Burden To Prove Customer's Liability In Case Of Unauthorized Electronic Banking Lies Upon Bank: Allahabad High Court

The Allahabad High Court has held that under the RBI Circular dated June 6, 2017 titled “Customer Protection-Limiting Liability of Customers in Unauthorised Electronic Banking Transactions”, the burden to prove customer's liability in case of unauthorized electronic banking lies upon the bank.

Referring to Clause 12 of the aforesaid Circular the bench of Justice Shekhar B. Saraf and Justice Praveen Kumar Giri held,

“A careful perusal of the aforesaid circular would show that the burden of proving the customer's liability in case of unauthorized electronic banking, lies upon the bank.”

Petitioners, a father-son duo, had their separate proprietorship firms. Father transferred Rs.37,85,000/- to the son's account. This amount was further transferred to a third party account against which the petitioners lodged an FIR claiming embezzlement. Since there was no action by the authorities, the petitioners approached the High Court seeking direction upon Bank of Baroda and Reserve Bank of India to restore the embezzled amount along with penal interest.

Perusing the Debit/Credit and I.P Address details of the petitioners, the Court noted that the transaction was done diligently and they were not victims of cyber fraud. It observed that though the petitioners were aware of the deductions made from the account, they informed the bank 2 days later, which showed that they had concocted the story.

In the RBI Circular dated June 6, 2017 titled “Customer Protection-Limiting Liability of Customers in Unauthorised Electronic Banking Transactions”, zero liability of the customer arises when he informs the bank within 3 working days about any authorised transaction. Further, the burden of proof was on the bank to show that customer was liable for the unauthorized bank transaction.

“The burden of proving customer liability lies upon the bank and the bank, in its counter affidavit has placed passbook, documents showing beneficiary addition by petitioner no. 2, I.P. Address details of petitioner no.2, time and debit transfer details from the internet bank account of the petitioner no.2, a document showing password modification by the petitioner no.2 to discharge its burden,” observed the Court.

Accordingly, the Court held that there was no embezzlement of funds and the petitioners were aware of every transaction in their accounts.

“RBI circular is to cover aspects of customer protection, including the mechanism of creating customer awareness on the risks and responsibilities, and customer liability arising in specific scenarios of unauthorized electronic transactions. The pupose(Sic) of this circular is to act as a shield for customers from fraudulent transactions and not as a sword in the garb of personal transactions.”

Holding that hacking of accounts was not proved but the negligence on part of the petitioners was, the Court dismissed the writ petition.

Case Title: SURESH CHANDRA SINGH NEGI AND ANOTHER v. BANK OF BARODA AND OTHERS [WRIT-C NO. 24192 OF 2022]

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