When companies override the regulators

Companies think they are too big to bow before regulators, says M J Antony.

There are around 30 regulators in different economic sectors and they have to deal with corporate titans who are not easily tamed.

Last month, the Supreme Court stated in a judgement that there had been serious allegations of illegalities and deficiencies in the regulatory regime of mining leases.

A parliamentary committee recently remarked that the Reserve Bank of India (RBI) stood as a passive regulator and failed to exercise punitive action against defaulters.

The Delhi High Court recently dealt with the insurance sector and the companies have been holding out against the directives of the Supreme Court and the Insurance Regulatory Authority of India (IRDA).

It all started with a judgement in the case, Worldfa Exports Pvt Ltd vs United India Insurance.

The firm, which suffered losses in a fire, made a claim on the insurance company. The surveyor calculated the loss.

However, the insurer offered a lower amount and asked the firm to give a "full and final" discharge voucher for a lower amount.

The high court held that the conduct of the insurer was an unfair trade practice.

The court pointed out several judgements of the Supreme Court, which had rebuked companies demanding undated "discharge vouchers", exploiting the distress of the insured persons who lacked bargaining power.

It also amounts to coercion and undue influence, as defined in the Indian Contract Act and is voidable. It has been held to be deficiency in service under the Consumer Protection Act.

Apart from these, the IRDA itself has issued a circular last September instructing insurance companies not to make such unfair demands.

In view of recurrent complaints, the high court took a rare affirmative step asking the IRDA to convene a meeting of all the insurance companies to record their undertaking to abide by the circular.

The court appointed its own observer to oversee it. He called a meeting of 29 insurance companies and asked them to give undertakings that the IRDA regulations would be complied with.

However, the observer reported to the court that none of the companies was willing to give a "clear and categorical undertaking".

The "full and final" trap is not confined to the insurance sector; nor is it the only ammunition against the consumer, who is pitted against a giant corporation.

Consumers are punished when they take the Goliaths to court and win decrees.

In one instance, Biman Bose vs United India Insurance, decided by the Supreme Court, the insurance company refused to renew Bose's policy on the ground of his "past conduct".

What was his past conduct? That he had sued the company in the consumer forum and won compensation, which the company did not even pay.

Allowing his appeal, the Supreme Court called the stand of the insurer "unfair and arbitrary".

Instead of the regulatory body, it was the court which granted him relief. 

Browbeating consumers is a tactic adopted by financial institutions as well.

Everyone cannot approach the regulatory bodies concerned that are situated in distant capital cities due to ignorance or expenses involved.

This situation helps the corporations get away with illegalities.

Like the case of Bose cited above, some top housing finance companies, for instance, abuse their dominant position and refuse to return mortgaged title deeds even if the full loan amount is offered.

The National Consumer Commission has imposed penalty on lenders in such cases, as in Doson Chemicals vs United Bank of India.

However, HDFC Ltd recently imposed a condition on a woman, who offered to repay the entire loan after winning a consumer case against it.

It wrote to her that the mortgaged deeds shall be released on condition that "you will withdraw all the grievances/complaints filed against HDFC Ltd in courts/consumer forums". National Housing Bank, the RBI-appointed regulator, did not hear her complaint.

Then there are numerous cases of arbitrary imposition of "incidental charges" and "additional interest" on borrowers.

Such woolly phrases, spun by descendants of Shylock sitting on huge litigation funds in lending companies, have no statutory backing; but they can unnerve ordinary people. These are only specimens; there are rows of them.