Consumer Protection Act 2019 and Banks: Deficiency in Service

A bank customer is a consumer. That short sentence carries a great deal, because it brings an entire parallel system of remedies to bear on a relationship that would otherwise be governed only by contract and by the Reserve Bank's directions. It also has limits that are frequently misunderstood. Not every customer is a consumer, not every grievance is a deficiency in service, and not every dispute can be decided by a forum designed to work quickly on documents. This note sets out both the reach and the boundaries.

1. Banking as a service

Section 2(42) of the Consumer Protection Act, 2019 defines service to mean service of any description made available to potential users, and the definition expressly includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, telecom, boarding or lodging, housing construction, entertainment, amusement or the purveying of news or other information. Banking is therefore a service by name, and no argument about whether it is covered is available.

Section 2(11) defines deficiency as any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force, or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service. The definition expressly includes any act of negligence or omission or commission that causes loss or injury to the consumer, and the deliberate withholding of relevant information.

2. Who is a consumer, and the commercial purpose exclusion

Section 2(7) defines a consumer as a person who buys goods or hires or avails of any service for a consideration, excluding a person who avails of a service for any commercial purpose. An Explanation provides that commercial purpose does not include use by a person of goods bought or services availed exclusively for the purposes of earning his livelihood by means of self employment.

Three points follow for banking disputes.

1. A depositor is plainly a consumer. He pays consideration in the form of the use of his money, and the bank provides a service.
2. A borrower is a consumer in respect of the service of granting and servicing the loan, even though the money borrowed may be used commercially, because the service availed is the banking service and not the business financed.
3. Where a company or a firm avails a banking service for a commercial purpose, the exclusion may apply, and the burden of showing that the service was availed for a commercial purpose lies on the party asserting it, that is, ordinarily, on the bank.

3. The forums, and how to choose between them

Figure 1: The pecuniary ladder

The Consumer Protection (Jurisdiction of the District Commission, the State Commission and the National Commission) Rules, 2021 revised the pecuniary limits downwards, which was unusual and was done to relieve the higher Commissions of volume.

The value that decides the forum is the value of the goods or services paid as consideration, which under the Act of 2019 replaced the older test of the value of the goods or services and the compensation claimed. The change matters a great deal in banking, because a complaint about a small fee that caused a large loss is now valued by the fee.

Figure 2: The four levels, and how an appeal moves between them

Territorial jurisdiction

Section 34(2)(d) permits a complaint to be filed where the complainant resides or personally works for gain. This is one of the most important reforms of the Act of 2019. Under the earlier law a complaint had to be filed where the opposite party resided or carried on business, or where the cause of action arose, which meant that a customer of a branch in a distant city had to litigate there. The customer may now sue at home.

Limitation and appeals

• A complaint must be filed within two years from the date on which the cause of action arose, and a Commission may condone delay for sufficient cause recorded in writing.
• An appeal from the District Commission to the State Commission lies within forty five days, and the appellant must first deposit fifty per cent of the amount ordered.
• An appeal from the State Commission to the National Commission lies within thirty days, with the same deposit requirement.
• An appeal to the Supreme Court lies within thirty days from an order made by the National Commission in a complaint filed before it in its original jurisdiction, again on deposit of fifty per cent of the amount ordered. Against an appellate order of the National Commission the remedy is a petition for special leave under Article 136.
• Mediation is provided for in Chapter V, and a Commission may refer a dispute to mediation at the first hearing where elements of a settlement exist and both parties agree.

4. What the Act of 2019 added

1. A Central Consumer Protection Authority, with power to inquire into violations of consumer rights, unfair trade practices and misleading advertisements, to order recall, refund and discontinuance, and to impose penalties.
2. Unfair contract, defined in Section 2(46), which allows a Commission to strike at a term that causes a significant change in the rights of a consumer, including an excessive security deposit, a disproportionate penalty for breach, unilateral termination without cause and unreasonable charges. In banking this is the provision that reaches a one sided locker agreement or an exorbitant prepayment charge.
3. Product liability in Chapter VI, which is of limited application to banking since it concerns products and services supplied with them.
4. Electronic filing and hearing, and the ability to file where the complainant resides, which together removed most of the practical obstacles that deterred small complaints.

5. The locker cases and the bank's duty of care

The Court directed the Reserve Bank to frame comprehensive regulations on lockers within six months, and laid down interim principles binding until then: registers of lockers and keys, records of allotment, notice to the holder before any reallocation, logs of access, verification that lockers are properly closed, and protection of the electronic systems. Breaking open a locker was to be done only on written notice, in the presence of authorised officials and an independent witness, with a detailed inventory signed by the holder. The Reserve Bank's revised directions on safe deposit lockers followed.

6. Where the consumer forum stops

The recurring limitation in banking disputes is the summary nature of the jurisdiction. A consumer commission decides on affidavits and documents. It does not ordinarily record oral evidence, there is no examination in chief or cross examination as of right, and expert evidence of the kind a disputed signature or a forged mandate requires cannot be taken. Where the complaint turns on such a question, the Commission will decline jurisdiction and leave the complainant to the civil court, as the Supreme Court did in Sant Rohidas and in the contents aspect of Amitabha Dasgupta.

The limitation is not a defect. It is the price of a forum that is cheap and fast, and the same limitation applies to the Integrated Ombudsman Scheme for the same reason.

7. The remedies are cumulative, not exclusive

• Section 100 of the Consumer Protection Act, 2019 provides that its provisions are in addition to and not in derogation of any other law, so the consumer remedy does not displace the civil suit, the Ombudsman or any other forum.
• The Integrated Ombudsman Scheme, now the Scheme of 2026, excludes a complaint on the same grievance that is pending or decided by a court, tribunal, arbitrator or other forum. The exclusion is a bar on parallel proceedings, not a statement that the Scheme ousts those forums.
• A complainant therefore chooses between the Ombudsman and a consumer commission, and having chosen, must see that choice through before turning to the other on the same cause of action.
• The Banking Codes and Standards Board of India, an independent society set up in February 2006 to monitor adherence to a voluntary Code of Bank's Commitment to Customers, was dissolved in September 2021. It was never a compensation mechanism; it examined individual complaints only where they disclosed a systemic failure, and its function has been absorbed into the Reserve Bank's own supervisory and consumer protection work.

8. Quick Revision

1. Banking is expressly a service, so the only live questions are consumer status and deficiency.
2. The burden of proving a commercial purpose lies on the party asserting it.
3. A breach of a Reserve Bank direction is a deficiency, because the standard is required under law.
4. The value of the consideration paid, not the compensation claimed, fixes the forum.
5. A complaint may be filed where the complainant lives, which is the most useful reform of the Act of 2019.
6. An unfair contract term may be struck down under Section 2(46).
7. A summary forum cannot decide fraud, forgery or disputed contents.
8. Section 100 makes the remedies additional, and the Ombudsman Scheme bars only parallel proceedings.

9. Frequently Asked Questions

Is a company that keeps a current account a consumer?

It depends on what the service was availed for, and the burden of showing a commercial purpose lies on the bank. Sant Rohidas Leather Industries v. Vijaya Bank rejected the proposition that earning interest on a deposit makes the transaction commercial, so merely being a company is not enough, and it asked what the dominant purpose of the transaction was. Where the facility is integral to the business, for instance a working capital limit or a trade finance arrangement, the exclusion is likely to apply. Where the service is incidental, such as safe custody or the operation of a deposit, the entity may well be a consumer. The self employment explanation separately protects the small trader or professional who uses the facility to earn a livelihood.

Should a customer go to the Ombudsman or to a consumer commission?

The Ombudsman is free, quick and requires no representation, and there is no ceiling on the amount in dispute, so it is the right first choice for an ordinary service failure: a wrong debit, a delayed reversal, a charge that should not have been levied, a credit record not corrected. A consumer commission is the better forum where the compensation sought exceeds what the Ombudsman can award, where an unfair contract term is to be struck down, or where the complainant wants a reasoned order capable of being appealed through a judicial hierarchy. Both are summary, so neither helps where the facts are seriously disputed. Having chosen one, the complainant cannot run the other in parallel on the same cause of action. The Ombudsman route is also now time bound: under the Scheme of 2026 the complaint must be filed within ninety days of the bank's reply period or last communication, whereas the consumer complaint has two years from the cause of action.

Can a bank rely on a clause in its own form to escape liability?

Not where the clause attempts to displace a minimum standard of care. Amitabha Dasgupta held in terms that banks cannot wash their hands of responsibility for the operation of a locker system by a blanket disclaimer, and cannot contract out of the minimum standard expected of them. Section 2(46) of the Act of 2019 goes further and allows a Commission to declare a term unfair where it causes a significant change in the rights of the consumer, naming excessive security deposits, disproportionate penalties, unilateral termination without cause and unreasonable charges. A standard form drafted by the stronger party is exactly what the provision was written for.

Does the consumer route help where money has left an account through a fraud?

Partly, and the distinction matters. If the complaint is that the bank failed to follow the framework for unauthorised electronic transactions, by not providing a reporting channel, not sending alerts, not making the shadow reversal within ten working days or not resolving within ninety days, that is a straightforward deficiency in service and a consumer commission or the Ombudsman can decide it on documents. If the complaint requires a finding on who committed the fraud, or on whether a signature or a mandate was forged, that is beyond a summary forum and belongs in a civil court with a criminal complaint beside it. A well-drafted complaint therefore attacks the process rather than asking the Commission to find fraud.

What happened to the Banking Codes and Standards Board of India?

It was set up as an independent society in February 2006, funded initially by the Reserve Bank, to frame a voluntary Code of Bank's Commitment to Customers and to monitor whether member banks adhered to it. It was never a forum for individual compensation; it examined a complaint only where it pointed to a systemic compliance failure. Its member banks resolved to dissolve it in September 2021, on the view that a voluntary code monitored by an industry body had been overtaken by binding regulation, the Charter of Customer Rights and the Reserve Bank's own consumer protection and supervisory machinery, including the Integrated Ombudsman Scheme launched in the same year.

Is a guarantor of a loan a consumer?

Not in respect of the loan itself, because the guarantor has not hired or availed of a service for consideration; the borrower has. A guarantor's grievance about the enforcement of the guarantee is therefore ordinarily a contractual dispute for the civil court or, where a security interest is being enforced, for the Debts Recovery Tribunal. The position changes where the guarantor has availed of a service in his own right, for instance where his own deposit was wrongly appropriated or his own security was released late or not at all, since the complaint is then about a service rendered to him.

Can a consumer commission order a bank to pay interest or to reverse a charge?

Yes. A Commission may direct the return of the price or the charges paid, the payment of compensation for loss or injury suffered, the discontinuance of an unfair trade practice, and the removal of a defect or deficiency in the service. In banking that translates into orders to reverse a wrongly levied charge with interest, to correct a credit information record, to release a title deed, to issue a no dues certificate, or to pay compensation for the consequences of a delay. Under the Act of 2019 it may in addition declare a term of the contract unfair under Section 2(46) and refuse to enforce it, which the earlier statute did not expressly permit.

10. Related Topics and Provisions

• The Reserve Bank Integrated Ombudsman Scheme, 2026
• Electronic banking and customer liability for unauthorised transactions
• The duties of a banker: secrecy, care and honouring cheques
• Nature of the banker and customer relationship
• Special types of customer and the operation of accounts
• Inspection, supervision and penalties under the Banking Regulation Act, 1949