Early bond recall: Notify each holder

The National Commission ruled that public notices weren't sufficient. To avoid liability, the bank must send individual notifications and produce proof of having served them

IDBI Bank launched a public issue of unsecured bonds in January 1992. Sadananda Das applied for and was allocated one deep discount bond at an issue price of Rs 2,700. The certificate clearly stipulated that both the bondholder and the bank had the option to surrender or redeem the bond after every five years. The redemption amount would vary depending on the period. At the end of the fifth year, the amount would be Rs 5,700; in the 10th year, Rs 12,000; in the 15th year, Rs 25,000; in the 20th year, Rs 50,000; and in the 25th year, Rs 1 lakh.
 

The bank chose to exercise its option to recall the bonds. It advertised this on August 19, 2001, in all the leading English and regional language newspapers, notifying that the bonds would be redeemed on March 31, 2002. Additionally, letters were dispatched to individual bondholders informing them that they needed to surrender the original bond certificate to receive the redemption value of Rs 12,000 per bond.
 

Das submitted her certificate at the end of 25 years and claimed a redemption amount of Rs 1 lakh. However, the bank merely paid the redemption value after 10 years along with simple interest at the rate of 3.5 per cent from March 31, 2002, until April 18, 2017, when the amount was disbursed. The total amount came to Rs 19,214.

Das contested that she should have received the full redemption value of Rs 1 lakh, payable after the 25-year tenure. The bank rejected this argument, stating that the bond had been redeemed at the end of the 10th year, as permitted by its terms and conditions.
 

Aggrieved, Das filed a complaint with the District Forum. The bank contested the case, arguing that it had incurred significant costs in advertising the early redemption of its bonds. 
 

It blamed Das for not submitting her certificate despite reminders in May 2009 and another on August 22, 2013.

The forum ruled in favour of Das, ordering the bank to pay Rs 80,786 towards the difference between the 25-year redemption value and the amount already paid. It also awarded 5 per cent interest and Rs 50,000 in compensation. It imposed another Rs 25,000 as punitive damages for unfair trade practices.
 

The bank appealed the order but the West Bengal State Commission upheld the directive to pay the total redemption value. It awarded another Rs 5,000 towards costs, but it reduced the compensation to Rs 30,000 and also set aside the amount awarded for punitive damages.
 

The bank filed a revision petition. The National Commission observed that few people nowadays have the time to read every page of all newspapers to find such advertisements. Hence, a mere public notice would not absolve the bank of its liability; it was obligated to send a personal notice to each individual bondholder six months before the redemption date. Although the mode of service was not specified, it had to be carried out through registered post or another method where proof of service would be available. If such service cannot be proved, the bank would continue to be liable and would have to pay the bond’s entire redemption value.
 

Accordingly, by its order of August 17, 2023, delivered by Inder Jit Singh, the National Commission upheld the order entitling Das to receive the total redemption value. However, instead of lump-sum compensation, it awarded interest at 9 per cent from April 1, 2017, onwards, and litigation costs of Rs 50,000.

The writer is a consumer activist