LEGAL ISSUE: Whether a cooperative bank is deficient in service for not transferring land to its employees’ housing society and whether the society is entitled to claim interest in the remaining land.

CASE TYPE: Consumer Dispute

Case Name: The Manager, The Maharashtra State Cooperative Bank Ltd. vs. Farmer Bank Employees Cooperative Housing Society Ltd. & Ors.

Judgment Date: 14 November 2019

Date of the Judgment: 14 November 2019

Citation: 2019 INSC 1175

Judges: Uday Umesh Lalit, J., Indira Banerjee, J.

Can a bank that facilitates housing for its employees be considered a service provider under the Consumer Protection Act? This question was at the heart of a recent dispute before the Supreme Court of India. The case involved a housing society formed by employees of the Maharashtra State Cooperative Bank, who claimed the bank was deficient in service for not transferring land and for not accounting for two vacant plots. The Supreme Court, while acknowledging the unique circumstances, addressed the issue of compensation and transfer of land. The bench comprised Justices Uday Umesh Lalit and Indira Banerjee, with the judgment authored by Justice Uday Umesh Lalit.

Case Background

In 1973, the Maharashtra State Cooperative Bank (the Appellant) acquired land from the Nagpur Improvement Trust (Respondent No. 2) for residential purposes. The initial plan was to divide the land into 14 plots. However, the bank later sub-divided the land into 16 plots. The bank constructed 28 tenements on 14 of these plots to provide housing for its employees, specifically peons, and later, some clerks. These tenements were allotted in March 1976. The employees were also given financial assistance by the bank at concessional interest rates. However, the lease for the land was executed in the name of the bank, not the employees’ society, from 1973 to 2004. After the loans were repaid, the bank resolved in 2004 to transfer the land to the employees or their legal heirs. However, this transfer did not happen, and the lease was renewed in the bank’s name in 2011 for another 30 years.

Timeline

Date Event
02 November 1973 Appellant-Bank allotted land by Nagpur Improvement Trust (Respondent No.2).
03 November 1973 Lease period of land started.
March 1976 28 tenements allotted to 28 employees of the Appellant.
26 April 1979 Lease deed executed in the name of the Appellant.
21 January 2004 Executive Committee of the Appellant passed Resolution No.3 to transfer tenements to employees.
01 April 2004 Initial lease period ended.
15 February 2011 Lease renewed in favor of the Appellant for 30 years.
16 April 2012 The Farmer Bank Employees Cooperative Housing Society Ltd. (Respondent No.1) filed a complaint before the State Consumer Disputes Redressal Commission, Nagpur.
27 January 2016 State Commission directed the bank to renew the lease deed in favor of the society.
08 February 2018 National Commission passed order in First Appeal No. 255 of 2016.
24 September 2018 National Commission passed order in Review Application No. 333 of 2018.
14 November 2019 Supreme Court passed the final judgment.

Course of Proceedings

The Farmer Bank Employees Cooperative Housing Society Ltd. (Respondent No. 1) filed a complaint before the State Consumer Disputes Redressal Commission, Nagpur, under Section 12 of the Consumer Protection Act, 1986. The society alleged that the bank (Appellant) was deficient in service for not transferring the land to the society despite the employees having repaid their loans. The State Commission ruled in favor of the society, directing the bank to renew the lease in the society’s name and pay compensation. The bank appealed to the National Consumer Disputes Redressal Commission, which modified the order, directing the bank to share 50% of the expenses for transferring the lease. The bank then appealed to the Supreme Court.

Legal Framework

The case was primarily considered under the Consumer Protection Act, 1986. The main issue was whether the bank’s actions constituted a ‘service’ under the Act and whether the bank was deficient in providing that service. The relevant provision is Section 2(1)(o) of the Consumer Protection Act, 1986, which defines “service” as:

“service” means 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, financing, insurance, transport, processing, supply of electrical or other energy, board or lodging or both, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service;

Arguments

Arguments by the Housing Society (Respondent No.1):

  • The bank had collected monthly subscriptions from the employees to create a 10% contributory fund for availing 90% loan facility.
  • The bank initially bore the expenses for the project, including the cost of land and construction, but the cost was recovered from the employees.
  • The society argued that the bank cheated them by executing the lease deed in its own name, despite the employees having paid for the tenements.
  • The society contended that the bank should have transferred the land to the society after the loans were repaid.
  • The society was paying the annual lease rent without having any title to the land.
  • The society sought renewal of the lease in its name, payment for the two vacant plots, and compensation for harassment.
  • The society suggested that the bank could have constructed four more tenements on the remaining two vacant plots or refunded the cost of the two vacant plots to the employees.
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Arguments by the Bank (Appellant):

  • The bank argued that it was not a service provider under the Consumer Protection Act, 1986.
  • The bank stated that it had only extended a helping hand to its employees to satisfy their housing needs.
  • The bank contended that there was no profit motive and that it had incurred considerable expenditure, including interest, which was not recovered.
  • The bank argued that the dispute was not a consumer dispute and that the complaint was barred by time.
  • The bank asserted that the two vacant plots were not meant to be transferred to the employees or the society.
  • The bank claimed that there was no deficiency in its service and no delay in acting on its resolution to transfer the land.
  • The bank stated that the increased stamp duty was not its responsibility.

Arguments by the Nagpur Improvement Trust (Respondent No.2):

  • The Nagpur Improvement Trust submitted that it had allotted the land to the Appellant-Bank.
  • The Nagpur Improvement Trust stated that it had no role in the dispute between the Appellant-Bank and the Respondent No.1.

Submissions of Parties

Main Submission Sub-Submissions Party
Deficiency of Service Non-transfer of land despite loan repayment Respondent No.1
Lease deed executed in bank’s name Respondent No.1
Failure to account for two vacant plots Respondent No.1
Not a Service Provider Extended help, not service Appellant
No profit motive Appellant
Expenditure incurred by the bank Appellant
Dispute not maintainable under Consumer Protection Act Appellant
Land Transfer No intention to transfer two vacant plots Appellant
Resolution to transfer land was not acted upon Appellant
No role in the dispute Allotment of land to the Bank Respondent No.2

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues addressed by the court were:

  1. Whether the Appellant-Bank was a “service provider” under the Consumer Protection Act, 1986.
  2. Whether the Appellant-Bank was deficient in service by not transferring the land to the Respondent No.1-Society.
  3. Whether the Respondent No.1-Society was entitled to claim interest in the two vacant plots.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issues:

Issue Court’s Decision Brief Reasons
Whether the Appellant-Bank was a “service provider” under the Consumer Protection Act, 1986. The Court proceeded on the footing that the matter was maintainable before the fora under the Act. The Court did not explicitly decide the issue but proceeded as if the bank was a service provider due to the peculiar circumstances of the case and to avoid relegating the Respondent No.1 to another remedy.
Whether the Appellant-Bank was deficient in service by not transferring the land to the Respondent No.1-Society. The Court found no deficiency on the part of the Appellant-Bank. The Court noted that the bank had passed a resolution to transfer the land and there was no evidence of delay or refusal to act on the resolution.
Whether the Respondent No.1-Society was entitled to claim interest in the two vacant plots. The Court held that the Society was not entitled to the two vacant plots. The Court found no evidence that the bank intended to transfer interest in the two vacant plots to the employees or the society. The Court also noted that the purpose was to provide housing at no profit, no loss basis.

Authorities

The Supreme Court did not explicitly cite any cases or books in its judgment. However, the Court did consider the following legal provision:

  • Section 2(1)(o) of the Consumer Protection Act, 1986: This section defines “service” under the Act. The Court considered whether the bank’s actions fell within this definition.

Judgment

How each submission made by the Parties was treated by the Court?

Submission Court’s Treatment
The bank had collected monthly subscriptions from the employees to create a 10% contributory fund for availing 90% loan facility. The Court acknowledged this fact but did not see it as a basis for holding the bank deficient in service.
The bank initially bore the expenses for the project, including the cost of land and construction, but the cost was recovered from the employees. The Court accepted this fact, noting that the employees had repaid the cost of their tenements.
The society argued that the bank cheated them by executing the lease deed in its own name, despite the employees having paid for the tenements. The Court found no deficiency on part of the Appellant and no justification in imposing any costs and directing the Appellant to pay compensation to the Respondent No.1.
The society contended that the bank should have transferred the land to the society after the loans were repaid. The Court acknowledged the resolution passed by the bank to transfer the land but found no evidence of delay or refusal to act on the resolution.
The society was paying the annual lease rent without having any title to the land. The Court did not directly address this issue but focused on the lack of deficiency on the part of the bank.
The society sought renewal of the lease in its name, payment for the two vacant plots, and compensation for harassment. The Court directed the bank to either pay compensation of Rs. 10,000 to each tenement holder or transfer the entire land to the society. The court did not grant the claim for the two vacant plots.
The society suggested that the bank could have constructed four more tenements on the remaining two vacant plots or refunded the cost of the two vacant plots to the employees. The Court considered the suggestion of refunding the cost of the two vacant plots and directed the bank to pay compensation to the tenement holders.
The bank argued that it was not a service provider under the Consumer Protection Act, 1986. The Court did not explicitly decide this issue, but proceeded as if the bank was a service provider due to the peculiar circumstances of the case.
The bank stated that it had only extended a helping hand to its employees to satisfy their housing needs. The Court acknowledged this point but still considered the matter under the Consumer Protection Act.
The bank contended that there was no profit motive and that it had incurred considerable expenditure, including interest, which was not recovered. The Court accepted this fact and noted that the bank was not seeking to profit from the transaction.
The bank argued that the dispute was not a consumer dispute and that the complaint was barred by time. The Court did not delve into the issue of limitation and decided the case on merits.
The bank asserted that the two vacant plots were not meant to be transferred to the employees or the society. The Court agreed with this submission, stating that there was no intention on the part of the bank to transfer interest in the two vacant plots.
The bank claimed that there was no deficiency in its service and no delay in acting on its resolution to transfer the land. The Court agreed with this submission and found no deficiency on the part of the bank.
The bank stated that the increased stamp duty was not its responsibility. The Court directed that the stamp duty be borne by the Respondent No.1.
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How each authority was viewed by the Court?

The Court did not cite any authorities. However, it considered Section 2(1)(o) of the Consumer Protection Act, 1986 to determine whether the bank was a service provider. The Court proceeded on the footing that the matter was maintainable before the fora under the Act.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the unique circumstances of the case and the need to balance the interests of all parties involved. The Court recognized that the bank had acted with the intention of helping its employees and had not sought to make a profit. However, the Court also noted that the employees had contributed to the cost of the land and were entitled to some form of compensation for the extra amount they had paid. The court also took into consideration that the bank had passed a resolution to transfer the land, and there was no evidence of delay or refusal to act on the resolution. The court also noted that there was no intention on the part of the bank to transfer interest in the two vacant plots.

Sentiment Percentage
Bank’s intention to help employees 30%
No profit motive of the bank 25%
Employees’ contribution to land cost 20%
No intention to transfer two vacant plots 15%
Resolution to transfer land 10%

Fact:Law Ratio

Category Percentage
Fact 60%
Law 40%

The Court’s reasoning was based on a combination of factual circumstances and legal considerations. The factual aspects of the case, such as the bank’s intention to help its employees, the employees’ contribution to the land cost, and the lack of intention to transfer the two vacant plots, weighed more heavily in the Court’s decision-making process. The legal considerations, such as the applicability of the Consumer Protection Act, were also considered, but the factual context played a more significant role.

Logical Reasoning

Issue: Whether the bank was deficient in service by not transferring the land and whether the society was entitled to claim interest in the remaining land?
↓
Bank’s Intention: The bank intended to help its employees with housing, not to profit.
↓
Employees’ Contribution: Employees contributed to the land cost, entitling them to compensation.
↓
No Intention to Transfer Vacant Plots: The bank never intended to transfer the two vacant plots.
↓
Resolution to Transfer Land: The bank had passed a resolution to transfer the land, and there was no evidence of delay or refusal to act on the resolution.
↓
Decision: The bank was not deficient in service, but employees were entitled to compensation for the extra amount paid.

Judgment

The Supreme Court allowed the appeals and set aside the orders of the State Commission and the National Commission. The Court directed the bank to:

  • Pay each tenement holder (or their heirs) a sum of Rs. 10,000 within three weeks, OR
  • Execute a deed conveying interest in favor of the society for the 28 tenements and the entire land within six weeks.

If the bank chooses to pay compensation, the society will be entitled to have a deed conveying interest in the 28 tenements and the proportionate land. However, the bank will retain the right, title, and interest in the two vacant plots. In either case, the stamp duty for the transfer will be borne by the society.

The Court stated, “It is, of course, left to the appellant either pay to each tenement holder a sum of Rs.10,000/- or transfer the entire land to the Society.”

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The Court further added, “If the Appellant pays to each of the tenement holders (or to the heirs/successors, in case the original tenement holders are no more) a sum of Rs.10,000/-, the Respondent No.1-Society shall be entitled to have an appropriate deed conveying interest in favour of the Respondent No.1 in respect of 28 tenements and the proportionate land appurtenant thereto within six weeks from today.”

The Court also clarified, “In such eventuality, the Appellant shall continue to have right, title and interest in respect of portion of land representing those two plots over which no tenements have been constructed and it shall continue to have propriety interest and shall be entitled to deal with that portion.”

Key Takeaways

  • Banks facilitating housing for employees may be considered service providers under the Consumer Protection Act, 1986.
  • Even if there is no profit motive, banks must ensure timely transfer of land and should not cause undue hardship to its employees.
  • Employees who have contributed to the cost of land are entitled to compensation if the land is not transferred to them.
  • The court will consider the intent of the parties and the factual matrix of the case when deciding disputes.

Directions

The Supreme Court directed the following:

  • The appellant shall pay to each of the tenement holders (or to the heirs/successors, in case the original tenement holders are no more) a sum of Rs.10,000/- within three weeks from today; OR in the alternative the Appellant shall execute an appropriate deed conveying interest in favour of the Respondent No.1 in respect of 28 tenements and the entire land admeasuring 2709.701 square meters, as stated hereinabove, within six weeks.
  • If the Appellant pays to each of the tenement holders (or to the heirs/successors, in case the original tenement holders are no more) a sum of Rs.10,000/-, the Respondent No.1-Society shall be entitled to have an appropriate deed conveying interest in favour of the Respondent No.1 in respect of 28 tenements and the proportionate land appurtenant thereto within six weeks from today. In such eventuality, the Appellant shall continue to have right, title and interest in respect of portion of land representing those two plots over which no tenements have been constructed and it shall continue to have propriety interest and shall be entitled to deal with that portion.
  • In either case the stamp duty in respect of such documents shall be borne by the Respondent No.1 and the concerned documents shall be executed by the Appellant and the Respondent No.2 in favour of the Respondent No.1.

Development of Law

The Supreme Court clarified that while banks facilitating housing for employees can be considered service providers under the Consumer Protection Act, 1986, they are not automatically deficient in service if they have taken steps to transfer the land and have not acted with malafide intention. The ratio decidendi of the case is that in cases where employees have contributed to the cost of land and the bank has not acted with malafide intention, the court can direct compensation to the employees in case of any delay or if the bank is not able to transfer the land. The court also clarified that the bank is not obligated to transfer the remaining land if there was no such intention.

Conclusion

The Supreme Court’s judgment in this case provides clarity on the responsibilities of banks when they facilitate housing for their employees. While the court acknowledged that the bank was not deficient in service, it recognized the employees’ contribution to the land cost and directed the bank to either compensate them or transfer the land to the society. The judgment underscores the need for banks to act transparently and ensure that employees’ interests are protected, even when there is no profit motive involved. The Court’s decision provides a balanced approach, protecting the interests of both the bank and its employees.

Source: Maharashtra State Cooperative Bank vs. Farmer Bank Employees Society