PATCO Case: Bank’s Liability for Frauds

Dec 3: Naavi has been personally fighting several Bank fraud cases on behalf of victim customers. This struggle has been temporarily blocked because the Government of India has failed to appoint the chairperson for Cyber Appellate Tribunal (CAT) since June 2011 when the previous chairperson retired. Naavi believes that the delay is caused by some of the influential Banks who donot want a progress in the cases pending against them and are in the meantime trying to convince the Reserve Bank of India to change the regulations to their liking to manipulate the environment in their favour. Much to the disappointment of these Banks, RBI actually has so far refused to dilute the security prescriptions as desired by the influential Banks though the MCIT appears to be more flexible to amend laws to make it adverse to Bank customers.

In this context it is interesting to observe that the case of Ocean Bank (now called People’s union) Vs PATCO has after a see saw battle landed in favour of the customer.District Court ruling in favour of the Bank: In June 2011, a US Districit Court had ruled in favour of the Bank holding it as not liable for the fraud which occured with the use of a key logger trojan. It had ruled that the security system adopted by the Bank in the form of log in ID and password was not deficient and met the contractual agreement between the bank and customer. In the process the court had disagreed with the earlier decision of another court int he Experi-Mental Vs Commercia case.

Reversal of the first ruling: :Here (on July 3, 2012)  the federal appeal court reversed the earlier District Court ruling holding that the Password based system was “Commercially Unreasonable”. Copy of order

Settlement: The Bank finally settled with the customer and reimbursed the loss of Us$ 345,000/- after the customer agreed to drop claim for expenses and other collateral claims.

This has finally brought the curtains down on an interesting battle which will be a guide even in the Indian scenario.

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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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