Axis Bank ordered to pay Rs 3.19 crore to firm after refusing demonetised cash: Why NCDRC called it ‘deficiency in service’

Commission finds ‘deficiency in service’

• The commission concluded that Axis Bank’s refusal deprived the company of its only legal opportunity to deposit demonetised currency within the statutory window.
• “Such denial of access to the only lawful window for deposit… amounts to deficiency in service,” the commission held.
• It further noted that the refusal resulted in irreversible financial loss as the demonetised notes became worthless after the deadline.

The bench heard the complaint filed by Procure Logistics Services Private Limited on March 10.

Bank could not override RBI notification

• The commission noted that the Reserve Bank of India (RBI) notification of November 8, 2016, clearly permitted unlimited deposits in KYC-compliant accounts during the demonetisation window.
• In such circumstances, the bank could not rely on its internal policy to override the statutory framework.
• “The outright denial to deposit the specified bank notes is evidently in derogation of the express dispensation contained in the RBI notification,” the commission observed.
• The commission further emphasised that if the bank suspected irregularities, it should have accepted the deposits and reported the transaction to regulatory authorities, instead of refusing deposits altogether.

‘Company is a consumer’

• The NCDRC rejected the bank’s argument that the complainant was not a consumer.
• The commission held that maintaining a bank account and depositing funds during demonetisation was not a commercial activity intended to generate profit, but a regulatory act required under government policy.
• The act of depositing money already belonging to the complainant into its own bank account cannot be equated with availing banking services for a commercial purpose, the commission observed.

Relief granted

• Allowing the complaint, the commission directed Axis Bank to pay Rs 3,19,58,500 to the complainant along with simple interest at 6 per cent per annum from December 30, 2016, until payment, rising to 9 per cent in case of delay.
• The payment must be made within two months, the commission said.

Dispute stemming from demonetisation

• The dispute traces back to the demonetisation announcement on November 8, 2016, when Rs 500 and Rs 1,000 notes were declared invalid as legal tender.
• Under the government and RBI notifications, individuals and entities were allowed to deposit the demonetised currency into bank accounts until December 30, 2016.
• Procure Logistics, which had maintained a current account with Axis Bank since 2011, claimed that despite being a KYC-compliant account holder, the bank repeatedly refused to accept deposits of demonetised notes.
• According to the company, it deposited Rs 8 lakh on November 10, 2016, but when it attempted to deposit larger amounts thereafter, including Rs 99 lakh and later Rs 20 lakh, the bank allegedly obstructed the deposits, citing internal policy concerns.
• The firm said it had informed the bank that its audited balance sheet showed cash-in-hand of Rs 6.49 crore as on March 31, 2016, and repeatedly requested permission to deposit the legitimate cash during the notified window.

Bank cited “internal policy” to refuse deposits

• The company argued that despite submitting audited financial statements and re-verifying KYC details at the bank’s request, Axis Bank refused further deposits.
• In an email dated December 21, 2016, the bank informed the firm that additional deposits could not be accepted as per its internal policy.
• The company continued to pursue the matter until December 29, 2016, the day before the deadline for depositing demonetised notes, but the bank did not permit further deposits.
• As a result, the firm was left holding demonetised notes worth Rs 3,19,58,500 after the deadline expired.

Litigation reaches Supreme Court

• Aggrieved by the refusal, the company approached the RBI and later moved the Supreme Court, which directed that its grievance be adjudicated by the NCDRC.
• The consumer complaint filed before the Commission alleged that Axis Bank’s conduct amounted to arbitrary action, negligence and deficiency in banking services.

Axis Bank’s defence

• Axis Bank contested the complaint on several grounds.
• The bank argued that the account had been categorised as a “high-risk account”, requiring enhanced scrutiny.
• The deposits sought were large and suspicious, necessitating verification of the source of funds.
• The complainant had failed to furnish adequate documentation to justify the deposits.
• The services were availed for commercial purposes, meaning the company was not a “consumer” under the Consumer Protection Act.
• The bank also contended that it had complied with RBI circulars, KYC norms, and anti-money laundering guidelines, and had even reported suspicious transactions to the Financial Intelligence Unit.