The Supreme Court of India has held that a consumer forum cannot adjudicate disputes involving allegations of fraud and forgery in banking transactions, particularly where fixed deposits are allegedly pledged without authorisation (Sant Rohidas Leather Industries Vs Vijaya Bank).
A Bench of Justices PS Narasimha and Manoj Misra held that such allegations should be addressed via regular criminal or civil proceedings.
"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 Court said.
The case arose from a ₹9 crore fixed deposit made by Sant Rohidas Leather Industries (appellant/ company) with Vijaya Bank in 2014.
The company alleged that the bank fraudulently created an overdraft facility of ₹8.1 crore against the deposit without its consent and later adjusted the deposit proceeds to close the overdraft.
The appellant sought refund of the entire deposit with interest, claiming deficiency in service.
However, the bank argued that the deposit had been pledged to secure credit facilities and that the dispute involved serious allegations of fraud and forgery.
The National Consumer Disputes Redressal Commission (NCDRC) dismissed the complaint on the ground that complainant (i.e., the appellant company) is not a consumer as per Section 2(1)(d) of the Consumer Protection Act, 1986.
This led to the appeal before the Supreme Court.
The apex court held that consumer forums are not equipped to decide cases involving complex factual disputes such as fraud, forgery or criminal wrongdoing.
The Court noted that proceedings under the Consumer Protection Act are summary in nature and cannot adjudicate issues requiring detailed evidence, including allegations of fabricated documents or unauthorised pledges.
Accordingly, it upheld the dismissal of the complaint, while clarifying that the appellant remains free to pursue remedies before appropriate civil or criminal court.
"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 held.
The Court also examined whether a company making a bank deposit qualifies as a “consumer.”
It held that a company can be a consumer under the law.
However, merely earning interest on a fixed deposit does not make the transaction “commercial” and the dominant purpose test must be applied to determine whether services were availed for profit generation.
Significantly, the Court disagreed with the NCDRC’s blanket view that deposits earning interest are commercial transactions.
It clarified that parking surplus funds in a bank for safekeeping or compliance does not automatically amount to a commercial purpose.
However, if deposits are used to leverage credit facilities for business, the transaction may acquire a commercial character.
"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," the Court said.
While the Supreme Court found flaws in the reasoning of the NCDRC, it ultimately upheld the dismissal of the complaint on the ground that the dispute involved serious allegations of fraud unsuitable for consumer jurisdiction.
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