Consumer Forum Holds Bank of Baroda Liable for Failure to Protect Debenture Holders’ Interests
The Delhi State Consumer Disputes Redressal Commission recently ruled on a case involving Bank of Baroda (“Bank”) and a complainant who held 100 debentures in Hindustan Developers Corporation (“Company”). The commission, presided over by Justice Sangita Dhingra Sehgal and Pinki, held that banks acting as trustees have a duty to verify the financial position of the company issuing the debentures at every stage. As a corporate trustee, the bank is expected to exercise special care and expertise in protecting the financial interests of the debenture holders.
In this case, the Bank failed to honor the commitment made by the Company to pay the debenture redemption amount, citing ongoing legal proceedings against the Company as the reason for non-payment. The complainant filed a complaint against the Bank with the District Consumer Disputes Redressal Commission, New Delhi, alleging deficiency in service. The District Commission held that debenture holders are consumers and that the Bank, as a trustee, had a duty to ensure the financial stability of the issuing Company. The District Commission directed the Bank to pay the complainant the due amount with interest and awarded compensation for deficiency in service and litigation expenses.
The Bank appealed the decision to the Delhi State Consumer Disputes Redressal Commission (“State Commission”). The State Commission referred to Regulation 15(1)(n) of the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, which outlines the duties of debenture trustees, including the responsibility to safeguard the interests of debenture holders. The State Commission upheld the decision of the District Commission, stating that the Bank, as a trustee, had a duty to continually verify the financial position of the Company issuing the debentures and to protect the financial interests of the debenture holders.
Consequently, the State Commission affirmed the District Commission’s decision, ordering the Bank to pay the complainant the due amount with interest and awarding compensation for deficiency in service and litigation expenses.
Conclusion
The Delhi State Consumer Disputes Redressal Commission held Bank of Baroda liable for failing to protect the financial interests of debenture holders and directed the Bank to compensate the complainant for the due amount, along with interest and litigation expenses.
