Banks Imposing Ceiling Limit In Non-Base Branches To Prevent Frauds Does Not Violate Banking Regulations Act Or NI Act: Madras High Court

Justice N Sathish Kumar further observed that when the account holder himself opened the bank account knowing all the restrictions put up on non-base branches, he could not later complain that the same is violative of his property right.

When the account holder consciously opened the account with all the restrictions in honouring the cheques in non-base branch cannot complain that the same is violative of the property right. When the Reserve Bank have power under statute to frame necessary guidelines and the banks also framed their own policy to prevent the fraud, it cannot be said that such restrictions in fact, violate the property right of the writ petitioners.

In the present case, the 2nd petitioner was an account holder with ICICI Bank (Bangalore branch). He issued a cheque for Rs. 48,000 in the 1st petitioner's name to withdraw the amount for paying the fee and other expenses of the 2nd petitioner's son's admission. When the 1^st petitioner presented the same at the Nungambakkam Branch of ICICI Bank, he was not given the amount. It was informed that the amount below Rs 15,000/- alone could be honored.

The petitioner contended that when the account holder could not even withdraw money for his emergency needs despite having sufficient sum, it is against the performance objectives of the Negotiable Instrument Act as well as the Banking Regulation Act. Thus, the petitioner challenged the RBI circular stating that the RBI cannot frame arbitrary rules to deny withdrawals of amounts fixing a ceiling limit.

The respondents submitted that the ceiling limits were put in place after it was observed that frauds were generally perpetrated due to the non-observance of prescribed safeguards. Since the main areas in which frauds occurred were by way of fraudulent withdrawal of funds from deposit accounts, the RBI issued circular directing Banks to fix suitable ceilings beyond which no cash withdrawal should ordinarily be allowed unless the account holder was directly present for withdrawal.

It was also submitted that the language of these circulars was recommendatory and not mandatory. The intention of the circular is only to protect the interest of the customers and not to cause any inconvenience to them. These guidelines were made known to the account holders at the time of opening of accounts. Thus, there was express consent on the part of the account holder to abide by the terms and conditions of the bank and the same could not be questioned by a third party.

The court noted that under Section 5(c)(a) of the Banking Regulation Act, the Reserve Bank had the authority to frame guidelines or policies in the interest of the banking system. It was under this power, that the RBI issued guidelines recommending banks to frame policies restricting the ceiling limit in non-base branches. Similar power is given to the bank under Section 45JA of the RBI Act to determine policies in the public interest or to regulate the financial system of the country. Thus, there was no violation of the Banking Regulation Act or the RBI Act.

Thus, finding no merits in the petition, the court dismissed the same. The court also opined that it was open to the RBI and other banks to modify the restrictions and to enhance the ceiling limits.

However, it is for the Reserve Bank and banks to modify the restrictions taking note of the online facilities available and the entire system is on Internet, to enhance the ceiling limit to balance the rights of the parties and banks.

Case Title: G Deepa and another v The General Manager and others

Citation: 2022 LiveLaw (Mad) 480

Case No: W.P.No.18656 of 2008