There have been so far many awards from Adjudicators in different states in which Bankers have been held liable for frauds such as “Phishing”. Starting with the S Umshankar Vs ICICI Bank award in 2010, adjudicators in Mumbai, Gujarat, Telengana have on different cases ordered that the victim should be compensated by the Bank in case where the negligence of the Bank has contributed to the loss.
Though the kind of negligence could be different in different cases, and in some of the cases, contributory negligence can also be attributed by circumstances on the victim, the Adjudicators have held that the Bank continues to be primarily liable. In all these cases, Banks try to deflect the blame on the customer and point out the beneficiary of the fraud proceeds as the only culprits forgetting that without the assistance of the bank neither the amount could be fraudulently withdrawn from the paying bank nor collected and withdrawn from the collecting Bank.
The Adjudicators who are IT Secretaries have some understanding of the technology involved and have repeatedly come to the conclusion that Customers are not to be victimized for the failure of the banking technology to ensure “Secure Banking”.
Though in some cases, the victims being unaware of the process of recovery, approach the Ombudsman or the Consumer forums, and some times have received relief and some times not, it is necessary to observe that the most appropriate forum for such disputes is the Adjudication where the cause of action is built up on a matter of contravention of ITA2000. Where the cause of action is not adhering to a RBI guideline, then the Ombudsman may exercise his jurisdiction and where the cause of action is a “Deficiency of Service”, the jurisdiction can be exercised by the Consumer forum. However, since a “Criminal activity” is behind the loss, and complicated electronic evidences have to be evaluated, it is preferable that the Adjudication is the best forum to take up such issues.
The second level of evaluation of such cases happen at the TDSAT (Telecom Disputes Settlement and Appellate Tribunal) which is a two member bench where one is a retired Supreme Court judge and the other is a technical member. Hence even in this forum there is a possibility that technical aspects of the case can be evaluated with the assistance of persons having the technical knowledge.
As a result, even where the counsels fail to bring up appropriate points for contention, the two fora namely the Adjudication and TDSAT can be considered having sufficient resources to come to a reasoned judgement in the techno legal cases that the Bank fraud incidents represent.
After the judgement in TDSAT in two cases one of the ICICI Bank and the other of the IDBI Bank, some jurisprudential precedence has been established in such cases.
However, it is notable that now the Supreme Court got an opportunity to consider one case of phishing where DAV School in Kolkata had been defrauded to the extent of Rs 30 lakhs. Apparently the fraud was caused by SIM cloning and Phishing. But it cannot be ruled out that a bigger conspiracy which could have involved the Bank was behind this loss.
This case went to the State Consumer Grievance redressal forum which expressed the doubt that the Principal was negligent and therefore suspected of complicity and ruled that the Bank cannot be therefore held liable. This was also upheld by the NCDRC (National Consumer Disputes Redressal Commission) and the matter landed up in Supreme Court as a second appeal.
The judgement dated 18th December 2019 from a Supreme Court bench consisting of the honourable judges Dr D Y Chandrachud and Hrishikesh Roy has now held that the Senior Manager, Indian Bank Midnapur Branch, Kolkata is held liable to compensate Rs 25 lakhs transferred until 2.9.2014 where as the loss of another Rs 5 lakhs transferred subsequently before a complaint was formally filed on 9.9.2014, was to be borne by the school since it was considered to be on account of their delayed filing of complaint.
This case involved many reasons of which the following are visible from the judgement
a) Negligence on the part of the Bank of having granted Internet Banking facility without request
b) Negligence on the part of the Bank in linking the School’s account to the personal ID of the Principal
c) Compromise of the log in credentials of the individual who was the principal of the School
d) Negligence on the part of the Bank in using the Password authentication system which is not a “Signature” under the ITA 2000 and contravention of RBI circular of June 2001 on Internet Banking.
e) Negligence on the part of the Bank in identifying the unusual nature of the transactions through adaptive authentication security
f) Negligence of one or more collecting Bankers in opening and facilitating the laundering of the proceeds of the fraud through a deficient KYC process.
g) Negligence of the Mobile Service Provider (BSNL) in issuing the duplicate SIM without noting the subtle difference in the name of the applicant reporting loss
Out of these, many of the reasons were not perhaps part of the arguments in the Supreme Court.
However the honourable Supreme Court considered that both the Consumer forums had held that there was a negligence of the Bank but failed to rule compensation for the doubt that there was a complicity of the Principal as a “Master Mind”. However the Police in their investigation had ruled out the complicity of the Principal and hence what remained was only the negligence of the Bank as the cause of the loss. .
Hence the Supreme Court took the stand that the Bank was responsible for the loss of Rs 25 lakhs.
While we appreciate this part of the judgement, the judgement may still be faulted for not allowing the balance Rs 5 lakhs which was rejected for the reason of delay. The reasons for which the loss of Rs 25 lakhs was caused namely the wrongful linking of the school account to the personal ID of the principal was also the reason for this loss and hence it was not logical that the claim on this part of the loss should have been rejected.
It must be remembered that when such a huge loss occurs, the customer would be in such a stunned state of mind that filing a formal complaint after understanding where to file a complaint, whether merely informing the Bank is sufficient since it could also be an erroneous debit etc could take a few days. In the subject case there is no evidence that verbal complaint was not made to the Bank. Hence the Court was perhaps not correct in rejecting this part of the compensation.
However, the client should be relieved that at least Rs 25 lakhs out Rs 30 lakhs is coming back and more importantly, the personal stigma that the earlier consumer forums attached to the Principal was removed.
At present when such instances arise, the limited liability circular of the RBI may also come in handy. According to this circular, if the customer reports an unauthorized debit within 3 days would be zero and between 4-7 days his liability could be nominal and there after as per a reasonable policy of the Bank.
Even in such cases, Banks some times make a false and unsubstantiated claim as to the negligence of the customer in revealing his OTP etc. However the burden of proof for proving any “Complicity” would be on the Bank.
Hence in future cases it may not be necessary for the victim to go through the difficulty of the judicial process which is simply beyond the reach of common man. In this instance the victim was a large institution and hence it was possible to fight the case upto the Supreme Court.
In most other cases, the Indian judicial system is so harassing for the victim and so expensive that individuals without deep pockets do not have a guarantee of Justice as we expect under the Constitution as even the CJI has recently admitted.