under review pertained to deficiency in servicing of loans and

advances followed by deposit accounts and delay in collection of cheques/bills, etc.

Bank-group-wise

Bank group 1998-99 1999-2000 2000-01 2001-02

Nationalised Banks 4063 3857 3657 3609
SBI Group 2337 1960 2175 2112
Private Sector Banks 390 417 531 629
Foreign Banks 219 198 147 254
Scheduled Primary Coop. 82 131 122 55

Banks
Others 373 237 346 363
 Total 7464 6800 6978 7022

Centre-wise

For the year ended March 31, 2002 the maximum number of complaints were

received at Jaipur (1021). Other offices of the Banking Ombudsman, which received

more than the average number of complaints of 394, were New Delhi (624),

Thiruvananthapuram (545),Kolkata (506), Chandigarh (466) and Hyderabad (406). As

in the past, majority of complaints during the period emanated from metropolitan and

urban centers. Very few complaints were received from rural and semi-urban areas. In

order to popularize the Scheme among the rural and semi-urban population,

campaigns have been organized by the Offices of Banking Ombudsman apart from

inserting advertisements in the local newspapers. The Banking Ombudsmen are also

interacting with the Chambers of Commerce and Industry and Bank Managers' Club,

etc.

Disposal of Complaints

Particulars 1998-99 1999-2000 2000-01 2001-02

Complaints received 7464* 6800* 6978* 7022*
Of which not maintainable 3317 2614 2732 2404
Complaints maintainable 4147 4186 4246 4618
Disposed of 2807 2484 3131 3511
Pending 1340 1702 1115 1107
 Of the pending complaints, 775 998 589 624

those pending for more

*Includes previous year's pending complaints.

The average number of complaints disposed of per office stood at 187, 166, 209 and

234 for the years ended March 31, 1999, 2000, 2001 and 2002 respectively and

showed an increasing trend.

AWARDS ISSUED

During the period under review (i.e. 1998-99 to 2001-02), 262 awards were issued

which formed 2.2% of the total 11933 maintainable complaints disposed of. Office-

wise details of the awards issued are furnished hereunder :

Sr. Centres 199 19992 20000 20010

1 Ahmedabad 899 0001 41 2

2 Bangalore 7 6 3 7

3 Bhubaneswar 2 1 3

4 Bhopal 2 3

5 Kolkata 2 14 16 15
6 Chennai 8 10 9

7 Chandigarh 0 0 1 2

8 Guwahati 2 2

9 Hyderabad 14 9 2

10 Jaipur 4 1 3 4

11 Kanpur 28 20 8 5

12 Patna 23

1 Mumbai 2 1 1 2

14 New Delhi 2 3 2 3

15 Thiruvananthapuram 2

Total 92 74 52 44

awards

Awards not implemented by banks 49 34 27 16

% of disposal of complaints by issue of 3.28 2.98 1.66 1.25

awards to total maintainable complaints

 % of disposal of complaints by 96.72 97.02 98.34 98.75

mediation/reconciliation/recommendatio

n to total maintainable complaints

Report (2003-2009)

PROFILE OF COMPLAINTS

Sr. Subject As on

No. 30.06.07 30.06.08

1 Complaints brought forward from the previous 6128 7105

year

2 Complaints received during the year 38638 47887

3 TOTAL 44766 54992

4 Complaints disposed during the year 37661 49100

5 Complaints pending at the close of the year 7105 5892

- Less than one month 2262 2712

(32) (46)

- One to two months 1936 1394

(27) (24)

- Two to three months 943 861

(13) (15)

- More than 3 months 1964 925

(28) (15)

6 Appeals received during the year 15 186

Appeals against Awards 15 17

 Appeals against Decisions * 0 169

7 Appeals disposed of during the year 13 154

8 Appeals pending at the close of the year 2 32

Less than one month 0 17

One to two months 0 10

Two to three months 2 3

More than three months 0 2

Figure in brackets show % of pending

* Appeals against decisions were allowed only from May 2007

Table- Number of complaints received by the Banking Ombudsman Offices

Period No. of Offices No. of Rate of Average No. of

of complaints increase complaints

Banking received (% over per office

Ombudsman during the year previous

year)

2003- 15 8246 — 550

04

2004- 15 10560 28 704

05

2005- 15 31732 200 2115

06
2006- 15 38638 22 2576

07

2007- 15 47887 24 3192

08

Population-segment wise Receipt

The offices of the Banking Ombudsman received complaints from

almost all the regions of the country. The region wise position of complaints is

given in Table 3 Chart 3:

Table - Population-segment—wise

receipt of complaint at the Offices of

Banking Ombudsman during 2007-08

Sr. No. Region No. of complaints received

1 Rural 8418

2 Semi Urban 6641

3 Urban 10978

4 Metropolitan 21850

TOTAL 47887

The reasons for larger number of complaints from the urban and metropolitan

regions are increased penetration of banking, increased awareness and increased

expectations of customers in such areas. There is however evidence that there is

increase in the receipt of complaints from rural and semi-urban areas, as the
Banking Ombudsman have created more awareness in such areas through personal

visits, media coverage and advertisements.

Banking Ombudsman-wise receipt

Table - Banking Ombudsman wise complaint receipt during 2006-07 and

2007-08

Banking Ombudsman Office 2006-07 2007-08

Ahmedabad 2107 2855

Bangalore 2406 2975

Bhopal 2731 3402

Bhubaneswar 689 998

Chandigarh 2006 2331

Chennai 2387 4545

Guwahati 170 282

Hyderabad 2767 2843

Jaipur 2976 3369

Kanpur 4321 5340

Kolkata 2011 2815

Mumbai 5525 6070

New Delhi 5481 6742

Patna 1481 1480

Bank Group-Wise Receipt at Banks

Table - Bank Group wise-complaints

received by Banks

Name of the bank Received during the Received during

group 2006-07 the2007-08

State Bank Group 21909 21736

Nationalized Banks 45794 59708

Old Private Sector 1100 1770

Banks

New Private Sector 828903 738942

Banks

Foreign Banks in India 342599 357516

TOTAL 1240305 1179672

The above data does not include complaints redressed within a day. It may be seen

that in the year 2007-08, bulk of the complaints at 92.95% has been received by

the new private sector banks and foreign banks. However, there has been a fall in

the number of complaints received by banks in 2007-08 compared to 2006-07

mainly due to reduction in complaints against new private sector banks.

Table Category-wise receipt of complaints received in 2006-07 & 2007-08

Nature of complaint Received during Received during

2006-07 2007-08

Deposit accounts 5803 5612

 Remittances 4058 5213

Credit cards 7688 10129

Loans and advances - General 4442 5297

Loans and advances - Housing 709 757

Charges without notice 2594 3740

Pension 1070 1582

Failure to meet commitments 1469 6388

DSAs and recovery agents 1039 3128

Notes and coins 130 141

Others 9636 5900

TOTAL 38638 47887

Disposal of Complaints

Banking Ombudsman Offices disposed of more than 80% of the complaints dealt

on an annual basis. During the year 2007-08, 89% of the complaints dealt were

disposed off. Around 53% of the complaints dealt have been disposed by mutual

settlement or by award while around 36% of the complaints dealt have been

rejected. Table

Table - Disposal of Complaints by Banking Ombudsman Offices

Particulars 2003-04 2004- 2005- 2006- 2007-

05 06 07 08

Complaints received* 9483 12034 33363 44766 54992

Complaints disposed No. 4011 4963 12304 15511 19735

by rejection

% 42 41 37 35 36

Complaints disposed No. 3998 5440 14889 22150 29365

by mutual settlement/

award

% 42 45 45 49 53

Total number of No. 8009 10403 27193 37661 49100

complaints disposed of

% 84 86 82 84 89

Complaints that are No. 1474 1631 6170 7105 5892

carried forward to the

next year

% 16 14 18 16 11

* Includes previous year’s pending complaints.

The Banking Ombudsmen disposed of complaints, other than the rejected

complaints, either by settlement or by issuing an Award. During the period

reviewed, the ratio of complaints disposed by settlement to the complaints

disposed by award was around 0.28 clearly indicating the effectiveness of the

Banking Ombudsmen in arriving at mutually agreed consensus between bankers

and complainants. During the above period, only 70 awards were issued. From the

year 2005-06, the number of awards issued and the percentage of disposal through

award issuance have come down despite huge increase in the complaints received.
 The fact that the Banking Ombudsmen could dispose of 99.72 % of the complaints

by settlement between the complainant and the concerned banks, indicates that the

conciliation approach was effective, and there was no need for the Banking

Ombudsman to pass any award. Table )

Table - Mode of disposal of complaints (other than rejected complaints)

during the years 2003-04 to 2007-08

Sr. Year No. of complaints Disposal by Disposal by

No. disposed of Award settlement

No. % No. %

1 2003-2004 3998 121 3.00 3877 97.00

2 2004-2005 5440 165 3.03 5275 96.97

3 2005-2006 14889 146 0.98 14743 99.02

4 2006-2007 22150 84 0.38 22066 99.62

5 2007-2008 29365 70 0.24 29295 99.76

Reasons for Rejection of complaints received in 2007-08

Table - Reasons for Rejection of complaints received in 2007-08

Sr. Reasons Number Percentage

No.

1 First resort complaint 7950 40

2 Time barred complaint 260 1

3 Complaint dealt earlier 333 2

4 Pending in other forum 476 2

5 Frivolous complaint 137 1

6 Not signed, incomplete address etc. 434 2

7 Without sufficient cause 3249 16

8 Not pursued by the complainant 706 4

9 Complicated requiring alaborate evidence 478 2

10 No loss to the complainant 547 3

11 Complaint subject matter outside scheme 2537 13

scope

12 Unrelated complaint 1136 6

13 Bank branch outside jurisdiction * 1492 8

TOTAL 19735 100

* Sent to the BO under whose jurisdiction it falls for actions.

Appeal against the decisions of the Banking Ombudsmen

Table 16 - Number of Appeals Received

during 2007-08

Particulars No. of

Appeals

Appeals against Awards 17

Appeals against Decisions 169

 TOTAL 186

Appeals disposed of during 154

the year

Appeals pending at the close 32

of the year

Less than one month 17

One to two months 10

Two to three months 3

More than 3 months 214

15

Advantages and disadvantages of banking ombudsman scheme

Advantages of banking ombudsman:

there is many advantages available in banking ombudsman scheme.

(i). this mechanism provides settlement on the basis of mutual concern.

14

15
Annual Reports of RBI on BOS-1997 to 2008.
 (ii). If there is no possibility of settlement then only ombudsman decide to take

that matter for it’s adjudication and pass an award.

(iii). In ombudsman proceedings there is no fee is collected from the

complainant (customer).

(iv). 2006 scheme provide appeal facility, it gives more possible to the

customer to optain proper remedy without judicial intervention.

(v). even though enforcement is in the hands of complainant, if he give his

concern to enforce the award the bank has the liability to do it. Because

ombudsman is under the control of RBI.

(vi). Now a days many cases are handled by ombudsmann it reduces the

burden of judiciary.

(vii). More over time and cost of complainant and respondent also saved.

(viii). Regarding appeal against ombudsman award in to the judiciary

comparing bank side, customer side is very less, it means that the scheme is

appritiated and encouraged by customers.

Dis advantages of ombudsman scheme:

When we analyze the scheme and it is progress there is too many loopholes still
unplugged by RBI. They are as follows:

(i). the ombudsman scheme is an optional one but not a proper alternative one.

Because banking ombudsman’s decisions are not binding in nature and

referring the matter to ombudsman is not a statutory provision, it dippons

customer’s wishes and choices.

(ii). The Debt Recovery Tribunal (DRT) is especially constituted for the

purposes of dealing the matters of recovery of debts. Some times ombudsman

involve in this matter. This was reflected in “ durga hotel case”.

(iii). There is a possible the aggrieved party of anaward passed by

ombudsman go to writ on high court under article 226 of inndian constitution.

In many cases appeal was made against ombudsman awards.

(iv). In many cases banks not responding ombudsman proceedings including

filing the same complaint to (DRT) and struck down ombudsman’s

jurisdiction.

(v). the enforcement of ombudsman award is not in the hands of or banks, it is

in the hands of the customer according to the scheme.

Conclusion and Suggestions

Conclusion:

Above said details give a clear picture about nature and growth of banking

ombudsman scheme. When we go through table whys are relating to filing cases is
increasing, is shows the willingness of the people to settled the disputes relating to

banking through alternative rather than judicial adjudication. But the success of the

ombudsman depends the willing of the parties to settle the dispute through Banking

ombudsman. If one of the parties is not willing the scheme become useless.

Suggestions:

In 2002 ombudsman rules 21 and 22 scheme provide arbitration powers to the

ombudsman especially disputes relating to a bank and it’s constituencies and a bank

and an other bank. However the 2006 scheme is silent in this matter. I feel that the

arbitration proceedings regarding customers grievances there is more possible to

deduct the further appeals. RBI also need to describe the jurisdiction especially

matters relating loans and advances. RBI also search and find a suitable solution for

separate the DRT jurisdiction from ombudsman jurisdiction. RBI also keen to give

stipulations regarding ombudsman to all banks- especially not to dilute the

ombudsman’s jurisdiction from a dispute. if those changes will take place this scheme

would be more attractive and effect.