PER SURESH CHANDRA, MEMBER

This original consumer complaint has been filed by M/s Sushant Minerals Pvt. Ltd. through its Financial Coordinator Sri Susanta Kumar Mall, who has been duly authorized by the Board of Directors of the Co. by a resolution dated 26.11.2011. Alleging deficiency in service on the part of the respondent/opposite party  Bank, the complainant has made the following prayers in its complaint:-

     “(a) Pass appropriate order against the opposite party thereby directing it to pay a sum of Rs.3,42,06,305.00 (Rupees Three Crore Forty Two Lakhs Six Thousand and Three Hundred Five) only, to the complainant along with future interest @ 24% from the date of filing of the present complaint till the date of its payment.

1. Pass an order thereby awarding costs of this complaint in favour of the complainant as against the opposite party

1. Pass any other further relief that this Hon’ble Commission may deem fit and proper in the facts and circumstances of the case and/or in that behalf.”

2.         The complainant is a company incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of export of iron ore fines. The OP is a private Bank having its branch office at Keonjhar (Odisha) where the office of the complainant company is also located. As per the allegations, the OP Bank has been providing services such as operation of bank account, credit facility, facility of inward and outward foreign exchange remittance, hedging of underlying foreign exchange exposures for securing risk from foreign exchange rate fluctuation which is commonly known as forward contract facility. The facility of hedging of underlying foreign exchange exposures is regulated through provisions of Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000.

3.         The complainant which was maintaining a current account bearing No.0191-K73930-060 in the OP Bank accepted the offer of the OP Bank to avail the facility of forward contract and for providing this facility, the OP Bank also offered credit limit of Rs.15 crores under the “Plain Vanilla Forward Contract” vide OP's letter dated 23.6.2010. As a part of the contract, the complainant company furnished a fixed deposit of Rs.75 lakhs to the OP Bank on 28.9.2010. It is submitted by the complainant that during the period of acceptance of the facility of the said forward contract, the OP Bank indulged in crediting or deducting various sums in the account of the complainant on different dates without issuing advice after 28.9.2010 even though the complainant had never applied for any forward contact nor had submitted any documentary evidence towards underlying foreign exchange exposure. Thus the OP Bank violated the guidelines issued by the Reserve Bank of India on forward contacts provided in various circulars which are consolidated in Master Circular No.12/2011-12 dated 1.7.2011. Giving details of such violations in the complaint, the complainant has alleged that the conduct of the OP Bank made it evident that the  Bank had indulged in blatant fraud, deceit and manipulation and the same is against all market practices and norms on account of which the complainant has been unnecessarily driven into expensive and lengthy litigation and thus liable to be compensated for the same. In the circumstances, alleging deficiency in service on the part of the OP Bank, the complainant has filed the present complaint with the prayers reproduced above. The details of the amount claimed by the complainant in its prayer have been provided in para 25 and 26 of the complaint.

4.         On notice, the opposite party  has appeared and filed its written statement in which it has not only contested and opposed the complaint on merits by giving its para-wise reply, it  has also taken a preliminary objection in respect of the maintainability of the complaint.       It is averred by the OP that the complaint is not maintainable in terms of section 2 (1) (d) (ii) of the Consumer Protection Act. It is  submitted  that the complainant admittedly being an exporter and engaged in the business of export of iron ore fines, has availed the banking service from the OP for the purpose of development of its business and for earning more profits. In these circumstances, since the complainant had availed of the services from the OP for business purpose and commercial activity and for earning more profits, its complaint cannot be maintained under section 2 (1) (d) (ii) of the Act and as such the same is liable to be dismissed with cost. It is also submitted by the OP Bank that the complaint relates to adjudication of seriously disputed question of facts which cannot be tried in a summary manner through the present complaint. The OP has further stated  that the present complaint is not maintainable because on the same subject matter, the complainant had also filed a writ petition No.3719 of 2012 in the High Court of Orissa at Cuttack which was dismissed by the High Court.

5.         In spite of opportunity granted, the complainant has not filed either any rejoinder or evidence and as such the arguments of the parties were heard on maintainability of the complaint.

6.         Learned Ms. Divya Jain, Advocate has appeared for the complainant and learned Shri V.K. Gupta, Advocate has appeared for the opposite party to argue their respective cases.

7.         Supporting the preliminary objection taken by the respondent/opposite party Bank, learned counsel for the opposite party has submitted that the complaint is not maintainable in view of the provisions of section 2 (1) (d) (ii) of the Act. He contended that it is an admitted fact that the complainant is an exporter and was in necessity of Forward Contract Facility and the said requirement of the complainant Company was met by the OP. In this view of the matter, he submitted that there cannot be any doubt that the complainant had availed of the service of the OP Bank for business purposes and commercial activities which obviously was for earning more profits and as such its complaint cannot be maintained before this Commission keeping in view the provisions of section 2 (1) (d) (ii). He, therefore, pleaded that it may be dismissed with cost on this ground alone. He further submitted that the complaint by its nature involves adjudication of some seriously disputed questions of facts which cannot be tried in a summary manner through the present complaint under the scheme envisaged by the Consumer Protection Act and hence the complaint should not be entertained by this Commission under the Act.

8.         On the other hand, opposing the preliminary objection taken by the opposite party, counsel for the complainant has contended that the complaint is maintainable before this Commission because the service availed of  is by way of insurance through a contract for hedging against currency. In support of her contention, learned counsel has relied on the judgements of this Commission in the cases of Global Granimarmo Ltd. Vs. Rajasthan State Industrial Development and Invest Corporation Ltd. & Anr. [II (1995) CPJ 77 (NC)] and M/s Harsolia Motors Vs. M/s National Insurance  Co. Ltd. (order dated 3.12.2004 in FA Nops.159, 160 and 161 of 2004).  In view of these judgements, she said that the credit facility provided by the OP for a forward contract will not be hit by the provisions of section 2 (1) (d) (ii) of the Consumer Protection Act since it was in the nature of insurance involving hedging against currency without element of profit . She, therefore, pleaded that the preliminary objection taken by the OP has no substance and the same is liable for rejection and hence the complaint be heard and decided on merits.

 9.        We have given our anxious thought to the rival contentions on the question of maintainability of this complaint before us under the Consumer Protection Act, 1986. At the outset, we may note that out of the two judgements relied on by learned counsel for the complainant, the judgment in the case of Global Granimarmo Ltd. is not applicable to the present case because the complaint in that case is in respect of a transaction which pertains to the period to which pre-amended provisions of section 2 (1) (d) would be applicable. The present complaint pertains to the transactions which have taken place after 15.03.2003 when the amendment to section 2 (1) (d) came into force. We shall, therefore, take into consideration the judgement in the  case of Harsolia Motors (supra) while dealing with the contentions raised by learned counsel.

10.       The main argument of learned counsel for the complainant was that the services availed of by the complainant from the OP Bank were by way of insurance through a contract for hedging against currency and as such the credit facility provided by the OP Bank for a forward contract will not be hit by the provisions of section 2 (1) (d) (ii) of the Act since it was in the nature of insurance involving hedging against currency without an element of profit. No doubt, it has been held by this Commission in the case of Harsolia Motors (supra) that taking of an insurance policy is for the protection of the interest of the assured in the articles or goods and not for making any profit or trading for carrying on commercial purpose. The following observations of this Commission in the case of Harsolia Motors may be usefully reproduced thus in this regard:-

“Further, hiring of services of the Insurance Company by taking insurance policy by Complainants who are carrying on commercial activities cannot be held to be a commercial purpose. The policy is taken for reimbursement or for indemnity for the loss which may be suffered due to various perils. There is no question of trading or carrying on commerce in insurance policies by the insured. May be that insurance coverage is taken for commercial activity carried out by the insured.

In Halabury’s Laws of England, Vol.25, 4^th Edition, the origin and common principles of insurance is discussed and in paragraph 3 it has been mentioned that it is based on principle of indemnity. Thereafter, relevant discussion is to the effect that most of contract of insurance belong to general category of contracts of indemnity. In the sense that insures’ liability is limited to the actual loss which is, in fact, proved. The contract is one of indemnity and, therefore, insured can recover the actual amount of loss and no more.”

11.       However, the crucial point which arises is as to whether the contract for hedging against currency for which credit facility had been provided by the OP Bank to the complainant really constituted a contract of insurance so as to be covered by the judgement of Harsolia Motors. It is seen from the letter of OP Bank by which it has sanctioned the facility of credit limit to the complainant (copy placed at document P-16) that the OP Bank has provided forward cover limit for ‘Plain Vanila Forward Contracts’ upto an amount of Rs.15 crores for a period of one year and the purpose as noted in the terms and conditions contained in Annexure-1 to the sanction letter (document P-17) is “to hedge its currency exposure for import/export transactions”. It is further mentioned in the terms and conditions that there is a requirement of 5% of cash margin of notional principal, i.e., Rs.75 lakhs in the form of fixed deposit under bank’s lien (depending on volatility bank may seek higher cash margin from the complainant). Thus the service provided by the OP Bank comprised of two parts. Firstly, the service was by way of provision of credit limit upto Rs.15 crores and secondly the same was for the purpose of hedging against foreign currency exposure for the import/export transactions of the complainant. Generally speaking, there should not be any doubt about the fact that the credit limit facility granted by a bank to a company is for commercial purpose. However, in the present case, the petitioner’s counsel has tried to argue that since the credit limit has been sanctioned for hedging against foreign currency which is in the nature of insurance, the service provided by the OP Bank cannot be regarded as being for commercial purpose. In view of this, it would be appropriate to understand the real purpose behind a contract for hedging against foreign currency in order to see as to whether it is same as an insurance contract.

12.       Black’s Law Dictionary (6^th Edition) records the following definition in respect of the terms/words ‘hedging’ and ‘insurance’:-

“Hedging. A means by which traders and exporters of grain or other products, and manufacturers who make contracts in advance for the sale of their goods, secure themselves against the fluctuations of the market by  counter-contracts for the purchase or sale of an equal quantity of the product or of the material of manufacture. Whorley v. Patton-Kjose Co., 90 Mont. 461, 5 P.2d 210, 214. A means by which a party who deals in the purchase of commodities in large quantities for actual delivery at some future time insures itself against unfavorable changes in the price of such commodities by entering into compensatory arrangements or counterbalancing transactions on the other side. Ralston Purina Co. v. McFarland, C.A.N.C., 550 F.2d 967, 970. A transaction where an identified forward exchange contract is locked into an identified agreement to purchase or sell goods in the future. Siegel v. Titan Indus. Corp., C.A. N.Y., 779 F.2d 891, 893. 

Safeguarding one's self from loss on a bet or speculation by making compensatory arrangements on the other side. Whorley v. Patton-Kjose Co., 90 Mont. 461, 5 P.2d 210, 214.

Insurance. A contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils. The party agreeing to make the compensation is usually

called the "insurer" or "underwriter;" the other, the "insured" or "assured;" the agreed consideration, the "premium;" the written contract, a "policy;" the events insured against, "risks" or "perils;" and the subject, right, or interest to be protected, the "insurable interest." A contract whereby one undertakes to indemnify another against loss, damage, or liability arising from an unknown or contingent event and is applicable only to some contingency or act to occur in future. An agreement by which one party for a consideration promises to pay money or its equivalent or to do an act valuable to other party upon destruction, loss, or injury of something in which other party has an interest.”

                                                            (Emphasis provided)

13.       Comparison of the definitions of the words ‘hedging’ and ‘insurance’ as reproduced above would show that even though hedging is resorted to by the needy people in business or investors to protect themselves against unfavourable changes in the price of the items with which they are concerned in future and in that sense it can be regarded as some sort of an insurance which provides protection against the possible future losses in respect of a known obligation which the person resorting to hedging has accepted elsewhere.  However, similarity ends here and does not travel any further so as to be equated with a contract of insurance in which the insurer or the underwriter undertakes to indemnify the insured against loss, damage, or liability arising from an unknown or contingent event and is applicable only to some contingency or act to occur in future. In other words, the contract of insurance is a contract of indemnity in which indemnification for the actual loss suffered by the insured as a result of the event insured against is the basic underlying principle and in case the event insured against does not occur or take place, the question of indemnification would not arise. In view of this basic feature which distinguishes a contract of insurance from hedging contract, there is no element of profit as such in the process of indemnification of the insured and the insured, for some fees which he pays to the insurer by way of premium, gets indemnified in  case of occurrence of the event insured against and that too only to the extent of the loss actually suffered by him. In this context, the discussion on the ‘Contract of Indemnity’ in New Insurance Law by Brij Nandan Singh which has been referred to in the judgement of Harsolia Motors may be reproduced as under for better understanding:-

“Para 19 : “Contract of indemnity: The very foundation in my opinion of every rule which has been applied to the insurance law is that the contract of insurance contained in a fire or marine policy is a contract of indemnity and of indemnity only and that this means that the assured in the case of loss against which the policy has been made, shall be fully indemnified but never more than fully indemnified. That is the fundamental principle of insurance, and if ever a proposition is brought forward which is at variance with it, that is to say which either will prevent the assured from obtaining a full indemnity, that proposition must certainly be wrong.” (Castellain Vs. Preston (1883) 11 QBD 380). Under such contracts the insurers undertake to indemnify the insured for the actual loss suffered by him as a result of the event insured against. “The principle that a contract of assurance (except life assurance and insurance against accident) is a contract of indemnity, leads the insured to be interested in the preservation of the thing insured and the desire for the happening of the event insured against becomes remote.” (Mathey Vs. Curling (1922) 2 AC 180)”.

14.       From the aforesaid discussion, it becomes clear that when a party resorts to and enters into an arrangement of hedging against currency, it is without any doubt for a commercial purpose which essentially involves profit motive. Thus hedging even though it provides protection to the person who avails of the facility under a contract cannot be called an insurance. This being the position, we have no manner of doubt that the services of the opposite party Bank availed of by the complainant in terms of availing the credit facility of Rs.15 crores in respect of its hedging against currency under the “Plain Vanila Forward Contract” was for commercial purpose during the course of its business and involved profit motive and as such the complainant in this case cannot be covered by the definition of a consumer under section 2 (1) (d) (ii). The judgement of this Commission in the case of Harsolia Motors, therefore, cannot provide any comfort to the complainant since the same is applicable only in case of a contract of insurance. Thus we allow the preliminary objection taken by the opposite party and hold that this complaint is not maintainable before the consumer fora. We, therefore, dismiss the complaint as not maintainable. It will, however, be open to the complainant to seek remedy before the appropriate forum, if it so wishes in accordance with the provisions of law.