Durga Hotel Complex Vs. Reserve Bank of India & Ors  Insc 284 (15 March
H.K. SEMA & P.K. BALASUBRAMANYAN
(Arising out of SLP(C) No. 10075-10076 of 2005) P.K. BALASUBRAMANYAN, J.
1. The appellant, a partnership firm, sought a loan from the third
respondent Bank for putting up a hotel. In April 1997, a loan of Rs. 15 lakhs
was sanctioned by the Bank. The Bank disbursed a sum of Rs. 11,58,750/-. The
appellant sought an additional advance. The proposal in that behalf was not accepted
by the Bank. The Bank recalled the loan after crediting Rs. 3,41,250/- out of
the original loan sanctioned.
2. The appellant made a complaint before the Banking Ombudsman for the State
of Bihar at Patna under clause 16 of the Banking Ombudsman Scheme, 1995. Clause
16 enabled any person, who had a grievance against the Bank, to make a
complaint in writing to the Banking Ombudsman. The complaint had to be in
writing and it had to be accompanied by supporting documents, if any, relied on
by the complainant. It had also to set out the nature and extent of the loss
caused to the complainant and the relief sought from the Banking Ombudsman and
a statement about the compliance of the conditions referred to in that clause.
The appellant made the complaint about what it called the unauthorised or
fraudulent withdrawal from the account of the appellant and the non credit of
proceeds to the account of the appellant. It was contended that the crediting
3,41,250/- or withdrawal thereof from the account of the appellant was
unauthorised, and that the appellant had suffered considerable loss because of
the delay on the part of the respondent Bank in advancing the loan and in not
permitting the higher credit facility recommended in the Technical Cell Report
binding on the Bank. By way of relief it was claimed that the Bank should
further credit the remaining sanctioned loan to the account of the appellant.
The total interest for the period should be exempted and there should be a
direction to pay towards loss of the appellant a sum of Rs.
16.9 lakhs. The respondent Bank opposed the complaint.
The respondent Bank questioned the jurisdiction of the Banking Ombudsman to
entertain such a complaint. It contended that the jurisdiction of the Banking
Ombudsman was confined to certain matters specified in that behalf and the
claims of the appellant were not within the purview of the Banking Ombudsman.
3. On 1.11.2000, the respondent Bank approached the Debts Recovery Tribunal
constituted under the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 (for short, "the Recovery of Debts Act") for recovery of
amounts alleged to be due from the appellant. The complaint of the Bank was
numbered as O.A. No. 157 of 2000 and was being dealt with by the Tribunal.
4. Before the Banking Ombudsman, the Bank, inter alia, contended that the
complaint of the appellant before him had ceased to be maintainable in view of
the pendency of the proceedings before the Debts Recovery Tribunal and that,
even otherwise, the claims raised by the appellant did not come within the
purview of the Banking Ombudsman under the Banking Ombudsman Scheme, 1995. It
was contended that the jurisdiction of the Banking Ombudsman was a limited one
and the claims of the appellant were not those that could be entertained by
him. The Banking Ombudsman brushed aside these contentions. He found that his
jurisdiction was invoked by the appellant before the respondent Bank
approached the Debts Recovery Tribunal with its claim and hence he was not
precluded from adjudicating on the complaint of the appellant before him. He
also brushed aside the objection of the respondent regarding his jurisdiction
to entertain the complaint made by the appellant. The Banking Ombudsman is seen
to have made some suggestions or recommendations to settle the dispute between
the parties. They were not acceptable to the Bank. The Banking Ombudsman
thereupon proceeded to pass an award directing disbursal of the sum of Rs.
3,41,250/- to the complainant and directing the Bank to make further advances
in terms of the recommendations of the concerned Cell of the State Bank of
India maintaining financing ratio of 75:25 between the Bank and the
complainant. The Banking Ombudsman further directed that the period of repayment
should be fixed as seven years exclusive of one year of moratorium and in view
of non- disbursement of the loan, the period of moratorium had to be enhanced
according to the Rules and the interest be charged strictly in accordance with
the guidelines of the Reserve Bank of India. This award was passed on
5. The respondent Bank sought the permission of the Reserve Bank of India
to challenge the award passed by the Banking Ombudsman in a court of law.
Meanwhile, the appellant found that the respondent Bank was not complying with
the directions in the award of the Banking Ombudsman. The appellant therefore
filed C.W.J.C. No.
10756 of 2002 before the High Court of Patna under Article 226 of the
Constitution of India praying for the issue of a writ of mandamus directing the
respondent Bank to implement the award of the Banking Ombudsman. The
respondent Bank, in its turn, filed C.W.J.C. 1882 of 2003 challenging the
award of the Banking Ombudsman essentially on the ground that it was one without
jurisdiction, both on the basis that the matter was pending before the Debts
Recovery Tribunal when he rendered his award and on the further ground that the
subject matter of adjudication by him in the present case was beyond his ken
under the Banking Ombudsman Scheme, 1995. The learned single judge of the High
Court upheld the contentions of the respondent Bank and held that on the claim
being filed by the respondent Bank before the Debts Recovery Tribunal as O.A.
No. 157 of 2000, the jurisdiction of the Banking Ombudsman to deal with the
complaint of the appellant had come to an end and on the further ground that
the Banking Ombudsman had exceeded his jurisdiction in rendering the award
since the disputes raised were beyond his purview. As a consequence, the
learned single judge allowed the Writ Petition filed by the respondent Bank
and quashed the award passed by the Banking Ombudsman leaving the appellant to
raise all his claims before the Debts Recovery Tribunal, by way of a
counter-claim. Resultantly, the High Court also dismissed the Writ Petition of
the appellant seeking enforcement of the award of the Banking Ombudsman. Being
aggrieved by the decision of the learned single judge, the appellant filed two
Letters Patent Appeals in the High Court as L.P.A. Nos. 309 and 313 of 2004.
The Division Bench of the High Court agreed with the conclusions of the learned
single judge and dismissed the appeals filed by the appellant.
Feeling aggrieved thereby, the appellant filed these Petitions for Special Leave
to Appeal before this Court. On 10.5.2005, this Court while not entertaining
the Petition of the appellant on the merits of its claim, issued notice
confined to the questions of law arising in the case, clarifying at the same
time that the proceedings before the Debts Recovery Tribunal could proceed.
Thus, what is involved in this appeal is only the question of the jurisdiction
of the Banking Ombudsman and not the merits of the claims of the appellant in
the case on hand. Learned counsel also argued the appeal before us consistent
with the notice issued by this Court earlier.
6. Therefore, the two questions that arise are, whether the subsequent
filing of the claim by the Bank before the Debts Recovery Tribunal would oust
the jurisdiction of the Banking Ombudsman in a complaint earlier instituted
before him and whether the claims put forward before the Banking Ombudsman in
its complaint by the appellant fell within the jurisdiction of the Ombudsman
under the Scheme and consequently whether the directions issued by him were
within his province under the Scheme.
7. Before we proceed to deal with the arguments, we will notice the relevant
provisions. Under Section 35A of the Banking Regulation Act, 1949, the Reserve
Bank of India has the power to issue directions to banking companies generally
or to any banking company in particular, as it deems fit, and the banking
companies shall be bound to comply with such directions. The Reserve Bank of
India could, on its own motion or on representation made to it also modify or
cancel any direction it had earlier issued. In consonance with this power, on
14.6.1995, the Reserve Bank of India notified the Banking Ombudsman Scheme,
1995. We think it profitable to extract the relevant Notification herein:
" NOTIFICATION Ref. RCPC No. 1070/BOS-94-95 14th June, 1995 In exercise
of the powers conferred by Section 35A of the Banking Regulation Act, 1949 (10
of 1949), Reserve Bank being satisfied that it is necessary in public interest
and in the interest of banking policy to provide for a system of Banking
Ombudsman for redressal of grievances against deficiency in banking services,
concerning loans and advances and other specified matters hereby directs that
all commercial banks should comply with the Banking Ombudsman Scheme, 1995
Sd/- (R.V. Gupta) Deputy Governor"
By a notification dated 15.6.1995, the Scheme was also extended to Scheduled
Primary Cooperative Banks.
Admittedly, the Scheme so notified, was in force at the relevant time. As
per clause 2, the object of the Scheme was to enable resolution of complaints
relating to provision of banking services and to facilitate the satisfaction,
or settlement of such complaints. Under clause 4 of Chapter II, the Reserve
Bank of India could appoint a Banking Ombudsman to carry out the functions
entrusted to him by or under the Scheme. The Banking Ombudsman was to hold
office during the pleasure of the Governor of the Reserve Bank of India.
Chapter III dealt with the jurisdiction, powers and duties of the Banking
Ombudsman. Clause 12 provided that the Banking Ombudsman had the power and duty
to receive complaints relating to the provision of banking services and to
consider such complaints and facilitate their satisfaction, or settlement by
agreement, by making a recommendation, or Award in accordance with the Scheme.
Clause 13 specified that as regards banking services, the authority of the
Banking Ombudsman would include all complaints concerning deficiency in service
such as, non-payment/inordinate delay in the payment or collection of cheques,
drafts/bills etc. The other deficiencies that could be looked into on a
complaint are enumerated in clauses (ii) to (ix) to sub-clause (a) of Clause
We are not concerned with them in the present case. Since we are concerned
with a complaint regarding loan and advances, we may extract the Clause with
particular reference to clause 13(b), which has relevance thereto:
"13. SPECIFIC AMBIT OF AUTHORITY As regards banking services, the
Banking Ombudsman's authority will include:- (a) (b) Complaints concerning
loans and advances only insofar as they relate to:- i) non-observance of
Reserve Bank Directives on interest rates, ii) delays in sanction/non-
observance of prescribed time schedule for disposal of loan applications, and
iii) non-observance of any other directions or instructions of the Reserve
Bank, as may be specified for this purpose, from time to time."
Under clause 14, the Banking Ombudsman had general superintendence and
control over his office and he had power to incur expenditure on behalf of his
office. Chapter IV dealt with the procedure for redressal of grievance. Clause
16 provided for making a complaint. Since what is involved is an interpretation
of the scope of the power of the Ombudsman on a complaint, we think it proper
to extract Clause 16 hereunder:
"16. COMPLAINT (1) Any person who has a grievance against a bank, may
himself or through an authorised representative make a complaint in writing to
the Banking Ombudsman within whose jurisdiction the branch or office of the
bank complained against is located.
(2) The complaint shall be in writing duly signed by the complainant or his
authorised representative and shall state clearly the name and address of the
complainant, the name and address of the branch or officer of the bank against
which the complaint is made, the facts giving rise to the complaint supported
by documents, if any, relied on by the complainant, the nature and extent of
the loss caused to the complainant and the relief sought from the Banking
Ombudsman and a statement about the compliance of the conditions referred to in
sub- clause (3) of this clause.
(3) No complaint to the Banking Ombudsman shall lie unless,- (a) The
complainant had before making a complaint to the Banking Ombudsman made a
written representation to the bank named in the complaint and either the bank
had rejected the complaint or the complainant had not received any reply within
a period of two months after the bank concerned received his representation or
the complainant is not satisfied with the reply given to him by the bank;
(b) The complaint is made not later than one year after the bank had
rejected the representation or sent its final reply on the representation of
(c) The complaint is not in respect of the same subject matter which was
settled through the office of the Banking Ombudsman in any previous proceedings
whether received from the same complainant or any one or more of the parties
concerned with the subject matter;
(d) The complaint is not the same subject matter, for which any proceedings
before any Court, Tribunal or Arbitrator or any other forum is pending or a
decree or Award or order of dismissal has already been passed by any such
Court, Tribunal, Arbitrator or forum;
(e) The complaint is not frivolous or vexatious in nature."
8. As regards the first aspect as to whether the Banking Ombudsman had lost
his jurisdiction in view of the approach made by the respondent Bank to the
Debts Recovery Tribunal, what is relevant is clause 16(3)(d) quoted above and
as regards the question whether the Banking Ombudsman had jurisdiction to
entertain the claims made by the appellant, what is involved is the
understanding of the scope of clause 13(b), quoted above.
9. It is clear that when the appellant invoked the jurisdiction of the
Banking Ombudsman, the respondent Bank had not approached the Debts Recovery
Tribunal with its application for recovery of the amounts due under the loan
transaction. Therefore, this was a case where on the day the complaint was
filed, no proceeding before any Tribunal on the subject matter was pending or
in which a final order had been passed or decision rendered. At the stage of
initiation, there was no impediment in the way of the Ombudsman in entertaining
the complaint or in proceeding with it. The impediment, if any, was caused by
the Bank's subsequent filing of O.A. No. 157 of 2000 before the Debts Recovery
Tribunal. The High Court has taken the view that since by the time the
Ombudsman rendered his award, the Bank had already approached the Debts
Recovery Tribunal with its claim under the Recovery of Debts Act, the Banking
Ombudsman did not have jurisdiction to render the award, or has lost his
jurisdiction to render the award. Clause 16 of the Scheme in sub-clause (1)
speaks of a person making a complaint in writing to the Banking Ombudsman.
Clause (3) read in conjunction with sub-clause (d) indicates that no complaint
to the Banking Ombudsman shall lie if on the subject matter that is put forward
before the Ombudsman, there is a proceeding pending before a Court, Arbitrator,
Tribunal or forum or a decree or final adjudication had earlier been made by
any one of them. This would suggest that the bar is attracted only when on the
date of the filing of the complaint before the Ombudsman, a claim on the
subject matter is pending before, say, the Debts Recovery Tribunal. Here
admittedly, on the day the jurisdiction of the Banking Ombudsman was invoked,
no such claim was pending before any Court, Arbitrator, the Debts Recovery
Tribunal or any other forum. To that extent, prima facie, there is merit in the
contention that Clause 16(3) may not be attracted to the case on hand.
10. Clause 16(3) of the Scheme says, "No complaint to the Banking
Ombudsman shall lie". According to Black's Law Dictionary "lie"
means, "to have foundation in the law; to be legally supportable,
sustainable or proper". In the context of the power conferred on the
Ombudsman by the Scheme read in the light of Section 35A of the Banking
Regulation Act, it would be appropriate to understand the expression as having
a foundation in law in the sense that the claim must have a foundation in law.
A Banking Ombudsman, though might have initially jurisdiction to entertain a
complaint on the basis that it has a legal foundation, here in terms of the
Scheme, he may be divested of that jurisdiction or the foundation in law might
be lost on either of the parties approaching the Court, the Arbitrator or the
Debts Recovery Tribunal in respect of the same subject matter. Dealing with the
expression 'entertain' this Court held in LAKSHMI RATTAN ENGINEERING WORKS LTD.
VS. ASSTT. COMMR. SALES TAXN KANPUR &
ANR. [(1968) 1 S.C.R. 505] that it means to deal with or admit to
consideration. The Court approved the views expressed by some of the High
Courts that the word 'entertain' meant not 'receive' or 'accept' but 'proceed
to consider on merits' or adjudicate upon. The Court also accepted the
Dictionary meaning of the word as 'admit to consider'. This was also the view
that was subsequently taken by this Court in Through Legal Representatives
[(1971) 3 S.C.C. 124]. It was held therein that the expression
"entertain" in Order XXI Rule 90 of the Code meant, to 'adjudicate
upon' or to 'proceed to consider on merits' and not 'initiation of proceeding'
Drawing an analogy, it is possible to say that the complaint must continue
to have a foundation in law at the time the Ombudsman takes up the claim for
his consideration and renders his decision or award. The foundation would be
lost when a Court, Arbitrator, Tribunal or any other competent forum is moved
on the same subject matter. When the subject matter of the complaint is taken
to any other competent forum, the complaint loses its foundation in law. In
other words, the subject matter of the complaint should not be pending in any
other Tribunal, or Court or before an Arbitrator not merely when it is filed
but also when it is taken up for consideration and disposal.
11. There is a more fundamental aspect. The Ombudsman, at best, is an
Authority or Tribunal of limited jurisdiction constituted under the Scheme. It
is a jurisdiction conferred by the Scheme. The exercise of jurisdiction or
power by the Ombudsman would depend on his having jurisdiction not only to
entertain a claim but also to bring it to an end.
The continued exercise of power by him would depend on his continuing to
have jurisdiction. Once he is deprived of his jurisdiction or gets deprived of
his jurisdiction over the subject matter, he could no more proceed with a
complaint which was earlier filed. In other words, to render an Award valid in
terms of the Scheme, the Ombudsman must continue to retain jurisdiction over
the subject matter of the concerned complaint. A complaint goes out of his
purview when the subject matter of it is taken to a Court, Arbitrator, Tribunal
or forum. The relief that can be granted by the Ombudsman are limited and
confined to the matters coming within clause 13 of the Scheme. The intention
behind incorporating clause 16(3)(d) appears to be to ensure that the relief an
Ombudsman may give, may not conflict with a more comprehensive adjudication by
a Court, Arbitrator, Tribunal or forum with wider powers. When there is
conferment of a power on an authority or Tribunal with limited jurisdiction,
that conferred power must continue to exist, when the decision is rendered by
that authority or Tribunal. Once the conferred authority or power is taken away
or impeded, the Authority or Tribunal can no more exercise it. This will be the
position when one of the parties in a complaint before the Ombudsman takes the
subject matter to a Court, Arbitrator, Tribunal or forum. In other words, when
ultimately he is about to pronounce his Award, the Ombudsman finds that the
subject matter of the dispute has been taken to the Debts Recovery Tribunal or
a Civil Court or an Arbitrator or to any other competent forum, he gets
divested of his jurisdiction, on a harmonious reading of clause 16(1) with
clause 16(3)(d) of the Scheme. It is not, as if, a bar of jurisdiction can
occur only at the stage of initially entertaining a claim. It could also occur
at a subsequent stage either in view of the jurisdiction being taken away or in
view of any other impediment created by the very Legislation, Rule or Scheme
that conferred the initial jurisdiction. Thus, having lost his jurisdiction
over the complaint in view of clause 16(3)(d) of the Scheme, the Ombudsman will
have to decline jurisdiction to pass any order or award on the complaint.
This, we think would be the proper way of understanding the bar created by
clause 16(3)(d) of the Scheme.
12. Conceptually, an Ombudsman is only a non- adversarial adjudicator of
disputes. An Ombudsman by definition is only an official appointed to receive,
investigate, and report on private citizen's complaints about the government; a
similar appointee in a non-governmental organisation (such as a company or
university). (See Black's Law Dictionary). He serves as an alternative to the
adversary system for resolving disputes, especially between citizens and
government agencies. He is an independent and non-partisan officer who deals
with specific complaints from the public against the administrative injustice
(See 4 American Jurisprudence 2d). Therefore, by its very nature, an
Ombudsman is an alternative to an adversary system for resolution of disputes.
When the subject matter of a complaint before the Ombudsman under the Scheme is
taken to a Court, Tribunal, Arbitrator or other competent forum, the subject
matter is takwn away from the purview of the Ombudsman to an adjudicatory forum
under an adversarial system. It is therefore logical to understand clause 16 of
the Scheme with particular reference to sub-clause 3(d) thereof, that on one of
the parties approaching an adjudicatory forum on an adversarial system, the
non-adversarial adjudicator, the Ombudsman must lose his power or authority to
bring about a resolution of the complaint by way of a non adversarial
adjudication. An Ombudsman is not defined in the Banking Regulation Act, 1949
or in the Banking Ombudsman Scheme 1995 constituting him as adversarial
adjudicator. Clause 12 of the Scheme constitutes him a facilitator to bring
about a satisfaction of the complaint, in one of the modes referred to therein.
An adversarial adjudication necessarily stands on a higher plane than a
settlement of a complaint at the instance of an Ombudsman. When such a forum
for adversarial adjudication of disputes takes seisin of the subject matter of
a complaint, it will be logical to postulate, on an interpretation of clause 16
of the Scheme, that the Ombudsman loses his jurisdiction over the subject
matter of the complaint and consequently the complaint itself.
13. Thus we are of the view that the High Court was justified in interfering
with the Award of the Banking Ombudsman on the ground that he could not have
passed the Award in view of the divestiture of his jurisdiction.
14. After all, a complainant before the Ombudsman like the appellant will
not be prejudiced by this interpretation. It Abhijit Tea Co. Pvt. Ltd. &
ors. [(2000) Supp 3 S.C.R 153] that the expression 'counter-claim' in
sub-Sections (8) to (11) of Section 19 of the Recovery of Debts Act will take
in even a claim for damages based on the same transaction and would include
even an independent claim the respondent before the Debts Recovery Tribunal may
have against the claimant Financial Institution. It has thus been held that a
counter- claim in a wide sense will lie before the Debts Recovery Tribunal and
the respondent will be entitled to raise a comprehensive counter-claim. This
ratio has also been Chemicals Ltd. & Anr. [(2007) 1 S.C.C. 97]. It is
therefore obvious that the appellant can make all his claims before the Debts
Recovery Tribunal while defending the claim of the Bank, including the ones he
has put forward before the Banking Ombudsman.
15. Then the question is whether the subject matter of the complaint came
within the purview of the Banking Ombudsman. Clause 13(b) of the Scheme indicates
the jurisdiction of the Ombudsman. Clause (b) provides that he could entertain
complaints concerning loans and advances only insofar as they relate to
non-observance of the directives of the Reserve Bank of India on interest
rates, delays in sanction/non-observance of prescribed time schedule for
disposal of loan applications and non-observance of any other directions or
instructions of the Reserve Bank of India, as may be specified for the purpose
of the Scheme from time to time.
It is seen, as found by the High Court, that there was no claim that the
respondent Bank was guilty of non-observance of any directive of the Reserve
Bank of India on interest rates.
There is also no case that any other direction or instruction of the Reserve
Bank of India made for the purpose of the Scheme had not been observed by the
respondent Bank. At best, the appellant can claim that it was complaining of
delay in sanction/non-observance of prescribed time schedule for disposal of
its loan application for additional finance. Even here, the case of the
respondent Bank is that there was no time schedule prescribed for enhancing
the limit of the loan or for granting additional loan to a hotel industry like
the one for which the appellant was claiming a loan from the Bank and hence
there was no question of any of the complaints of the appellant coming within
the purview of the Banking Ombudsman. A reading of the Award of the Banking
Ombudsman shows that the directions issued by him regarding the advancing of
the balance amount of Rs.3,41,250/- out of the original loan of Rs. 15 lakhs
sanctioned, his direction to the Bank to make available additional finances
merely on the basis of the recommendation of the Committee in that behalf and
his directing the maintaining the financing ratio of 75:25 and his fixing a
repayment schedule as seven years exclusive of one year of moratorium and the
enhancement of the period of moratorium consequent on non-disbursement of the
loan amount by the respondent Bank, are all outside Clause 13(b) of the Scheme
and consequently outside the jurisdiction of the Banking Ombudsman. The Banking
Ombudsman has no authority to compel the Bank to make further advances which as
a prudent banker it might not find feasible. Nor can the Banking Ombudsman
interfere with the agreement regarding the repayment schedule fixed by the
parties or the financing ratio that may be maintained between the Bank and the
borrower. Nor can the Ombudsman direct the increase of the period of moratorium
or fix a schedule of repayment of the loan. As we have indicated, there is no
case that any of the directives of the Reserve Bank of India in respect of any
of these matters had been violated by the respondent Bank.
The High Court, in our view, was correct in finding that the Banking
Ombudsman had exceeded his jurisdiction in passing the Award that he has
passed. None of the directions come within the purview of Clause 13(b) of the
Scheme. The jurisdiction of the Banking Ombudsman under the Scheme is cribbed,
confined and cabined by clause 13 of the Scheme.
Therefore, in any event, the directions issued by the Banking Ombudsman are
outside his jurisdiction. In this context, we do not think it necessary to
consider whether there can be a specific performance of an agreement to lend or
the issuance of a direction to lend more money than the Bank was willing to
lend considering the creditworthiness of the borrower and his prior conduct in
respect of the repayment of the loan which the Bank had already granted.
16. We thus find that the High Court was justified in interfering with the
award of the Banking Ombudsman. We therefore answer both the questions raised
on behalf of the appellant against the appellant and in favour of the
respondent Bank. The questions of law thus stand answered.
17. We dismiss the appeal.