Rs 30 lakh netbanking fraud: Will bank pay for loss? SC decides

The Supreme Court has held a bank liable to pay Rs 25 lakh to a school, which had lost Rs 30 lakh to netbanking fraud because of the fault of the lender. The bank had linked accounts of the school with netbanking without the former’s request, leading to the fraud. Before the case reached SC, the bank had escaped the big penalty in State Consumer Disputes Redressal Commission (SCDRC) and National Consumer Disputes Redressal Commission (NCDRC). The SC judgement in the case provides two important money lessons for account holders. First, the bank can’t escape liability if its fault results in loss to the customer. Second, in case of fraud, a customer needs to register the complaint as soon as the incident happens. A delay may reduce the amount of final recovery.

The case

A private school had three accounts with a public sector bank. One of the accounts of the school was authorised to be operated by the principal of the school, under his signature. The school had never approached the bank for netbanking facility for any its three accounts. However, the principal found on 2.9.2014 that three accounts of the school were tagged with his personal savings account. As the principal had to go on an urgent official tour, he decided to report the matter to the bank after his return.

When a staff of the school went to update the passbook on 7.9.2014, it couldn’t be updated for technical reasons as informed by the bank. When the staff went to the bank again on 9.9.2014, it was detected that Rs 25 lakh was unauthorizedly transferred from the school’s account. The information 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. However, by the time the account could be blocked, another sum of Rs 5 lakh got transferred from the school’s account.

What SCDRC said

The State Commission recorded that the school did not opt for netbanking facility in respect of any of its three accounts. Thus, there was an error on the part of the bank in the siphoning of the money from the school’s account and accordingly, it concluded: “it was a clear case of gross deficiency on the part of the OP Bank”. The State Commission, however, didn’t consider the bank fully liable and inferred that complicity of the principal can’t be ignored. The state panel directed the bank authorities to pay just Rs 1 lakh to the school as compensation together with cost of Rs 10,000.

What NCDRC said

The NCDRC also observed that it was a mistake on part of the bank to tag the school’s account with the personal account of the principal. However, it agreed with the partial relief granted to the school by the State Commission.

Banking Ombudsman had also held the bank responsible. “From the contentions of both the parties, I observe that there is fault of the bank as they have linked the school’s account with internet banking facility without any request from the school authorities which caused the fraud. The case is under investigation by police whoso outcome is not known. But as there is a limit of Rs.10 lakh for giving an award under the Banking Ombudsman Scheme (BOS), 2006,” the Banking Ombudsman said.

SC decision

The apex court took note of the police chargesheet in which two other persons were named as accused for the fraud. Further, it ruled against the consumer dispute panels. “…the denial of the compensation corresponding to the extent of the School’s loss, by the State Commission as well as by the NCDRC would not in our view, be justified,” SC said.

“We are therefore of the view that the respondent Bank should be directed to compensate the School to the tune of Rs. 25,00,000/- transferred until 9.9.2014, when the misappropriation was first detected but not for the additional sum siphoned on the next date from the School’s account,” SC concluded in its judgement dated December 18.

Source: Financial Express