SMS Alerts From Bank Cannot Be The Basis For Determining The Liability Of The Customer, In Case of Fraudulent Transactions
Previously, the nationalised and commercial banks would ‘get away’ from the liability of a fraudulent transaction in a customer’s account by sending an alert to the customer on text messages. As a result of which many customers who were unable to check their cell phones during a particular time period when the bank sent the text message alert, has suffered huge losses, with no co-operation from the bank. One such case of bank willing to take rescue of customer not making a reaction on sms alerts from bank as a ground to escape liability arising by unauthorized transaction.
Facts:
In this case, there was a
withdrawal of INR 2, 40,910.36 from the Non Resident External Account in the
State Bank of India (“SBI NRE”) of
one Mr. PV George (“Customer”) between
March 22, 2012 and March 26, 2012 through the ATMs at different places in
Brazil.
The Customer filed a suit
against the SBI seeking refund of the amount along with interest, which was
dismissed by the trial court. The Customer appealed to the Kerala High Court
and Justice Suresh Kumar of the Kerala High Court considered the following
substantial questions of law:
- Whether the banks permitting withdrawal of cash
from the accounts of their customers through ATM-cum-debit cards are liable for
the loss caused to the customers in connection with the transactions made
without their involvement in the fraudsters?
- Could a bank be relieved from the liability of
the loss caused to its customer on account of the unauthorised withdrawals made
from his account merely on the ground that the customer has not responded
promptly to the text message alerts given by the bank?
Decision of the Kerala High Court – “SMS Alerts from Bank not a basis to determine customer’s liability”
The Kerala High Court held that,
since the disputed withdrawals were unauthorized and made by third parties
without using the debit card issued to the Customer, through the ATMs in a
foreign country, the bank was liable for the loss caused to the plaintiff. The
Court further held the following:
- Bank’s duty to take necessary steps to prevent
unauthorised withdrawals:The High
Court stated that if a customer suffers loss on account of the transactions not
authorised by him, the bank is liable to the customer for the damages caused to
him. It further observed, “Where a bank is providing service to its customer,
it owes a duty to exercise reasonable care to protect the interests of the
customer. Needless to say that a bank owes a duty to its customers to take
necessary steps to prevent unauthorised withdrawals from their accounts”
- Safe electronic banking environment: The High Court also indicated
that it is the obligation of the banks to provide such services, to create a
safe electronic banking environment to combat all forms of malicious conducts
resulting in loss to their customers. The Court also referred to the statutes
which are put in place in countries like United States and Canada to protect
the interests of the customers of the bank by defining the liabilities and
providing enforcement mechanism. Referring to the Reserve Bank of India
Notification[1],
the court said that if a customer suffers loss in connection with the
transactions made without his junction by fraudsters, it has to be presumed
that it is on account of the failure on the part of the bank to put in place a
system which prevents such withdrawals, and the banks are, therefore, liable
for the loss caused to their customers.
- Customer not responding to SMS alerts will not
exonerate bank’s liability: The Court
also rejected bank’s contention that it had no liability in connection with the
unauthorised transactions as the customer did not respond to the SMS alerts it
had sent to him.
Dismissing the appeal, the ?Judge
said: “SMS alerts is one of the facility extended by most of the banks to
their customers in connection with the savings bank accounts having electronic
banking facilities including ATM cum-Debit Card facilities. Such facilities are
provided not only to those who specifically request for the same, but also to
those who do not ask for such facilities. Could such a facility voluntarily
given by banks to their customers determine the rights of parties, is the
question. According to me, only if there exists a specific term in the contract
between a bank and its customer to the effect that the bank would be exonerated
from the liability in connection with the unauthorised transactions if the
customer does not respond to the SMS alerts, SMS alerts cannot be the basis for
determining the liability of the customer, for, there would be account holders
who may not be in the habit of checking SMS alerts at regular intervals and
account holders like the plaintiff in the instant case who is working in an
offshore oil rig, who may not be able to access their mobile phones for several
days having regard to the peculiarity of their avocation.”
The Court further added that,
in this case, there was no such contract between the bank and the Customer, and
thus the bank would be liable to refund the amount as ordered by the First
Appellate court.
Emphasizing the need to
create a safe electronic banking environment, the Kerala High Court observed
that a bank cannot be exonerated from the liability for the loss caused to its
customer on account of the unauthorised withdrawals made from his account
merely on the ground that the customer has not responded promptly to the SMS
alerts given by the bank.
Justice PB Suresh Kumar
also made it clear that banks are liable for unauthorised withdrawals even if
customers did not respond to SMS alerts and it cannot be the source to
determine the liability of a customer, for there would be account holders who
may not be in the habit of checking SMS alerts regularly,
Conclusion
The High Court of
Kerala in the present case has resolved legal issues in cases relating to contract
between the bank and the Customer. Referring to a Reserve Bank of India notification[2]
which stated that unauthorised transactions shall be brought to the notice of
the bank forthwith to enable it to block the account, the court said it only
reminds banks of their obligations and responsibilities and does not create any
new rights or obligations.
In the light of the above, there is also no difficulty in holding that if a Customer suffers loss in connection with transactions made by cheats, it has to be assumed that it is because of the bank’s failure to put in place a system which checks such withdrawals, and the banks are, therefore, liable for the loss caused to their customers, the Court said. The High Court further expressly prevents the banks to shift their burden of the liability to protect their Customers’ bank accounts by sending a text message alerts and recaps the responsibilities of the bank, towards its Customers.
Contributed by – Akshay Ramesh
[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11040&Mode=0
[2] Supra note 1
King Stubb & Kasiva,
Advocates & Attorneys
New Delhi | Mumbai | Bangalore | Chennai | Hyderabad | Kochi
Tel: +91 11 41032969 | Email: info@ksandk.com
By entering the email address you agree to our Privacy Policy.