The Supreme Court on Wednesday said banks act as agents for their customers and are under a "statutory obligation" to exercise due diligence and present a cheque for collection before it becomes "stale" as such a negligence constitutes a manifest deficiency in service.
A bench of Justices B V Nagarathna and Ujjal Bhuyan held the Canara Bank guilty of deficiency in service for failing to present cheques within their validity period, while reducing the compensation awarded to the complainants.
"A bank receiving cheques for collection acts as an agent of the customer and is under an obligation to exercise due diligence in presenting the instruments within the prescribed validity period. The failure to do so, resulting in the instrument becoming stale, in the absence of any reasonable explanation, would result in negligence in the discharge of banking duties which would constitute deficiency in rendering service within the meaning of the consumer protection law," Justice Bhuyan, who authored the 57-page verdict, said.
The verdict came on an appeal from the Canara Bank against the judgment of the National Consumer Disputes Redressal Commission (NCDRC), which had ruled in favour of customer Kavita Chowdhary.
The dispute arose in May 2018, when Kavita and Priya Chowdhary deposited two cheques for approximately Rs 1.06 crore into their Canara Bank accounts.
The cheques, issued by M/s Assotech Limited, were dated March 3, 2018, meaning they were set to expire on June 2, 2018.
Following the deposit on May 29, a nationwide bank strike was called on May 30 and May 31.
While the bank was excused for the delay during the strike, the verdict found that it had failed to re-present the cheques on June 1 or June 2, both of which were functional working days.
By the time the bank attempted to process the instruments, they had become "stale" and were rejected.
The bank argued that the delay was due to circumstances beyond its control and technical failures.
It further contended that since the company that had issued the cheques was undergoing liquidation, the complainants would not have recovered the money anyway.
The top court, however, rejected the submissions and noted that even if a company is in liquidation, a successful presentation and the subsequent dishonour of a cheque allows a complainant to initiate criminal proceedings against its directors under section 138 of the Negotiable Instruments Act.
By failing to present the cheques in time, the bank "nipped in the bud" the respondents' right to pursue such legal recourse, the court observed.
While the bench agreed with the NCDRC that the bank was negligent, it modified the "token compensation" awarded to the complainants.
The NCDRC had previously ordered the Canara Bank to pay 10 per cent of the cheque amount (approximately Rs 10.6 lakh) plus 8 per cent interest.
The top court said the actual loss was "indeterminate" because the issuing company was insolvent and reduced the compensation to 6 per cent of the face value of the cheques, along with 6 per cent interest per annum from the date of filing the complaint.
It also awarded Rs 50,000 as litigation costs to the customers as previously ordered by the NCDRC.