Customer Has Zero Liability When Unauthorized Transactions Occur: Bombay HC Directs Bank Of Baroda To Refund Amount Debited Due To Cyber Fraud
The Bombay High Court observed that a customer has zero liability when unauthorized transactions occur due to a third-party breach where the deficiency lies neither with the bank nor with the customer but elsewhere in the system.
A Writ petition was filed seeking to quash and set aside a decision of the Banking Ombudsman where it rejected the complaint filed by the Petitioner alleging cyber bank fraud and third-party breach.
The Division Bench of Justice G.S. Kulkarni and Justice Firdosh P. Pooniwalla observed, “Both as per the said RBI Circular and the said Policy of Respondent No.2, a customer has zero liability when the unauthorized transactions occur due to a third party breach where the deficiency lies neither with the bank nor with the customer but elsewhere in the system and the customer notifies the bank regarding the unauthorized transactions within a certain time frame. Therefore, both as per the RBI Circular and the said Policy of Respondent No.2, the liability of the Petitioners in respect of the said unauthorized transactions would be zero as the unauthorized transactions have taken place due to a third-party breach where the deficiency lies neither with Respondent No.2 nor with the Petitioners, as already held hereinabove on the basis of the said three Cyber Cell reports.”
Advocate Siddhesh Bhole appeared for the Petitioners and Add. G.P. Mohit Jadhav and Advocate Megha More for the Respondents.
The Petitioners, which is a company and its director, maintained a bank account with Bank of Baroda i.e. Respondent No. 2 and on October 1, 2022, a few individuals were added as beneficiaries without the OTP Verification. Later on, it was informed to the Petitioners that Rs. 76,90,017/- were debited in several tranches by way of online transactions.
The Petitioners registered an FIR with the Cyber Crime Police Station under Section 379 of the Indian Penal Code, 1860 (‘IPC’) and Sections 43A and 66 of the Information Technology Act, 2000. The Petitioners had subsequently filed a complaint with the Banking Ombudsman i.e. Respondent No. 1 after Bank did not take any action.
It was alleged that the Bank had failed to refund the amount illegally debited from the said bank account and the Banking Ombudsman had wrongly rejected the complaint filed by the Petitioner against the Bank.
The Court perused three reports submitted by the Cyber Cell and observed that there was no collusion of the Petitioners with the person/fraudsters who had debited the amount.
“On the contrary, the three Cyber Cell Reports clearly show that the unauthorized transactions have taken place without any intimation to the Petitioners either on their mobile number registered with Respondent No.2 or on their email ID registered with Respondent No.2. For all the aforesaid reasons, Respondent No.2 will have to be directed to refund the amount illegally and unauthorizedly debited from the bank account of the Petitioners to the Petitioners.”, the Court said.
Accordingly, the Court quashed and set aside the order passed by the Banking Ombudsman and directed the Bank of Baroda to refund the amount to the Petitioners with an interest at the rate of 6% per annum.
Cause Title: Jaiprakash Kulkarni and Ors. v. The Banking Ombudsman and Ors. (Neutral Citation: 2024:BHC-OS:8627-DB)
Appearances:
Petitioners: Advocates Siddhesh Bhole, Yakshay Chheda, Anushree Koparkar, Aditi Pathak, Parag Sharma, Vijay Salokhe and Kirti Ojha.
Respondents: Add. G.P. Mohit Jadhav, Advocates Megha More, Anvita Ail and Naresh H. Manghnani.