CIA 1

LAW OF BANKING

FORMULATION OF MOOT PROBLEM

SUBMITTED TO: SUBMITED BY:

DR. FINCY P. NANCY WADHWA

ASSOCIATE PROFESSOR 1650557

SCHOOL OF LAW, 7 BBA LLB B

CHRIST. SCHOOL OF LAW, CHRIST

 IDBI Bank v. Amritanshu Singh Tomar

[Civil Appeal No. xx of 2019 arising out of S.L.P. (Civil) xx of 2018]

At National Consumer Dispute Resolution Forum, New Delhi.

Facts of the case:

Amritanshu Singh Tomar, a resident of Satrangi Village, Haryana, purchased a tractor

bearing registration No. HR-16L-R56, after getting loan sanctioned from the IDBI Bank,
Branch Satrangi, Haryana for an interest rate of 11.5% p.a. Although the complainant found
the rate of interest very high, but he didn’t raise a complain believing that it was the current
market rate. In terms of conditions of loan, Amritanshu was making deposits of the loan
instalments to the Bank. The vehicle was initially insured as required under Motor Vehicles
Act, 1988, but no premium of insurance was paid by the respondent for the period after
25.5.2017.

On 24.9.2018 at about 11.50 a.m., an accident occurred between the above vehicle and
motorcycle bearing registration No. DL-0S-AZ-8904, in which Surya, son of Bichiya Sen
Garg, died due to rash and negligent driving on the part of Diwan Singh, driver of the tractor
owned by respondent Amritanshu Singh Tomar.

The parents of the deceased filed claim petition No. 208/11/2018 before Motor Accident
Claims Tribunal, Dwarka Courts, New Delhi, which was allowed by said Tribunal, vide its
order dated 17.11.2019 awarding compensation to the tune of Rs.4,01,780/- with 6.5%
interest per annum, against driver and owner of the vehicle. It has not been disputed
between the parties that on the date of accident the vehicle No. HR-16L-R56 was not
insured with any of the insurance companies, as required under Section 1461 of the Motor
Vehicles Act, 1988.

1
Necessity for insurance against third party risk. —

(1)No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a
public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as
the case may be, a policy of insurance complying with the requirements of this Chapter.
The respondent filed complaint before District Consumer Disputes Redressal Forum,
Jhajjar, praying that IDBI Bank, i.e., the creditor bank should be made liable to pay the
compensation, awarded against him by the Tribunal. He also claimed that the rate of interest
charged by the bank was arbitrarily excessive in nature and much more than the market rate
and seeked compensation for the same citing deficiency of services by the bank as the
reason for the same.

The District Consumer Disputes Redressal Forum, vide its order dated 11.11.2018, held
that the Bank (present appellant) is liable for the legal consequences for not getting the
insurance renewed. The complainant claims that the Bank had grievously neglected duty in
insuring the vehicle. Further, the court held that the rate of interest charged on the loan by
the bank was arbitrary in nature and awarded a compensation for Rs34,567 in favour of the
complainant.

The bank aggrieved by this decision, filed its First Appeal vide its order dated 18.11.2018
at the State Consumer Disputes Redressal Commission, Haryana, Panchkula. The bank
filed an appeal and contended that the unpaid insurance premium payable was the
complainant’s negligence. It further contended the jurisdiction of the District Forum on
having awarded the complainant with a compensation when the same is prohibited by
Section 21A2 of the Banking Regulation Act,1949, which clearly devoids the courts’
jurisdiction in holding any judgement in regard to the interest rate charged by the banks.

The State Forum dismissed this appeal on the ground that in terms of loan agreement the
Bank has a duty to recover insurance premium, held that the Bank cannot escape its liability
and further held that when the rate of interest is excessively high and against public interest,
the courts can interfere and look into the rate of interest charged by the bank.

IDBI Bank again aggrieved by the court’s decision finally approached NCDRC by filing
Revision Petition No.xx of 2019, but same was filed with delay of 230 days. The
explanation given by the courts for justifying the delay was that they couldn’t finish the

2
Rates of interest charged by banking companies not to be subject to scrutiny by courts Notwithstanding
anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in
force in any State, a transaction between a banking company and its debtor shall not be re-opened by any
court on the ground that the rate of interest charged by the banking company in respect of such transaction is
excessive.]
procedures on time, as the complainant lives in a very far off village and due to inadequacy
of working staff in that area, they couldn’t process all the procedural requirements on time
and hence the delay. NCDRC in its wisdom did not find the explanation advanced for
condonation of delay as sufficient, as such, the revision petition was dismissed as barred
by limitation.

Hence this special appeal is directed to NCDRC against order dated 19.11.2019, passed by
State Consumer Disputes Redressal Commission (for short "SCDRC") and the appeal
rejected by the National Consumer Dispute Resolution Forum NCDRC, New Delhi.

Following are the issues drafted in the present case:

Issues Involved:

a. Whether the unpaid dues payable towards the insurance of the vehicle, a deficiency
of service by the bank or would it be classified as an act of negligence by the
customer?

b. Whether payment of premium for a vehicle purchased on loan be categorised under

the banking services as specified in the Banking Regulation Act, 1949?

c. Whether the District Forum was well within its jurisdiction to look into the rate of
interest charged by the bank?

d. Whether Section 21A of the Banking Regulation Act, 1949 is against the
constitutional principles?

e. Whether NCDRC was right to reject IDBI Bank’s appeal on the basis of limitation
of time?
Laws Involved:

1. Motor Vehicles Act, 1988

[ In specific, Section 146, mandating Third Party Insurance for all vehicles]

2. Banking Regulation Act, 1949

[In specific, Section 21A, barring courts to look into the validity of rate of
interest charged by the courts.]
[In specific, Section 5(b), Definition of the term ‘banking’.]

Further course of action for the bank:

1. Establish the constitutional validity of Section 21A by landmark cases such as H.P.
Krishna Reddy v. Canara Bank.3

2. Bring into light the ambit of banking services and prove beyond doubt the exclusion
of specified activities in the current case and prove unpaid premium as the
negligence of the customer.

Further course of action for the customer:

1. Disprove the constitutional validity of Section 21 A. Contentions from the case of

Jayant Verma and Ors. v. Union of India and Ors.4 can be used.

2. Prove the payment of premium dues as a part of the banking services and hence hold
the IDBI bank for deficiency of services to the customers.

3
AIR1985 Kant. 228
4
Writ Petition (Civil) No. 134 of 2013