A Banking Ombudsman must provide effective hearing and pass a reasoned order on complaints.

The petitioner, proprietor of Hamara Industries, maintained a cash-credit account with the Bank of India at an agreed rate of BPLR plus 2%.

Following the RBI’s introduction of the Base Rate System with effect from 1 July 2010, the petitioner alleged that, despite renewal of his cash-credit facility on 5 October 2010, the Bank continued charging interest under the erstwhile BPLR system.

The account was shifted to the Base Rate system only on 30 September 2016, and the Bank subsequently issued a sanction note recording the applicable rate as Base Rate plus 2%.

The petitioner claimed excess interest of Rs. 6,11,028, together with interest thereon, and pursued the matter before the Banking Ombudsman.

After earlier orders of the High Court directing reconsideration, the Bank recalculated the dues and credited Rs. 8,44,607, followed by a further credit of Rs. 3,74,528 towards interest or compensation; the Bank asserted that an aggregate amount of Rs. 15,32,544 had been credited.

The petitioner’s remaining grievance concerned entitlement to interest at the contractual lending rate rather than the fixed-deposit rate, as well as legal expenses and compensation.

The Ombudsman rejected the complaint under Clause 16(2)(a) of the Reserve Bank Integrated Ombudsman Scheme, 2021, without, according to the petitioner, granting an effective hearing or providing adequate reasons.

Whether the Ombudsman’s order dated 4 January 2023 was invalid for failure to provide the petitioner an effective opportunity of hearing in respect of his subsequent complaint dated 2 November 2022?

Whether the Ombudsman failed to pass a reasoned and speaking order by inadequately considering the petitioner’s claim for interest at the contractual lending rate, legal expenses, and compensation?

Whether the matter was required to be remitted to the Reserve Bank Integrated Ombudsman for fresh consideration?

The Court applied Clause 16(2)(a) of the Reserve Bank Integrated Ombudsman Scheme, 2021, under which complaints may be rejected or closed in the circumstances specified by the Scheme.

It further applied the principles of natural justice, particularly the requirement that a quasi-judicial authority deciding matters affecting civil rights must provide an effective opportunity of hearing and pass a reasoned and speaking order dealing with the parties’ material submissions.

The Court held that mere recording of conclusions, without examining the rival contentions and disclosing the basis of decision, does not satisfy the requirement of a reasoned order.

The Court distinguished the earlier hearing concerning recalculation and refund of excess interest from the petitioner’s subsequent complaint dated 2 November 2022, which raised separate issues concerning the applicable rate of interest on the refunded amount, legal expenses, and compensation.

The Ombudsman merely accepted the Bank’s explanation that the retained amount was analogous to a bank deposit and that interest at the prevailing fixed-deposit rate was therefore justified.

The Court found that the Ombudsman had neither independently examined the petitioner’s objections nor furnished adequate reasons for rejecting his claims.

Since the impugned order was cryptic, failed to demonstrate due application of mind, and was passed without an effective hearing on the distinct subsequent grievance, it violated the requirements of natural justice and a reasoned decision.

The matter was remitted to the Reserve Bank Integrated Ombudsman for fresh consideration of the petitioner’s complaint dated 2 November 2022.

The Ombudsman was directed to provide an adequate opportunity of hearing to both the petitioner and the Bank, consider their submissions and documents, and pass a reasoned and speaking order addressing all issues raised in the complaint.

The Court expressly left the merits of the parties’ rival claims open and disposed of the writ petition accordingly.