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Banks should intimate you before freezing your accounts

Author: Col Sanjeev Govila (retd)/Saturday, April 29, 2017/Categories: Ask the Finapolis

Banks should intimate you before freezing your accounts

Q. I opened my company’s current account in January 2017 at a Hyderabad bank. After receiving the welcome kit with the cheque book in two weeks, I issued three post-dated cheques to my vendor/ creditor. Before the cheques became due as per my contract with the vendor, the vendor presented the same to the bank after the due date and they were dishonoured in the third week of February and first week of March. The bank sent me a letter regarding the same, warning that if more cheques bounced, I would not be able to issue them any more from the said account.

Meanwhile, I tried to transfer funds to the above current account, so as to use these for office expenses. Surprisingly, I discovered that the bank had ‘frozen’ my account on account of the dishonoured cheques and asked me to close the account. My RM told me that the move was as per bank policy.

I am shocked at how banking has changed post demonetisation, in the past month or two, all bank customers have become habituated to see a “No Cash” boards at all ATMs and Branches when we all went to banks to draw cash. If I am liable for ‘dishonoured’ cheques, aren’t banks and the RBI liable for not paying cash? Can we not seek cancellation of licenses of banks that could not pay cash…which in the banker’s language….could not meet demand and time liabilities as spelt out under the Banking Regulations Act? Section 138 of the Negotiable Instruments Act states that dishonouring cheques is a crime and is punishable with fine or imprisonment or both.      

We have case laws of a private bank which could not meet its demand and time liabilities to its customers, whose license was cancelled and it was merged into another PSU. For defaulting companies, creditors can file a petition with the high court seeking winding up of a company if it is not able to meet its liabilities. What is the remedy for a customer against the bank and also the RBI for its failure?

Your grievance is more in the nature of a law infringement by a banking channel rather than a personal finance issue. However, as it has been raised by you on this column, I’ll attempt to answer it. I’ve gone through a lot of material on the internet as also spoken to some friends in the banking industry to get their inputs.

In your case, your cheques have bounced immediately after you opened a new current account. These were the first transactions in the current account and that too high-value transactions, and hence, there was no history of your dealings with the bank. Looked at from the bank’s side, it was probably right in being sceptical – a company opens a current bank account, does first two high-value transactions and both of them bounce. Any bank would be wary of such a company and the bank cannot be faulted on this count.

However, what the bank has done subsequently (freezing your account) is not supported by any Reserve Bank of India (RBI) guidelines or bank rules that we have come across, unless the bank has its own rules, which may or may not conform with RBI guidelines. The bank, on bouncing of cheques, should have given you a notice and asked you to make the funds available in your account (as the vendors who presented the cheques can present the bounced cheques any number of times within their validity period) and/or ask for your explanation and/or inform you that they intend to freeze your bank account. This is a part of natural justice afforded to everyone to correct the mistake and present their side of the story. This is where the bank seems to have faulted and taken a hasty decision. Please remember that this course of action has nothing to do with Section 138 of Negotiable Instruments Act, which only gives out how the intended recipient (vendor) of the bounced cheques’ money is supposed to deal with the issuer (you) of those cheques.

The closest that I could get to on banks’ bounced cheque policies is from a leading bank which stated that on its cheque leaf that ‘As per RBI guidelines, if four or more cheques for Rs 1 crore or more are returned unpaid during a financial year, the cheque book may be withdrawn’. However, I do assume that this statement applies more to bank accounts, which have established a track record over a period of time or are savings bank accounts where individual responsibility can be directly established.

The question now is what are you required to do now? If you want a policy of rapproachment, you should sit down with the bank manager or an officer at the next higher level and talk it out. You may tell them that this has been a case of miscommunication and you are ready to set it right immediately. This may work unless of course, your relations with the bank are beyond reprieve already.

If so, you should give a notice to the bank immediately, wait for a reasonable period of time (say 10-15 days) to unfreeze the account, and if they do not respond to it or respond negatively, you should approach the banking ombudsman for a solution to your grievance. If that does not help, the matter and you wish to take it ahead, you are free to approach the consumer courts – the level of the court will be dependent on the amount of money involved in the transaction. But I feel that your case is almost on as weak a wicket as the bank as an absolutely new current bank account’s first two transactions have been high value and the cheques have bounced. You should, in my opinion, try to talk it out and remedy it amicably, depending of course on whether you still wish to have a account with that bank.

 You may take a decision accordingly.

The expert is a Certified Financial Planner and a SEBI Registered Investment Advisor. He is CEO, Hum Fauji Initiatives


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