‘Banks can’t recover money lost in fraud from customer’
As per SARFAESI Act, a bank can decide the liability and does not have to approach a court or tribunal to enforce any security interest created in its favour.
After referring to two rulings by the Supreme Court and a ruling by the high court that banks are liable for unauthorized withdrawals, Justice A Muhamed Mustaque said in the judgment, “Thus, it is clear that the bank cannot claim any amount from the customer when a transaction is shown to be a ‘disputed transaction’. The bank can recover from the customers only when it can unequivocally prove that the customer was responsible for such transaction, independently through the civil court. The RBI guidelines is a clear mandate to exonerate a customer in such ‘disputed transaction’. RBI circular presumes the innocence of the customer in such given circumstances. However, this innocence can be controverted. The onus falls on the bank to prove otherwise.”
The HC considered two pleas seeking a court declaration that they have zero liability for the fraudulent transactions in their bank accounts. Senior advocate S Sreekumar, who represented the two customers, said they had obtained bank overdrafts and the money went missing from the accounts. The transactions were carried out after the fraudsters obtained duplicate SIM cards of the petitioners and they had reported the transactions to the bank within three days.
As per SARFAESI Act, a bank can decide the liability and does not have to approach a court or tribunal to enforce any security interest created in its favour. Prior to the Act, banks could assert their rights only through adjudication.
In the judgment, the court pointed out that the matter goes out of bounds of SARFAESI Act if it contains allegations of fraud. The court also cited an RBI circular of July 6, 2017, that said a customer would have zero liability if a fraudulent transaction is reported by the customer within three working days or when there is contributory fraud or negligence or deficiency on the part of the bank. If an independent investigation conducted by police or any other agency supports the customer’s allegation that it was a fraudulent transaction, it becomes a disputed transaction, the court said.
However, if the loss is due to the customer’s negligence, he would have to bear the entire loss, the court said. To what extent the customer can be made responsible for such negligence is a matter of probe and adjudication through a civil suit, the court added.