Have a Grievance against a NBFC? There is an Ombudsman to go to

Have a Grievance against a NBFC? There is an Ombudsman to go to

Thanks to the new Ombudsman Scheme launched this year, individuals investing in fixed deposit schemes of non-banking financial companies (NBFCs) now have a government body to fall back upon in case of deficiency in service including any default in their deposits. This move was muchawaited since their have been several instances of NBFCs not being able to make timely payment of interest and principal to their depositors. The following report will clarify when does the scheme become a legitimate recourse for aggrieved customers and the formalities involved in the process. A simpler way for your grievance against a NBFC to be addressed as you know there is an Ombudsman.

The objective of the scheme, which came into effect on 23 February 2018, is to enable resolution of complaints free of cost, relating to certain aspects of services rendered by certain categories of non-banking financial companies (NBFCs) registered with the Reserve Bank of India (RBI).

RBI has stated in a notification: “…To promote a conducive credit culture among the non-banking financial companies (NBFCs) and to regulate the credit system of the country to its advantage, it is necessary to provide for a system of Ombudsman for redressal of complaints against deficiency in services concerning deposits, loans and advances, and other specified matters…”

To begin with, the scheme will be operationalized for all deposit-accepting NBFCs and subsequently, based on the experience gained, it will be extended to include the remaining identified categories of NBFCs. It is initially being introduced at the four metro centres – viz. Chennai, Kolkata, Mumbai and New Delhi – for handling complaints from the respective zones, so as to cover the entire country.

NBFCs are defined in Section 45-I (f) of the Reserve Bank of India Act, 1934, and are to be registered with the RBI under Section 45-IA of the same Act. The Ombudsman Scheme is applicable to NBFCs that are authorized to accept deposits or have customer interface, with assets size of one billion rupees (Rs 100 crore) or above, as on the date of the audited balance sheet of the previous financial year, or any such asset size as the RBI may prescribe.

Which NBFCs Are Exempted?

  • At present, the following are excluded from the ambit of the Ombudsman Scheme:
  • Non-banking financial company – infrastructure finance company (NBFC-IFC)
  • Core investment company (CIC)
  • Infrastructure debt fund – non-banking financial company (IDF-NBFC)
  • NBFC under liquidation

 When Can You Make a Complaint to the Ombudsman?

Prior to making a complaint to the Ombudsman, the complainant must have made a written representation to the concerned NBFC  and the NBFC has rejected the complaint, or the complainant has not received any reply within a period of one month after the NBFC received his representation, or the complainant is not satisfied with the reply given by the NBFC.

And How?

The complaint will be in writing and duly signed by the complainant or his authorized representative**, and shall be, as far as possible, in the form specified in Annex II to the Scheme.

(**Authorized representative means a person other than an advocate duly appointed and authorized by a complainant to act on his behalf and represent him in the proceedings under the scheme for consideration of his complaint.)

Grounds for Complaint

Any person may file a complaint with the Ombudsman having jurisdiction, on any one of the following grounds alleging deficiency in services:

  1. non-payment or inordinate delay in the payment of interest on deposits
  2. non-adherence to RBI directives, if any, applicable to rate of interest on deposits
  3. non-repayment or inordinate delay in the repayment of deposits
  4. non-presentation or inordinate delay in the presentation of post-dated cheques provided by the customer
  5. failure to convey in writing, the amount of loan sanctioned along with terms and conditions including annualized rate of interest and method of application thereof

Currently, no NBFC can offer an interest rate more than 12.5 per cent across any tenure. Further, they cannot accept deposit for a period less than 12 months and more than 60 months.

  1. failure or refusal to provide sanction letter/terms and conditions of sanction in vernacular language or a language as understood by the borrower
  2. failure or refusal to provide adequate notice on proposed changes being made in sanctioned terms and conditions in vernacular language as understood by the borrower
  3. failure or inordinate delay in releasing securities documents to the borrower on repayment of all dues
  4. levying of charges without adequate prior notice to the borrower/customer
  5. failure to provide legally enforceable built-in repossession clause in the contract/loan agreement
  6. failure to ensure transparency in the contract/loan agreement regarding: (i) notice period before taking possession of security; (ii) circumstances under which the notice period can be waived; (iii) the procedure for taking possession of the security; (iv) a provision regarding the final chance to be given to the borrower for repayment of loan before sale/auction of the security; (v) the procedure for giving repossession to the borrower; and (vi) the procedure for sale/auction of the security;
  7. non-observance of directions issued by RBI to NBFCs
  8. non-adherence to any of the other provisions of RBI guidelines on Fair Practices Code for NBFCs

A complaint is not valid unless

  1. the complainant, before making a complaint to the Ombudsman, had made a written representation to the respective NBFC and the NBFC had rejected the complaint, or the complainant had not received any reply within a period of one month after the NBFC received his representation, or the complainant is not satisfied with the reply given to him by the NBFC
  2. the complaint is made not later than one year after the complainant has received the reply of the NBFC to his representation or, where no reply is received, not later than one year and one month after the date of the representation to the NBFC
  3. the complaint is not in respect of the same cause of action which was settled or dealt with on merits by the Ombudsman in any previous proceedings whether or not received from the same complainant or along with one or more complainants or one or more of the parties concerned with the cause of action
  4. the complaint does not pertain to the same cause of action for which any proceedings before any court, tribunal or arbitrator or any other forum is pending, or a decree or award or order has been passed by any such court, tribunal, arbitrator or forum
  5. the complaint is not frivolous or vexatious in nature
  6. the complaint is made before the expiry of the period of limitation prescribed under the Indian Limitation Act, 1963, for such claims
  7. the complainant has filed, along with the complaint, copies of the documents, if any, which he intends to rely upon, and a declaration that the complaint is maintainable under Clause 9-A

When Is the Complaint Resolved?

The Ombudsman may deem the complaint as resolved in any of the following circumstances:

  • where the grievance raised by the complainant has been resolved by the NBFC with the intervention of the Ombudsman; or
  • the complainant agrees, whether in writing or otherwise, to the manner and extent of resolution of the grievance by the Ombudsman based on the conciliation and mediation efforts; or
  • in the opinion of the Ombudsman, the NBFC has adhered to the extant norms and practices in vogue and the complainant has been informed to this effect through appropriate means, and complainant’s objections, if any, to the same are not received by Ombudsman within the time frame provided.

The Ombudsman’s right to reject

The Ombudsman may reject a complaint at any stage if it appears to him that:

  1. the complaint made is not on the grounds of complaint referred to in Clause 8 of the Scheme; or
  2. the compensation sought is beyond the pecuniary limit specified under the Scheme; or
  3. the complaint made is requiring consideration of elaborate documentary and oral evidence and the proceedings before the Ombudsman are not appropriate for adjudication of such a complaint; or
  4. the complaint made is without any sufficient cause; or
  5. the complaint made is not pursued by the complainant with reasonable diligence required to be taken; or
  6. in the opinion of the Ombudsman there is no loss or damage or inconvenience caused to the complainant.

Besides, the Ombudsman shall, if it appears at any stage of the proceedings that the complaint pertains to the same cause of action for which any proceedings before any court, tribunal or arbitrator or any other forum is pending, or a decree or award or order has been passed by any such court, tribunal, arbitrator or forum, pass an order rejecting the complaint giving reasons thereof.

Amount/Information/Implementation of Award

The Scheme provides for ‘settlement’ – this refers to an agreement reached by the parties, either by conciliation or mediation, under Clause 11.

The following two points are significant:

  1. Notwithstanding anything contained in Sub-Clause (4), the Ombudsman shall not have the power to pass an Award directing payment of an amount that is more than the actual loss suffered by the complainant as a direct consequence of the act of omission or commission of the NBFC, or one million rupees (Rs 1,000,000), whichever is lower.
  2. The Ombudsman may also award compensation not exceeding one hundred thousand rupees (Rs 100,000) to the complainant, taking into account the loss of time, expenses incurred, harassment and mental anguish suffered by the complainant.

A copy of the award shall be sent to the complainant and the NBFC free of cost. An award allowing the complaint shall lapse and be of no effect unless the complainant furnishes to the NBFC and the Ombudsman concerned, within a period of 30 days from the date of receipt of copy of the award, a letter of acceptance of the award in full and final settlement of his claim.

The NBFC shall, unless it has preferred an appeal under Sub-Clause (1) of Clause 14, within one month from the date of receipt by it of the acceptance in writing of the award by the complainant under Sub-Clause (8), comply with the award and intimate compliance to the complainant and the Ombudsman.

There Is an Appellate Authority

The award is not binding on the NBFC or the complainant as they have the option to appeal against the decision of the Ombudsman before the Appellate Authority. The latter shall, after giving the parties a reasonable opportunity of being heard,

  1. dismiss the appeal; or
  2. allow the appeal and set aside the award; or
  3. remand the matter to the Ombudsman for fresh disposal in accordance with such directions as the Appellate Authority may consider necessary or proper; or
  4. modify the award and pass such directions as may be necessary to give effect to the award so modified; or
  5. pass any other order as it may deem fit.

Address and Areas of Operation of Ombudsman

Centre Address of Office of NBFC Ombudsman Areas of Operation
Chennai

C/o Reserve Bank of India, Fort Glacis, Chennai 600 001

STD code: 044

Tel No. 25395964

Fax No. 25395488

Tamil Nadu, Andaman and Nicobar Islands, Karnataka, Andhra Pradesh, Telangana, Kerala, Union Territory of Lakshadweep, Union Territory of Puducherry
Mumbai C/o Reserve Bank of India, RBI Byculla Office Building, Opp. Mumbai Central Railway Station, Byculla, Mumbai 400 008 Maharashtra, Goa, Gujarat, Madhya Pradesh, Chhattisgarh, Union Territories of Dadra and Nagar Haveli, Daman and Diu
New Delhi

C/o Reserve Bank of India, Sansad Marg, New Delhi 110 001

STD Code: 011

Tel. No. 23724856

Fax No. 23725218-19

Delhi, Uttar Pradesh, Uttarakhand, Haryana, Punjab, Union Territory of Chandigarh, Himachal Pradesh, Rajasthan, Jammu and Kashmir
Kolkata

C/o Reserve Bank of India, 15, Netaji Subhash Road, Kolkata 700 001

STD Code: 033

Tel. No. 22304982

Fax No. 22305899

West Bengal, Sikkim, Odisha, Assam, Arunachal Pradesh, Manipur, Tripura, Meghalaya, Mizoram, Nagaland, Bihar, Jharkhand

Can Consumer Forums Set Aside the Arbitration Clause?

Can Consumer Forums Set Aside the Arbitration Clause?

After 2015, the year in which an amendment was made to Section 8 of Arbitration and Conciliation Act, 1996, several cases were discussed at the National Commission as well as the Supreme Court wherein it seemed that the amendment clause was being used as a shield by the accused parties to wriggle out of the court of law – they tried to legally nullify the jurisdiction of the consumer forum, stating facts from the amended part of Arbitration and Conciliation Act.Recently, an interesting judgement was passed by the Supreme Court in two such cases wherein the bench had concluded that “amendment to Section 8 of the Arbitration and Conciliation Act, 1996, as amended in 2015, has not changed the theory of earlier judgements by the Supreme Court that ‘consumer court has the jurisdiction in the cases where arbitration clause exists in the agreement executed between the parties’.”

A Case to Note

A special petition had been filed against the order of the National Consumer Disputes Redressal Commission (NCDRC) in the case of Aftab Singh and others versus Emaar MGF Land Limited and others. The petition had challenged the order of the National Commission on the basis of the amended Section 8 (1) of the Arbitration and Conciliation Act, 1996. (The given section provides the mandate to the judicial authority to refer parties to arbitration if there is a valid arbitration agreement between the parties.) At National Commission, a three-member bench presided by Justice DK Jain had held that such disputes were to be governed by the statutory laws and were non-arbitral.

The SC bench comprising justices AK Goel and U Lalit stayed the NCDRC judgement. In the final verdict, after hearing the appeal of Emaar MGF, SC agreed with the order passed by the National Commission which was in favour of the consumers and dismissed the appeal by the builders, and inter alia stated that consumer disputes were not capable of being settled by arbitration.

“We do not find any ground to interfere with the impugned order(s). The appeals are accordingly dismissed. Pending applications, if any, shall also stand disposed,” stated the bench.

Consumer Act and Arbitration Act

The Emaar MGF case became a much-debated issue in the wake of the complaints against the company for failure of allotment of flats and villas. The complainants alleged that the company had failed to deliver possession of the properties on the committed dates and sought delivery of possession or, in lieu thereof, refund of the amounts deposited by them along with compensation.

The builder, in response, referred to the existence of an arbitration clause in the buyers’ agreements and presented points from the amended sub-Section (1) of Section 8 of Arbitration and Conciliation Act, 1996, to justify that consumer courts could not intervene in the matter.

To strengthen the statement made earlier, a larger bench of NCDRC framed the issue for adjudication as under:

“Whether the Arbitration Act mandates consumer forums, constituted under the Consumer Protection Act, 1986, to refer parties to arbitration in terms of a valid arbitration agreement?”

The bench held that:

  1. Despite amending Section 8 (1) of the Arbitration Act, along with a similar amendment to Section 11 of the said Act to curtail the nature and scope of enquiry to be undertaken in terms of Sections 8 and 11 of the Arbitration Act, there is no intention to alter the interplay between the provisions of the Arbitration Act and the Consumer Act as settled by the Hon’ble Supreme Court of India through various judgements on the issue.
  2. The Consumer Act is a special social legislation enacted to protect consumer rights. It establishes a level-playing field between unequal players (that is, consumers and large corporations), and is quite unlike other legislations that create dispute-resolution mechanisms between level players. Hence, issues covered under this A are not arbitrable, nor are they intended to be covered by the amendment to Section 8 of the Arbitration Act.
  3. By virtue of Section 2 (3) of the Consumer Act, the Arbitration Act itself excludes from its purview certain disputes that fall within the public law regime and with respect to which statutory remedies are put into place to subserve a public policy. Since consumer disputes would fall under the umbrella of the said provision, they were not intended to be covered by the amendment to Section 8 of the Arbitration Act.
  4. The jurisdiction of the consumer forums to adjudicate on consumer disputes is not affected by either Section 8 (as amended) of the Arbitration Act or any other provision thereof.
  5. To accept the builder’s plea would be to hinder the entire purpose and object of the Consumer Act – that is, to ensure the speedy, just and expeditious resolution and disposal of consumer disputes.

As per Section 8 of the Arbitration Act, with regard to power to refer parties to arbitration where there is an arbitration agreement, a judicial authority before which an action is brought in a matter that is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

While determining whether a consumer dispute ought to be referred to arbitration, the consumer forum will have to focus on the nature of dispute brought before it. In spite of an arbitration clause, a consumer court may go ahead and exercise jurisdiction on matters related to the subjects under its domain – that is, purchase of goods and hiring of services.

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