Kerala High Court Sets Aside Banking Ombudsman Order For Failing To Give Reasoned Decision

The Kerala High Court recently set aside an order passed by the Banking Ombudsman rejecting a borrower's complaint over increase in interest rate on a gold loan from 14.5% to 17%, holding that the authority failed to pass a reasoned order despite a specific direction from the Court.

A single bench of Justice Harisankar V. Menon was considering a writ petition filed by the borrowers, challenging the Ombudsman's order.

The petitioners contended that the rate of interest was increased by the bank unilaterally from 14.5% to 17%, allegedly in violation of RBI guidelines.

Aggrieved, the borrowers approached the Banking Ombudsman. The Ombudsman rejected the complaint in 2014, holding that the interest rate revision was in accordance with the bank's base rate system and had been duly communicated. The petitioners challenged the decision before the High Court, which set aside the rejection and directed the Ombudsman to reconsider the complaint and pass a “reasoned order”.

Thereafter, and after changes were introduced in the Ombudsman Scheme, the petitioners filed a fresh complaint. During the proceedings, the Ombudsman called for details from the bank, including its credit policy and interest rate structure, and recorded that the complaint would be examined on merits after receipt of the information.

However, without indicating whether such details were furnished or shared with the petitioners, the Ombudsman rejected the complaint again in 2023, observing that the increase in interest rate was part of a policy decision taken for all borrowers and that there was no discrimination. This rejection order was challenged before the High Court.

The Court noted that the Ombudsman had earlier directed the bank to produce its credit policy and a table showing the interest rate structure, and had assured that the complaint would be adjudicated after receipt of the information. However, the impugned order did not disclose whether the information was received or whether it was communicated to the petitioners.

The Court observed:

“However, it is noticed that in the impugned order at Ext.P9, the 4th respondent herein has went on a tangent and found that there is no basis for the alleged discrimination pointed out by the petitioners herein. The said order is silent as to whether the details sought pursuant to Ext.P8 were furnished by the 1st respondent herein or whether they were also communicated to the petitioners.”

Rejecting the Ombudsman's contention that its role was only “resolution of complaints” and not adjudication in the true sense, the court held that the earlier judgment of the High Court had specifically directed the authority to pass a reasoned order, and once the Ombudsman itself proceeded to adjudicate the dispute, it was bound to render a reasoned decision.

The court further noted that the impugned order had been issued in the form of a letter and signed by an unnamed officer attached to the Reserve Bank of India, and observed:

“It would be better for the Ombudsman to pass orders, signed and sealed, and not relegate the same to an officer who is stated to be working with the Reserve Bank of India, that too with no name.”

Holding the order unsustainable, the court allowed the writ petition, set aside the impugned order and directed the Ombudsman to pass fresh orders on the complaint in accordance with the observations in the judgment, within four months

For Petitioners: Senior Advocate K Jaju Babu, Advocates M.U Vijayalakshmi, Brijesh Mohan, D. Sreekumar, T.S Athira, Sachin Ramesh and Anuja Thomas

For Respondents: Advocates Sunil Shankar, G Keerthivas, M Gopikrishnan Nambiar, K. John Mathai, Joson Manavalan, Kuryan Thomas, Paulose C Abraham and Raja Kannan