Supreme Court Clarifies Deficiency of Service in Joint Fixed Deposit: Arun Bhatia vs. HDFC Bank (2022)

Introduction

Date of the Judgment: August 8, 2022

Citation: 2022 INSC 804

Judges: Dr. Dhananjaya Y Chandrachud, J and A.S. Bopanna, J

Can a bank unilaterally encash a joint fixed deposit (FD) and credit the proceeds to only one of the joint account holders? The Supreme Court of India recently addressed this critical question in a consumer dispute case. The court examined whether such an action by a bank constitutes a deficiency of service under the Consumer Protection Act, 1986. The bench, comprising Justices Dr. Dhananjaya Y Chandrachud and A.S. Bopanna, delivered a judgment clarifying the responsibilities of banks in handling joint accounts. The judgment was authored by Dr. Dhananjaya Y Chandrachud, J.

Case Background

On January 7, 2016, Arun Bhatia (the appellant) and his father (the fourth respondent) opened a joint fixed deposit (FD) account at the Agra branch of HDFC Bank (the first respondent). The FD was for INR 75 lakhs with a maturity period of 145 days, yielding an interest of 7.5% per annum. Upon maturity, the FD was worth INR 77 lakhs. On May 31, 2016, the appellant and his father jointly instructed the bank in writing to renew the FD for ten days, maintaining its joint operation status. However, on June 2, 2016, the appellant’s father, while in Surat, submitted a letter to the bank’s Adajan Branch requesting the entire FD amount of INR 77 lakhs to be transferred to his individual savings account in Agra. On June 3, 2016, the appellant instructed the bank not to transfer the FD amount to any individual account. Despite this, the bank credited the proceeds to the appellant’s father’s account. The appellant received an email on June 4, 2016, stating that INR 77 lakhs had been credited to his account, which he claims was incorrect.

Timeline

Course of Proceedings

The appellant initially filed a consumer complaint with the State Consumer Disputes Redressal Commission (SCDRC) at Lucknow, alleging a deficiency of service by HDFC Bank. The SCDRC dismissed the complaint on October 24, 2018, stating that the dispute was essentially between the appellant and his father, and thus not a consumer dispute. The SCDRC reasoned that since the FD was in joint names, the dispute over its proceeds required a civil court’s intervention. The appellant then appealed to the National Consumer Disputes Redressal Commission (NCDRC). On May 7, 2019, the NCDRC dismissed the appeal as withdrawn, allowing the appellant to approach the appropriate forum. The appellant filed a review application, claiming he had not instructed his counsel to withdraw the appeal and that the FD document presented was incomplete. The NCDRC rejected this review application on July 25, 2019, stating that the order was clear and the issue of maintainability was already noted.

Legal Framework

The case is primarily governed by the Consumer Protection Act, 1986. The relevant provisions are:
✓ Section 2(1)(d)(ii) of the Consumer Protection Act, 1986 defines a ‘consumer’ as someone who “hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised… and includes any beneficiary of such services…”.
✓ Section 2(1)(g) of the Consumer Protection Act, 1986 defines ‘deficiency’ as “any fault, imperfection, shortcoming, or inadequacy in the quality, nature, and manner of performance which is required to be maintained by or under any law… or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.”
✓ Section 2(1)(o) of the Consumer Protection Act, 1986 defines ‘service’ as “service of any description which is made available to potential users and includes, but not limited to, the provision of facilities in connection with banking…”.
The Supreme Court emphasized that the definition of ‘service’ is broad and encompasses all kinds of services, including banking. The court also noted that a person who avails of a service from a bank falls under the purview of the definition of a ‘consumer’ under the Consumer Protection Act, 1986.

Arguments

Appellant’s Submissions:

• The appellant argued that the fixed deposit (FD) was in the joint names of the appellant and his father.
• Upon maturity of the FD, a joint request was made at the Agra Branch of the respondent bank for renewing it for ten days.
• The bank was not justified in law in entertaining the unilateral request of his father for crediting the proceeds to his account.
• The appellant contended that the premature encashment of the FD by the respondent bank, without the consent of both account holders, was a clear deficiency of service under Section 2(1)(g) of the Consumer Protection Act, 1986.
• The appellant highlighted that the bank’s own terms and conditions for joint FDs required all signatories to sign the encashment instruction in case of premature encashment.
• The appellant also pointed out that he had sent a communication to the bank on June 3, 2016, instructing them not to transfer the FD amount to any single-person account, which the bank ignored.

Respondent Bank’s Submissions:

• The respondent bank claimed that the joint FD was redeemed on May 31, 2016, and the amount was credited to the appellant’s father’s account.
• The bank stated that the appellant had approached them with a request signed by his father for creating another FD of INR 77 lakhs.
• The bank further alleged that the appellant had misrepresented his father’s age and health and that upon becoming aware of this, the father had requested the bank not to book the FD and to credit the amount back to his account.
• The bank contended that it had acted based on the representations made by the appellant and his father.

The innovativeness of the appellant’s argument lies in emphasizing the breach of the bank’s own terms and conditions for joint FDs, which required all signatories for premature encashment. This argument directly challenges the bank’s actions and highlights a clear deficiency in service.

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether the consumer complaint was correctly disposed of by the SCDRC without going into the merits of the claim of a deficiency of service on the ground that the appropriate remedy of the appellant would lie before the civil court.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:
✓ Maharashtra State Financial Corporation v. Sanjay Shankarsa Mamarde [(2010) 7 SCC 489] – The Supreme Court of India observed that the scope of ‘deficiency’ as defined under clause 2(1)(g) of the 1986 Act is wide and is to be determined on the basis of the facts and circumstances of a particular case.
✓ Vodafone Idea Cellular Limited v. Ajay Kumar Agarwal [(2022) 6 SCC 496] – The Supreme Court of India explained that service of every description will fall within the ambit of the definition of ‘services’ under Section 2(1)(o) of the 1986 Act.

The Court also considered the following legal provisions:
✓ Section 2(1)(d)(ii) of the Consumer Protection Act, 1986
✓ Section 2(1)(g) of the Consumer Protection Act, 1986
✓ Section 2(1)(o) of the Consumer Protection Act, 1986

Judgment

How each authority was viewed by the Court?

✓ The Supreme Court relied on Maharashtra State Financial Corporation v. Sanjay Shankarsa Mamarde [(2010) 7 SCC 489]* to emphasize the wide scope of the definition of ‘deficiency’ under the Consumer Protection Act, 1986.

✓ The Supreme Court cited Vodafone Idea Cellular Limited v. Ajay Kumar Agarwal [(2022) 6 SCC 496]* to highlight that the definition of ‘service’ under the Consumer Protection Act, 1986 is broad and includes all kinds of services, including banking.

✓ The Supreme Court considered Section 2(1)(d)(ii) of the Consumer Protection Act, 1986 to define who qualifies as a ‘consumer’ under the Act.

✓ The Supreme Court considered Section 2(1)(g) of the Consumer Protection Act, 1986 to define ‘deficiency’ in service.

✓ The Supreme Court considered Section 2(1)(o) of the Consumer Protection Act, 1986 to define ‘service’ to include banking services.

What weighed in the mind of the Court?

The Supreme Court was primarily influenced by the following factors:

• Breach of Contractual Terms: The bank’s own terms and conditions for joint fixed deposits required all signatories to sign the encashment instruction in case of premature encashment. The bank’s failure to adhere to this was a significant factor.
• Deficiency of Service: The court emphasized that the bank’s action of unilaterally crediting the proceeds of a joint FD to one account holder constituted a deficiency of service under the Consumer Protection Act, 1986.
• Consumer Rights: The court underscored the importance of protecting the rights of consumers who avail of banking services.
• Maintainability of Complaint: The court held that the consumer complaint was maintainable against the bank, as the issue was a deficiency of service and not a dispute between the appellant and his father.
• Procedural Fairness: The court noted that the NCDRC should have entertained the review application, as the appellant had stated on affidavit that he had not instructed his counsel to withdraw the appeal.

The court’s reasoning was a blend of factual analysis and legal interpretation. The court considered the facts of the case, including the joint nature of the FD and the bank’s actions. The court also relied on the legal provisions of the Consumer Protection Act, 1986, and the precedents set by previous judgments. The court’s reasoning emphasized the importance of upholding contractual obligations and protecting consumer rights.

The Supreme Court rejected the argument that the dispute was primarily between the appellant and his father. The court emphasized that the complaint was against the bank for a deficiency of service. The court also rejected the argument that the bank was justified in acting on the unilateral request of the appellant’s father, as it was in violation of the terms of the joint FD.

The Supreme Court stated:

“The essence of the complaint of the appellant is that there was a deficiency on the part of the respondent bank in proceeding to credit the proceeds of a joint FD exclusively to the account of his father.”

“The SCDRC ought to have determined whether the complaint related to deficiency of service as defined under the 1986 Act. The SCDRC had no justification to relegate the appellant to pursue his claim before a civil court.”

“The NCDRC having failed to do so, we pass the following order: (i) The orders of the NCDRC dated 7 May 2019 and 25 July 2019 are set aside.”

Key Takeaways

The key takeaways from this judgment are:

• Banks must adhere strictly to the terms and conditions of joint accounts, especially regarding encashment instructions.
• Unilateral actions by banks, such as crediting proceeds of joint FDs to one account holder without the consent of all, can be considered a deficiency of service under the Consumer Protection Act, 1986.
• Consumer disputes related to deficiency of service by banks are maintainable before consumer forums, and consumers should not be relegated to civil courts for such disputes.
• The definition of ‘service’ under the Consumer Protection Act, 1986 is broad and includes banking services.
• Banks must ensure procedural fairness and due diligence when handling consumer complaints and review applications.

Directions

The Supreme Court gave the following directions:

1. The orders of the NCDRC dated May 7, 2019, and July 25, 2019, were set aside.
2. First Appeal No. 2262 of 2018 was restored to the file of the NCDRC.
3. The NCDRC was directed to resolve the entire dispute on merits.
4. The respondent bank was given liberty to file an additional affidavit setting out any further defense within four weeks.
5. The NCDRC was directed to dispose of the appeal within four months of the date on which a certified copy is placed on the record.
6. The court clarified that no observation was made on the merits of the rival contentions, except for holding that the consumer complaint is maintainable.

Development of Law

The ratio decidendi of this case is that a bank’s action of unilaterally encashing a joint fixed deposit and crediting the proceeds to only one of the joint account holders constitutes a deficiency of service under the Consumer Protection Act, 1986. This judgment clarifies that banks must adhere strictly to the terms and conditions of joint accounts and cannot act unilaterally without the consent of all account holders. The judgment also reinforces the broad scope of the Consumer Protection Act, 1986, in protecting consumers against deficiencies in banking services. There is no change in the previous position of law, but the judgment reinforces the importance of adhering to the terms of the contract and the rights of consumers.

Conclusion

In conclusion, the Supreme Court’s judgment in Arun Bhatia vs. HDFC Bank & Ors. clarifies that banks must adhere to the terms and conditions of joint accounts and cannot unilaterally encash a joint fixed deposit and credit the proceeds to only one of the joint account holders. Such actions constitute a deficiency of service under the Consumer Protection Act, 1986. The court set aside the orders of the NCDRC and directed it to resolve the dispute on merits, emphasizing the importance of protecting consumer rights and upholding contractual obligations.