M J Antony: Banking ombudsman loses sting

OUT OF COURT

If either party finds that the outcome might be adverse, it can end his role by merely going to the court at any stage.

The banking ombudsman, set up by the Reserve Bank of India in 1995, lost some of his powers recently when the Supreme Court defined his role in the judgement Durga Hotel Complex vs Reserve Bank of India. 'Ombudsman' is not defined either in the Banking Regulation Act or in the Banking ombudsman Scheme. The latter says that he is appointed for redressal of grievances against deficiency in banking services, concerning loans and advances and other specified matters.

However, the Supreme Court has ruled that he must keep out of the dispute once either party decides to move the debt recovery tribunal, arbitrator or a civil court. This is because a forum for adversarial adjudication stands on a higher plane than a scheme of settlement decided by an ombudsman.

This interpretation was made in a dispute between the hotel complex, a firm, and State Bank of India. It sought a loan of Rs 15 lakh and the bank sanctioned it. It disbursed Rs 11 lakh. The firm sought an additional advance. That was rejected by the bank. Not only that, the bank recalled the loan after crediting Rs 3 lakh out of the original loan sanctioned. This gave rise to the dispute. The firm moved the ombudsman. The bank challenged his jurisdiction. It also moved the debt recovery tribunal. In spite of the dispute pending before the tribunal, the ombudsman went ahead and gave an award in favour of the firm. The bank challenged it in the tribunal as well as the Patna high court. The high court allowed the petition of the bank and ruled that the ombudsman has no role once the dispute was taken to the tribunal. On appeal, the Supreme Court substantially took the same view.

In the process, the jurisdiction of the ombudsman was considerably sheared. The Supreme Court said that once a party moves an adjudicatory forum, the complaint before the ombudsman lost its "foundation in law". He must bow out once one of the adjudicatory forums takes up the matter. This could be at any stage. Often the complaint is heard and an award given before either disputing party goes to a tribunal, arbitrator or court because it is a conciliatory mechanism. But sometimes, one party may find the attitude of the ombudsman inauspicious after the proceedings started. He might find that it would be strategic to move another forum and make full arguments. Even in this case, the Supreme Court says that the ombudsman should bow out.

This could result in either party watching the observations and body movements of the ombudsman for some time and then end the proceeding by moving another forum. It would prolong the dispute, as the civil court or tribunal, or even the route through arbitration, does not guarantee early settlement of the wrangle. A company or a firm can withstand the delay, but an ordinary person with a legitimate complaint against a bank would feel frustrated when the powerful adversary chooses to take recourse to adversary litigation.

According to the Supreme Court, Clause 13 of the Banking Ombudsman Scheme "cribs, confines and cabins" the jurisdiction of the ombudsman. He can entertain complaints concerning loans and advances insofar as they relate to the non-observance of the directives of the Reserve Bank of India on interest rates, delays in sanctions or non-observance of the prescribed time schedule for disposal of loan applications.

The Supreme Court believes that this interpretation would not cause any difficulty to the person who has a complaint. He can make a "comprehensive counter claim" before the debt recovery tribunal and even claim damages from the bank. Two recent judgements of the Supreme Court are cited in this context: United Bank of India vs Abhijit Tea Co Pvt Ltd (2000) and State Bank of India vs Ranjan Chemicals Ltd (2007). It is, therefore, obvious that the person with the complaint against the bank can make all claims before the debt recovery tribunal. The catch is that an individual would not be able to stand up to the legal cannon fire of the lawyers engaged by the mighty banks.

Underplaying the status of the ombudsman, the judgement described him as "only an official appointed to receive, investigate and report on private citizen's complaints about the government". He is an independent, non-partisan officer who deals with specific complaints from the public against the administrative injustice and maladministration. With this interpretation of his role, the high hopes of the citizens to get justice from him is shrunk to a great extent. This affects not merely the banking ombudsman, but his counterparts in many other fields in economics and politics. His role could be ended by merely invoking the adversary forums.