NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION

NEW  DELHI

 

CONSUMER  COMPLAINT  NO.           82             OF             2006

 

Atul Nanda & Anr.                                      …      Complainants

Versus

Reserve Bank of India & Ors.                  …      Opposite Party

 

 

BEFORE :

                   HON’BLE  MR. JUSTICE  M.B. SHAH,  PRESIDENT

                   HON’BLE  MRS. RAJYALAKSHMI  RAO,  MEMBER

                   HON’BLE  MR. JUSTICE  K.S. GUPTA,  MEMBER

 

 

For the Complainant    :         Mr.Atul Nanda, Advocate 

 

For the Opp. Parties    :         Mr.Avneesh Garg,  Advocate  for

OP 1 (RBI)

 

Mr.S.L. Gupta, Advocate & Mr.   R.K. Dikshit Advocate for Opp. Parties 3,18,21,36,37,38,39,41,43,69

 

Mr.Harsh Jha and Mr.Dhruv Mehta, Advocates for OP 4

 

Mr.R. Majumdar, Advocate  for OPs 5, 10, 14

 

Mr.P.B. Agarwala, Advocate for OPs 6, 60

 

Mr.V.K. Tandon, Advocate for OP 7

 

Mr.Pradeep Dewan, Mr.Anupam Dhingra, Advocates for OP 8

 

Mr. Rohit Madan, Advocate for OP 9

 

Mr. Bishwajit Bhattacharya, Sr.Advocate with Mr. Sudarshan Rajan,  for OP 12

 

Mr. Rambir Singh and Mr.Kunal Tandan, Advocates for OP No.13

 

Mr. R.N. Rout, Advocat and Mr. B.N. Patra

Advocate  for OP 15

 

Mr. Saran Suri, Advocate for OP 16

 

Mr.H.D. Talwani, Advocate for OP 17

 

Mr.Anshu Mahajan, Advocate for OP 19

 

Dr.Sunil Narula, Advocate for OP 20

 

Ms.Richa Choudhary, Advocate for OP 22, 32 and 57

 

Mr.Ajay Monga, Advocate   for OP 23, 29

 

Mr.Dharam Dev, Advocate for OP 25, 55

 

Mr. Abhishek Kumar, Advocate for OP 26

 

Mr. S.S. Salooja, Advocate for OP 27

Mr.Rajender Kumar, Advocate for OP 30 and 33

 

Mr.P.S. Shetty, Advocate for OP 35

 

Ms.Deepti and Mr.P.I. Jose, Advocates for OPs 40 and 47

 

Mr. D.P. Chaturvedi, Advocate for OP 44

 

Mr. S.K. Garg, Advocate for OP 45

 

Mr. Dveep Ahuja, Advocate with

Mr. V. Ramakrishna, Manager (Legal) for OP 46

 

Mr.Vijay Kumar, Advocate for OP 48

 

Mr.Devendra Sain, Advocate for OP 49

 

Mr.K.J. Naik and Mr.Subhash Chand, Advocates for OP 51

 

Mr.J.Pradhan, Advocate for OP 52

 

Mr. K.K. Mani, Advocate for OP 54

 

Mr.Manoj Arora, Advocate for OP 56

 

Mr. Vijay Kumar Gupta, Advocate for OP 63

 

 Ms. Nirmal Mishra, Advocates for OP 76

 

Mr.Manish Khandelwal, Advocate for OP 79

Ms.Surekha Raman, Advocate for OP 88 and 90

 

19.08.2008

 

ORDER

 

          Heard the learned counsel for the parties.

          It appears that the operative part of the order passed on 14.7.2008 is still not known to the public.  It is, therefore, directed that the State Bank of India, HSBC Bank and the Standard Chartered Bank shall publish the same in following terms at their joint cost in at least two leading newspapers which are published from Delhi and Mumbai within a period of one week from today :-

“On the basis of the various policies framed by the Banks and the RBI directions, it is directed that:

(a).    For the local cheques credit and debit shall be given on the same day or at the most on the next day.

(b).    The maximum period for collection of outstation cheques shall be 7/10/14 days. And, if there is any delay in collection of the said chques beyond the period of 7/10/14 days, interest at the fixed deposit rate, or at a specified rate as per the respective policy of the banks, is to be paid to the payee of the cheques;

(c).    The salient features of the policy with regard to the collection period of outstation cheques and interest payable thereon in case of delay shall be published on the notice board in a precise manner in bold/visible letters at conspicuous place in every branch.

All the banks are, therefore, directed to comply with the same within a period of two weeks, if they have not complied with the aforesaid RBI directions uptil now.

(d).    A copy of the complete policy shall be made available by the Branch Manager, if the consumers require the same for reading.

 

(e).    The salient features highlighting the rights of the consumers shall also be displayed on the notice board of each branch of the Banks.

(f).     RBI would monitor the directions given by it as well as this Commission.”

 

 

FOR COLLECTION OF OUTSTATION  CHEQUES

 

          From the documents which are filed on record by the complainants, it appears that some inconsistent affidavits have been filed by RBI in regard to the policies enunciated by it on various dates.  Repeated stand taken by the RBI with regard to cheque policy that it is not regulating the business of banks and they are free to follow the policies framed by them with regard to collection of cheques and their payments.  As against this, from the compilation of documents produced on record, it appears that RBI had issued various directions from time to time to monitor the collection and payment of outstation cheques.  This would be clear from the following paragraphs :-

“Computerisation of Clearing and Settlement Operations

5.10.    Inter-bank Clearing: Inter-bank payments are usually settled among banks by issuing cheques drawn on their accounts with Reserve Bank of India. This practice resulted in a large number of cheques being presented to Deposit Accounts Department (DAD) of the Reserve Bank, leading to heavy work pressures throughout the day. It was therefore, decided to start a separate Inter-bank clearing. In the Inter-bank clearing banks no longer use the RBI cheques to settle their claims against each other. Instead, they use their own Bankers Cheques. The settlement is carried out through Floppy Based input statements, submitted to the Clearing House. The pay orders are however, dropped in the designated receptacles, from where they are collected by banks' representatives. Since there is no return for these instruments, the credit / debit is instantaneous.

5.11.     …………………………………….. This clearing which is basically a debit clearing has been converted into a credit clearing at Chennai from 1996 onwards. Instead of bankers' cheques, banks generate credit advices using a software provided to them by the Reserve Bank and settlement is effected at the Clearing House on the basis of the consolidation of the credit data furnished by all the member banks. This has been rendered possible due to computerisation of all the service branches in Chennai.

 

Address delivered by Shri V.Leeladhar, Deputy Governor, RBI on August 1, 2008 in Mumbai

The Role of the RBI

            The development of a payment system is one developmental role that is common to most of the central banks.  It is well recognized that an efficient payment and settlement system is essential for efficient functioning of the modern financial system.  The Reserve Bank has, therefore, played a catalytic role, over the years, in creating an institutional framework for development of a safe, secure, sound and efficient payment system for the country.  It has also initiated a variety of institutional, procedural and operational measures to strengthen and refine the payment system.  In order to place the efforts of RBI in a proper perspective, allow me to briefly trace some of the salient developments, chronologically.

The Board for Payment & Settlement System

            In order to strengthen the institutional framework for the payment and settlement systems in the country, the Reserve Bank constituted, in 2005, a Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) as a Committee for its Central Board.  The Board is chaired by the Governor, RBI while all the four Deputy Governors and two external Directors of the Central Board are its members.  The role of the BPSS is to lay down policies relating to the regulation and supervision of all types of payment and settlement systems, set standards for existing and future systems, approve criterial for authorization of payment and settlement systems, and determine criteria for membership to these systems, including continuation, termination and rejection of membership.  Thus, the BPSS is the highest policy making body in regard to the payment and settlement systems in the country and encompasses electronic, non-electronic, domestic and cross-border payment and settlement systems which affect the domestic transactions…………………..

Payment and Settlement Systems Act 2007

…………………………..The Reserve Bank and the government felt that there should be an explicit law to regulate the payment and settlement systems.  The Parliament has enacted the Payment and Settlement Systems Act in December 2007. This Act empowers the Reserve Bank to regulate and supervise the payment and settlement systems and provides a legal basis for multilateral netting and settlement finality.  The Act empowers the Reserve Bank to law down the policies for regulation and supervision of the payment and settlement systems, authorize their setting up/continuance, for issuing directions, laying down standards, calling for information/data, initiating prosecution/levying penalties for violation of the provisions of the Act, its regulations and directions etc.  The Act will come into operation very shortly.

 

Cheque Truncation System (CTS)

The latest electronic payment product introduced by the RBI is the Cheque Truncation System, which was launched, on a pilot basis, in the National Capital Region of New Delhi on February 1, 2008, with the participation of 10 banks.  At present all the banks are participating in the system through 53 direct member banks.  The main objective of the CTS is to improve the efficiency and substantially reduce the cheque processing time in the system.  The traditional clearing system requiring the physical presentation of cheques in the clearing house for payment and settlement, inevitably entails consequential inefficiencies in terms of clearing time and infrastructure required.  The enormity of the logistic needed for physical cheque clearance can be gauged from the fact that we cleared about 1.46 billion cheques in the country during the year April 2007 to March 2008.  In contrast, the main advantage of cheque truncation is that it obviates the physical presentation of the cheque to the clearing house; instead, the electronic image of the cheque would be sent to the clearing house.  The CTS would enable the realization of cheques on the same day, and provide a more cost-effective mode of settlement than manual and MICR clearing.  Smaller banks, which may find it unviable to set up the infrastructure, could utilize the services of service bureaus set up for this purpose by a few larger banks.

The challenges ahead :

…………………………Then, there are also some nagging efficiency issues in the payment system.  Whilst the current clearing cycle of T+1 basis for the cheques payable locally, compares favourably with the best in the world, it is necessary to look into the entire cheque collection cycle – from the time a customer deposits a cheque at a branch till the point of realization of credit in his account.  There is perhaps scope for continuous improvement in overall collection cycle.  Going by the number of complaints received, it appears that customer-service in this area is not very customer-centric.

 

 

                            

Review of Payment and Settlement Systems in India 2006 - 2007

                             Role of Reserve Bank of India in the retail payments arena

2.5 Reserve Bank of India has taken a number of steps during the last few years, to build an efficient retail payments infrastructure and develop a strong institutional framework for the payment and settlement systems in the country.

2.6 The process of infrastructure building started with the mechanisation of cheque clearing operations through the introduction of MICR based clearing at the four metros cities and thereafter covering the other important centers. The foray of the country into electronic payments arena started with the introduction of Electronic Clearing Service (ECS) and Electronic Funds Transfer System. Though the system was initially confined to RBI managed clearing houses, it made a good beginning of the era of electronic payment mechanism in the country. While ECS facilitated settlement of bulk payment instructions, EFT facilitated one-to-one remittances. RBI introduced the National Electronic Funds Transfer System (NEFT), a modified EFT system incorporating PKI based security features and centralized settlement facility in 2005.

2.7 On institutional structure – subsequent to the Government of India Gazette Notification dated February 18, 2005, of the Reserve Bank of India (Board for Regulation and Supervision of Payment and Settlement Systems) Regulation, 2005, a Board for Regulation and Supervision of Payment and Settlement Systems has been constituted. A separate department called Department for Payment and Settlement Systems has also been formed in Reserve Bank of India to have focused attention on Payment and Settlement systems.

Retail payment instruments

2.9 Cheque: Cheques is the most popular payment instrument in the country. The clearing and settlement of cheques drawn on different banks require the coming together of the banks in that area for transfer of instruments and the final settlement of funds. This process is facilitated by the clearing houses at these centers. Currently, 1064 clearing houses are operational in the country. Of these, at 59 centers the clearing and settlement process has been mechanised by the introduction of 'Magnetic Ink Character Recognition (MICR)' based sorter machines. More than eighty percent of the total cheque clearing volume and value in the country are accounted for by these centers. To further bring in efficiency and automating the settlement obligation Magnetic Media Based Clearing System (MMBCS) is being implemented at centers with more than 15 banks, where currently the process is being carried out manually.

2.10 The clearing and settlement cycle in the country is two days – Day-1 the cheques are presented at the clearing house and Day-2 the funds settlement and return clearing are accounted for.

2.11 While in absolute terms the volume of cheques issued in the country is still substantial and increasing, it is observed that the rate of growth has decreased during the last few years. The growth rate which was 14.1% in 2004-05 has decreased to 6.5% in 2006-07.

 

 

Payment and Settlement Systems and Information Technology

 PAYMENT AND SETTLEMENT SYSTEMS
Board for Regulation and Supervision of Payment and Settlement Systems

VIII.3 The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), constituted in March 2005, as a Committee of the Central Board of the Reserve Bank, is entrusted with the responsibility for the smooth development and functioning of the payment and settlement systems in the country. The Board gives directions, sets standards for operations of the payment systems and reviews the membership criteria for each of the systems.  During 2006-07, the main thrust of the BPSS directions was on electronification of the payment systems and building of appropriate legal, procedural and technological infrastructure. Specific directions of the Board included (i) preparing a roadmap for migration from paper-based funds transfer to electronic payment systems;……………………………………….

Cheque Clearing

VIII.11 At end-March 2007, the MICR clearing facility was available at all the 59 centres identified for this purpose. These centres accounted for 84 per cent and 87 per cent, respectively, of the total volume and value of cheque clearing. As regards the remaining non-MICR centres, their conversion into MICR CPCs has been examined and found to be non-viable. Accordingly, the focus is on greater computerisation of the major non-MICR CPCs. Based on the volume of cheques processed and number of banks/branches in the centre, a total of 240 clearing houses have been identified; of these, more than 150 clearing houses with more than 15 member banks each have been computerised using the magnetic media based clearing system.

VIII.12 ……………………………….The pilot project for CTS in the National Capital Region of Delhi is expected to commence in the second half of 2007. The CTS obviates the physical presentation of the cheque to the clearing house; instead, the image of the cheque would be sent to the clearing house. The physical cheque would, thus, be truncated at the branch itself or the service branch. The CTS would enable the realisation of cheques on the same day, and provide a more cost effective mode of settlement than manual and MICR clearing. ……………………………………………..

 

 

Table 8.1: Payment System Indicators

 

Volume (000s)

Value (Rupees crore)

 

2003-04

2004-05

2005-06

2006-07

2003-04

2004-05

2005-06

2006-07

1

2

3

4

5

6

7

8

9

Systemically Important Payment

 

 

 

 

 

 

 

 

Systems (SIPS)

 

 

 

 

 

 

 

 

1.

Inter-bank Clearing

1,142

808

–

–

30,46,666

9,91,436

–

–

2.

High Value Clearing

13,172

13,077

15,924

18,730

30,23,290

46,07,208

49,81,428

50,34,007

3.

Government Securities Clearing

265

185

151

167

25,18,322

26,92,129

25,59,260

35,78,037

4.

Forex Clearing

331

466

490

606

23,18,531

40,42,435

52,39,674

80,23,078

5.

RTGS

0.07

460

1,767

3,876

1,965

40,66,184

1,15,40,836

1,84,81,155

 

 

 

 

 

 

 

 

 

 

Total SIPS (1 to 5)

14,910

14,996

18,332

23,379

1,09,08,774

1,63,99,392

2,43,21,198

3,51,16,277

 

 

 

 

 

 

(3.9)

(5.2)

(6.8)

(8.5)

Others

 

 

 

 

 

 

 

 

 

6.

MICR Clearing

609,786

927,571

1,015,912

1,128,656

31,08,795

37,57,608

44,92,943

54,15,103

7.

Non-MICR Clearing

398,700

225,392

254,922

223,177

24,17,209

11,02,643

18,54,763

16,06,990

8.

Electronic Clearings

29,016

57,900

83,241

148,997

29,607

77,702

1,06,598

1,86,160

9.

Cards

137,936

171,004

201,772

229,713

22,537

31,047

39,783

49,533

Total Others (6 to 9)

1,175,438

1,381,867

1,555,847

1,730,543

55,78,148

49,69,000

64,94,087

72,57,786

 

  

 

 

 

 

(2.0)

(1.6)

(1.8)

(1.8)

Grand Total (1 to 9)

1,190,348

1,396,863

1,574,179

1,753,922

1,64,86,922

2,13,68,392

3,08,15,285

4,23,74,063

 

  

 

 

 

 

(6.0)

(6.8)

(8.6)

(10.3)

Note :
1. Paper-based inter-bank clearing was closed at Mumbai with effect from November 1, 2004 and was phased out at other centres by June 2005. Inter-bank transactions are now settled through RTGS system, which became operational on March 26, 2004.
2. High value clearing refers to cheques of Rs.1 lakh and above.
3. Settlement of Government securities clearing and forex clearing is through Clearing Corporation of India Ltd.
4. At end-March 2007, the MICR clearing was at 59 centres (53 centres a year ago). Non- MICR clearing refers to paper-based clearings
at the centres where MICR cheque processing centres have not been set up.
5. Electronic clearings comprise Electronic Clearing Services (ECS), Electronic Funds Transfer (EFT), Special Electronic Funds Transfer
(SEFT) (between April 2003 and February 2006) and National Electronic Fund Transfer Systems (NEFT) (since November 2005).
6. Cards include credit and debit cards. Data for debit cards for 2003-04 and 2004-05 are estimated based on 2005-06 figures.
7. Figures in parentheses are ratios to GDP at current market prices.

                                   

 

 

The Payment and Settlement Systems Act, 2007

                                                                                    AN                                                                                                                               ACT

To provide for the regulation and supervision of payment systems in India and to designate the Reserve Bank of India as the authority for that purpose and for matters connected therewith or incidental thereto.

 

 

          Considering the aforesaid statements and documents produced on record, it is directed that a responsible officer from the Board of Payment and Settlement System of the RBI shall remain personally present on 27th August 2008.

 

 

……………………………………….J.

( M.B.  SHAH)

PRESIDENT

 

…………………………………………

(RAJYALAKSHMI  RAO)

MEMBER

 

 

………………………………………..J.

(K.S. GUPTA)

MEMBER

/sra/  27  / Court-1