OMBUDSMAN MECHANISM IN THE INDIAN CONTEXT

OMBUDSMAN MECHANISM IN THE INDIAN CONTEXT

By K P C Rao.,

 LLB., FCS., FICWA

kpcrao.india@gmail.com

An ombudsman is a person who acts as a trusted intermediary between an organization and some internal or external constituency while representing the broad scope of constituent interests. Usually appointed by the organization, but sometimes elected by the constituency, the ombudsman may, for example, investigate constituent complaints relating to the organization and attempt to resolve them, usually through recommendations or mediation. Ombudsmen sometimes identify organizational roadblocks running counter to constituent interests. The Government of India has designated several ombudsmen for the redressal of grievances and complaints from individuals in the banking, insurance and other sectors being serviced by both private and public bodies and corporations.

Banking

The issue of ‘Treating the bank customers fairly’ is gaining currency with the awakening of consumers on the issues of investor/consumer protection. Banking being a service industry, it is all the more important that there is a well defined and functional mechanism to ensure fairness to the customer. That is all what the Banking Ombudsman Scheme  is about and that is what RBI does, without significantly backtracking on the freedom given to banks' boards to fix their rates and fees. In view of the fact that the Courts are restrained through an amendment to Section 21 A of Banking Regulation Act, 1949 from intervening in the matter of interest rates- usurious or otherwise - fixed by the banks to their debtors, it is ordained on RBI to ensure that the rates and service charges are reasonable, not usurious in all spheres of lending.

The Banking Ombudsman Scheme introduced by RBI in 1995 attempts to bridge this information and expertise asymmetry between the banks and the end user of their products and services. Certain omissions and commissions by banks in their dealing with the customers in matters of lending, other services including liabilities tend to be detrimental to the interests of the customers at times. When such instances are noticed by/ brought to the notice of the Regulator, corrective action in the form of general directions to all banks is taken so that the customers in general including the complainants are protected against such omissions and commissions. This is a proactive measure as against a reactive one in that the redressal is afforded not just to the complainant but to all those similarly placed without waiting for further formal complaints.

RBI has initiated class action against a foreign bank regarding mode of calculation of interest rates on deposit accounts. A PSU bank was advised to recalculate interest rate on all the housing loans as per terms of the agreements entered into with all the borrowers without their application for relief. Yet another PSU bank was asked to re-credit insurance premium which was debited to SB account holders without their concurrence under group insurance scheme. The Customer Service Department of the Bank, on the basis of news items appearing in newspapers or any other media takes proactive action by taking up the matter with concerned bank for corrective action even if no specific complaints are received.

The Reserve Bank of India has widened the scope of its Banking Ombudsman Scheme 2006, to include deficiencies arising out of internet banking. Under the amended Scheme, a customer would also be able to lodge a complaint against the bank for its non-adherence to the provisions of the fair practices code for lenders or the Code of Bank's Commitment to Customers issued by the Banking Codes and Standards Board of India (BCSBI). The BCSBI is an independent and autonomous watch-dog set up by the Reserve Bank to monitor and ensure that the codes and standards adopted by the banks for rendering banking services are adhered to in true spirit. As per the amended Scheme, the Banking Ombudsman can award compensation not exceeding Rupees one lakh to the complainant in the case of complaints arising out of credit card operations, taking into account the loss of the complainant's time, expenses incurred by him as also, harassment and mental anguish suffered. Further, non-observance of the Reserve Bank's guidelines on engagement of recovery agents by banks has also been brought specifically under the purview of the Scheme.

Any customer who has a grievance against a bank can complain to the Banking Ombudsman in whose jurisdiction the branch of the bank complained against is located. Some banks have centralised certain transactions, like housing loans, credit cards, etc. If there are complaints regarding such transactions, complaints would have to be made to the Banking Ombudsman in the State in which the bank customer receives the bill. In addition, the Reserve Bank has simplified the format for lodging complaint to the Banking Ombudsman. Though the complainant need not lodge his complaint in a specific format, the Scheme now provides for an easy-to-fill format for lodging complaints, in case complainants prefer to use it. The ombudsman shall pass an award within a period of three months from the receipt of the complaint. The awards are binding upon the insurance companies. If the policy holder is not satisfied with the award of the Ombudsman, he can approach other venues like Consumer Forums and Courts of law for redressal of his grievances.

For wider dissemination, the Reserve Bank has asked all banks to place a copy of the Banking Ombudsman Scheme on their website. The amended Scheme is also available on the Reserve Bank's website at www.bankingombudsman.rbi.org.in.

INSURANCE

The institution of Insurance Ombudsman was created by a Government of India Notification dated 11th November, 1998 with the purpose of quick disposal of the grievances of the insured customers and to mitigate their problems involved in redressal of those grievances. This institution is of great importance and relevance for the protection of interests of policy holders and also in building their confidence in the system. The institution has helped to generate and sustain the faith and confidence amongst the consumers and insurers.

The governing body of insurance council issues orders of appointment of the insurance Ombudsman on the recommendations of the committee comprising of Chairman, IRDA, Chairman, LIC, Chairman, GIC and a representative of the Central Government. Insurance council comprises of members of the Life Insurance council and general insurance council formed under Section 40 C of the Insurance Act, 1938. The governing body of insurance council consists of representatives of insurance companies.
Insurance Ombudsman has two types of functions to perform (1) conciliation, (2) Award making. The ombudsman shall pass an award within a period of three months from the receipt of the complaint. The awards are binding upon the insurance companies. If the policy holder is not satisfied with the award of the Ombudsman he can approach other venues like Consumer Forums and Courts of law for redressal of his grievances.

INCOME TAX 

The Income Tax Ombudsman Guidelines 2006 are introduced with the objective of enabling the resolution of complaints relating to public grievances against the Income Tax Department and to facilitate the satisfaction or settlement of such complaints. The Ombudsman shall have the powers to receive complaints from taxpayers and consider such complaints and facilitate their satisfaction or settlement by agreement, through conciliation and mediation between the Income Tax Department and the aggrieved parties or by passing an ‘award’ in accordance with the Guidelines. If a complaint is not settled by agreement within a period of one month from the date of receipt of the complaint or such further period as the Ombudsman may consider necessary, he may pass an award after affording the parties reasonable opportunity to present their case. He shall be guided by the evidence placed before him by the parties, the principles of Income Tax law and practice, directions, instructions and guidelines issued by the Central Board of Direct Taxes or the Central Government from time to time and such other factors which in his opinion are necessary in the interest of justice. 

OTHER SECTORS

Besides banking, income-tax and insurance, the Government of India has designated several ombudsmen for the redressal of grievances and complaints from individuals in other sectors being serviced by both private and public bodies and corporations. The best example is a two-tier mechanism i.e., Lokpal at the Centre  and one Lokayukta each at the State level for redressal of people's grievances. Kerala State has an Ombudsman for Local Self Government institutions like Panchayaths, Municipalities and Corporations. 

[Published in Circuit Magazine (Monthly), ICWAI, April, 2010]