CONSUMER RIGHTS
Protect small depositors
Pushpa Girimaji

The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides compulsory insurance cover to your deposits in commercial banks, and more importantly, primary cooperative banks. So if a bank goes into liquidation, the corporation is liable to pay each depositor the amount of his or her deposit, but up to a maximum of Rs 1 lakh, and this is done on the basis of the claim list sent by the liquidator.

There are, of course, complaints of delay in the process, and last year the DICGC analysed the causes of such delays and found that they were caused mainly on account of (a) court cases challenging the cancellation of licence or liquidation of banks; and (b) non-receipt of claim list from liquidators. Consequently, it said in cases where the liquidation is under challenge, it would pay the depositors the insured amount without waiting for the court's decision, and where the liquidator delays sending the claim list, it would issue an advertisement in newspapers asking depositors to send their claims to the liquidator along with a copy to the DICGC, so as to expedite the process.

It also simplified certain procedures to help the depositors. But recently, the apex court dealt with an even more serious issue, where, despite such mandatory insurance, small depositors had to wage a long legal battle for getting their money from a cooperative bank. Holding the baking regulator, the Reserve Bank of India, responsible for it, the apex court has asked the Union Ministries of Consumer Affairs as well as Law and Justice to take appropriate steps to mitigate the hardships faced by small depositors in such situations and ensure that the very purpose of the mandatory insurance provided to depositors is not defeated.

The problem in this case arose on account of a prohibitory order issued by the Reserve Bank of India under Section 35 of the Banking Regulation Act, prohibiting Maratha Cooperative Bank, Hubli, Karnataka, from either accepting any deposits or paying any money to the depositors from February 4, 2004.

So once the prohibitory orders are issued, the depositors cannot get back their money from the bank. But the unfortunate part is that they also cannot get the insured money from the DICGC because the corporation is liable to pay only when a bank goes into liquidation. And in this case, the bank neither got revived nor did it go into liquidation, and for four long years, the prohibitory orders continued, thereby putting the consumers under extreme financial pressure.

It was only in January this year (2008) that the RBI finally initiated the process of liquidation. Meanwhile, the courts at the district and the state level before which the depositors had filed cases, had directed the bank to pay. This was contested by the RBI on the ground that once it passed a prohibitory order, the courts had no jurisdiction to interfere or direct the bank to pay the depositors.

While dismissing such contentions and upholding the rights of the consumers, the apex court expressed concern over the duration of the prohibitory orders imposed by the RBI, thereby putting the depositors in great financial difficulty. Saying that there has to be reasonable period within which such orders are lifted, the highest court in the country said if a banking company is required to be revived, continuous efforts should be made by the authorities to ensure that.

If it cannot be revived, then the bank's licence should be cancelled and it should be liquidated. Without doing either, prohibitory orders cannot be imposed indefinitely, as it would frustrate the objective of providing statutory insurance cover to the depositors, the National Consumer Disputes Redressal Commission said. It, therefore, asked the Union Government to consider amending the relevant laws to prevent these kinds of situations that caused small depositors great distress and harassment.

Hopefully, the government will take appropriate action (such as amending the relevant laws) to protect the rights of small depositors so that the true purpose of mandatory deposit insurance is served and consumers are not unduly harassed.

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