Banks cannot insist on ID proof to cash bearer cheque
Overturning an order of the Maharashtra State Consumer Disputes Redressal Commission, the National Consumer Disputes Redressal Commission (NCDRC) last week termed the refusal of HDFC Bank to hand over cash to a bearer of a cheque, after verifying his credentials through the account holder, as “a clear case of deficiency in service”.
 
The order from NCDRC, issued on 15 March 2017, states, “No doubt the complainant had not furnished his ID, but the fact remains that admittedly not only the cashier but also the Bank Manager separately rang up the account holder on his mobile number, who verified having issued the subject cheque and gave clearance for encashment. The bank officials, however, declined to encash the cheque. This, in our view, is a clear deficiency in service.”
 
The order relates to a consumer complaint filed by Mumbai resident Prakash Sheth against HDFC Bank. Sheth required Rs3 lakh to be deposited in the hospital for treatment of his ailing mother, in 2010. He requested his nephew, Chirag, for the money. Chirag gave a bearer cheque to Sheth, who then presented the bearer cheque on 7 May 2010 at HDFC Bank. The cashier in the bank asked him to come back at 4pm because of insufficiency of funds. When he returned at 4pm, the cashier asked for his photo ID, which Sheth was not carrying. The cashier then called up Chirag to seek verification of issuance of the bearer cheque. Chirag confirmed it, but the cashier refused to honour the cheque and Sheth was asked to meet the branch manager. The branch manager too checked with Chirag to confirm that he indeed had issued the cheque. Despite that, the manger insisted that Chirag should personally come to the bank, which the latter was unable to. The branch manager then refused to honour the cheque. 
 
Claiming this to be deficiency in customer service, Sheth filed a complaint in the Consumer Forum at South Mumbai District, seeking compensation to the tune of Rs1 lakh towards mental agony and physical harassment. Sheth also appealed for a directive to the bank to stop this practice. The bank was served a notice, but it claimed that it had rightly not honoured the cheque as per guidelines from the Reserve Bank of India (RBI). The District Forum therefore dismissed the complaint. Subsequently, the Maharashtra State Commission too dismissed Sheth’s petition, stating that the bank had rightfully adhered to RBI guidelines.
 
As per RBI guidelines, banks have been advised that “in case of transactions carried out by a non-account based customer, that is a walk-in customer, where the amount of transaction is equal to or exceeds Rs50,000, whether conducted as a single transaction or several transactions that appear to be connected, the customer’s identity and address should be verified”.
 
However, Sheth’s contention was that two officials of HDFC Bank had personally cross-checked with the account holder, which proved that it was a clear case of harassment. 
 
In this case, while the State Commission dismissed Sheth’s petition, it upheld that although Sheth was not an account holder of HDFC Bank, he still was a consumer. The Commission observed “…the consumer is not only the person who hires or avails the services of the service provider but the beneficiary also. It is argued that once the account holder had issued a cheque in favour of someone, he automatically becomes the beneficiary and therefore he is a consumer”.
 
Sheth then approached the National Commission. In its order on 15 March 2017, the Commission stated “…from the affidavits of Chirag Natvarlal Sheth and Prakash Sheth (the complainant), it is amply proved that the bank telephonically contacted Chirag Sheth twice to verify whether or not he has given bearer cheque to the complainant and the account holder Chirag Sheth confirmed the said fact. From the above, it is clear that the bank officials were categorically informed by the account holder that he had issued the cheque and given it to Prakash Sheth. Therefore, he, in our view, was the beneficiary of the cheque and as such he is covered under the definition of consumer, which includes the beneficiary of the service hired or availed. Thus, the complaint is maintained.”
 
The NCDRC also pointed out that in response to an application under Right to Information (RTI) filed by the bank, a part of the response clearly states that, “the bank should not ordinarily insist on the presence of account holder for making cash withdrawals in case of ‘self’ or ‘bearer’ cheques unless the circumstances so warrant. The banks should pay self or bearer cheques taking usual precautions.”
 
“From this it is evident that Reserve Bank has cautioned banks in the country to be careful while encashing the bearer cheques if the amount exceeds Rs50,000 and insist on the verification of ID, as also the address. No doubt, the complainant had not furnished his ID, but the fact remains that admittedly not only the cashier but also the bank manager separately rang up the account holder on his mobile number, who verified having issued the subject cheque and gave clearance for encashment. The bank officials, however, declined to encash the cheque. This, in our view, is a clear deficiency in service.”
 
Another rule from RBI states, “In the event the individual tendering the instrument is not carrying the identity, and there is urgency to pay, the transaction to be referred to the branch manager. The branch manager shall make appropriate enquiries as deemed fit and shall use his discretion to allow the transaction. Such discretion to be used judiciously as strict one- off cases, only upon satisfactory confirmation of the bonafides of the transactions.”
 
The National Commission declared HDFC Bank’s stance in not honouring Sheth’s cheque as ‘deficiency of service’ and asked it to pay compensation of Rs10,000 to him for harassment and humiliation.
 
Prakash Sheth says, “Most banks harass such non-account holders who come with bearer cheques. Mine was perhaps the first challenge before a legal forum. This case will spread literacy amongst consumers or bearer cheque holders, and will hopefully be a lesson to similar banks who adopt this malpractice.”
 
Here is the order issued by NCDRC…
 
 
(Vinita Deshmukh is consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting, which she won twice in 1998 and 2005, and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book, “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte”, with Vinita Kamte, and is the author of “The Mighty Fall”.)
 
Comments
B. Yerram Raju
2 years ago
When the drawer of the cheque is indemnifying the teller and the Bank by issuing a bearer cheque, and there is no case where the decision went against the Bank if the bearer cheque is paid to a person whose identity is not known, why are you asking for the new regulation for receipt for the money issued by the bank. The bearer cheque itself is the receipt.
Priyanka Sippy
3 years ago
This is how fradusters invited.
If in the same case it was paid and found to be the case of fraud,the same person sud had filed the complaint opposite of what he did and claimed for the money too.
A banker do all in intention of safeguarding customers hard earned money, never intend for harrassment.
Mani Sriram
Replied to Priyanka Sippy comment 2 years ago
The moment a customer issues a bearer cheque or cash cheque he understands the risk. It is not upto the bank to reinvent the rules. If the customer wanted to play safe, he could have issued A/c payee cheque. That he intentionally issued a third party bearer cheque shows his understanding. So let us not reinvent "whatifs" here. The bank workers in India want to show they are the boss of every customer with an atrocious service
SKHK GAUSIYA
3 years ago
obviously, a bearer chq should be encash from the cash counter without showing any identity...thats why it is called "bearer chq"
Anup D
4 years ago
congrates to the complainant. bank manager n staff r v rude when the turn down bearer cheue which is just an instrument made to allow account holder to pay anyone he wishes. the onus of safely managing this lies with ac holder. bank is oblidged to honor a bearer cheque . i hv faced a turndown by manager of BOI. How do i proceed to take an action.?
Sudhakar Ojha
4 years ago
RBI master circular on customer service says that Banks shounot insist on presence of the Account holder in case of self or bearer cheques.
Sudhakar Ojha
4 years ago
As a first steps the RBI and BCSBI should force Banks to put their process for handling Bearer cheques and Self or bearer Cheques on their web so customers know what to do if they need to issue such cheques. At present every cashier has his own interpretation of the Negotiable instruments act.
Suketu Shah
5 years ago
The fact is HDFC Bank was harassing the customer as they didnot have 3 lakhs with various nonsense excuses.HDFC Bank is the expert is such things and no bank in India can compete with them when it comes to harassing customers.
Suketu Shah
Replied to Suketu Shah comment 5 years ago
HDFC Banks's thinking is so myopic that after melting out the harassment they still expect you to do business with them and not leave and blacklist them!!!!!!!!!!!!!!
R Balakrishnan
5 years ago
This is not a good thing. As a bank cashier, I can ask for a separate money receipt from whoever collects the money from the counter. A mere signature on the reverse is a meaningless scribble. So as a bank, I can ask for a proper, stamped receipt for having received the money against the cheque. This order needs to be overturned. Anyone collecting cash against a bearer cheque should be made to produce an ID.
Mani Sriram
Replied to R Balakrishnan comment 2 years ago
You need to educate more about the law of the land before making your own.
Sudhakar Ojha
Replied to R Balakrishnan comment 4 years ago
And you are above things like Negotiable instruments act of Parliament and Master Circulars of RBI ?
B. Yerram Raju
5 years ago
Bearer is always a bearer and bearer will become the 'holder in due course.' Bank shall pay the bearer the amount mentioned in the cheque without demur and bank will not run any legal risk. There is no instruction to my knowledge from the RBI that the bearer instruments shall have the evidence of the third party payee. Further, NI Act and various judgments on the issue have been very clear absolving the banker who pays the bearer from any risk. Unfortunately, banks; counters are handled by tech-savvy persons with least domain knowledge and the controlling officers go by what the system ordains. System is tuned to paying order instruments that require Id proof for every payee of the instrument. Banks started issuing 'Order' cheque leaves on savings bank accounts that earlier used to be issued only bearer cheque leaves only. It is time that the RBI has to revisit the NI Act and brings to bear on the banks the essentials for compliance because the Banks understand only the RBI instructions and not the banking laws of the country in the present day.
B. Yerram Raju
5 years ago
Bearer is always a bearer and bearer will become the 'holder in due course.' Bank shall pay the bearer the amount mentioned in the cheque without demur and bank will not run any legal risk. There is no instruction to my knowledge from the RBI that the bearer instruments shall have the evidence of the third party payee. Further, NI Act and various judgments on the issue have been very clear absolving the banker who pays the bearer from any risk. Unfortunately, banks; counters are handled by tech-savvy persons with least domain knowledge and the controlling officers go by what the system ordains. System is tuned to paying order instruments that require Id proof for every payee of the instrument. Banks started issuing 'Order' cheque leaves on savings bank accounts that earlier used to be issued only bearer cheque leaves only. It is time that the RBI has to revisit the NI Act and brings to bear on the banks the essentials for compliance because the Banks understand only the RBI instructions and not the banking laws of the country in the present day.
Sudhakar Ojha
Replied to B. Yerram Raju comment 4 years ago
Yes most of the staff are unaware of banking rules and processes and are merely acting as data entry operators
Meenal Mamdani
5 years ago
When I read the headline of this article, I thought that the bearer had not provided any identification. But it is obvious that the writer of the cheque was guaranteeing that it was OK to disburse money as he assured both the teller and the manager on the phone.
The only reason to insist on the letter of the law rather than the spirit of the law is the mindset of Indian officials. They get drunk with power and use every opportunity to be unhelpful to customers. They want the customers to pay respect to them rather than recognizing that this is not license-raj any more and ordinary people are going to demand their rights.
If I was the supervisor of the manager of this bank branch, I would send him to a reeducation camp. He is not fit to work in a branch where consumers know their rights.
SuchindranathAiyerS
5 years ago
Banking acts on law, accounts, economics and customer relations. India's bankers have IAS/IPS incompetence instead
B. Yerram Raju
Replied to SuchindranathAiyerS comment 5 years ago
Why identify incompetence only with only civil services? They are there every where. There are efficient persons in every sector and 80 to 20 principle is holding the country still. in tact.
Arun
5 years ago
Why does RBI require that banks verify the address of the bearer of a cheque? Isn't it sufficient to verify just the bearer's identity? Also, what do banks verify the address against - does the cheque specify the address of the bearer?
SRINIVAS SHENOY
5 years ago
When making cash payments of any bearer cheque, payments should be made in good faith and without negligence then only the paying banker is protected under the NI Act.
Gurudutt Mundkur
5 years ago
With both the Officer and the Manager having verified from the drawer of the cheque, it certainly was not necessary for further identity. In the absence of such verification, it would be in order for the payee/bearer to provide his identity.
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