The court held that the banks are liable for unauthorised withdrawals even if customers did not respond to SMS alerts.

The decision came in respect of disputed transactions from an account with the State Bank of India that took place in 2012, which indicates the unduly long period of frustration that the aggrieved customer has gone through before he could claim his money. Banks have made it a strategy to protract the dispute over long periods in a bid to deny customers their due. But the high court verdict settles the issue for all those who are currently pursuing their cases with more recent breaches.

Putting the onus of creating a safe electronic banking environment, the 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 the account merely on the ground that the customer has not responded promptly to the SMS alerts given by the bank.

The case related to an NRI from Kerala working in Brazil, who complained that a total sum of Rs.2, 40,910.36 was withdrawn from his SBI NRE account between 22.03.2012 and 26.03.2012 through the ATMs at different places in Brazil. He filed a suit against the bank seeking refund of the amount along with interest.

Though, the trial court dismissed the suit, the high court held that that since the disputed withdrawals were unauthorized and made by third parties without using the debit card issued to the plaintiff, through the ATMs in a foreign country, the bank was liable for the loss caused to the plaintiff.

The court said that if a customer suffers loss on account of the transactions not authorised by him, the bank is liable to the customer for the said loss.

The court also said that it is the obligation of the banks providing 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 USA and Canada to protect the interests of the customers of the bank by defining the liabilities and providing enforcement mechanism.

There are clear RBI directives to banks 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. And yet banks try to wriggle out of their responsibility by passing on the blame to the customers.

The court 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. In this specific case, the transactions had occurred at different ATMs in Brazil while the complainant was in India and had done withdrawals from ATMs in his native place.

Bank frauds with stolen pins have become endemic, with large number of customers suffering losses. Many of these transactions occur in suspicious jurisdictions and yet banks allow such withdrawals and then prolong the case on the pretext of investigations.

A Bengaluru-based techie recently had his money stolen from his account with the Standard Chartered bank through transactions made in Ukraine, which should have immediately alerted the bank as that country is infamous for bank frauds and also in view of the number of transactions recorded in India in close proximity to the fraudulent withdrawals. Yet the bank keeps asking for more time on the pretext of investigations.

The Kerala high court verdict should sound like heaven-sent help for thousands of people like him, who are frustrated by the diversionary tactics of the banks. The court verdict gives them a window of opportunity to make the banks behave and claim their money back. It does not matter if the bank in the present case will go for appeal; but as of now the matter stands settled and the aggrieved customers must make the banks pay.

The court has rejected the stand of the bank that money could be withdrawn from the account of the customer only using the ATM card and the pin number known only to the plaintiff and upheld the argument of the customer that the disputed withdrawals were unauthorised and made without his junction and therefore, the bank was bound to refund the amounts.

The court ruled that in so far as it is established that the disputed withdrawals were unauthorized and made by third parties without using the debit card issued to the customer, that too, through the ATMs in a foreign country, the bank was liable for the loss caused to the customer.

The court further ruled that the banks have an obligation to create a safe electronic banking environment to combat all forms of malicious conducts resulting in loss to their customers. The basis of such obligation is the implied term in the contracts entered into by the banks with their customers to exercise care to protect their money from transactions not authorised by them, it clarified. (IPA Service)