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WHEN consumer courts first came into being, a resident of Mysore in Karnataka had taken a bank to court for dishonouring his cheque without any valid reason. His complaint was that the cheque issued by him towards payment of his electricity bill had been dishonoured by the bank, despite sufficient balance in his account. Besides the humiliation, he had to suffer disconnection of power supply to his house and had to waste considerable time in paying the bill all over again and getting the supply restored. Holding the bank guilty of negligence, the court had directed the bank to pay a small sum to the client as damages. In those days, the amounts granted as compensation by courts were paltry. Besides, there was no provision in the Consumer Protection Act at that time to award punitive damages for such acts of negligence. Today, things are different. Even though the compensation in many cases may not be fully commensurate with the suffering undergone by the consumer, it is better than before. And most important, the amended consumer protection law provides for award of punitive damages. Here again courts are still treading with caution when it comes to imposing punitive damages, but there are cases where justice has been done. One such case decided by the apex court in 2006, for example, should gladden the hearts of clients. This case goes bank to 1997, when the Bihar State Sugar Corporation issued a cheque towards an insurance premium. The policy it sought to buy through that payment was meant to cover the assets of Lauriya Sugar Factory against risks. Within a month of this, there was an explosion in one of the molasses tanks of Lauriya Sugar Factory, resulting in a loss of over Rs 25 lakh. When the sugar factory asked for indemnification of the loss, the insurer — Oriental Insurance — said the policy was not even in existence because the cheque issued by the factory had not been cleared by the Bettiah branch of State Bank of India. Shocked by this information, when the sugar corporation made enquiries, the bank admitted that it had made a mistake and despite sufficient balance in the account, the cheque issued towards the insurance policy had been dishonoured on grounds of ‘insufficient funds.’ Angry at this turn of events, the corporation filed a complaint against the bank before the court, demanding that the bank make good the loss suffered by it. The bank in turn conceded that it had made a mistake, but argued that the policy, even if it had been in force, would not have covered the explosion in the molasses tank and the consequential loss as that was outside the scope of the insurance cover. The National Consumer Disputes Redressal Commission agreed with this contention of the bank. However, it considered the gravity of the mistake committed by the bank — of not honouring a cheque issued towards the purchase of an insurance policy to protect the factory from risks—and said the bank should not go unpunished for this. It, therefore, used Section 14(1) (d) of the Consumer Protection Act that provides for award of punitive damages and directed the bank to pay the sugar factory Rs 5 lakh. This, the apex court said, should force banks to keep in mind the statutory norms before dishonouring a cheque, particularly those of government and semi-government organisations. Today, the consequences of a dishonoured cheque are grave. If a cheque given towards payment due from a credit card is dishonoured, the credit card company will not only levy a penalty for such dishonour, but also impose a hefty interest on the amount due.
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