American Express Bank has been asked by the Delhi consumer commission to pay a compensation of Rs 15,000 to a businessman who had to suffer humiliation after its cheque, issued to him under a spot loan scheme, was dishonoured.

New Delhi-based businessman Krishan Kumar Karnani had to cancel his order resulting in humiliation and loss of goodwill in the market as the bank's cheque of Rs 1,72,000 was dishonoured with remarks 'stop payment'.

Karnani, who had approached the bank following an advertisement in the newspapers on August 21, 2000 for 'spot loan', was found eligible under the scheme.

He was handed over a cheque on the spot for Rs 1,72,000 after deduction of Rs 3,000 for the service charges.

Accordingly, he issued cheques to the respective creditors in transactions being carried out in his business.

Karnani alleged 'breach of trust and confidence', besides mental agony, as cheque issued by the American Express Bank was dishonoured.

The bank, on the other hand, claimed that it had informed the businessman on September 26 then that his loan was not approved but by that time, Karnani claimed, he had already issued cheques to his creditors.

In an appeal before the commission against a district forum's order asking it to pay a compensation of Rs 15,000 to Karnani, the bank submitted it launched the spot loan scheme with conditions that the cheque would be issued to the borrower at prima facie but the loan would be subject to verification and final approval of form.

The bank also claimed it was not obligatory for it to grant the loan as the caveat was attached to the reverse of the cheque in question.

The bank also submitted that the arbitration clause of the loan did not entitle consumer fora to entertain the complainant's petition.

The commission bench comprising Justice J D Kapoor as president and Rumnita Mittal as member dismissed appeal of the bank referring to an apex court judgement which held that the arbitration award cannot grant compensation for mental agony, physical discomfort, expenses incurred as available under the Consumer Protection Act.

"The bank had sanctioned the loan and had also given the cheque and after 21 days it intimated that they have not approved the loan," the commission noted, adding that the caveat also did not contain any advice or suggestion to the consumer that he should not present the cheque till he hears from the bank.