consumers beware!
Don't bank on them
When banks dishonour a cheque despite sufficient funds in your account, you can get justice from the appropriate authority
Pushpa Girimaji Pushpa Girimaji

I had issued a cheque towards payment of my credit card bill. However, despite adequate balance in the account, my bank dishonoured the cheque on grounds of 'insufficient funds'. Now the bank admits that it made a mistake, but is unwilling to compensate me. I had to pay the credit card company a hefty interest for delayed payment and also a penalty for check dishonour. How do I get the bank to compensate me?

Write a formal letter to the nodal officer of the bank and ask that you be compensated for the loss suffered on account of the bank's negligence. Send a copy of the mail from your credit card company informing you of the rejection of your cheque and also a copy of the credit card bill showing interest on delayed payment. Along with this, send a copy of your bank statement showing sufficient funds in your account. If the nodal officer also does not respond positively, you can send the complaint to the Banking Ombudsman.

You can complain to the Banking Ombudsman
You can complain to the Banking Ombudsman

Let me quote a case decided by the Appellate Authority (one can appeal against the order of the Ombudsman before the Appellate Authority-the Deputy Governor of Reserve Bank of India) In this case too, despite sufficient funds in the account, the bank had dishonoured the cheque issued by the customer, towards the purchase of shares. The bank's excuse was that the new 14-digit account number was not mentioned on the cheque and so it was erroneously referred to another account having a similar name, but insufficient balance.

The Banking Ombudsman, in this case, pointed out that it was the responsibility of the bank to have stamped the revised account number on the cheque leaves. Besides, the bank's software system should have had the provision for determining the new numbers on the basis of the old numbers on the cheque leaves. For its failure on these counts, the bank was guilty of negligence; the Ombudsman said, and awarded a compensation of Rs 10,000.

The consumer, who had sought compensation for loss on account of non-receipt of shares, besides loss of reputation due to wrongful dishonour of the cheque, was unhappy with this compensation and filed an appeal before the Appellate Authority.

The AA found merit in his contention - as it was a Rights Issue, there was no question of non-allotment of shares. He also found that the market price of the share was substantially higher than the subscription price for a considerable time after listing. He therefore ordered that the consumer be compensated for the loss of Rs 84,000, along with 8 per cent interest. He did not entertain the claim for Rs 1 lakh as compensation as it was not covered under the provisions of the Banking Ombudsman Scheme. (Important decisions of the Appellate Authority. Annual Report on BO Scheme, 2011-12- you can see this on the RBI website)

Are there any decided consumer court cases on the issue of wrongful dishonour of cheques by banks?

In a number of cases, the consumer courts have come down heavily on financial institutions for such negligence and awarded damages to the consumer.

Bihar State Sugar Corporation Ltd v. State Bank of India (Original petition no 284 of 1997, decided on December 5, 2006) is a good example of the serious consequences of such negligence by banks. In this case, a cheque issued by the Corporation towards an insurance premium to cover risks to the assets of Lauriya Sugar factory, was wrongly dishonoured by the bank on grounds of 'insufficient funds'. And it was only when the factory made a claim for indemnification of loss suffered on account of an explosion in the molasses tank that the Corporation came to know that the policy was not in existence because of the non-payment of the premium amount.

In this case, the National Consumer Disputes Redressal Commission agreed with the contention of the bank that even if the policy was in existence, it would not have covered the explosion as it was outside the scope of the insurance cover. So the bank was not bound to indemnify the loss. However, it considered the gravity of the mistake committed by the bank of not honouring a cheque issued towards the purchase of an insurance policy to protect the factory from risks and said the bank should not go unpunished for this. It therefore asked the bank to pay punitive damages of Rs 5 lakh.