1. Unauthorized linking of institutional bank accounts to a personal customer information file enabling fraudulent net banking transfers — Complaint for deficiency of service. (Para 1 )
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2019 Supreme(SC) 1392
SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, HRISHIKESH ROY, JJ.
DAV Public School – Appellant
Versus
The Senior Manager, Indian Bank, Midnapur Branch & Ors. – Respondents
Civil Appeal No. 9352 of 2019 (Arising out of SLP(C) No.3738 of 2019)
Decided on : 18-12-2019
Important Points
IMPORTANT POINT
When an account with only cheque facility and without any request for net banking is tagged to a personal account enabling net banking from school’s account also, it is gross deficiency of service on the part of the Bank.
When an account with only cheque facility and without any request for net banking is tagged to a personal account enabling net banking from school’s account also, it is gross deficiency of service on the part of the Bank.
Subject
Banking and Finance Law - Consumer Banking
Act Referred
Headnote
Consumer Protection Act - Section 12, 19 and 21 - Three Bank accounts of school - bank not requesting for net banking - Accounts tagged to Principal’s personal account - Sum of Rs.2500000 siphoned - No complaint lodged - Next day another Rs.500000 siphoned - Complaint lodged - bank held liable to pay compensation of Rs.2500000 to the school. (Para 12)
Facts of the case:
The complaint of the Principal of the DAV Public School, alleged deficiency of service against the respondent Bank inasmuch as the School’s bank accounts without net banking facility, was linked with the personal Customer Information File (CIF) of the Principal of the School, facilitating online transaction which led to siphoning of Rs 30,00,000/-(Rupees Thirty Lakhs), from the school’s account.
It was the specific case of the complainant that the school never approached the Bank for net banking facility for any of their three accounts, but on 2.9.2014 when the Principal opened his personal savings account (distinct from the school accounts) for the purpose of transferring money through net banking, he learnt that the three accounts of the school got tagged with his personal savings account. As the school Principal was required to go on an urgent official tour, he decided to report the matter to the Bank after his return from the official tour.
It was also mentioned by the complainant that the mobile phone sim of the complainant was blocked on 5.9.2014 and subsequently the complainant learnt that a duplicate sim card was issued against his mobile number and his phone bill was paid by somebody even before the normal bill could be generated on 8.9.2014. With this information, the complainant demanded return of the siphoned sum with interest in the school’s bank account.
The State Commission found gross error on the part of the Bank in the siphoning of the money from the school’s account and accordingly, it was concluded that “it was a clear case of gross deficiency on the part of the OP Bank”. While gross deficiency in service on the part of the OP Bank in safeguarding the money of the complainant school was noticed and they were held liable to pay compensation to the complainant, only partial relief was allowed by declaring that the Bank authorities (OP Nos. 1, 2, 3 and 6) shall be jointly and/or severally be responsible for payment of Rs 1,00,000/-as compensation together with cost of Rs. 10,000/-, to the complainant. Aggrieved by the limited relief granted by the State Commission by its order dated 4.1.2018, the complainant approached the NCDRC through First Appeal.
The NCDRC dismissed the appeal.
Finding of the Court:
Tagging of school’s account with personal account of Principal without request for net banking was gross deficiency of service on part of the Bank.
Result: Appeal allowed.
Legal Category Hierarchy
Advocates Appeared:
For the Petitioner(s):Surendra Nath, Subhasish Bhowmick, Manisha Pandey, Kunal Mallick, Aditya Rajeshwar, Advocates
For the Respondent(s):Dhruv Mehta, Himanshu Munshi, Avinash Kumar Bharti, Manish Garani, Amit Kumar Chourasia, Anmol Mehta, Advocates
For the Petitioner(s):Surendra Nath, Subhasish Bhowmick, Manisha Pandey, Kunal Mallick, Aditya Rajeshwar, Advocates
For the Respondent(s):Dhruv Mehta, Himanshu Munshi, Avinash Kumar Bharti, Manish Garani, Amit Kumar Chourasia, Anmol Mehta, Advocates
Table of Contents
2. Appellant seeks full compensation for deficiency in service — Respondent argues contributory negligence due to delay in reporting the fraudulent transactions. (Para 7 , 8 )
3. Bank's unauthorized enablement of net banking facilitated the fraud; police investigation cleared the employee of complicity, negating the basis for limiting compensation. (Para 11 )
4. A bank is liable for losses resulting from unauthorized enablement of net banking facilities, subject to reduction for contributory negligence in reporting the fraud. (Para 11 , 12 )
5. Appeal allowed in part; Bank directed to compensate for the initial loss but not for subsequent losses occurring after detection. (Para 12 )
6. Is a bank liable if it enables net banking on an account without the customer's request?
Yes, if a bank inadvertently links an account to a net banking facility without the account holder's request, thereby facilitating fraudulent transfers, it is guilty of gross deficiency in service and is liable for the resulting loss. (Para 3 , 9 , 11 )
7. Does suspected complicity of a customer's employee absolve a bank of liability for deficiency in service?
While perceived complicity may lead lower forums to limit compensation, a police charge sheet clearing the employee of involvement restores the bank's liability for the losses caused by its own deficiency in safeguarding the funds. (Para 6 , 11 )
8. Can a bank's liability be reduced if the customer fails to report a fraud immediately upon detection?
Yes, if the failure to lodge an official complaint immediately after detecting a fraudulent transfer allows further siphoning of funds, the customer may be held contributorily negligent for those specific subsequent losses. (Para 8 , 12 )
JUDGMENT :
Hrishikesh Roy, J.
1. The challenge in this appeal is to the final judgment and order dated 24.4.2018 in the First Appeal [First Appeal No. 386 of 2018] whereunder the National Consumer Disputes Redressal Commission [“NCDRC”] dismissed the appeal of the appellant and upheld the order passed by the State Consumer Disputes Redressal Commission, West Bengal, [The State Commission]. Under the impugned judgment, the liability of the respondent Indian Bank was limited to Rs 1,00,000/-although the complainant suffered total loss of Rs 30,00,000/-, from their Bank Accounts and sought return of the lost sum.
2.1 The complaint of the Principal of the DAV Public School, [The School] alleged deficiency of service against the respondent Bank inasmuch as the School’s bank accounts without net banking facility, was linked with the personal Customer Information File (CIF) of the Principal of the School, facilitating online transaction which led to siphoning of Rs 30,00,000/-(Rupees Thirty Lakhs), from the school’s account.
2.2 The complaint mentioned that the DAV Public School, Paschim Medinipur maintained three accounts with the Indian Bank, Midnapur Branch in District Paschim Medinipur, West Bengal namely, i) the School General Fund Account – A/c No. 553624984; ii) School Pupils Fund Account – A/c No. 553625423 and iii) School Interest Account – A/c No. 933045930. While the Withdrawal from the first two accounts could be made through cheques under joint signature of the Principal, DAV Public School, Midnapore and Managers/Principal, DAV Model School, IIT Kharagpur, the third referred account was authorised to be operated by the Principal of the DAV Public School, under his own signature. It was the specific case of the complainant that the school never approached the Bank for net banking facility for any of their three accounts, but on 2.9.2014 when the Principal opened his personal savings account (distinct from the school accounts) for the purpose of transferring money through net banking, he learnt that the three accounts of the school got tagged with his personal savings account. As the school Principal was required to go on an urgent official tour, he decided to report the matter to the Bank after his return from the official tour.
2.3 On 7.9.2014, one of the school employees was sent to the Bank for updating the passbook but the passbook couldn’t be updated for technical reason as informed by the bank’s staff. Again on 9.9.2014 the School employee went to the bank for updating the passbook and it was then detected that Rs. 25,00,000/-(Rupees Twenty Five Lakhs) was unauthorizedly transferred from the school’s account. This was brought to the notice of the Bank’s manager on 9.9.2014, but the Bank Manager advised the concerned school staff to visit the Bank on the next day morning. But by the time the account could be blocked, another sum of Rs. 5,00,000/-(Rupees Five Lakhs) got transferred from the school’s account.
2.4 It was also mentioned by the complainant that the mobile phone sim of the complainant was blocked on 5.9.2014 and subsequently the complainant learnt that a duplicate sim card was issued against his mobile number and his phone bill was paid by somebody even before the normal bill could be generated on 8.9.2014. With this information, the complainant demanded return of the siphoned sum with interest in the school’s bank account.
3. The Bank contested the case before the State Commission. They acknowledged that the school did not apply for net banking facility but inadvertently the personal CIF of the then Principal of the School got tagged with the school’s accounts which facilitated the online transfer of school’s money.
4. The BSNL Authorities who were arrayed as respondent Nos. 4 and 5 in the Complaint before the State Commission pleaded that the then Principal on his way back from Howrah to Kharagpur lost his mobile phone with the BSNL post paid sim No. 9434340725 for which, diary was lodged on 4.9.2014 at the Khar
