SC decision in Amitabha Dasgupta : A pyrrhic victory for bank locker customers?
Published: Dec 14, 2021
By Syed M Peeran, Aniruddha A S and Akshita Bohra
THE Reserve Bank of India ('RBI') has issued the circular on 'Safe Deposit Locker/ Safe Custody Article Facility provided by the banks - Revised Instructions' on 18.08.2021 ('Circular') 1 pursuant to the directions laid down by the Supreme Court in the case of Amitabha Dasgupta v. United Bank of India and others. 2 The Circular will come into effect on 01.01.2022 (except where otherwise specified). The present article analyses the decision of the Supreme Court in Amitabha Dasgupta and relevant provisions of the Circular to examine if it implements the true intent of the decision in Amitabha Dasgupta .
Background and facts in Amitabha Dasgupta
In Amitabha Dasgupta, the Supreme Court had occasion to examine the question of liability of banks to their customers in respect of bank lockers provided to them. The dispute arose out of the unauthorised breaking open of the appellant's locker by the respondent bank. The bank admitted that there was no default by the locker holder in payment of the rental amounts and the breaking open of the locker was due to inadvertence on part of the bank.
On noting that five out of the seven ornaments placed in his locker were missing, the locker holder requested the bank to return all the seven ornaments or alternatively pay the costs of the ornaments, besides compensation for the damages suffered.
The bank countered that only two ornaments were found when the locker was broken and refused to consider the request of the locker holder. Aggrieved, the locker holder moved the District Consumer Forum seeking the costs of the missing ornaments and compensation for damages. The District Forum allowed the complaint. In appeal, the State Commission accepted the finding on deficiency of service by the bank but declined to grant the costs of the ornaments as there was a dispute on the contents of the locker. Such dispute, the State Commission held, could only be decided upon provision of elaborate evidence before a civil court and not in summary proceedings before the consumer fora. The National Commission in revision proceedings affirmed the findings of the State Commission. Aggrieved by the same, the appellant approached the Supreme Court.
Issues before the Supreme Court
The Supreme Court framed two questions for its consideration:
(i) Whether a Bank owes a duty of care to the locker holder under the laws of bailment or any other law with respect to the contents of the locker? And whether the same can be effectively adjudicated in consumer dispute proceedings?
(ii) Irrespective of the answer to the first question, whether a Bank owes an independent duty of care to its customers with respect to diligent management and operation of the locker, separate from its contents ? Whether compensation can be awarded for non-compliance with such duty?
Locker holder vis-a-vis Bank - Whether a relationship of bailment?
To answer the first question, the Court referred to Secs. 148 and 149 of the Contract Act, 1872. The court found that for a relationship of bailment to exist, there must be a delivery of goods from one person to another by transfer of possession, actual or constructive. In the context of bank lockers, the court noted that there existed no legislative guidance or concrete sector specific regulations to determine such relationship. Since there was no authoritative pronouncement of the Supreme Court either, the court referred to few High Court decisions in Jagdish Chandra Trikha 3, Sohan Lal Saigal 4, Mohinder Singh Nanda 5 and Atul Mehra 6, which dealt with similar question.
The Supreme Court noted that in all these cases, the point of contention was whether the contents of the locker had been entrusted/possession delivered to the bank. In order to establish exclusive possession by the bank, the claimant had to prove that bank had knowledge of contents of locker. Alternatively, if the locker holder alone had such knowledge, independent evidence was required to prove the contents and their value. Therefore, mere leasing out of locker ipso facto would not establish relationship of bailment between bank and the locker holder.
Based on the above analysis, the Supreme Court concluded that to determine whether possession was transferred in the facts of the case, required factual findings on whether bank had knowledge of the contents / whether any inventory of articles was prepared etc. Such questions, the court opined, could not be answered in summary proceedings before the consumer fora. Therefore, such questions could only be decided in a separate civil suit seeking such reliefs.
Banks' independent duty of care to locker holder
However, as far as the second question is concerned, the Supreme Court noted that banks as custodians of public property have an independent duty of care to their customers including locker holders irrespective of the application of the laws of bailment. Such duty of care cannot be avoided by merely claiming ignorance of the locker contents. In arriving at such conclusion, the court referred to the decisions of the National Commission in K B Shetty 7, Mahender Singh Siwach 8 and Mamta Chaudaha 9 which had held that the relationship between the bank and the locker holders was that of service provider and consumer.
The Supreme Court noted that though there existed a service provider - consumer relationship between the bank and the locker holder, the RBI guidelines / circulars covering the field were inadequate. This was because there was neither any uniformity nor clarity on the precise requirements of the duty of care to be exercised by the banks. Due to the same, banks were likely to draft locker hiring agreements favourable to their interests and leave the locker operation at the consumers' own risk. The Court observed that the regulatory vacuum had also led to the banks being under the mistaken impression that not having knowledge of the contents of the lockers exempts them from liability to secure the lockers in themselves as well.
Guidelines laid down by the Supreme Court in relation to bank lockers
In view of this lacuna, the Supreme Court laid down certain guidelines in relation to the operation of bank locker facilities by banks. These principally related to maintenance of locker register, informing locker holder in case of change in locker allotment/breaking open locker, maintenance of records in relation to locker access, procedure on breaking open of locker etc. These guidelines were to be operative till the RBI framed comprehensive guidelines in this regard within a period of six months from the date of the judgement.
Circular issued by RBI
Under the Circular, the RBI had specified detailed requirements that are to be followed by banks and incorporated in their respective board approved policies in relation to operation of bank locker facilities. As per clause 2.1 of the Circular, locker agreements entered into by banks should be in conformity with the instructions contained in the Circular. The Circular at clause 7 specifically provides that banks have a duty of care including ensuring the proper functioning of the locker system, guarding against unauthorised access to the lockers and providing appropriate safeguards against theft and robbery.
The Circular is indeed a significant step in the right direction for protecting the interests of locker holders. Such guidelines also benefit the banks and protect them from unnecessary or frivolous claims. However, it is the limitation of liability provided in the Circular that may be subject to dispute in the future.
Limitation of liability clause in the Circular
As per clause 7.1 of the Circular, the banks are not liable for any damage and/or loss of contents of locker arising from natural calamities or Acts of God like earthquake, floods, lightning and thunderstorm or any act that is attributable to the sole fault or negligence of the customer. As per clause 7.2 of the Circular, the liability of the bank to the locker holders in the event of fire, theft, burglary, dacoity, robbery building collapse or fraud by the bank's employees is limited to an amount equivalent to 100 times the prevailing annual rent of the safe deposit locker. This is problematic for more than one reason.
First, the prevailing annual rent of safe deposit lockers in most public sector banks (where a large majority of customers maintain their accounts) is anywhere between INR 3,000 to INR 6,000. Therefore, under the circular, the bank's liability would be limited to a sum of INR 3,00,000 to INR 6,00,000. If the value of the contents of the locker exceeds this amount (which, may well be in many cases), the liability amount stipulated in the circular will be wholly inadequate.
Second, the limitation of liability clause in the Circular would equally apply to claims both in consumer proceedings and in civil suits (seeking compensation for the actual loss of contents). Such claims in civil suits as explained earlier seek the value of the contents of the locker on the strength of the relationship of bailment or the like under any other law. Therefore, the reliefs sought in such a suit are independent of the duty of care of the banks and are tied to the actual proven loss suffered by the locker holder. However, even if such actual loss is proven, the civil court may be unable to grant the same if it exceeds the limitation of liability clause in the circular.
It is possible to argue that the limitation of liability clause under the Circular should only apply to consumer claims on the basis of the banks' independent duty of care. This is because clause 7 of the circular providing for liability is based on such duty of care. Therefore, it could be contended that such limitation of liability cannot be extended to claims that are based on actual proven loss pursuant to an adjudication of an ordinary civil court.
Third, it is common knowledge that in many cases, locker holders are not able to independently establish the contents of their locker. This is because the act of depositing contents in the locker is usually a private affair with the banks having no visibility on what is deposited. In the absence of any circumstances where the contents of the locker can be independently proved (such as in Jagdish Chandra Trikha or Sohan Lal Saigal), it is difficult for the locker holder to succeed in a civil suit claiming actual loss. Therefore, the only practical remedy open to the locker holder is to file a consumer claim on the basis of the banks' independent duty of care. In such cases, the limitation of liability clause in the Circular would necessarily apply and limit the damages that may be sought. In order to mitigate this uncertainty, it is always open to the bank locker holder to maintain independent evidence of the contents of the locker for use in any future civil suit.
Fourth, it is important to note that Amitabha Dasgupta itself did not provide for any such limitation of liability in the guidelines framed by it. The Court was perhaps alive to the fact that the unique facts and circumstances of each case may not lend themselves to such limitation of liability. It may also have been that any such limitation would interfere with the court's inherent jurisdiction to award reliefs as the justice of the case requires.
Fifth, the Circular only provides for preparation of an inventory of items at the time of removal or transfer from the locker, but not during the time of initial deposit or any subsequent time during the operation of the locker. Such provision in the Circular for preparation of inventory during the initial deposit etc. may have mitigated some of the difficulties in proving actual loss in a civil suit. However, it is also true that it may not be feasible to burden banks with preparation of inventory every time a customer accesses his locker.
The Supreme Court decision in Amitabha Dasgupta certainly provided much needed clarity on the legal relationship between banks and their locker customers. Amitabha Dasgupta not only authoritatively lays down for the first time the legal remedies that may be open to bank locker customers, but also stipulates the procedures to be followed by the banks in providing bank locker facilities to their customers. Both these results have worked to the benefit of the locker holders as well as the banks by protecting the legitimate interests of the former while shielding the latter from unnecessary or frivolous claims.
The Circular furthers this objective. However, the limitation of liability clause in the Circular has the potential for causing mischief in the future. Such a clause may prove an obstacle where the justice of the cause may justify the award of a higher amount by a consumer forum. Similarly, such limitation of liability clause may also be problematic if despite proving the actual loss of contents in a civil suit, the bank locker customer is unable to obtain any compensation that exceeds the limitation of liability clause. The interpretation of the limitation of liability clause in the Circular would substantially determine the extent and quantum of relief that a locker holder may obtain. Therefore, whether the decision in Amitabha Dasgupta served a pyrrhic victory to bank locker customers or not, only time would tell.
[The authors are - Syed Peeran, Partner, Aniruddha A. S., Principal Associate, and Akshita Bohra, Senior Associate, Lakshmikumaran & Sridharan, Bangalore. The views expressed are strictly personal.]
1 Circular No. DOR.LEG.REC/40/09.07.005/2021-22.
3 Jagdish Chandra Trikha v. Punjab National Bank, AIR 1998 Del 266.
4 National Bank of Lahore Limited v. Sohan Lal Saigal, AIR 1962 P&H 534.
5 Mohinder Singh Nanda v. Bank of Maharashtra, 1998 ISJ (Banking) 673.
6 Atul Mehra v. Bank of Maharashtra, AIR 2003 P&H 11.
7 Punjab National Bank, Bombay v. K B Shetty, 1991 (1) C.P.C 592.
8 Mahender Singh Siwach v. Punjab and Sind Bank, (2006) 4 CPJ 231 (NC).
9 Mamta Chaudaha v. Branch Manager/Head Manager, State Bank of India, (2020) 1 CPJ 276 (NC).