“SUPREME COURT HELD THAT PROCEEDINGS BEFORE CONSUMER FORUM ARE SUMMARY IN NATURE AND IT CANNOT DECIDE COMPLAINTS INVOLVING HIGHLY DISPUTED QUESTIONS OF FACTS OR TORTIOUS ACTS OR CRIMINALITY LIKE FRAUD OR CHEATING UNDER THE ACT”

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 7289 of 2009

The Chairman & Managing Director, City Union Bank Ltd. and Ors.

…Appellants

Vs.

R. Chandramohan                                                                … Respondent

In this case there were three Directors in a company named “D-Cube Constructions Pvt. Ltd.” having its registered office at Chennai.

In April, 1995 the company through its one of the director (who was a complainant in the consumer case and respondent in the appeal before SC) opened a current account with City Union Bank.

Since the company was into construction projects of flats, a buyer had purchased three flats and informed the director that he had sent two drafts for Rs. 5 lakhs and Rs. 3 lakhs i.e., total Rs. 8 lakhs.

However upon reconciliation of accounts it was found that the above said drafts were not credited into the current account of the company opened with the bank. Later it was transpired that the above two drafts were credited into another branch of the City Union Bank maintained by the Company.

Therefore the director (complainant in the consumer case) in August, 1998 requested the bank to re-credit the said two drafts into the current account which was opened by him for the Company as mentioned above.

Further upon exchange of communications between bank and the director concerned that a separate account in the name of D-Cube Construction was opened and since the drafts were in the name of “D-Cube Construction” it got deposited into the said bank branch.

The director (complainant) alleged collusion and negligence on the part of the bank and filed a complaint before the State Commission.

The State Commission allowed the complaint and imposed a cost of Rs. 1000 on the bank and directed the bank to pay Rs. 8 lakhs to the complainant/director and also Rs. 1 lakh towards mental agony and hardship.

The Bank challenged the above order of the State Commission before the National Commission, circuit bench at Chennai. But it was dismissed by the National Commission vide order dated 1.02.2007.

Aggrieved by the order above, the Bank filed an appeal before the Hon’ble Supreme Court of India.

It was contended by the appellant bank before the Supreme Court that in the absence of any fault, imperfection, shortcoming, or inadequacy in the performance which was required to be maintained by the bank, it could not be presumed that there was deficiency in service as defined under Section 2(1)(g) of the Consumer Protection Act. 

It was also contended by the appellant bank that another bank account of the company in which the drafts were cleared was opened upon the instruction of another director of the company vide a formal approval.

Therefore in case of any fraud was committed by the Co-director of the Company, such disputes will not fall within the jurisdiction of the State Commission and National Commission.

On the other hand it was contended by the director/respondent that the bank would be vicariously liable for the acts of its employees.

It was contended that as per RBI guidelines an account should not have been opened with the similar name of the company of which he was the MD.

It was alleged that without the involvement of the bank’s official, another director could not have encashed the drafts into another account. Therefore alleged deficiency in service.

The Hon’ble Supreme Court after perusing the documents on record, judgments relied by the parties was of the view that there was no deficiency in service on the part of the bank since the drafts were not in the name of “D-Cube Constructions Pvt. Ltd.” but “D-Cube Construction” therefore it got deposited into the bank account of the company with the said name maintained by the branch. Also the said account was procedurally opened by the another director of the company with the approval.

It was held by the Hon’ble Supreme Court that in case of any disputes that were on going amongst the Directors of the Company and if there is a case of fraud or cheating by the director, the employees of the bank could not be held liable, if they had acted bona fide and followed the due procedure.

It was held that the proceedings before the Commission are summary in nature and the complaints involving highly disputed question of facts or the case involving tortious acts or criminality like fraud or cheating could not be decided by the Commission under the Consumer Protection Act.

Accordingly the appeal was allowed by the Hon’ble Supreme Court and the orders passed by the State Commission and National Commission were quashed and set aside.

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