The Supreme Court of India ruled consumer forums cannot decide fraud or forgery disputes in banking transactions like unauthorized fixed deposit pledges. Justices PS Narasimha and Manoj Misra said such cases belong in civil or criminal courts.
NEW DELHI: The Supreme Court of India has ruled that consumer forums cannot decide disputes that involve allegations of fraud and forgery in banking transactions particularly where fixed deposits are said to have been pledged without authorization. The Bench of Justices PS Narasimha and Manoj Misra held that such claims should be pursued through ordinary criminal or civil proceedings.
The Court said,
“According to the appellant this pledge is a fraudulent act and amounts to an offence. In such circumstances, the complaint allegations as they stand cannot be adjudicated upon in a proceeding under the 1986 Act as those allegations could appropriately be addressed in a regular criminal or civil proceeding,”
The dispute concerned a Rs 9 crore fixed deposit that Sant Rohidas Leather Industries (the appellant) placed with Vijaya Bank in 2014. The company alleged the bank fraudulently created an overdraft facility of Rs 8.1 crore against that deposit without consent, and later adjusted the deposit proceeds to extinguish the overdraft.
The appellant sought repayment of the full deposit plus interest, alleging deficiency in service. The bank countered that the deposit had been pledged to secure credit facilities and that the matter raised grave allegations of fraud and forgery.
The National Consumer Disputes Redressal Commission (NCDRC) had dismissed the complaint, finding that the appellant did not qualify as a “consumer” under Section 2(1)(d) of the Consumer Protection Act, 1986, which led to the appeal to the Supreme Court.
The apex court observed that consumer fora are not suited to resolve complex factual disputes involving fraud, forgery or criminal wrongdoing. Proceedings under the Consumer Protection Act are summary in nature and are not designed to decide issues that require detailed evidence, such as claims of fabricated documents or unauthorized pledges. On that basis, the court upheld the dismissal of the complaint, while noting that the appellant is free to pursue remedies in the appropriate civil or criminal fora.
The Court held,
“The main grievance of the appellant appears to be qua adjustment of proceeds of the FDR against the amount outstanding in the overdraft account. Thus, what is clear from the complaint allegations is that the Bank had acknowledged the FDR and had accounted for the interest payable thereon but, instead of releasing the maturity proceeds in favour of the appellant, it had set up a subsequent contract of pledge of that FDR for according overdraft facility to the appellant. According to the appellant this pledge is a fraudulent act and amounts to an offence,”
The Court also considered whether a company that places a bank deposit qualifies as a “consumer.” It affirmed that a company can be a consumer under the statute, but clarified that merely earning interest on a fixed deposit does not automatically make the transaction “commercial.” The court explained that the dominant purpose test must be applied to determine whether banking services were availed for profit-generating commercial purposes.
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The Supreme Court rejected the NCDRC’s broad view that interest-bearing deposits are per se commercial transactions. It observed that parking surplus funds with a bank for safekeeping or statutory compliance does not necessarily reflect a commercial purpose, though deposits used to leverage credit for business may take on a commercial character.
The Court said,
“In normal course, parking of surplus funds by a body corporate with a bank, either for safe custody or to comply with statutory mandate, as the case may be, is not reflective of a commercial purpose,”
Although the Court found shortcomings in the NCDRC’s reasoning, it ultimately affirmed the complaint’s dismissal because the dispute raised serious allegations of fraud that are unsuitable for consumer jurisdiction.
The appellants were represented by advocates Shreyas Gacche, Prashant R Dahat, Sourabh Gupta, Puneet Yadav, Priya Mittal and TT Sivakumar. The respondent’s counsel included Vaibhav Dang, Amrendra Kumar Mehta, Ranpal Awana and DN Ojha.
Case Title: Sant Rohidas Leather Industries v. Vijaya Bank
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