RBI Need To Issue Necessary Guidelines Regarding Status Of Demand Draft Not Presented For Clearance: Karnataka HC

The Karnataka High Court has asked the Reserve Bank of India (RBI) to issue necessary guidelines regarding the status of a Demand Draft not presented for clearance during its validity.

The Court was dealing with a Writ Petition preferred by a company challenging the Order of the Banking Ombudsman.

A Single Bench of Justice Suraj Govindaraj said, “It would be for the Reserve Bank of India to also issue necessary guidelines as regards the status of a demand draft not presented for clearance during its validity and amongst other things, if the amount covered under the demand draft can be automatically credited to the account of the customer on expiry if the demand draft has purchased the same through her bank account.”

Advocate K.V. Satish represented the Petitioner while Advocates Kaveesh Sharma, Sreedevi K.B., and Jai M. Patil represented the Respondents.

Factual Background -

The Petitioner secured/purchased a Demand Draft (DD) for a sum of Rs. 50 lakhs towards payment to be made to him on account of certain transactions between the parties. The agreement of sale having been terminated, the amount received by the Petitioner was sought to be refunded via DD. The other party did not accept it and a suit for specific performance was filed. After much time taking note that DD had expired, the Petitioner approached the Bank with the original DD, requesting the Bank to cancel the DD and credit the amounts into the current account.

The Petitioner followed up the said request by email and the Bank in reply stated that encashment of DD would require confirmations/NOC from the payee. By then, the payee expired and the Bank called upon the Petitioner to furnish no objections from the legal heirs of the payee. The Petitioner repeatedly followed up with the Respondents but the Bank was unable to place on record any rules, guidelines, or law on which basis the amount was withheld. The Petitioner then lodged a Complaint with the Banking Ombudsman but the same was dismissed. Hence, the case was before the High Court.

The High Court in view of the facts and circumstances of the case, observed, “Once the demand draft expired and the demand draft had not been presented for payment, on expiry even if the payee were to present the demand draft, the bank not being in a position to honour it by payment, it was required for the bank to have credited the amount in the account of the petitioner on the expiry of the demand draft without waiting for a request. The demand draft having expired, the cancellation ought to have been automatic.”

The Court noted that exemplary interest would have to be awarded in favour of the Petitioner, however, since the Petitioner has only sought for 18% interest, the Court refrains and restricts the interest to 18% per annum and if the Petitioner had claimed interest from September 31, 2010, the Court would have granted the same.

“… the conduct of the respondent-Bank requiring the petitioner to run from pillar to post, issue legal notice, file complaint before the banking ombudsman and then file the present writ petition, would require punitive costs to be imposed on the respondent-Bank which is quantified at Rs.5 lakhs to be paid within 15 days from today”, it concluded.

Accordingly, the High Court allowed the Writ Petition.

Cause Title- Doddaballapur Spinning Mills v. The Banking Ombudsman & Ors. (Neutral Citation: 2024:KHC:48118)

Click here to read/download the Judgment