Dishonour of post dated cheques may not be an offence!

Dishonour of any post dated cheque issued as an advance payment by any purchaser cannot be considered in discharge of legally enforceable debt or any other liability and thus would not amount to an offence, the Supreme Court has ruled

In the world of lending, banks/ financial institutions insisting on taking post-dated cheques (PDCs) from borrowers as a security has been a common norm. These PDCs have been astras (weapons) in the hands of the financial institution used for arm-twisting the borrowers and also acting as a deterrent to ensure that borrowers do not default. Wherever the borrower would explicitly or implicitly give indications of not having the ability to pay, the lender would present these PDCs to the bank; and once these PDCs bounce, the legal team of the lender would jump to action to initiate a case against the borrower under section 138 of the Negotiable Instruments Act, 1881 (NI Act).

 

It is one of the most common legal actions being undertaken by lenders against borrowers and as we are all aware section 138 of the NI Act is the most dreaded section with regard to dishonour of cheque, which could lead you to some months of imprisonment to the drawer of the cheque. The text of the section is mentioned below for your ready reference:

 

Dishonour of cheque for insufficiency, etc., of funds in the account

 

138. Dishonour of cheque for insufficiency, etc., of funds in the account. Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both:

 

Provided that nothing contained in this section shall apply unless-

 

(138.a) the cheque has been, presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

 

(138.b) the payee or the holder in due course. of the cheque as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

 

(138.c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

 

Explanation.-For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability. (emphasis ours at relevant places)

 

So there are two things. which are most critical to fall under the section apart from the basic conditions as stated in the section above. One, that the PDC needs to be a cheque at the time of presentation and second the cheque should be for discharging debt or liability, which is a legally enforceable debt or liability. That is to say, to institute a suit under Section 138 of the Act, there should be a legally enforceable debt or other liability subsisting on the date of drawal of the cheque.

 

The matter whether PDCs are cheque at the time of presentation to the bank has been a contentious issue for long now. In a Supreme Court ruling of Anil Sawhney vs Gulshan Rai, the Court held that a post dated cheque is composed of two elements. At the time the post- dated cheque is drawn, it is in the nature of a bill of exchange and they assume the character of a cheque from the date appearing on the cheque. The extract of the ruling explains the fact:

 

A "Bill of Exchange" is a negotiable instrument in writing containing an instruction to a third party to pay a stated sum of money at a designated future date or on demand. A "cheque" on the other hand is a bill of exchange drawn on a bank by the holder of an account payable on demand. Thus a "cheque" under Section 6 of the Act is also a bill of exchange but it is drawn on a banker and is payable on demand. It is thus obvious that a bill of exchange even through drawn on a banker, if it is not payable on demand, it is not a cheque. A "post- dated cheque" is only a bill of exchange when it is written or drawn, it becomes a "cheque" when it is payable on demand. The post-dated cheque is not payable till the date which is shown on the face of the said document. It will only become cheque on the date shown on it and prior to that it remains a bill of exchange under Section 5 of the Act. As a bill of exchange a post-dated cheque remains negotiable but it will not become a "cheque" till the date when it becomes "payable on demand".

 

The Apex Court further stated that

 

An offence to be made out under the substantive provisions of Section 138 of the Act it is mandatory that the cheque is presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.... When a post-dated cheque is written or drawn it is only a bill of exchange and as such the provisions of Section 138(a) are not applicable to the said instrument.

 

One of the main ingredients of the offence under Section 138 of the Act is the return of the cheque by the bank unpaid….A post-dated cheque cannot be presented before the bank and as such the question of its return would not arise. It is only when the post-dated cheque becomes a "cheque", with effect from the date shown on the face of the said cheque, the provisions of Section 138 come into play.”

 

The ruling above made the fact clear that if a PDC was withdrawn or cancelled before the date on which it was to be presented to the bank then such cancellation of PDC would tantamount to cancellation of a Bill of exchange and not of a cheque per se.

 

The recent ruling of the Supreme Court in the matter of Indus Airways Pvt Ltd & Ors. vs Magnum Aviation Pvt Ltd & Anr. brought out clarity on conditions for attracting 138 action clearly stating that dishonour of any post dated cheque issued as an advance payment by any purchaser cannot be considered in discharge of legally enforceable debt or any other liability and thus would not amount to an offence under Section 138 of the Negotiable Instruments Act, 1881.

 

A brief insight into the relevant facts and the judgement of the above stated case would make one clear on the captioned perspective.

 

Facts of the Case:

 

Indus Airways Pvt Ltd & Ors. (hereinafter referred to as the ‘purchaser’) placed two purchase orders on 19 February 2007 and 26 February 2007 with Magnum Aviation Pvt Ltd (hereinafter referred to as the ‘supplier’) for supply of certain aircraft parts. Two post dated cheques were issued by the purchaser in this regard. The date on the face of such two post dated cheques been 15 March 2007 and 20 March 2007. It is important to note that such post dated cheques were issued as an advance payment to the supplier as the terms of the contract stated to facilitate the supplier procure the parts from abroad. Subsequently on presentation of these cheques to the bank, they were dishonoured on the ground that the purchaser had stopped payment for the same. A cancellation letter was received by the supplier on 22 March 2007 cancelling the order and requesting the return of the cheques.

 

Judgement:
 

The Supreme Court quashed several conflicting views of the subordinate courts on the captioned subject. The important crux in this case as highlighted in the judgement was that one of the conditions of the contract entered into between the parties contended that the purchaser needed to make an advance payment to the supplier to enable him to purchase the aircraft parts from abroad. The fact that purchaser cancelled the purchase order and that the purchase order was not carried to its logical conclusion clearly meant that the cheque did not represent a debt or liability. The Apex Court placed reliance on the ruling in the matter of Swastik Coaters Pvt Ltd vs Deepak Brothers and others (1997 Cri LJ 1942 (AP)), whereby the Andhra Pradesh High Court held that

 

“……..Explanation to Section 138 of the Negotiable Instruments Act clearly makes it clear that the cheque shall be relateable to an enforceable liability or debt and as on the date of the issuing of the cheque there was no existing liability in the sense that the title in the property had not passed on to the accused since the goods were not delivered. ……..”

 

Conclusion:

 

The ruling will have a far reaching consequence as there are thousands of cheque bouncing cases pending in the country.

 

Typically in non-recourse factoring transactions since the factors have exposure on the obligors, factors commonly use section 138 route as a recovery tactic. Particularly so, the ruling may come as a respite to several borrowers/ obligors in factoring cases these days, where the factors use PDCs as a means to arm-twist the obligors and initiate section 138 action against them disregarding the fact that the debt may not be a valid and enforceable debt at all.

 

(Nidhi Bothra is executive vice president, while Debolina Banerjee is an associate at Vinod Kothari & Company)

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COMMENTS

PARDEEP KUMAR

5 months ago

I issued a security chq to someone but after some time he try to withdraw chq of amount 1.5 lacs from my account without my knowledge and it was dishonoured after that I requested to bank for the stop payment second time it was dishonoured due to stop payment and he was sent me notice. Please suggest me what I could do

Ramesh R

2 years ago

what happens if a person gives a cheque for a land transaction and the land is registered. Later the party says he wants cash urgently and cash is given. The party says he will handover the cheque but does not hand over the cheque and presents it. The cheque gets returned for want of funds. later stop payment is given and the cheque for the second time returns as payment stopped by the drawer. Can the party, sends a legal notice. But as there is no one at home it returns. Can the file a case after 6 months of the incident

Sharad Pant

4 years ago

Dear All,
Here I would like to share one of problem we are facing with buyer. We are working with the farmers. We have formed Women Farmers Producer Companies (FPCs) with the assistance of Small Farmers Agro Business Consortium, Govt., Ministry of Agriculture, Govt. Of India. Now we are working on business development of these companies, which is very essential for the sustenance of these FPCs. Through these companies we are connecting farmers directly to the Market, Millers and with the Buyers for better price realization.

With the same objective, I tied up with one buyer Mr. Pradeep Gouda of Pulses Pvt. Ltd, Bidar District (Karnataka) and FPCs had gone with simple agreement. In agreement the buyer was agreed on to release the payment in 10 days against the Red Gram procurement. Initially the buyer released the amount on time but after procuring bulk quantity, now he is giving excuses he is telling that he is waiting for bank loan, he haven't received amount which has to come. Now after 60 days the amount is still pending against the procurement.

Farmers was in trouble, As a Security the Farmers Producer Company has taken Rs. 40 Lakh Cheques from Pradeep Gwada, Pulses Pvt. Ltd. but he is telling that nothing will happen to him if FPC will put it in Bank, it will just bounce. He is threatening to Farmers that whatever they can do they can, but he will pay the money whenever the money will be available with him.
Please suggest what to do??
Regards
Sharad Pant
Hyderabad

Bapoo Malcolm

4 years ago

Have been reading the comments. May I please request one thing? Avoid the Small Messaging Service sms-words and short forms; at least the first time. SMS stands for a short message, not for truncated words where everyone starts his or her own language. Is pl for 'please' or something like personal loan?

I, for one, have refused to answer any such messages or even act on them after major problems in deciphering what the sender wants to communicate.

Every one can spend a few seconds more. And it is definitely not more "modern" or fashionable. It is plain annoying and can lead the sender into serious trouble, especially when asking for legal advice.

Bapoo Malcolm

4 years ago

Have been reading the comments. May I please request one thing? Avoid the Small Messaging Service sms-words and short forms; at least the first time. SMS stands for a short message, not for truncated words where everyone starts his or her own language. Is pl for 'please' or something like personal loan?

I, for one, have refused to answer any such messages or even act on them after major problems in deciphering what the sender wants to communicate.

Every one can spend a few seconds more. And it is definitely not more "modern" or fashionable. It is plain annoying and can lead the sender into serious trouble, especially when asking for legal advice.

Mrinmoy Roy

4 years ago

I got offer for a personal loan from ICICI & Bajaj finance. But they both are asking 3 blank dated cheques (for a tenure of 3yrs.) for the whole loan amount of Rs.60000/- only, despite of giving them ECS from my SBI salary a/c. I have denied to give blank dated cheques. Now ICICi Bank Cancelled my loan over phone. They are not sending any mail with the ground of rejection. Even they are not returning copy of documents/loan application to me. They are charging 19-25% interest for this unsecured loans but asking blank dated cheques for security. But they are not disclosing this rule in any advt. for pesonal loan. After allowing ECS from salary a/c how a bank asks for blank dated cheques? All the private banks following this line. Is this legal? Please help. Thanx,
Mrinmoy, Kolkata.

Anant

4 years ago

in the above comment"(138.a) the cheque has been, presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier" - how would a common know the validity of the cheque if it is not mentioned on the cheque. I was given a cheque dated 25th January 2013 and I presented to bank on 8th May 2013 as bounced because of account closure. what is a legal advice on this.
thanks in advance!

REPLY

NSriramamurty

In Reply to Anant 4 years ago

Recent Judgement Clarified that You have file a Criminal Case in Criminal Court , which has Jurisdiction in the area , where Cheque is Presented in a Bank. Fist You have to Issue a legal Notice through Lawyer, to the Cheque Drawyer to his Address , asking him to Pay you Bounced Cheque Amount.Keep his Ackwoledgement of leagal Notice .
After 15 Days of his/her ackwoledgement , if You do Not Receive Payment, Pl File Case in Crimanal Court , with Bounced Cheque, legal notice and acknowledgement, and other Documents with Notes substanciating , how the Drawer of Cheque is Liable to Pay you that Amount .All other details are in Main Article .

Ravi Saini

4 years ago

What should be done if trial court convicts the accused without complainant giving any evidence as to when the friendly loan was taken and when the cheques were issued and not leading any evidence to prove that there was any legally enforceable liability.

Ravi

Jaydeep Ghosh

4 years ago

Dear sir, I have a pl from kotak Bangalore. I paid continues emi for 1 yr 3 months but when my salary account of kotak get closed I started facing issue but some how managed to pay through collection agents. Now I have 4 emi pending and they are telling will file spdc case. What should I do?

REPLY

shadi katyal

In Reply to Jaydeep Ghosh 4 years ago

I advise you should talk to your Kotak account manager and let him guide you. I for one am not knowledgeable of such accounts

Jaydeep Ghosh

In Reply to shadi katyal 4 years ago

Hi, Thank you for reply.

They are telling me to clear all the 4 emi's one shot. Where as I said them it is not possible at these moment. I want to know SPDC filling may cause you me in trouble like jail or is it I should take some lawyer help

NSriramamurty

5 years ago

Many Thanks for Clarifying Many Issues on Borrowers Commitment from Lenders For Taking Signatures on Documents from Borrowers for Monthly Payments for Decades by PDCs or in Digitalisation world from Borrowers Banks throug ILFS.95% Borrowers geinuinely try to Repay ,as INDIA is Living on Ethics engrossed in our Blood since Childhood.RBI is questioning Banks How they are Givig Thousands of Crores to Big Companies , based on Boosted Estimates , etc?without taking into A/c their Eligibility to Repay .Lenders are simply giving Loans to Boost up their Voluumes / Balance Sheets.They are Discouraged NOT to be so Careless but Responsible to give Loans Considering Borrowers capacity to Re-Pay now .RBI encouraging such System. Thus Apex Court is giving Relief to Lakhs of Indians.

Suiketu Shah

5 years ago

This rule if passed wl encourage more crimes.Im sure under NaMo it wl not be passed.This wl legalise cheating!.

shadi katyal

5 years ago

Most of our Bank rules were left by the British where such cheques were kind of showoff of the stability of middle class. It was kind of bank advance or loan limitations but in USA such cheques are never accepted and if one present post dated cheques it will be paid if funds available or rejected as NSF and writer can be arrested if party decide to follow-up. In other words it is illegal to issue such cheques

Bapoo Malcolm

5 years ago

There is a see-saw on this provision (Sec. 138 of The Negotiable Instruments Act). If I remember, this is the second reversal. Personally, repeat personally, feel that a post-dated cheque implies two things, assuming it is to discharge an EXISTING debt.

1) The drawee is aware that the drawer is unable to pay.

2) The drawee is aware that the drawer is unwilling to pay.

Would you do business with such a person if Sec. 138 did not exist?

Also the words, ".....at the time of drawing the cheque", have some meaning if used in the very literal sense.

Bapoo M. Malcolm

Sudhakar Ojha

5 years ago

A pdc is like a bill of exchange where stamp duty has not been paid. PDC was being used by ignoring that IT was a post dated cheque.

Bank customers deprived interest income due to delay in CTS clearances

RBI implemented CTS in 2014 for faster clearing of cheques. But, there still are technical or operational issues in bank system leading to delay in cheque clearing. It means loss of savings account interest. Can RBI ask banks at fault to compensate for the delay by paying the interest?

Consumers depositing cheques at bank branch before the cut-off time (usually noon) should expect to get cheque clearance by following business day. The money gets debited from cheque accountholder and credited to your account on the same day so that there is no loss of savings account interest. The cheque truncation system (CTS) was introduced to eliminate the practice of physically presenting a cheque to the payee bank, thereby substantially reducing the time for cheque clearance. However, despite using the CTS, there are examples of delays in cheque clearenace. Ironically, the bank at fault keeps the money without giving interest to the customer for the delay in clearing. How much could this amount be worth?

CTS or Image-based Clearing System (ICS) is an initiative of the Reserve Bank of India (RBI) for faster clearing of cheques. CTS is an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically. It eliminates the need to move the physical instruments across branches, except in exceptional circumstances. The goal is to reduce the time required for payment of cheques and to lower the cost of transit.

One of the readers of Moneylife deposited a CTS compliant cheque in Yes bank drawn on Axis bank (his own account) on 10th March. The money was debited from Axis bank on 11th March, but credited to Yes bank only on 12th March. Similarly, he deposited a CTS compliant cheque in Yes Bank drawn on Bank of Maharashtra (again his own account) on 12th March. The money was debited from Bank of Maharashtra on 13th March, but credited to Yes bank only on 14th March. The customer made complaint to Yes Bank about loss of Rs50 saving account interest due to delay in credit given by the lender.

To his surprise, he was told that the delay was from other banks. When asked for proof, he was given extract from RBI circular. It says, “This is to inform you that due to Operational / Technical Issues at below mentioned banks they are not able to participate in today’s CTS Return Clearing Session(3)-dated 11th March 2014. As per Approval from RBI, National Payments Corporation of India (NPCI) has granted an extension to following banks for one day.” There is a list of 20 bank routing numbers along with names.

It means that cheques from these specified 20 bank routing numbers were allowed one day extension in CTS clearing. Axis Bank routing number was present and hence it proves that delay was from Axis bank. But, why does the amount get deducted from bank account if there was one day extension given? It means that Axis Bank did not give interest for one day to its customer even though the money was still with the Bank. How many such accountholders lost interest for one day?

Similar proof was given for 13th March delay in clearance. There is a list of five bank routing numbers including Bank of Maharashtra. Again, Bank of Maharashtra had debited the amount on 13th March even though it did not participate in CTS clearing. A case of bank at fault keeping the customer interest for a day! Based on the number of cheques processed, this can be a sizable amount of interest the bank gets to keep without giving it to its own customers who have the right on it.

According to the latest data available from Department of Payment and Settlement Systems of RBI, as of 31 March 2013, the banking system cleared 131.4 crore instruments (cheques) worth about Rs100.2 lakh crore.

In most cases one day interest may not be sizable amount for an individual and hence the customer will not follow-up with the bank. However, in the above case, the customer did write to Bank of Maharashtra giving details of the proof given by Yes Bank. The customer was given credit of one day interest by Bank of Maharashtra, which proves that customers today are facing not just delay of cheque clearance but also loss of bank saving rate interest for a day or more. Will RBI issue a  circular so that banks give necessary credit for loss of interest without the customer asking for it?

The same Moneylife reader deposited a cheque in Yes Bank drawn on Bank of Maharashtra and Saraswat Bank (both his own accounts) on 2nd April. There was the exact same issue with both cheque clearances. The complaint with Yes Bank yielded exact same answer with extract from RBI circular. Is it just a coincidence that Bank of Maharashtra appears again? This time the RBI circular has a list of 32 bank routing numbers which includes nationalised, private, foreign and co-operative banks.

Does it mean that the issue is now rampant? What is the exact operational/ technical issue the banks are facing? What actions are banks taking to solve the issue?

According to a report from DNA, during February 2014, in Ahmedabad, there were over 80,000 cheque instruments worth Rs750 crore delayed due to CTS clearances. “The system was introduced to make the clearing system faster and easier. But the existing manpower is still not fully trained to handle the new technology. In many cases, the scanned pictures of cheques are delivered as a corrupt file to NPCI,” the report says.

RBI will understand that it is impossible for customers to do follow-up with two banks to get credit of one day’s bank savings interest. One may even face ridicule from banks for asking for one day’s interest even though the bank at fault ends up keeping interest of thousands of cheques. CTS cheque clearance is facing delays and it does not seem to have made cheque clearance faster from customer viewpoint.

Is the RBI pushing bank consumers to use National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) instead of writing cheques? If you are transferring big amount from one account to other own savings account, it will be wise to do RTGS. It will avoid the situation of one-day interest loss, which can be a big loss. The cost of RTGS will be lower than the pain you will suffer in getting back your one day interest loss. Will banks even share with you the RBI circular which grants one day of extension for CTS clearance?

Will RBI make the banks pay for their operational or technical issues?

You may also want to read...

Cheque truncation system: What is it, how will it benefit you?

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COMMENTS

gurpreet singh

3 years ago

i am looking for job in CTS system.. can anyone can tell whose is hiring engineer for implementation cts system in punjab.. here is my email id:- [email protected]
i will be very thankful to you for this

Kishore Gersappa

4 years ago

There is one more problem which I have encountered with CTS cheque clearance. As a society we get cheques from members which we deposit in Maharashtra State co-operative bank. We noted from our passbook that there was an entry on check return and deduction of the penalty amount, but without the check being actually returned to us, the cheque in subsequent entry showed to be cleared but the penalty amount not reversed to us. On enquiry with the bank,I was told that the payee bank had not cleared the amount due to bad image of cheque. Sending a bad image is a bank responsibility, why should the customer be charged.

Kishore Gersappa

4 years ago

There is one more problem which I have encountered with CTS cheque clearance. As a society we get cheques from members which we deposit in Maharashtra State co-operative bank. We noted from our passbook that there was an entry on check return and deduction of the penalty amount, but without the check being actually returned to us, the cheque in subsequent entry showed to be cleared but the penalty amount not reversed to us. On enquiry with the bank,I was told that the payee bank had not cleared the amount due to bad image of cheque. Sending a bad image is a bank responsibility, why should the customer be charged.

Vaibhav Dhoka

5 years ago

Even after five weeks of introduction of CTS clearing Bank of Maharashtra is bibbest defaulter in giving services to customer.Pune city RM of Bank of Maharashtra Mr Shrivastav just gives assurances but never pass benefit to customers for its wrongdoing.

pradeep kumar

5 years ago

Sir, your argument is right on delay of clearing in CTS system. I like to remember you that every new system in India take some time to comply fully with instructions and procedures laid down by authorities. CTS is not exception, all indian banks have different platform for their softwares, A/c No. structure, payment settlement process, etc. Hence customer should aware about the technical hurdles to process CTS process. You are talking about employees performance, it is true upto some extent, but not fully agreed. although it is true in case of savings a/c customer for delay of interest, but what you say in case of customer's who use SB a/c chq for business purpose regularly?
So, remember Indian banks are also part of indian society and not an ALLAUDDIN CHIRAAG.

Rahul

5 years ago

Can anyone send or post a copy of the circular giving extension of a day to those banks?

Are these available on public domain or are private to the canks.

REPLY

Rahul

In Reply to Rahul 5 years ago

*banks

Gajendra

5 years ago

I'm currently facing same issue, I've had deposited a cheque (from Indusind Bank) in AXIS bank on 26th of April,2014 at 11AM and till this moment the amount is not credited to my account.

I've took several follow ups with Axis bank and they are saying that there is a problem from the Indusind bank and the worst thing is that their executive said that please wait for today and if your account is not credited then you can do whatever you want! (very pathetic)

I'm really worrying that whom should I contact to get this sorted out because its been 5 working days now and still a local cheque payment has not arrived.

Gajendra Purohit
gajendra(dot)[email protected]

REPLY

MOHAN SIROYA

In Reply to Gajendra 5 years ago

Mr Gajendra should write a written complaint to both the banks asking them the 'Status' of his CQ. After receiving the replies, if he is not satisfied with the solution; claim suitable compensation from the guilty. If banks do not resolve, then he can lodge a formal complaint with the Ombudsman claiming due interest and compensation too.

sivasankaran

5 years ago

the common man is again at the receiving end.who will bell the cat?

SuchindranathAiyerS

5 years ago

I remember the very first time I received an Income Tax refund. It happened, without pleading or a bribe, thanks to Yashwanth Sinha (BJP) doing his job for the people of India as a Finance Minister. The cheque came home. I never expected the ugly Government of India to ever pay the Indian Citizen the small mercy left over from its depredations.

Hemlata Mohan

5 years ago

I had issued a cheque on Bank of India to my SBI PPF a/c on 1st Feb but it was credited only on 9th Feb 2014, thereby causing a loss of interest to my PPF a/c and debit in my a/c at BOI- When contacted, SBI refused to do anything about it- How many complaints and how many heads to bang? Tired, Just tired!

REPLY

MOHAN SIROYA

In Reply to Hemlata Mohan 5 years ago

Pl. file a complaint along with the reply recd. rom SBI to Banking Ombudsman for getting loss of interest plus compensation for mental torture.

MOHAN SIROYA

5 years ago

Yes, certainly. The account holders who have lost interest for the delay can jolly well not only claim the lost interest, but may also claim compensation for any loss suffered due to bank's delay. Recently, in one case where the account holder had lost the allotment of equity shares due to such delay in clearing the CQ amount, we took up with Banking Ombudsman and got the due shares allotted at market rate for the sufferer.

Bosco Menezes

5 years ago

Sad but not surprising ... banks do everything to maximise profits at the cost of the retail . Another example imho would be buying shares through linked 3-in-1 accounts. On placing the order there is a "hold" put on the required funds. So the funds cannot be moved by the client, which is entirely correct. However, the funds are deducted from the account the same day or next, i.e. at least 1 day BEFORE the T+2 settlement date. So on weekends when there are no settlements the bank gets the funds for a few extra days. i feel that since the money is already "held" by the bank, there is no possibility of anything going wrong, and the bank could very well run their system in the early hours of the T+2 date. This way the client is not placed at a disadvantage.
Similarly if shares are sold & the money is due on a particular day (T+2) and a buy is placed on that day, the funds are adjusted automatically & do not reside in the savings account for even a single day even though they are due 2 days hence. These are small matters, but probably add up to HUGE savings for the bank.

raju

5 years ago

I had issued HDFC Bank cheque on 2nd April for my PPF A/c. with SBI. Amount of 100000/- was debited on 3rd april & credit to PPF a/c. was given on 9th april and hence loosing interest for the whole month on PPF a/c.

REPLY

MOHAN SIROYA

In Reply to raju 5 years ago

Mr Raju

Pl. first ask the concerned bank for the reason of delay. If not satisfied, complain to the banking ombudsman of your Region for loss of interest and claim .
If need be ,you may authorize the Consumer Complaints Cell to take up your case.

Personal Finance   Exclusive
Beware of banks selling non-banking products

Top management of banks are pressuring their employees to sell insurance, stocks and mutual funds by hook or by crook. No wonder, departing deputy governor of RBI has suggested banning banks from selling third-party products

From the point of view of retail savers, banks are a place where you park your money and get facilities to withdraw, issue cheques and also borrow. But what happens when a bank employee “advises” you to move in and out of stocks, buy a particular insurance product or buy or sell mutual funds? The result is rampant mis-selling, losses and large number of baffled savers.

 

Here is an email we just got from an Axis Bank employee. “As you are well aware of the practices followed by banks to sell or mis-sell investments products I need not elaborate them. But believe me the pressure, which is applied by the bank’s management throughout the year for selling these products can only be equated to madness. The management puts so much pressure as if without selling these investment products, the bank will not be able to generate any revenues. Moreover, the high percentage of revenues shared by insurance companies during the first year of sales is a major attraction for banks. Almost all banks organise contests within its staff for maximum selling of insurance products, and the rewards include all-paid foreign trips. All expenses, of course, are borne by the insurance companies. In spite of Cobrapost operation, banks have again started these old practices,” said the employee, who does not want to be named.

 

This mis-selling is not limited only to selling insurance or mutual funds. Some of the banks, which offer broking services, are found many times to misguide its own customers. Take for example, this investor who has a trading account with Axis Direct. He received a call from an Axis Direct executive sometime in February, asking him to sell his Larsen and Toubro (L&T) shares at Rs981. Totally wrong call, leading to huge loss of profit for this investor, as L&T made hit 52-week high at Rs1,387 on 23 April 2014.

 

Explaining how this happened, the investor told Moneylife, “On 14th February 2014, I received a call from an Axis Direct executive who said, ‘it is a good time to book profits with L&T as there is no positive outlook on the stock and it has max'ed up and the stock cannot go more than the said level and so book profits immediately.’ I sold 120 L&T shares at the price of Rs981. After this point I kept a watch on the stock and I'd have accepted some Rs20 to Rs50 rise/fall in price, I would not have complained. But here the problem is different. The stock kept on rising and its above Rs1,350 which actually converts to a loss of profit of more than Rs44,000.” When he complained, Axis Direct responded by saying, “the stock decision is the sole discretion of the investor!”

 

The investor said, “Now I am pissed off and have decided to never take the calls from Axis Direct and might abuse them if they come up with advice. Also I believe that this call was made by someone who was low on his monthly targets and I became the victim.”


There are two hard lessons from these examples: 1. Never trust your “banker” to sell you any non-banking product or a third-party product in your interest. 2. Never take buying and selling advice from an employee who has no stake in your profits and losses. Moneylife tells investor not to trade on “hot stock tips” and make investment decision after doing indepth research and analysis. Moneylife Foundation organised free seminar; “Learn to be Safe & Smart with Your Money" on the basics you need to know for your own financial life. Newly launched Moneylife Smart Savers Network provides a complete guide on personal finance.

 

Investors cannot outsource the job of assessing the risks associated with their investments, selection of right stocks, right time to enter and exit. The Axis Bank bank employee who is pressured to hardsell third party products says, “It is important to restrict banks from selling insurance products (Life & General). Unfortunately the Reserve Bank of India (RBI) has not yet done anything on this issue. These days bank jobs are not to develop one's career as a banker but to become a salesman without paying much attention to the seriousness of banking business.”

 

In April 2013, Moneylife Foundation sent a memorandum to RBI governor on behalf of more than 21,500 members (at that time) to free the system of mis-selling of financial products by bankers, misusing the savers’ trust.
 

Moneylife has for long been highlighting the mis-selling of these services with specific examples. This was among the many issues taken up by Moneylife Foundation with RBI deputy governor, Dr KC Chakrabarty, at an Open House meeting in June 2013. In a cover story on such issues, (Read: Banks Vs Depositors ) Moneylife pointed out how selling of insurance, mutual funds and equity advisory services by banks have affected customers, who do not know which regulator will redress their grievance.
 

RBI ignores complaints about third-party products (some are not even regulated), while Securities and Exchange Board of India (SEBI) and Insurance Regulatory Development Authority (IRDA), both already poor at grievance redress, are even more reluctant to address complaints about mis-selling by banks.
 

Moneylife has highlighted several stories on mis-selling. A year ago, we wrote about how HSBC Bank promised Suchitra Krishnamoorthi, a well-known singer and actor, extravagant assured return of 24% from mutual funds as well as insurance, but instead continuously churned her portfolio. (Read: HSBC loots Suchitra Krishnamoorthi after big promises of 24% returns). The end result after five years was a direct loss of Rs83 lakh from investment, Rs28 lakh in HSBC commissions to HSBC, Rs18 lakh from decline in value of two insurance policies, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the income-tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the Bank.

On 14 March 2014, the Hongkong & Shanghai Banking Corporation (HSBC) suddenly called actor Suchitra Krishnamoorthi to discuss a settlement to close her long-pending allegation about gross mis-selling that had caused her a loss of over Rs1.85 crore.
(The Real Story of how HSBC Was Made To Pay)
 

In a similar case, another high net worth individual (HNI) based in London, found out abnormal churning of mutual funds in his portfolio that was managed by HSBC bank. Both are HNIs who were made to sign a power of attorney (POA) in favour of HSBC to handle their investments smartly.

 

Will RBI intervene in this matter or will it be a silent spectator? Until it does, keep your money in the banks but know that ordinary bankers turn into 'banksters' when they sell you non-banking products like insurance, stocks and mutual funds.

 

Nowadays, bankers, especially those in private banks have forgotten basic banking and generation of revenues out of banking business, as far as retail savers are concerned. Instead that they have become aggressive salesmen, selling insurance and mutual fund agents selling, often mis-selling these products to their customers or even to non-customers. This is resulting into a total shift of focus from generating revenue from the core banking business to this agency fee income.

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COMMENTS

JIGNESH MANANI

5 years ago

As per Core Banking Solution (CBS), Customers are enables to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account.

My account is at BOB – Amreli and presently I am living in surat so that I had deposited 1 cheque of transfer (BOB to BOB) in Bank of Baroda – Nanpura (Surat) branch.

It is informed to me that transfer cheques can be deposited either at issuer’s branch or in receiver’s branch. And bank staff denied to accept this cheque so that I had meet bank manager for this but he also answering same. I ask for reason why it is not accepted then he tells that this is as per bank’s rules. I ask to manager to give this statement in writing that transfer cheques can not be accepted for this reason and also ask to see me rules of bank for this but he denied to give and tells that “do whatever you can do, i will not accept this cheque”.

There is no meaning of CBS in this type of banking facilities.

Due to this type of wrong banking many customers are suffering a lot. This is done with me so many times so i had explore this issue at RBI level also.

I think this is due to there is no benefit to that branch for accepting transfer cheques of other branches.

MAYANK SHAH

5 years ago

REGULATORS NOT CHECKING THE HUGE DEFAULT IN CORE BANKING

SERVICES BY PRIVATE BANK IN

LUST TO MAKE MONEY OUT OF COMMISSIONS GAINED FROM
SELLING NON-BAKING PRODUCTS

MAYANK SHAH

5 years ago

BANKS SHOULD BE BARRED FOR SELLING NON BANKING PRODUCTS

ONLY CORE BANKING SERVICES SHD BE PRIORITY

BANKERS ARE NOT INTRESTED EXCEPT GETTING

HUGE COMMISSION FROM CUSTOMERS ON INSURANCE POLICIES ,,, MFs ETC


SEE THE IMPORTED CARS & HUGE WEALTH CREATED BY

PRIVATE BANK OFFICERS compared to their packages

bank officers of private banks are BUSINESSMEN in bank premises
CORE BANKING IS THIG OF PAST

Doraiswami Sukumar

5 years ago

I completely agree. These banks ( private banks especially) appoint relationship managers (RM) only to sell non banking products to customers. These RMs have no experience of selling these products and invariably land customers in the dock. Moreover, these RMs are rolling stones and disappear from your life sooner than they appear!

Nikhil Gadodia

5 years ago

I agree. The way banks are selling other products is really creating problems.
I went to AXIS Bank & I was asked to take a non banking product to get a locker in the bank. Adding to it is the FD as well as bank charges.
SBI also asks for a wholesome amount of FD to get lockers with bank charges.
Wonder what will happen when there are new banks opening up in the coming years & where this competition take the customers..

sivasankaran

5 years ago

why the activities of the BANKS cannot be restricted to banking only?other activities can be looked after by the professionals.let the RBI look in to.

sathishkumar dachinamurthy

5 years ago

Yes i totally agree with him, i too worked for Axis bank, they will ask us to sign in a white paper in the morning if we are not meeting our targets in the evening they will write our resignation letter, i had never seen in any field like this sought of torture, that too for a operation manager like me, who has to take care of operations and do these mis sells, money life please do something to save our investors, all insurance are sold by saying it is an FD.

REPLY

Sam Koshy

In Reply to sathishkumar dachinamurthy 5 years ago

Mr Sathishkumar Dachinamurthy, Can you mail me at ([email protected]) ? I will direct you to open this information to more people .

Gautam Haldipur

5 years ago

Having gone through several comments posted by my esteemed friends, I must say almost all of them have hit the Bulls Eye!Please recall my interview with Wealthforum on 12/09/2013 in the Advisor Speak column wherein I have clearly mentioned this in the column "Regulation in Insurance" & "What needs to be done" columns.We are 7 months away from when I wrote this hard hitting article, but yet to see the light of the day!.Large brokerages & Banks as has been repeatedely said continue to blatantly mis-sell Insurance or Mutual Fund products. I have personally cross checked the knowledge & the ability of banking staff to sell these products. Honestly, except in one case ( a person who was street smart & had a clearly declared intention of doing these businesses post retirement from the Bank, evidently a vested interest, was reasonably good), the rest were "less said the better" cases.Just see how the system works:-
1. You go to your banker for your regular banking work.(Please note he is one amongst whom you trust immensely to take care of your money).
2.During the course of your talk, you are introduced to Life / General Insurance products or Mutual Fund products.
3.Your mind works towards considering it for several reasons, few of which are:- a.You probably have a loan & feel obliged to your banker & would like to return the "favour".b.The immense trust you have in your banker.c.The misplaced feeling that since the Bank is associated with the product, it is fail safe (another serious misconception!).In the bargain the poor client has thrown all caution to winds.His decision is more emotional than logical.Please note, in this respect bankers are no holy cows! They would have everything in writing / print signed by you at every concievable space available on the paper, but when it comes to vice-versa, they will convieniently slip off & say Oh! its o.k. That is how they are able to escape the long arm of the law.(Read Disclaimers)Accountability & secondary service is simply non-existent in this segment without which it is doomed to failure & disenchantment.PLEASE READ THE FINE PRINT OF EVERY BANKING DOCUMENT BEFORE YOU SIGN )Frequent change of staff leaves the customer high & dry in the event of service issues arising.Very rarely select staff are dedicated to this task.I am sure I can write an entire thesis on this subject but in the present context it would make no sense. I will however humbly urge SEBI & IRDA to consider implementing the following suggestions:-
1. Completely ban Banks from cross selling these products. Why? because these guys simply do not have the time to go even to the loo! where would they find the time for an in depth analysis of products, save a few probably.
2.Banking is a core business by itself which is becoming more & more complex by the day. Please let them concentrate their energies on that which might probably lead to lesser NPA's in the industry.
3. Impart regular, compulsory & rigorous training on products to be sold & periodical refreshers which most likely will reduce mis-selling to a very large extent.
4. Let well qualified comprehensive financial planners take this roll where accountability standards already set by SEBI are not just stiff but sometimes draconian!They will obviously do a better job. Why? Simply because it is their core work!
Last but not the least, there is a lot more of work to be done in this field & let's sincerely hope things are put in place as soon as possible so that the common investor's life turns from sheer misery to bubbling joy!

REPLY

Nagesh Kini

In Reply to Gautam Haldipur 5 years ago

I maintain that selling third party products is no business of commercial banking, they're simply not geared for post-sale services. Banks should confine themselves to core banking of deposits and advances. Let them mobilize people to mop up deposits and recover overdues.

Gautam Haldipur

In Reply to Nagesh Kini 5 years ago

Dear Mr. Nagesh Kini,
You are on the dot.Banks should confine themselves to banking & not venture into third party products in which their expertise is suspect & most of all post sales service being non-existent. It can really hit the banks hard at the trust level.

Suiketu Shah

5 years ago

One of the biggest frauds in equity's is HDFC securities VKsharma who behaves as if he is more important that the prime minister of India.If you trace his calls over the last 6 months you wl find he focus only on some 10-15 stocks and his calls are quite pathetic to say the least.

Pl stay far far away from HDFC Securities.I have BHel shares at a murderous price of rs 412 /share since 3.5 yrs bought via official consultation by hdfc.Thats speaks for itself.Bhel is now Rs 190/-

Veeresh Malik

5 years ago

The other thing I've noticed is that 3rd party re-sellers/agents are not sitting inside ATMs in AirCon comfort with walls plastered with all sorts of ads exhorting you to buy this and that. This needs to be stopped by RBI too and in addition all ATMs must be linked to an RBI monitored feedback cell operated by customer or anybody using mobile phone / SMS / ATM keypad / drop-box / piece of paper / postcard etcetc/.

Sam Koshy

5 years ago

Customers will find loss of their capital because they believe banks & bank employees. It is the duty of the bank top management & strategists to plan every year's revenue targets, no matter about the products they sell.

Target pressure on employees will be mounting & they are forced to mis-sell the third party products without knowing the suitability of the product to a particular customer. Adding to that employees keep on changing or they will be transferred frequently.

No bank staff can be a competent financial consultant because it needs time and expertise to understand the financial needs of clients, it needs to re-structure , continuous updations & servicing.

When a bank staff sell a product to a customer his role is over. He/She don't even check with the documents whether the information is correct or not. The staff is running to another customer because he/she will be always short of his revenue targets .

RBI, SEBI & IRDA should bring integrity by barring banks from all types of dealing with third party products like Insurance, Mutual Funds, Equity Trading etc. Banks should do banking only. This is needed to retain trust of common. customers & investors.

Nagesh Kini

5 years ago

Most seniors at the banks certainly don't like to move beyond core banking - collecting of deposits and making of advanced.
touting third party products is not the bankers' cup of tea. the new baccha's blindly mouth catch marketing phrases like 'long term perspective' etc. not really knowing what they mean.
they are a big zero when it comes to post-sale services for life and non-life insurance claims beyond 'referred to back office.'
best put all of them on a crash recovery process to bring down npas - present and potential.
it'll improve bottom lines!

CHILUKURI K R L RAO

5 years ago


The most important aspect of financial advisory is to understand a client’s needs and psychology before recommending financial products for him / her. This requires spending a lot of time with investors. Is it possible for bankers to spend that kind of time with clients?

Bankers may have required qualifications but do they have specialized experience? Are they honing their skills on a continuous basis as a professional financial advisor does?

Investors will be better served by someone who is competent and has a long term financial advisory relationship with them than by someone who keeps changing his / her role every few months as a banker does these days.

The greed for free lunches and the refusal to accept the importance of quality financial advice in one’s life is not helping the matters either.

Aditya Karnik

5 years ago

Banks selling third party products has really become contentious issue. and the worst part is more often than not, clients have utmost faith posed on their banker and they never realise how he/she is being taken for a ride. To add to the misery, one often sees his/her RM being changed periodically. Bankers must understand their basic function: Accepting deposits and lending funds. The sooner they understand this the better.

KUSHAL JAIN

5 years ago

Dear Friends,
Even banks like Punjab National Bank are forcing their staff to sell insurance policies. The staff is not having much knowledge of these plans and since top bosses are getting gifts so they are selling it blindly.
Very soon customers of nationalized banks will face the music.
RBI SHOULD INTERVENE THIS OR ELSE TRUST OF BANKING INDUSTRY WILL BE AT STAKE.....AND AT THAT TIME IT WILL BE TOO LATE.

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