In February 2021, the Supreme Court of India delivered a judgement in the matter of Amitabha Dasgupta vs United Bank of India & Ors. (CA 3966 OF 2010). The case pertained to a matter where the Bank negligently broke open the appellant’s locker, even though he had already cleared his pending dues. The Court held that the breaking open of the locker was done in blatant disregard to the responsibilities of the Bank and termed it gross negligence. The Court imposed costs of Rs5 lakh and Rs1 lakh as litigation expenses on United Bank of India.
More importantly, the apex court made the following observations -
“15. …. the banks cannot wash off their hands and claim that they bear no liability towards their customers for the operation of the locker. The very purpose for which the customer avails of the locker hiring facility is so that they may rest assured that their assets are being properly taken care of. Such actions of the banks would not only violate the relevant provisions of the Consumer Protection Act, but also damage investor confidence and harm our reputation as an emerging economy.
15.1 Thus it is necessary that the Reserve Bank of India (RBI) lays down comprehensive directions mandating the steps to be taken by banks with respect to locker facility/safe deposit facility management. The banks should not have the liberty to impose unilateral and unfair terms on the consumers. In view of the same, we direct the RBI to issue suitable rules or regulations as aforesaid within six months from the date of this judgment..…... It is also left open to the RBI to issue suitable rules with respect to the responsibility owed by banks for any loss or damage to the contents of the lockers, so that the controversy on this issue is clarified as well.”
For the banking regulator, this judgement raised the spectre of unlimited claims on the banks in case of loss of valuables in the lockers.
In August 2021, RBI issued revised instructions on the safe deposit locker/safe custody article facility provided by the banks and directed that the revised instructions would come into force with effect from 1 January 2022.
RBI also directed that Indian Banks’ Association (IBA) should frame a model locker agreement which banks should then adopt with the approval of their respective boards. It was stipulated that the model agreement should be in conformity with RBI’s revised instructions and the directions of the Hon’ble Supreme Court in the above-referenced matter. It also directed banks to ensure that they renew their locker agreements with existing locker customers by 1 January 2023.
While it is not known how long IBA and the respective banks took to finalise the revised agreements, RBI’s circular issued in January 2023 makes two things clear –
1. that many banks (probably most of them) were caught napping and were yet to obtain revised agreements from existing locker-holders. In fact, in many cases, the banks were even yet to inform the customers about the need for renewal of agreements.
2. the revised model agreement drafted by the IBA was not in full conformity with the revised guidelines issued by RBI as it observed that there is a need for revision in the model agreement drafted by the IBA to fully comply with the revised instructions.
It appears that the model agreement drafted by IBA was not in conformity with part VII of RBI’s August 2021 circular that deals with compensation policy/ liability of banks and was at the core of RBI’s concern (though not expressly stated) while issuing the revised guidelines. Significantly, amongst other things, it caps the banks’ liability towards compensation payable, in instances where loss of contents of locker are attributable to banks, to an amount equivalent to just one hundred times the prevailing annual rent of the safe deposit locker.
This capped limit on compensation, while it protects the banks, is highly inadequate for the customers and does not adequately protect their interests. While RBI’s guidelines in this respect are couched in a language carefully crafted to appear beneficial to customers but, in reality, they are solely intended to protect the banks’ financial interests.
Implementation issues
In hindsight, it was good that the banks were sleeping and very few of them had obtained revised agreements from their existing customers. As Economic Times reported – “If you have already submitted an amended bank locker agreement on or before 31 December 2022, chances are that you may have to sign and submit a revised locker agreement again.”
RBI gave fresh timelines and directed that the entire exercise must be completed by 31 December 2023. It further advised that all customers must be notified of the revised requirements by 30 April 2023 and directed banks to ensure that at least 50% and 75% of their existing customers should have executed the revised agreements by 30th June and 30 September 2023, respectively.
The exercise of obtaining revised agreements had been fraught from the very beginning and it continued to be so. On 30 June 2023, Mint reported under the headline “Chaos over locker agreement update: Customers still confused about new rules”.
It went on to report -
“The deadline for updating 50% of locker agreements in Indian banks is today, and customers are being urged to sign the new contracts. However, the process has become a source of frustration due to a lack of uniformity not only across different banks but even between branches of the same bank.
One of the major issues customers are facing is the inconsistency in stamp duty denominations. While some public sector bank branches accept a stamp duty of Rs100, branches of ICICI Bank, HDFC Bank, and Axis Bank insist on a higher value of Rs500. This discrepancy has left customers confused and dissatisfied, as they expect a standardised approach across all branches.”
My own experience says that the chaos is not limited to just the mundane issue of the value of stamp paper to be used.
I received a call from my bank, at the end of September, to visit the branch to execute a revised agreement. In the branch, I was also handed a nomination form and was asked to affix the nominee’s photograph as well.
When I went through the set of documents given to me for signing, I noticed that the “Safe Deposit Locker Request Form” clearly stated (in bold) – “Photo of Nominee to be affixed on Nomination Form”. This had never been asked before and I was not carrying the photographs.
On further reading of the nomination form, I was in for an even bigger surprise.
The nomination form for joint account-holders, read as under –
“We ___________________________ (name and address), nominate the following person(s) to whom in the event death of one or more of us __________________________ (name and address of branch/office in which the locker is situated) may give access to the locker and liberty to remove the contents of the locker, particulars whereof are given below:”
This meant that even if just one of us (my spouse and I) died, the contents of the lockers would be handed over to the nominee and not to the surviving spouse. This simply did not feel right. I raised the issue with the branch and pointed out that it appears to be a case of a printing error. However, the branch officials were certain that the form was in order.
When I refused to sign that declaration, I was advised to alter it as I wished and I did accordingly before submitting the form. I promised to bring the photograph of the nominee later.
Once home, I decided to research the whole matter over the next few days and whatever has been written in the preceding paragraphs is a result of this labour. But there is a bit more that remains to be told.
First, let me recount some important guidelines that are for the benefit of the customers. RBI’s directions include the following customer-centric provisions –
1. A copy of the locker agreement in duplicate, signed by both parties, shall be furnished to the locker hirer to know his/ her rights and responsibilities.
2. If locker rent is collected in advance, in the event of surrender of a locker by a customer, the proportionate amount of advance rent collected shall be refunded to the customer.
3. Banks shall send an email and SMS alert to the registered email ID and mobile number of the customer before the end of the day as a positive confirmation intimating the date and time of the locker operation and the redressal mechanism available in case of unauthorised locker access.
4. A passport-size photo of the nominee attested by the customer may be obtained from the customer, at his/ her option and preserved in the records.
5. Only thumb-impression(s) shall be required to be attested by two witnesses. Signatures of the account-holders need not be attested by witnesses.
6. Banks shall devise a proper system of acknowledging the receipt of a duly completed form of nomination, cancellation and/ or variation of the nomination. Such acknowledgement shall be given to all the customers irrespective of whether it is demanded by the customers or not.
7. Banks shall place on their websites, the instructions together with the policies/ procedures put in place for giving access of the locker/safe custody article to the nominee(s)/ survivor(s)/ legal heir(s) of the deceased locker hirer/ safe custody article. Further, a printed copy of the same shall also be given to the nominee(s)/ survivor(s)/ legal heir(s).
Almost all the above instructions are ignored by the banks in practice.
Since the instructions are very clear that the photograph of the nominee is to be submitted purely at his/ her discretion by the locker hirer, I informed the bank that I would not submit the photograph, pointing out that it is not mandatory. Their surprise was enough to indicate that the nominees’ photographs are being insisted upon mandatorily. While this practice is against the directions of RBI, it would not be out of place to highlight that most of the Bank’s customers desire the nominees to be kept confidential for various reasons.
Joint hirers’ declaration
Now reverting to the serious issue of declaration in the nomination form for joint account-holders.
A reading of the Banking Companies (Nomination) Rules, 1985 revealed that form SL 1A specifies the following declaration -
“We, ..................(name and addresses) nominate the following person(s) to whom in the event of the death of one or more of us .............(name and address of branch/office in which the locker situated) may give access to the locker and liberty to remove the contents of the locker, particulars whereof are given below, jointly with the survivor or survivors of us.”
The reader would observe from above that the most critical portion, i.e., “jointly with the survivor or survivors of us” was eliminated by the bank with the consequence that in the event of the death of just one of the joint hirers, the nominee/s can withdraw all the contents of the lockers, without even the knowledge of the other surviving hirers.
Since, in my view, the consequences of this error for the locker-holders could be very serious, I wrote to the concerned bank pointing out this error. About a month after my writing, the bank did issue a detailed circular with revised SOP (standard operating procedure). However, the circular does not identify the mistakes or disclose what has changed from the previous SOP. No effort has been made to guide/ educate the operating staff on the lacuna observed so that they will learn what they were doing wrong.
More importantly, it appears that no instructions have been issued to the branches to rectify the mistake of obtaining erroneous nomination forms from its jointly held locker hirers. While it is difficult for me to estimate the number of locker hirers affected, since the bank is a large one, affected locker hirers may run into a large number. A reminder to the bank has also not elicited any response or action on the ground.
Icing on the Bad Cake
After going through all the exercises as recounted above, it now transpires that as per law the joint locker hirers with the survivorship clause (‘either or survivor’ and ‘former or survivor’) cannot even appoint a nominee. But that is for another day.
(Rajesh Kapoor is an ex-managing director of a bank in Kenya. Before that, he worked as a general manager in a large bank in India.)
"To ensure prompt payment of locker rent, banks are allowed to obtain a Term Deposit, at the time of allotment, which would cover three years’ rent and the charges for breaking open the locker in case of such eventuality. Banks, however, shall not insist on such Term Deposits from the existing locker holders or those who have satisfactory operative account. The packaging of allotment of locker facility with placement of term deposits beyond what is specifically permitted above will be considered as a restrictive practice."
I personally think that locker hiring charges in India are quite reasonable and in a large number of cases are not enough even to pay for the cost of maintenance of these services.