Businessman being mediator between conflict or arguing co-worker in office.

This article is written by Shohom Roy, pursuing B.B.A LLB from Symbiosis Law School, NOIDA. This article sheds light on the Integrated Ombudsman Scheme and the conflict mediation climate in India.

Introduction

The Monetary Policy Press Release by the Reserve Bank of India on February 5, 2021, has introduced an Integrated Ombudsman Scheme replacing the three ombudsman schemes that dealt with banking, non-banking financial services and digital transactions respectively. This step by the apex bank of the country strengthens the growing approval for alternate dispute redressal mechanisms in fields that were previously dominated by traditional litigation. 

The financial sector in India has undertaken much-awaited initiatives to support consumer protection under the guidance of the Reserve Bank of India. The heavy impact on the global economy due to the pandemic caused by COVID-19 has been controlled through the use of digital platforms in almost every field. The RBI has utilised the dependency on digital platforms to strengthen the fiduciary relationship between consumers and financial service providers and at the same time promoted the usage of alternate dispute redressal mechanisms through its planned centralization policy i.e “ One Nation One Ombudsman” policy of conflict resolution and the e-Integrated Ombudsman Scheme.

Mediation jurisprudence in India 

The judicial system in India is overburdened with the number of cases that are filed every day. The inadequateness of our courts is noticeable from the ever-increasing number of pending cases. Therefore, the courts have started stressing the growth and usage of alternative dispute redressal mechanisms which speeds up the resolution of disputes and offer an ‘individualized’ or ‘personal’ form of justice through non-conventional processes of arbitration, mediation, conciliation, neutral evaluation etc. One of the non-oppositional methods that rely on the negotiation skills of a neutral party to broker an agreement between the disputing parties is ‘mediation’. There are usually four stages in a mediation process:

  • Introduction
  • Joint session
  • Separate session ( Caucus)
  • Closing statement

Mediation and c

A layman’s perspective on mediation and conciliation would overlap as both tend to be somewhat similar. However, there is a subtle difference between ‘mediation’ and ‘conciliation’. In the former,  the mediator supervises the negotiation process and the parties are free to arrive at a common ground or refuse to resolve their differences. The role of a mediator is to ensure that the negotiation takes place in a structured format. However, in conciliation, the conciliator may not abide by any prescribed process and therefore allows more flexibility in negotiating comparison to mediation.

Statutes in India

Although there is no exclusive legislation on mediation in India, various statutes have permitted disputing parties to opt for a mediation process either through court-annexed mediation or through private means. There are some specific circumstances like divorces and labour disputes that are statutorily subjected to mediation. The following is inclusive but not an exhaustive list of statutes that encourage mediation:

Court judgments 

The apex court has drawn up an illustrative list of matters that might be mediated in the case of Afcons Infrastructure v. Cherian Varkey Construction Co. Ltd. (2010) 8 SCC 24. In the aforementioned case, Afcons Infrastructure had subcontracted the work of building roads and bridges to Cherian Varkey Construction Co. Ltd. Due to a later dispute Cherian Varkey Construction demanded a certain sum of money along with interest and sought the court’s permission in opting for an alternate dispute resolution mechanism under Section 89 of the Code of Civil Procedure,1908. The trial court allowed the parties to engage in arbitration and this order was later upheld by the High Court. The court has also enlisted cases that are beyond the jurisdiction and scope of alternate dispute redressal mechanisms.

The Supreme Court of India has also established that all cases need not be decided by courts and has upheld the constitutional validity of statutes that seek for mediation process instead of traditional litigation in the case of Salem Bar Association v. Union of India (2003) 1 SCC 49.

One of the most controversial cases, M Siddiq v Mahant Suresh Das, Civil Appeal No. 10866-10867, 2010, more popularly known as the Ayodhya Babri-Masjid dispute was also referred to as a court-supervised mediation proceeding by the Supreme Court of India. This highlights the growing approval of the mediation process and the efforts to raise awareness regarding alternate dispute redressal mechanisms. 

Since India is a signatory to the United Nations Convention on International Settlement Agreements Resulting from Mediation, every mediation settlement is legitimate under the eyes of the law.

The Government of India might soon come up with legislation focusing entirely on mediation proceedings in India on the recommendations of the panel established by the Supreme Court of India.

Who is an Ombudsman

An ombudsman is a representative of the people who take up their complaints, conduct an investigation and resolve disputes either through recommendations or through mediations. The word ombudsman is taken from the Swedish word ‘ombud’ which means an officer or commissioner.

The concept of an ombudsman originated from the need to create a watchdog that would independently check the actions of public agents and other administrative officials. This idea has been stretched to cover various other fields that require such an independent grievance redressal official who would investigate the actions of others. In India, the Lokpal and Lokayukta Act, 2013 established a framework for the ombudsman. While the ‘Lokpal’ is responsible for dealing with complaints of ministers or secretaries in the Central and State Governments and the ‘ Lokayukta’, deals with the complaints of other administration officials. 

What is the role of a Banking Ombudsman

The Reserve Bank of India exercised its powers under Section 35A of the Banking Regulation Act,1949 to introduce the Banking Ombudsman Scheme in 2006 (amended up to July 1, 2017) and established 22 ombudsman offices across the country. A Banking Ombudsman is an official appointed by the Apex Bank for a tenure of three years handling complaints and grievances related to the services provided by the banking industry. 

The Banking Ombudsman can entertain grievances of any amount of money but are subject to territorial limitations specified by the RBI. The appointed ombudsman is also responsible for maintaining a budget for the functioning of his office in consultation with the RBI and provides a report of its activities during the previous fiscal year to the RBI. 

Due to the rapid developments in the field of finance and banking, the role of a Banking Ombudsman has widened to manage consumer issues with Regulated Entities (REs) which also include non-banking financial services and digital transactions. The Banking Ombudsman can take up a complaint on the grounds permitted by the RBI, initiate an independent enquiry and resolve disputes between the customers and the service providers through mediation or conciliation. 

Consumers can seek the grievance redressal mechanism of BOs only after the rejection or unsatisfactory redressal of a complaint by the bank. If the disputed parties are not in agreement the Banking Ombudsman may pass an award or dismiss a complaint after allowing both parties to state their cases. The Banking Ombudsman can also reject a complaint at any stage subject to the grounds allowed by the RBI.

Role of Ombudsman as a mediator

An ombudsman acts as an advisor, mediator and adjudicator with respect to the same dispute. Therefore, the dispute resolution process is streamlined and conducted in an efficient manner that benefits both complainants and respondents. As a mediator, the Ombudsman acts as an independent third party with the objective of helping the disputing parties to reach an agreement. 

The ombudsman does not seek to direct how the dispute must be resolved but rather encourages negotiation at this stage. If the parties are unable to find a common ground then the mediation process is terminated and the ombudsman conducts a fair investigation between adjudicating on the matter. Therefore it is crucial for the proper functioning of the dispute resolution process that the advisory, mediation and adjudicatory divisions of the Ombudsman be distinct and independent of each other.

Related schemes in India

Internal Ombudsman Scheme 2018

In order to ensure transparency and consumer friendliness, the RBI rolled out the Internal Ombudsman Scheme 2018 for Scheduled Commercial Banks having more than 10 banking outlets and Non-Financial Banking Companies with more than 1 crore Prepaid Payment Instruments (PPIs). The three ombudsman schemes are complemented by the IO grievance redressal mechanisms that allow the REs increased freedom to handle consumer complaints on an individual level and fast track the dispute resolution process. 

Under this scheme, consumer complaints are automatically forwarded to the Internal Ombudsman and thereby reducing the hassle for the consumers to file a complaint directly. The Internal Ombudsman can take up complaints on the grounds permitted by the RBI and provide resolution either through mediation or award. The internal audit mechanism supervises the working of the IO along with the regulatory framework of the RBI. 

Ombudsman Scheme for Non-Financial Banking Companies (NBFCs)

The Ombudsman Scheme for Non-Financial Banking Companies initiated on February 23, 2018, is modelled after the Banking Ombudsman Scheme 2006 introduced the grievance redressal mechanisms of the banking ombudsman scheme to deposit-taking NBFCs having an asset size of at least INR 1 crore with a customer interface. Later in April 2019, the scheme was expanded to include non-deposit taking NBFCs with assets worth more than INR 1 crore along with customer interface. 

What is a Non-Financial Banking Company

A Non-Financial Banking Company is an entity registered under the Companies Act, 2013 whose principal business is financial activities i.e. accepting deposits under any scheme or arrangement either in lump sum or instalments under the regulation of the RBI. An NBFC is similar to a bank in the business of lending and depositing money, however, it cannot perform some of the important functions of a bank like accepting demand deposits, issuing cheques, etc. 

Significance of the OSNBFC

The grievance redressal mechanism operates through a dual process of mediation in the first stage and adjudication in the latter. The Ombudsman can pass an award allowing compensation not more than INR 10 Lakhs or specific performance of the obligations. The Ombudsman also has the right to reject the complaint at any stage in accordance with the provisions drafted by the RBI. The scheme, therefore, envisions attracting more consumers to the non-banking financial sector through a consumer-friendly environment and speedy redressal of grievances and disputes.

Ombudsman Scheme for Digital Transactions, 2019

The Ombudsman Scheme for Digital Transactions, 2019 was set up under the Payments and Settlement Systems Act, 2007 and modelled after the Banking Ombudsman Scheme, 2006 and aims to bring system participants under the ombudsman framework thereby ensuring an efficient and inexpensive grievance redressal mechanism for digital transactions. All kinds of mobile and electronic fund transfers, prepaid payment instruments, payment intermediaries as well as Unified Payments Interface are within the ambit of this scheme.

Important developments in recent years by RBI

The Reserve Bank of India acts as the supervising body for the entire banking sector of the country. In the past few decades, various initiatives have been taken by the RBI to cater to the demands and welfare of the consumers. In order to streamline the process of grievance redressal and promote alternate dispute redressal mechanisms, the RBI has introduced schemes like Banking Ombudsman Scheme, 2006; Internal Ombudsman Scheme, 2018; Ombudsman for Non-Banking Financial Companies and Ombudsman Scheme for Digital Transactions. However, these efforts would have failed to achieve their targets if there had not been a centralized system to reinforce the Ombudsman initiatives. The RBI had launched the complaint management system (CMS) as a one-stop software application for consumers to file complaints against any regulated entity. The user-friendly CMS portal on the RBI website allows the transfer of information between offices of the BOs and the consumer education and protection cells in a virtualized, digital format ensuring transparency and efficiency.

Charter of Customer Rights

The Apex Bank has also come up with a set of initiatives to raise awareness about consumer protection in the banking industry. The ‘Charter of Customer Rights’ sets down the fundamental rights of every consumer in the banking industry. The rights include the right to fair treatment, right to suitability and privacy, the right to grievance redress and compensation along the right to transparency and honest dealing.

Consumer Education and Protection Department

Initially referred to as the Customer Service Department, the Consumer Education and Protection Department had been established in 2006. The cells of this department act as informants for the RBI and help in formulating policies that would benefit consumers and check the abuse of power by the service providers. The CEPD also takes grievances from the consumers on behalf of the RBI and increases awareness regarding consumer rights through various modes of communication. 

Significance of the scheme

The Reserve Bank of India has merged the Banking Ombudsman Scheme,2006; Ombudsman for Non-Financial Banking Companies, 2018 and the Ombudsman for Digital Transactions into a single Integrated Ombudsman Scheme, 2021. This ‘ One Nation One Ombudsman’ policy simplifies the process of lodging complaints and seeking redressal than ever before. The centralisation move along with the updated complaint management system would allow banking consumers to seek grievance redressal for all kinds of banking transactions from a single platform. The promotion of the grievance redressal mechanisms in line with global initiatives seeks to ensure transparency and greater liability on service providers to cater to the needs of the consumers. 

The integrated Ombudsman Scheme relieves the over-burdened judicial framework and allows consumers to seek a remedy through a cost-friendly efficient process. The Ombudsman is not bound by judicial precedents and, is, therefore, more flexible and adaptive to the rapidly changing needs of the consumers. In certain circumstances, the ombudsman might choose to overlook procedural requirements to resolve disputes between consumers and the banking sector. 

Conclusion

The impact of the various initiatives undertaken by the RBI can be sustained through a systematic and constant effort to educate people about the consumer protection laws in India. The Government of India and the RBI should work synchronously to educate the masses about their basic rights as a consumer, the procedure to file a complaint and the grounds on which a Banking Ombudsman may be approached. 

The various sectors in the banking industry must uphold their customer’s right to privacy while disclosing information during a grievance redressal proceeding. The primary intent of preserving and maintaining the fiduciary relationship between customers and service providers might be hampered if there is a loss of confidential information by REs. The Integrated Ombudsman Scheme is a much-awaited initiative taken by the RBI to supplement the overall growth and development of the financial sector.

References


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