MODULE 3: REGULATORY

FRAMEWORK
The RBI Ombudsman Scheme, 2006

• Gained prominence in UK, Australia, New Zealand as a means of customer

grievance redressal

• RBI introduced Act in June 14, 1995

• To resolve and settle complaints relating to banking service provisions

• To resolve disputes between bank and its constituents as well as between

one bank and another through conciliation, mediation and arbitration

• To make available expeditious and cost- effective grievance redressal

mechanism to bank customers as well as to bankers themselves
• RBI appoints one or more ombudsman for 3 years. Age limit- 65.

• General powers:

a. Receive complaints relating to provisions of banking services

b. Has all powers of a court

c. Consider such complaints and facilitate their satisfaction, or settlement by

agreement or settlement by recommendation or settlement by an Award in
accordance with provisions under this scheme
• Specif ic Power: To receive all complaints regarding def iciency in banking
services such as:

a) Non-payment or inordinate delay in payment of collection of checks draf ts

bills etcetera

b) Non-issue of drafts to customers and the outsiders

c) Non-adherence to prescribed working hours by branches

d) failure to honor guarantee or letter or credit commitments by bankers

e) claims of unauthorized or fraudulent withdrawals from deposit accounts

• Specif ic Power: To receive all complaints regarding def iciency in banking
services such as:

f ) Complaints of non-resident Indians relating to their remittances from abroad

deposits and other bank related matters

g) complaints from Indian exporters regarding delays in receipt of export

proceeds, handling of export bills, collection of bills provided such complaints
pertain to banks operation in India

h) Complaints related to deposits such as delay in collection, non-credit of

proceeds to parties account, non-payment of deposits or non observation of
RBI's directives relating to rate of interest on deposits
• The banking ombudsman may require bank named and complaint to provide
any information or furnished certif ied copies of documents relating to subject
matter

• May presume bank at fault if the said information is not provided

• Should maintain complete secrecy on all information and documents coming

to her knowledge
• Settlement by Agreement: Ombudsman may try to promote a settlement of
the complaint by means of an agreement between the complaint and the
bank through conciliation or mediation, and may follow any procedure which
she considers appropriate at any cost and shall not be bound by legal rules of
evidence

• Settlement by Recommendation: If settlement by agreement is not possible

within a period of one month from the date of receipt of complaint,
ombudsman may make a recommendation on the basis of what is fair in her
opinion by taking into consideration all circumstances. The copies of his
recommendation must be sent to both parties. Acceptance must be sent in
writing within two weeks of receipt of the recommendation
• Settlement by Recommendation(Cont.): The ombudsman must forward a copy
of letter of acceptance given by the complainant to the bank who must
immediately settle the complaint if acceptable to it. If not must inform the
ombudsman within a period of two weeks

• Settlement by Award: If not settled by agreement or recommendation

within a period of two months from the date of receipt of complaint. Both
parties concerned can submit further representations or evidences in support
of their case within 15 days from the date of notice for passing an award.
Reasonable oppor tunity to be heard. Must be in writing. Specif ic performance
of its obligations and compensation may be awarded. Compensation shouldn't
be in excess of what is necessary to cover the loss or for an amount
exceeding rupees 10,00,000 whichever is less
• The award shall be binding on the bank only when the complainant sends a
letter of acceptance of the award to the bank within a period of one month
from the date of the award

• The bank concern should comply with the award within 15 days from the date
of receipt of acceptance letter from the complainant

• Ombudsman reserves the right to reject complaint if she feels is made

without any sufficient cause or not pursued with reasonable diligence or
there is no loss or damage suffered
• 2002 amendment: covers commercial banks, regional rural banks and
scheduled, primary cooperative banks

• 2006 amendment: further expanded the scope of customer complaints such

as refusal to close or delay in closing accounts; non-adherence to the fair
court as adopted by the bank; non-payment or delay in disbursement of
pension; failure to issue a delay in payment of inward remittances etc.

• 2006 amendment allows complainants to f ile complaints which shall be

received by the central government of RBI

• Aggrieved person, within 45 days of date of receipt of award may file an

appeal before the appellate authority, the RBI
• 2009 amendment: scope widened to include def iciencies arising out of
Internet banking

• Complaints can be lodged for non-adherence to fair practices code for lenders
or the code of banks commitment to customers issued by the banking codes
and Standards Board of India

• complaint may be brought against a bank for non-observance of RBI

guidelines for engagement of recovery agents

• the ombudsman may award compensation not exceeding 1,00,000 in cases of

complaints on the credit card operations, taking into account, factors like
expenses incurred, mental anguish, harassment etc.
 The Reserve Bank-Integrated Ombudsman
Scheme, 2021
• The Reser ve Bank of India (RBI) Integrated Banking Ombudsman Scheme
2021 (RB-IOS 2021) is a unif ied framework desi gned to simpli fy a nd improve
the grievance redressal mechanism for customers of ba nks, NBFCs, and payment
system opera tors. It consolidates three previously existing Ombudsman schemes
into one. Here are the key provisions and scope of the RB-IOS 2021:

1. Unif ied Scheme

 Con solid ation of Schemes: Merges the Banking Ombudsma n Scheme,

Ombudsman Scheme for Non-Banking Financial Companies (NBFCs), and
Ombudsman Scheme for Digital Transactions

 One Nation, One Ombudsman: Introduces a single point of reference for

customers to f ile complaints regarding any of the covered entities (banks, NBFCs,
and payment service providers
 The Reserve Bank-Integrated Ombudsman
Scheme, 2021
2. Coverage

 Who can file a complaint?: Any customer of a bank, NBFC, or payment system participant.

 E n t i t i e s C o v e r e d : A l l c o m m e r c i a l b a n k s , i n c l u d i n g s c h e d u l e d a n d r u r a l b a n k s , c o o p e ra t i v e b a n k s ,
N B F C s w i t h a s s e t s o f ₹ 1 0 0 c r o r e o r a b o ve , a n d s y s t e m p a r t i c i p a n t s ( l i ke U P I , d i g i t a l wa l l e t s , e t c .)

 Grounds for Complaints: Includes issues related to:

 Deficiency in banking ser vices, like refusal to accept small denomi nation notes, delays in ser vice,
non-adherence to prescribed timelines, etc.

 N o n - r e p ay m e n t o r d e l a y i n r e p ay m e n t o f d e p o s i t s

 I s s u e s w i t h l o a n s a n d a d va n c e s , f a i l u r e t o a d h e r e t o R B I d i r e c t i v e s , i n c l u d i n g i n t e r e s t r a t e s a n d
terms

 Pa y m e n t s y s t e m - r e l a t e d g r i e va n c e s s u c h a s u n a u t h o r i z e d e l e c t r o n i c t r a n s a c t i o n s , f a i l u r e o f f u n d
transfers, etc.
 The Reserve Bank-Integrated Ombudsman
Scheme, 2021
3. Process for Lodging Complaints

 Easy Complaint Lodging: Customers can lodge complaints through the

Online Complaint Management System (CMS) or in writing

 No Restriction on Complaint Format: There is no need for the complainant

to mention specific provisions or clauses of the scheme

 Simplif ied Process: The scheme provides for no cost for filing complaints

 Pre-conditions: The complainant must f irst approach the concerned bank or

f inancial institution, and if the complaint is not resolved within 30 days, they
can escalate it to the Ombudsman
 The Reserve Bank-Integrated Ombudsman
Scheme, 2021
4. Grounds of Rejection

 Complaints can be rejected by the Ombudsman under certain conditions:

 Complaints that are pending before other legal forums

 Matters which are frivolous, vexatious, or malaf ide

 Complaints beyond the prescribed time limit (usually one year from the
date of cause)

5. Timelines

 Grievance Redressal Timelines: The Ombudsman should ideally resolve

complaints within a period of 30 days from the receipt of the complaint
 The Reserve Bank-Integrated Ombudsman
Scheme, 2021
6. Redressal Process

 Ombudsman Investigation: The Ombudsman will hear both the customer and
the f inancial institution, conduct investigations, and give recommendations or
pass orders

 Award Process: If the complaint is found to be valid, the Ombudsman can

pass an award directing the f inancial institution to take corrective action,
including monetary compensation (up to ₹20 lakh)

 Appeal Mechanism: Either party (complainant or bank) can appeal against

the Ombudsman's decision to the Appellate Authority (RBI Deputy Governor)
The Reserve Bank-Integrated Ombudsman
Scheme, 2021
7. Compensation for Mental Agony

 The Ombudsman has the authority to award compensation for mental agony
and harassment up to ₹1 lakh in addition to the f inancial loss faced by the
complainant

8. Simplified Repor ting & Transparency

 Annual Repor ts: The RBI will publish annual reports on the performance of
the scheme

 Increased Transparency: The integration aims to streamline the process and

improve transparency in grievance handling by bringing all complaints under a
single regulatory body
The Reserve Bank-Integrated Ombudsman
Scheme, 2021
Key Benefits:

 Ease of Use: One unif ied platform for addressing grievances across all
categories of financial entities

 Customer Friendly: Simplif ies the complaint process, ensuring faster and
more efficient resolution

 Better Monitoring: Enables RBI to have a more comprehensive view of

banking sector complaints and def iciencies

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The Negotiable Instruments Act, 1881

1. Definition of Negotiable Instruments

 Negotiable Instruments: The Act defines negotiable instruments as

promissor y notes, bills of exchange, and cheques, which are freely
transferable by delivery or endorsement

 Freely Transferable: Once transferred, the holder gets the same title over
the instrument as the transferor, making them independent of previous
ownership issues
The Negotiable Instruments Act, 1881

Key characteristics:

 It is in written form

 it is transferable: right to their ownership can be transferred from one person

to another and this can be done in two ways under the act:

 by endorsement

 my delivery
The Negotiable Instruments Act, 1881

Key characteristics:

 An instrument may be said to be negotiated when such inst rument is transferred

to a nother person such that the transfer he now becomes entitled to the payment
under section 14 of the NI Act.

 Transferable for an unlimited number of times up to majority

 Certainty of amount and date should be clearly stated independent tit le of transfer
and transferee: a title transfer may not impact a transferee if he did not know of
the defect and accepted the transfer in good faith and for a consideration

 The right to sue lies with the holder as well as the holder in due course
The Negotiable Instruments Act, 1881

Key characteristics:

Section 9: holder in due course is there any person who for consideration
became the possessor of a promissory note, bill of exchange or check if payable
to bearer or the pay or the endorsee thereof, is payable to order, before the
amount mentioned in it becomes payable, and without having sufficient cause to
believe that any defect existed in the title of the person from whom he derived
his title
The Negotiable Instruments Act, 1881

2. Types of Negotiable Instruments

 Promissory Note: A written, unconditional promise by one party (the maker)

to pay a certain sum of money to another party (the payee) at a specif ied
time.

 Bill of Exchange: A written order from one party (the drawer) directing
another party (the drawee) to pay a third party (the payee) a specif ied sum of
money, either on-demand or at a future date.

 Cheque: A bill of exchange drawn on a specif ied banker and payable on

demand
The Negotiable Instruments Act, 1881

3. Parties to a Negotiable Instrument

 Drawer: The person who makes or writes the instrument (e.g., the person
who signs a cheque)

 Drawee: The party (usually a bank) on whom the instrument is drawn

 Payee: The party to whom the payment is made or is supposed to be made

 Holder in Due Course: A person who holds the instrument for consideration
and without any defects or irregularities. This person has the right to enforce
the instrument
The Negotiable Instruments Act, 1881

4. Endorsement

 Endorsement: The process by which ownership of a negotiable instrument is

transferred to another person

 Types of Endorsement:

 Blank Endorsement: The endorser signs the instrument without specifying

the endorsee, making it payable to the bearer

 Special Endorsement: Specif ies the name of the person to whom the
instrument is payable

 Restrictive Endorsement: Limits the use of the instrument to certain

conditions
The Negotiable Instruments Act, 1881

5. Dishonor of Instruments

 Dishonor by Non-Acceptance: Applies to bills of exchange when the drawee

refuses to accept the bill

 Dishonor by Non-Payment: Applies when the drawee or acceptor of a

negotiable instrument fails to make the payment when due

 Notice of Dishonor: The holder must notify all prior parties (drawer,
endorsers) about the dishonor of the instrument for them to be liable
The Negotiable Instruments Act, 1881

6 . L i a b i l i t y o f Pa r t i e s

 D r a w e r ' s L i a b i l i t y : T h e d r a w e r o f t h e b i l l o r c h e q u e i s l i a b l e f o r p ay m e n t i n c a s e o f d i s h o n o r

 Endorser's Liability: Each endorser is liable to pay if the instrument is dishonored, provided the
n o t i c e o f d i s h o n o r i s g i ve n i n a t i m e l y m a n n e r

 Ac c e p t o r ' s L i a b i l i t y : T h e a c c e p t o r o f a b i l l i s p r i m a r i l y l i a b l e f o r p ay m e n t

7. Presumptions Under the Act

 Presumption of Consideration: It is assumed that negotiable instruments are issued for consideration
u n l e s s p r o ve n o t h e r w i s e

 Presumption of Endorsement: Endorsements are presumed to be made with due authorization and
without any irregularities

 P r e s u m p t i o n o f D e l i v e r y : I t i s p r e s u m e d t h a t a n e g o t i a b l e i n s t r u m e n t wa s d e l i ve r e d i n d u e c o u r s e
The Negotiable Instruments Act, 1881

8 . C he q ue Bo un c i n g P r ov i s i o n s (S e c t i o n s 1 3 8 - 1 4 2 )

 S e c t i o n 1 3 8 : Pe n a l i z e s t h e d i s h o n o r o f c h e q u e s d u e t o i n s u f f ic i e n c y o f f u n ds or t h e a c c o u n t
b e in g c l os ed . T h e d ra w e r i s l ia b le t o a f i n e o r i m p r is on m e n t u p to 2 ye a r s

 T h e p ayee m u s t i s s ue a no t i c e t o t h e dr a w e r wi t h in 3 0 d a y s o f t h e d is h o n o r

 I f t he d ra we r d o es n ot m a ke p a y m e nt w it h i n 1 5 d a ys of t h e n o t ic e , a le g a l c a s e c an b e f i le d

 S e c t i o n 1 3 9 : P r e s u m p t i o n i n fa v or o f t h e ho l d er t h a t t h e c h e q u e wa s d ra wn f or d i s c h a r g e o f
d e bt o r li a bi li t y

 S e c t i o n 1 4 1 : E x t e n d s l i a b i l i ty t o c om p a n i e s , m a k i n g d ir e c t o r s a n d o f f i c er s l i a bl e if t h e c o m p a n y
is s u e s a d is h o n o r e d c h eq u e

 S e c t i o n 1 4 2 : Sp e c i f i e s t h a t t h e c o m p la i n t m u s t b e f i l e d w it h i n o n e m o n t h f r o m t h e d a t e w h e n
t h e c a us e of a c t io n a r is es
The Negotiable Instruments Act, 1881

9. Payment in Due Course

 The payment must be made in accordance with the apparent tenor of the
instrument to the rightful holder. Payments made without due diligence might
not discharge liability

10. Crossing of Cheques

 General Crossing: When two parallel lines are drawn across the face of the
cheque, directing the bank to make payment only through another bank

 Special Crossing: Involves adding the name of a specif ic bank between the
two lines, directing the payment to be made only through that bank
The Negotiable Instruments Act, 1881

11. Maturity and Presentment

 Days of Grace: Bills of exchange and promissory notes payable af ter a

specif ied period are entitled to three extra days (days of grace) for payment
af ter the maturity date

 Presentment: The instrument must be presented for payment, and failure to

do so can discharge the liable parties
The Negotiable Instruments Act, 1881

12. Scope of the Act

 The Act a pplies to the whole of India, cove ring all negoti able instru ments used
in the countr y

 It ensures a framework for the transfer and se ttlement of payme nts using
negotiable instruments and helps regulate commerce and credit systems in India

 The Act also plays a key role in curbing fraudulent practice s by holding individuals
and entities accountable for their obligations related to negotiable instruments
The Negotiable Instruments Act, 1881

Key Benefits:

 Facilitates Commercial Transactions: Ensures smooth and legally secure

transfer of financial obligations

 Provides Legal Protection: Def ines legal recourse in case of non-payment,

dishonor, or fraud involving negotiable instruments

 Penalty for Dishonored Cheques: Helps in maintaining the sanctity of

transactions by imposing strict penalties for cheque dishonor
The Negotiable Instruments Amendment Act,
1988
Insertion of a new chapter, chapter 17 in the 1881 act

 prior to changes in 1989, only civil and alternative dispute resolution remedies
for dishonoured check

 under section 138, no need to prove mens rea or the intent of the pair to not
pay the promised amount

 Was needed because of widespread problem of fraudulent behavior and non-

payment of dues. The mistrust of checks encouraged to move towards cash
transactions which brought a lot of problems of its own, such as counterfeit
notes, corruption and large amounts of untraceable and untaxable money
The Negotiable Instruments Amendment Act,
1988
Insertion of a new chapter, chapter 17 in the 1881 act

 Section 139: Presumption in favor of holder that the holder of the check,
received the check, of the nature referred to in section 138, for the discharge,
in whole or in part, of any debt or other liability

 Section 140: Prohibits the defence that, drawer had no reason to believe
when he issued the check that the check may be dishonored on resentment for
the reasons stated in section 138

 Section 142: Cognizability of offences under section 138, also provides time
period( one month) within which such complaint must be made
The Negotiable Instruments Act, 1881

 2002 amendment: inserted new sections 143 to 147 aiming at speedy

disposal of cases relating to dishonouring of cheques as well as making them
compoundable. Punishment under 138 two was enhanced from one year to two
year

 2015 amendment: inserted section 142A providing jurisdiction for offense

under section 138

 2018 amendment: inserted section 143 A and 1:48 to reduce the number of
check bounce cases pending in the courts
The Negotiable Instruments Act, 1881

Kaushalya Devi Massand vs Roopkishore Khore( AIR 2011 SC 2566)

 Respondent issued checks four rupees 3,00,000 to the complainant in lieu of

the payment of consideration against the sale of property in 1997. The checks
were dishonored on the ground of insuff icient fund hence complaint made.
Eventually respondent deposited a sum of 3,50,000 as against the check
amounting to 2,00,000.

 Magistrate f irst class, Indore observe that since respondent has deposited a
sum of 3,50,000 sentence of fine only would suffice without awarding any jail
sentence. Fine imposed of 4,00,000 for which only 50,000 lef t to be paid.
Failure of paying which would mean two months rigorous imprisonment for
respondent
The Negotiable Instruments Act, 1881

Kaushalya Devi Massand vs Roopkishore Khore( AIR 2011 SC 2566)

 An appeal f iled before Supreme Court, appellant challenged the decision

stating that while not sentencing the respondent to a jail despite the enormity
of offence committed, ironically the magistrates sentenced the responded to
two months rigorous imprisonment in default of rupees 50,000 towards your
compensation of rupees 4,00,000

 The council of appellant also urged that since the appellant is a widow and the
dispute has been going on for 14 years, it was only proper that a jail sentence
be awarded to the respondent to serve as a deterrent to others
The Negotiable Instruments Act, 1881

Kaushalya Devi Massand vs Roopkishore Khore( AIR 2011 SC 2566)

 SC held that the gravity of complaint under the NI act cannot be equated with
the offence under provisions of IPC or other criminal offences. An offence
under section 138 of the 1881 act is almost in nature of a civil wrong which
has been given criminal overtones

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THANK YOU

Swati Bisen