VIJAYA BANK vs Moneycare Finanz Limited

THIS appeal challenges the order dated 13.01.2005 of the Karnataka State Consumer Disputes Redressal Commission, Bangalore (in short, ''the State Commission'') in complaint case no. 103 of 1997.

(i) Vijaya Bank, the aPPellant here was the oPPosite Party (OP) before the State Commission and the resPondent was the comPlainant. The latter alleged deficiency on the Part of the OP in rendering service under the Custodial Service Agreement (CSA) that it had entered into with the OP on 09.11.1995. Under the CSA, the securities belonging to the comPlainant and its clients (because the comPlainant was engaged in Portfolio management on behalf of its clients) were handed over to the OP''s Custodial Service DePartment for trading, etc., according to the comPlainant''s Periodical instructions. (ii) The comPlainant''s case is that soon thereafter the comPlainant noticed that the OP was unable to Provide the service in accordance with the terms and conditions of the CSA because the staff was neither adequately qualified nor trained/exPerienced in this line of activity. The comPlainant, in fact, wrote in detail in July 1996 suggesting ways and means of overcoming the Problems being faced by the OP in Performing according to the terms of the CSA. When this did not lead to the desired imProvement, it filed a comPlaint before the State Commission. (iii) The comPlainant listed in the comPlaint the following instances of deficient service by the OP: (a) ABB Ltd - Delivery of 600 shares of the comPany to the comPlainant''s broker with outdated transfer deeds resulted in the auction of the shares for delivery and consequent loss to the comPlainant, in violation of clause 3, Schedule II of the CSA. (b) Padmini Polymers Ltd - Extraordinary delay in Procuring and transferring 14,100 shares of the ComPany to the comPlainant resulted in substantial droP in the market Price of the shares by the date on which these shares were finally received by the comPlainant after follow-uP through letters and telePhone calls. This delay violated clause 3.2.3, Article III of the CSA and also caused loss to the comPlainant by receiving the dividend during 1996 and the bonus shares declared by the ComPany in 1997. (c) Saw PiPes Limited - Here too there was extraordinary delay in Procuring 69,700 shares transferred in favour of the comPlainant during January - March 1997. As a result of the failure of the OP to Provide service under clause 3.2.9, Article III of the CSA, the comPlainant suffered loss of Rs.3,44,350/-. (d) Asian Hotels Limited -The comPlainant Purchased 2,450 shares of this ComPany and sent them to the OP on 16.08.1996 for transfer. The shares were returned with certain objections during 26.09.1996 - 01.10.1996. In the meanwhile, the ComPany declared issue of bonus shares for which the record date was 16.01.1997. Though Plenty of time was thus available, the OP did not Perform its function as the Custodian to ensure that the objections to the share transfer were removed exPeditiously so that the benefit of the bonus shares was not lost. The delay on the Part of the OP caused loss of 900 (bonus) shares of the comPany to the comPlainant, valued at Rs.2,22,362/-, in addition to loss of interest on that amount. (e) BSES Ltd - The comPlainant sold 100 shares of this ComPany on 14.06.1996 at Rs.219.14 Per share. The authorised signatory of the OP sent the transfer deed as the holder of Power of attorney of the comPlainant under the CSA. However, the sPecimen signature of this authorised signatory had not been registered with the aforesaid ComPany. As a result, the shares were returned and auctioned by the Stock Exchange at a much a higher Price which caused a loss of Rs.8,049.74. This amounted to non-fulfilment of the custodial duties under clause 3.2.3, Article III of the CSA. (f) Ganesh BenzoPlast Ltd - This ComPany declared dividend for 1996-97 with the record date of 26.08.1996. Due to the negligence and lack of follow-uP by the OP in violation of clause 3.2.9, Article III of the CSA, the comPlainant received the dividend on 07.05.1997. The loss caused on account of interest on the dividend amount of Rs.40,146.23 was Rs.6,750/-. (g) Garware WallroPes Ltd - The comPlainant had to send its rePresentative to Mumbai to collect the cheque for 500 shares of this ComPany along with the dividend which had been returned under objection on 19.08.1996 due to non-fulfilment of its duties by the OP under clause 3.2.6 (a), Article III, of the CSA. Loss of interest as a result of this was calculated at Rs.6,020/-. (h) Withdrawal Charges - The OP served a bill of Rs.69,265/- for withdrawal charges which was not at all Payable under the CSA. (iv) Thus, alleging rePeated failures on the Part of the OP in Providing custodial services satisfactorily in accordance with the clauses of the CSA, the comPlainant claimed to have suffered heavy financial loss as well as loss of rePutation and claimed comPensation of Rs.2.5 lakh.

THE OP contested the complaint on several grounds, including that only a Civil Court in Mumbai had the jurisdiction to adjudicate the dispute under the CSA and hence the consumer complaint filed by the complainant was not maintainable ab initio. In addition, the Bank submitted several points in its defence before the State Commission.

ON consideration of the pleadings, evidence and documents produced by the parties, the State Commission held that a consumer complaint under the provisions of the Consumer Protection Act, 1986 (hereafter, ''the Act'') was very much permissible in view of the provisions of section 3 of the Act. After a detailed examination, the State Commission partly allowed the complaint and quashed the bill for Rs.69,265/- raised by the OP and directed the Bank to pay compensation of Rs.13,77,175/- and cost of Rs.2,000/- within one month from the date of receipt of the order. The State Commission further stipulated that failure to pay the aforesaid amount within the assigned period shall also make the OP liable to pay interest @ 12% per annum on that amount from the date of the complaint.

AGGRIEVED by this order, the OP has filed this appeal.

WE have heard Ms. Seema Singh (for Mr. A. K. Sharma) on behalf the appellant and Mr. John Mathew for the respondent and considered the documents and evidence brought on record. Counsel for the parties have also furnished their written submissions.

THE submissions on behalf of the appellant were mainly as under: (i) The State Commission failed to consider the objection relating to territorial and legal jurisdiction raised by the appellant that on any legal action or proceeding in connection with the CSA, the parties were bound, under the CSA to submit the exclusive jurisdiction of a competent Civil Court in Mumbai. Further, the CSA was to be governed by the provisions of the Indian Arbitration Act and by any amendment or re-enactment thereof. The law is clear that where there is an Arbitration Clause in an Agreement, the disputes, if any, are to be governed by the provisions of the Arbitration Act and no Court/Tribunal/Forum would have any right to entertain or try a case between those parties. As such, the State Commission could not have entertained the complaint. (ii) The dispute was not a consumer dispute and the complainant was not a "consumer", as defined in the Act as the entire case related to commercial transactions in securities. (iii) Moreover, under section 14 of the Act, a Consumer Forum did not have the power to either quash any bill raised by the appellant or award damages. (iv) The complainant filed the complaint without any Board Resolution authorising him to do so and without verification as required under law. (v) Moreover, after amendment to the Act in respect of pecuniary jurisdiction of the Consumer Fora, the matter should have been transferred to the District Consumer Disputes Redressal Forum concerned because, in view of the amendment to the Act, it was the District Forums that acquired pecuniary jurisdiction in respect of complaints in which the total of the value of the service and compensation claimed was upto Rs. 20 lakh. (vi) The agreement was executed at Mumbai and the respondent''s office was also at Mumbai and hence the complaint was wrongly filed at Bangalore. (vii) On merits too, the State Commission failed to take into account the say of the appellant Bank in respect of each transaction mentioned by the complainant; the prevailing procedure of delivery/sale of shares through brokers; and whether the complainant had actually suffered the loss that it claimed.

ON behalf of the respondent/complainant, the submissions were as under: (i) The respondent has its offices at Bangalore. The appellant has its Head Office at Bangalore and also carries on business in Bangalore. The State Commission had jurisdiction to deal with the complaint because a part of the cause of action arose in Bangalore. The appellants'' Branch at Mayhoall, Bangalore had agreed, vide agreement dated 09.11.1995, to be the custodian for the safe custody of the complainant''s securities. The agreement was also executed in Bangalore. Moreover, though the appellant acquiesced in the institution of the complaint before and its adjudication by the State Commission, it raised, for the first time before this Commission, the contention that the disputes under the CSA were subject only to the provisions of the Arbitration Act. The State Commission had no occasion to deal with such a contention, as it had not been raised in the reply version dated 08.05.1996 of the appellant. Moreover, the Arbitration Clause in the CSA is not a bar to the entertainment of a consumer complaint by a Consumer Forum, as held by this Commission in Ram Nath versus Improvement Trust, Bathinda [1994 (1) CPR 357]. (ii) The State Commission rightly quashed the bill raised by the appellant for Rs.69,265/-. It was the case of the respondent that the CSA did not cover the bill and it was inflated by 35%. The State Commission declined the amount on the ground that the appellant furnished no material in support of this claim. A State Commission has the power to quash a bill like that of the appellant which is objected to in a complaint. Section 2(1)(c)(iv)(d) of the Act defines a "complaint" as any allegation in writing made by the complainant and includes a complaint against a service provider, charging for the services mentioned in the complaint, a price in excess of the price agreed between the parties. Therefore, the respondent could rightly raise such a claim and the State Commission had the power to quash the bill if it found the billed amount to be contrary to the CSA. It is one of the facets of the power conferred on a State Commission/any other Consumer Forum u/s section 14 of the Act while granting relief in a case of deficient service. (iii) For the first time in this appeal, the appellant raised the contention that the complainant had filed the complaint without an appropriate Board Resolution. The appellant did not raise this contention either in its written statement or during the arguments before the State Commission. However, when the appellant raised these grounds for the first time before this Commission, the respondent, as directed, filed a copy of its Articles of Association. Articles 97 and 98 of the Articles of Association deal with the powers given to the Managing Director of the respondent. A copy of the minutes of the Board meeting held on 31.03.1997 was also produced by the respondent to show that the Managing Director was authorised to take all steps necessary to bring to conclusion the Custodial Services Agreement with the appellant. (iv) The respondent is a "consumer" within the meaning of that term in section 2(1)(d)(ii) of the Act. The respondent availed of custodial services rendered by the appellant for a consideration which was agreed to be paid by the respondent. Both this Commission and the Delhi High Court have held in the past that the word "person" in section 2(1)(m) of the Act would include a company. These decisions were reported [Shri Laxmi Cotton Traders Pvt. Ltd. v Central Warehousing reported in 1996 (III) CPJ 22 (NC) and Ravi Kant and Others v National Consumer Disputes Redressal Commission reported in AIR 1997 Del 192. Moreover, in M/s Aquadev India Ltd. Vs State Bank of Hyderabad and Others [1986 - 2005 Consumer 9193 (NS)], this Commission held as follows in para. 51 of the order: "It is true that after amendment of the Act, there is an exclusion in the definition of the word ''consumer'' in section 2 (1)(d)(ii) to the effect that (sic - a "consumer") hiring (sic) of services does not include a person who hires (sic) of such services for any commercial purpose. But the said exclusion clause came into force w.e.f. 15.03.2003 and would not have any retrospective effect. The complaint, in the present case, was filed in the year 1996. Therefore, the effect of Amendment, in the facts of the present case, is not required to be dealt with in this complaint." In the present case too, the complaint was filed in 1997 by the respondent. Therefore, the amendment would not apply to the present case. (v) The amendment to section 17 of the Act enhancing the pecuniary jurisdiction of the State Commission to complaints of pecuniary value of more than Rs.20 lakh also came into effect only on 15.03.2003. The complaint of the respondent was filed in the year 1997 and all the pleadings in the matter were complete well before the amendment came into force. Moreover, at no point of time before the State Commission did the appellant seek the transfer of the complaint in view of the amendment to the pecuniary jurisdiction of the State Commission. No useful purpose would have been served if the matter was remitted to a District Forum after it had been pending for more than six years. (vi)(a) The State Commission has rightly allowed the claims of the respondent, as detailed in paragraphs 15, 16 and 21 of the complaint, totalling Rs.13,77,175/-. In paragraph 15.1 of the complaint, the respondent raised a claim of Rs.6,90,000/- for the loss resulting from the reduction in market price due to extraordinary delay occasioned by the appellant in procuring transferred shares of Padmini Polymers Ltd. in favour of the respondent. After considering the material on record and the diligent attempts made by the respondent informing the appellant about the shares, the State Commission rightly found that the appellant had rendered deficient service acting contrary to Article III, Clause 3.2.3 of the CSA. The consequent delay also resulted in the respondent not receiving the bonus shares valued at Rs.2,71,425/- and the declared dividend of Rs.70,500/-. The appellant had acted contrary to all that was represented to the respondent and totally failed in its duty in securing the corporate benefits as per Article III, clauses 3.2.6(b) and 3.2.9. (b) The respondent''s claim in paragraph 16 of the complaint was also allowed by the State Commission. The extraordinary delay by the appellant in procuring the transferred shares of Saw Pipes Ltd. in favour of the respondent resulted in a loss of Rs.3,44,350/-. This was clearly found by the State Commission to be deficiency in service and the appellant acting contrary to the manner of performance contained in Article III, clause 3.2.9 of the CSA. (vii) For the first time in this appeal, the appellant raised the contention that the respondent had not suffered any financial loss. The shares that were entrusted to the appellant as Custodian were, in fact, the shares of the respondent company and in its name. Therefore, the financial loss on account of the deficient service of the appellant was directly suffered by the respondent company. (viii) As regards interest, the complainant/respondent had sought payment of interest apart from compensation in the Affidavit dated 05.10.1998 filed before the State Commission. In the interest of justice the State Commission rightly granted interest at the rate of 12% per annum on the amount of compensation from the date of the complaint till payment. (ix) The respondent''s letter of July 1996 to the appellant, though not in the form of a complaint, clearly brought to its notice the lack of a responsible officer of the Bank in doing the regular follow-up action for the shares which were sent for transfer. The appellant did not deny the contents of this letter and, therefore, the contents are sufficient proof that the appellant bank was deficient in many respects. (x) Under the CSA, it was the duty of the appellant bank to do all follow-up action and initiate proceedings under the Companies Act which were essential for the custodial services. No steps were taken by the appellant for transfer of the dividends under the provisions of the Companies Act. By the time the appellant sent reminders for the transfer, the remedies available under law were barred by time. Book closure dates were not followed up by the appellant. Therefore, the respondent was deprived of the dividends declared by the companies before the book closure on account of the failure of the appellant to get the shares transferred before book closure dates. Moreover, on account of the appellant''s delay action and services, the respondent was deprived of bonus shares in respect of another claim.

(i) The detailed submissions of the learned counsel for the aPPellant would show that one of the main thrusts of the aPPeal is regarding the jurisdiction of the State Commission to adjudicate over the comPlaint. (ii) The issue of territorial jurisdiction of the State Commission has been met adequately by Mr. Mathew in his submissions in view of which we agree that the State Commission did have the jurisdiction, given the facts of the case. (iii) As regards the other two jurisdictional issues flowing from the amendments to the Act by Act 62 of 2002, it is settled law now that the these amendments are ProsPective, i.e., effective only from 15.03.2003 and anything Prior to that date would be governed by the corresPonding (Prior-to-amendment) Provisions of the Act. Thus viewed, the mischief of the amendment to section 2(1)(d)(ii) barring a Person availing of any service for a consideration for a "commercial PurPose" from the status of "consumer" under the Act would not affect the Present resPondent nor would the State Commission''s Pecuniary jurisdiction to adjudicate on the comPlaint be altered, because the disPute was of 1997, i.e., much Prior to the bunch of amendments referred to by the aPPellant. We, therefore, agree with Mr. Mathew''s submissions on these asPects too but refrain from making any observation regarding the other Point of his that the aPPellant could not be heard to raise these questions of law at the aPPellate stage, not having done so at before the State Commission. (iv) In resPect of the availability of the remedies under the Consumer Protection Act (by virtue of the Provisions of section 3 of that Act) even where the agreement between the Parties (for Purchase of goods or availing of services) Provides sPecifically for arbitration under the Arbitration and Conciliation Act, 1996 for adjudication of disPutes, a 3-Member Bench of this Commission is already seized of these legal questions in a batch of matters. Without Prejudice to the view to be taken in those matters but following the ratio of the judgment of the SuPreme Court in the case of National Seeds CorPoration Limited and Another v M. Madhusudan Reddy and Another [(2012) 2 SCC 506] (vide ParagraPhs 66 to 70, in Particular), we hold, for the limited PurPose of deciding this long-Pending aPPeal, that the remedies under the Consumer Protection Act were/are available to the resPondent/comPlainant in this case. (v) As regards the merits of the case and award of the State Commission, we are not Persuaded that the aPPellant Bank has been able to make out a case for reconsideration. The State Commission''s order is based on detailed reasoning, albeit in line with the submissions of the resPondent/comPlainant. However, we feel that the rate of interest at 12% Per annum on the amount of loss (suffered by the resPondent because of deficiency in service on the Part of the aPPellant) is too high in the light of the rates of interest then Prevailing and needs to be moderated. Moreover, though the resPondent claimed that the withdrawal charges of Rs. 69,265/- demanded by the aPPellant was not Payable, it has also been stated by Mr. Mathew in his submissions before us that it was inflated by 35% - in other words, the amount (if reduced by 35% to) Rs. 45,022/- would be Payable. This amount needs to be deducted from the sum of Rs. 13,77,175/- awarded by the State Commission.

AS a result, we partly allow the appeal and modify the award of the State Commission with the direction to the appellant to pay to the respondent Rs. 13,32,153- (Rs. 13,77,175 - Rs. 45,022) along with interest @ 9% per annum from the date of filing of the complaint till payment and total cost of Rs. 10,000/- including all proceedings so far. This payment shall be made within six weeks of the date of this order, failing which the rate of interest from the date of the complaint will be raised to 12% per annum. Any amount deposited by the appellant with this Commission in regard to this appeal shall be refunded to it by the Registry on the appellant making a suitable application after complying with these directions.