SBI Asked To Pay Rs15.50 Lakh Compensation for Dishonouring Insurance Premium Cheque of a Pilot
Moneylife Digital Team 29 March 2024
Acknowledging the hardship and mental agony of a pilot to fly the aircraft 50 times during the period of no insurance coverage caused due to an action by the State Bank of India (SBI) to return the cheque for insurance premium, the national consumer disputes redressal commission (NCDRC) directed SBI to pay an enhanced compensation of Rs15 lakh and Rs50,000 litigation cost to a pilot. 
In an order earlier this month, the NCDRC bench of Subhash Chandra (presiding member) and Dr Sadhna Shanker member, said, "In view of the fact that the appellant was holding a high-risk policy, it would be appropriate if compensation is in the nature of damages that act as a deterrent on the Bank which is a public sector bank (PSB). Expectations of service standards from SBI are certainly much higher. Based upon the facts of this case, a compensation of Rs15 lakh to the appellant for the deficiency in service is considered fair and just."
Chennai-based captain Jose Hormese, a co-pilot in Indian Airlines Corporation/ NACIL (Air India), had an insurance policy with Bajaj Allianz General Insurance Company Ltd for Rs75 lakh which, as of 1 January 2005, had an accrued cumulative bonus of Rs1.50 lakh. The policy was due for renewal on 31 December 2008. 
On 29 December 2008, capt Hormese issued a cheque for Rs29,128 as a premium for the insurance policy from his SBI savings account which had sufficient balance. However, when Bajaj Allianz General Insurance presented the cheque, SBI returned it saying there were 'insufficient funds' in the account of capt Hormese. On 21 February 2009, the insurer informed capt Hormese that his insurance had become void as his cheque for the premium was returned due to insufficient funds in his account.
Capt Hormese followed up on the matter with several officials of SBI, including the bank chairman. SBI admitted that the bank branch, where he has an account, had not linked his multi-option deposits (MODs) with the account which resulted in the cheque not being honoured. Acknowledging the lapse on its part, SBI also offered to pay the insurance amount on behalf of capt Hormese. 
Capt Hormese approached the Tamil Nadu state consumer disputes redressal commission seeking compensation of Rs76.50 lakh from SBI for deficiency in service, untold hardship and mental agony. He contended that SBI acknowledged that it failed to link the MOD-linked deposits with the savings bank account and consequently, he was forced to operate over 50 flights between 1 January 2009 and 20 March 2009 without the benefit of insurance cover which caused him considerable agony and anxiety. He also alleged that SBI harassed him by contending that there was no lapse on its part until finally acknowledging its lapse by tendering an apology. 
"Apart from the fact that I was not covered for insurance for a high-risk job due to the dishonouring of the cheque on the ground of insufficient funds, the incident was derogatory and defamatory to me apart from the fact that the arrogant behaviour of the Bank's staff was also demoralising," he alleged. 
SBI contended that the cheque had not been honoured because the branch did not link the MOD to the savings bank account and that, once it learned of the error, it offered to pay for the insurance. It also contended that Capt Hormese continued to have the insurance coverage provided by his employer, NACIL, and there was no requirement to claim any insurance.
While denying a compensation of Rs76.50 lakh, the state commission observed that capt Hormese is entitled to get reasonable compensation for the mental agony, hardship and other sufferings which cannot be described in words and which have to be undergone by a person to perceive the same. It directed SBI to pay Rs5 lakh compensation and Rs10,000 litigation cost to capt Hormese.
Not satisfied with the order, SBI filed its first appeal before the NCDRC. The bench of Mr Chandra and Dr Shankar observed that the findings of the state commission that negligence in this case is not established since there was no resultant damage is an argument that cannot be countenanced. "In the event of a mishap having occurred, the insured (capt Hormese) would have been clearly held to be without insurance cover, which would have left him or his next of kin bereft of any insurance payable. The material issue in this case is whether the Bank was liable for deficiency in service on account of the cheque towards premium not being credited."
"The action of SBI in returning the cheque for insufficient funds when in fact there were adequate funds available in capt Hormese's savings bank account, is manifestly an act which establishes deficiency in service with regard to banking services... SBI cannot seek to hide behind the argument that the claim was speculative since no need for insurance actually arose. Capt Hormese was entitled to the services for the payment of insurance premium to the insurer for which purpose a cheque had been issued well in time and is not disputed. Once deficiency in service has been established under the appeal, the issue of speculative loss or negligence as held by the state commission does not arise," the bench says.
However, talking about compensation of Rs76.50 lakh as claimed by capt Hormese, NCDRC says it would be prudent to consider an amount that would be fair and based on equity. Enhancing the compensation to Rs15 lakh from Rs5 lakh as awarded by the state commission, the bench directed SBI to pay the money within eight weeks and Rs50,000 as litigation cost to capt Hormese.
(First Appeal Nos267/1007 OF 2018  Date: 18 March 2024)
2 weeks ago
MOD services are additional benefit given by bank.It is duty of customer to check whether there is sufficient balance in SB account before issuing cheque.Only automatically opened MOD closes by itself when cheque is presented.If customer opens FD online it won't get closed automatically to pay cheque.
2 weeks ago
Very interesting

The policy was exp on 31 December 2008
Cheque issued on 29th December 2008.
Insurer (Bajaj Allianz) informed customer on 21st Feb 2009.

Total 55 days. What was the roll of insurance company.

In any case it hardly take 3~4 working day to complete the entire process of policy issuance, and cheque deposit in the bank. But customer received intimation on 21st February.Really surprised why insurance company roll was not scrutinized.

If Policy is issued on 29th or 30 dec, cheque will be deposited in the bank on 31st dec. It may go for clearance on 1st or 2nd Jan and customer and insurer must have known it( Cheque Dishonour) by 3rd or 4th Jan. The policy would have activated by paying the premium using other mode and customer would have insured himself first and latter sued the Bank for deficiency in service.
3 weeks ago
why this bank tried to conceal the deficiency in their servi... n then dodge paying the claimed compensation... ? This is height of dishonesty by this bank...
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