Supreme Court rules against consumer Courts resolving highly-disputed cases involving fraud

Supreme Court rules against consumer courts resolving highly-disputed cases involving fraud

It was deciding an appeal filed by the City Union Bank against the orders of the consumer commissions

The Supreme Court has reiterated that consumer commissions cannot decide complaints in highly-disputed cases involving tortuous acts or criminality like fraud or cheating.

The bench of Justice Ajay Rastogi and Justice Bela Trivedi said the concept of ‘deficiency in service’ under the Consumer Protection Act, 1986 must be distinguished.

The judges explained, “The proceedings before the commission being summary in nature, the complaints involving highly-disputed questions of facts or the cases involving tortuous acts or criminality like fraud or cheating, could not be decided by the forum/commission under the said Act. The ‘deficiency in service’ has to be distinguished from criminal or tortuous acts.

The bench added, “There could not be any presumption with regard to the wilful fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance in service, as contemplated in Section 2(1)(g) of the Act. The burden of proving the deficiency in service would always be upon the person alleging it.”

The Apex Court was deciding an appeal filed by the City Union Bank against the orders of the consumer commissions.

In the case, three drafts were issued by an NRI from Malaysia for the purchase of three flats. The drafts were for the sum of Rs.5 lakhs, Rs.3 lakhs, and Rs.6 lakhs.

The last two drafts were issued in the name of D-Cube Construction and not in the name of D-Cube Constructions (P) Ltd. The account, D-Cube Construction was opened by an individual R Thulasiram when he was one of the directors of D-Cube Constructions (P) Ltd.

The appellant bank had received a letter from D-Cube Constructions (P) Ltd, giving ‘no objection’ to opening the current account in the name of D-Cube Construction.

As disputes began between the directors of the company, the two disputed drafts (in the name of D-Cube Construction), were credited into its account. Even after the respondent complained and sought information, the appellant bank did not take any action.

Later, the respondent became aware from the Indian Overseas Bank that the demand drafts were presented through the second appellant bank for clearing and it was paid to the City Union Bank, Ram Nagar branch.

Once again, the respondent approached the appellant bank informing them that the amount of the two drafts was credited to some other accounts. And those should be re-credited to his current account. It was then that he realized the forged account.

He alleged collusion and negligence on the appellant’s part and filed a complaint before the State Commission.

Allowing the complaint with costs on the ground of ‘deficiency in service’, the State Commission directed the appellants to pay the respondent Rs.8 lakhs along with compensation of Rs.1 lakh towards mental agony, loss, and hardship.

Aggrieved by the order, the appellants appealed before the national forum, but the plea was dismissed. Thereafter, the matter was taken to the Supreme Court.

The respondent-complainant’s counsel submitted that when the two forums consistently held the appellants liable for the deficiency in service, the Court should not interfere. He said the bank was vicariously liable for the acts of its employees. It could not be said that there was any wilful default or imperfection or shortcoming so as to term it as ‘deficiency in service’ on the part of the appellant-bank within the meaning of Section 2(g) of the Act.

However, the bench viewed that even if the allegations in the complaint were taken at face value, it clearly showed there was “no wilful fault, imperfection, shortcoming or inadequacy” in the discharge of the duty on the part of the appellant bank’s employees, which could be termed as ‘deficiency in service.’

Thus, the court held, “As emerging from the record, some disputes were going on amongst the directors of the company and one of the directors, if allegedly had committed fraud or cheating, the employees of the bank could not be held liable, if they had acted bona fide and followed the due procedure.”

The Apex Court stated that the respondent-complainant had failed miserably in discharging his burden to prove that there was a ‘deficiency in service’ on the part of the bank’s employees.

Thus, Justice Rastogi and Justice Trivedi set aside the two orders passed by the consumer commissions.