In a significant ruling addressing disputes arising from the 2016 demonetization exercise, the National Consumer Disputes Redressal Commission (NCDRC) has held Axis Bank guilty of deficiency in service for refusing to accept demonetized currency deposits from a customer despite the account being fully KYC-compliant. The Commission directed the bank to compensate the complainant company to the tune of ₹3.19 crore along with interest, marking one of the notable consumer rulings related to the demonetization period.
The order was passed by a bench comprising Presiding Member AVM J. Rajendra and Member Justice Anoop Kumar Mendiratta, which held that a bank cannot arbitrarily refuse deposits merely on the basis of internal suspicion when regulatory guidelines permitted such deposits during the demonetization window.
The complaint was filed by Procure Logistics Services Pvt. Ltd., a company that had maintained a current account with Axis Bank since 2011. Following the Government of India’s announcement on 8 November 2016 invalidating ₹500 and ₹1,000 currency notes, individuals and businesses were allowed to deposit the demonetized notes in KYC-compliant bank accounts within the stipulated period.
The company initially deposited ₹8 lakh soon after the announcement. It later attempted to deposit additional amounts, including ₹99 lakh and ₹20 lakh in December 2016. However, the bank allegedly refused to accept further deposits, citing suspicion regarding the nature of the funds despite the account being fully verified under KYC norms.
According to the complainant, repeated communications were made to the bank explaining that the cash holdings were reflected in the company’s audited financial records. Representations were also sent to the Reserve Bank of India (RBI), but the issue remained unresolved. As a result, the company could not deposit demonetized cash amounting to ₹3,19,58,500 before the cut-off date of 30 December 2016, causing substantial financial loss.
Axis Bank contested the complaint on multiple grounds. It argued that the complainant did not qualify as a “consumer” under the Consumer Protection Act because the account was used for commercial purposes. The bank also maintained that the account had been flagged as high-risk, and large cash deposits during the demonetization period required enhanced scrutiny under anti-money laundering and KYC regulations.
The bank further claimed that the complainant had failed to provide adequate documentation explaining the source of the funds, thereby justifying the refusal to accept the deposits.
Rejecting the bank’s defense, the NCDRC held that once an account is duly KYC-compliant, the bank cannot arbitrarily deny deposits permitted under government notifications and regulatory circulars. The Commission noted that while banks are required to monitor suspicious transactions, mere internal suspicion cannot override statutory permissions granted during the demonetization window.
The Commission observed that the complainant had consistently informed the bank that the cash holdings were supported by audited financial records. Therefore, the refusal to accept the deposits during the legally permitted period amounted to deficiency in banking service.
Holding the bank liable for the loss suffered by the complainant, the Commission directed Axis Bank to pay ₹3,19,58,500 as compensation, along with 6% annual interest from 30 December 2016 until payment. The order further stipulates that the interest rate would increase to 9% per annum if the payment is delayed.
The case, titled Procure Logistics Services Pvt. Ltd. v. Axis Bank Ltd., arose from Consumer Complaint No. 2755 of 2018 before the NCDRC.
The ruling underscores the responsibility of banks to adhere strictly to regulatory directions issued during extraordinary financial measures such as demonetization. It also reiterates that banks cannot rely solely on internal policies or suspicions to deny services when statutory notifications permit the transaction.
The decision may serve as an important precedent for disputes involving banking conduct during the demonetization period, reinforcing consumer rights and accountability in the financial services sector.
