the customer shall have no liability at all in the case of third-party breach
where the deficiency lies neither with the bank nor with the customer but
lies elsewhere in the system. The only obligation which casts on the
customers of the bank in terms of the circular is that the unauthorised
transactions shall be brought to the notice of the bank forthwith so as to
enable the bank to block the account. The circular aforesaid only
reminds the banks, their obligations and responsibilities and it does not
create any new rights or obligations. In short, there is also no difficulty in
holding 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. All over the world, the courts are
adopting the aforesaid approach to protect the interests of the customers
of electronic banking. Reverting to the facts of the case on hand, though
it was contended by the defendant in the written statement filed in the
suit that the disputed withdrawals cannot be said to be withdrawals
without the junction of the plaintiff, in the light of the facts established by
evidence, such a contention was not pressed into service by the
defendant in the second appeal. Instead, as noted, the main contention
pressed into service by the defendant in the second appeal is that the
defendant is not liable for the unauthorised withdrawals made from the
account of the plaintiff by fraudsters abroad. As the second contention
was found against, the question is answered against the appellant.
11. Question (ii): Various services are being provided by
banks to their customers. In fact, banks are soliciting business by
advertising the various services provided by them to their customers in
connection with different accounts. 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 ATMcum-
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 defendant has no case that there is a contract between
them and the plaintiff to the effect that if the plaintiff does not respond
to the SMS alerts given by them regarding the withdrawals from his
accounts, they would not be liable for the loss, if any, caused to the
plaintiff.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
MR. JUSTICE P.B.SURESH KUMAR
09TH DAY OF JANUARY 2019.
RSA.No. 1087 of 2018
STATE BANK OF INDIA, Vs P.V.GEORGE
The defendant in a suit for realization of money is the
appellant in the second appeal.
2. The plaintiff belongs to Pala in Kottayam District. He is
working in a South American country, namely, Brazil. The defendant is a
bank. The plaintiff is maintaining a NRE (Non-Resident External) account
with the defendant. The defendant has provided net banking and
Automated Teller Machine (ATM) services to the plaintiff for operating the
said account. As the plaintiff is working in an offshore rig in Brazil, he
used to be in India for 28 days after every 28 working days. The plaintiff
was in India from 04.03.2012 to 27.03.2012. It is stated by the plaintiff
that on 26.03.2012 he noticed that a sum of Rs.2,40,910.36 has been
withdrawn from his account though the ATMs located at different places
in Brazil between 22.03.2012 and 26.03.2012. The matter was informed
by the plaintiff to the defendant forthwith and the ATM card issued to the
plaintiff was consequently blocked by the defendant on 26.03.2012
itself. It is also stated by the plaintiff that though complaints have been
lodged by him on 27.03.2012 and on 30.03.2012 stating that the
withdrawals are unauthorized and requesting the defendant to refund
the said amounts, no action, whatsoever, has been taken by the
defendant on those complaints. According to the plaintiff, as the
withdrawals made from his account were unauthorised, the defendant is
liable to refund the amounts involved with interest. The suit is, therefore,
for realisation of the said amounts with interest and costs.
3. The defendant contested the suit contending that
withdrawals are not possible from the account of the plaintiff without the
knowledge of the plaintiff and the defendant is, therefore, not liable for
the loss caused to the plaintiff. It was also contended by the defendant
that at any rate, since the loss caused to the plaintiff is not due to any
action or inaction on the part of the defendant, even if the withdrawals
are made fraudulently by third parties without the knowledge of the
plaintiff, the bank is not liable for the same. It was, however, admitted by
the defendant in their written statement that 14 withdrawals amounting
to Rs.2,40,910.36 were made from the account of the plaintiff between
22.03.2012 and 26.03.2012 through the ATMs located at different places
in Brazil.
4. The trial court dismissed the suit. However, in appeal,
the appellate court reversed the decision of the trial court and decreed
the suit. The defendant is aggrieved by the decision of the appellate
court.
5. Heard the learned senior counsel for the appellant.
6. The fact that a total sum of Rs.2,40,910.36 was
withdrawn from the account of the plaintiff between 22.03.2012 and
26.03.2012 through the ATMs at different places in Brazil has not been
disputed by the defendant. Likewise, the fact that the plaintiff was in
India from 4.03.2012 to 27.03.2012 is also not disputed by the
defendant. The defendant has admitted, by producing Ext.B1 statement
of transactions that the plaintiff has withdrawn money from the very
same account using the ATM card issued to him from Pala while he was in
India on 07.03.2012 and 09.03.2012. Likewise, the fact that the plaintiff
has returned the ATM card issued to him by the defendant on 26.03.2012
itself is also not disputed by the defendant. The stand of the defendant
all throughout was that money could be withdrawn from the account of
the plaintiff only using the ATM card issued by the defendant and the pin
number known only to the plaintiff. The case of the plaintiff is that the
disputed withdrawals are unauthorised and made without his junction
and therefore, the defendant is bound to refund the amounts involved to
the plaintiff. The view taken by the appellate court is 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 plaintiff, that
too, through the ATMs in a foreign country, the defendant is liable for the
loss caused to the plaintiff.
7. The learned senior counsel for the appellant contended
that when amounts are withdrawn by international fraudsters from ATM
counters in a foreign country, the defendant cannot be made liable for
the loss caused to the account holders. It was also contended by the
learned senior counsel that in a case of this nature, the plaintiff should
have set the criminal law in motion in the foreign country for redressal of
his grievance concerning the loss caused to him. It was further
contended by the learned senior counsel that, at any rate, in so far as
SMS alerts were given by the defendant to the plaintiff in respect of the
disputed withdrawals, the plaintiff should have requested for blocking of
the account immediately and in so far as the plaintiff has not responded
to the SMS alerts given to him by the defendant, the defendant is not
liable for the loss caused to him.
8. Having regard to the facts admitted by the parties and the
submissions made by the learned senior counsel for the appellant, the
following substantial questions of law have been formulated for decision
in the matter:
(i) Are not the banks permitting withdrawal of cash
from the accounts of their customers making use of ATM
cum debit cards liable for the loss caused to the customers
in connection with the transactions made without their
junction by fraudsters?;
(ii) Could a bank 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?
9. Question (i) : The relationship between a bank and its
customers arises out of the contracts entered into between them. Such
contracts consist of general terms applicable to all transactions and also
special terms applicable to the special services, if any, provided by the
bank to its customers. The relationship between a bank and its customer,
in so far as it relates to the money deposited in the account of a
customer, is that of debtor and creditor. The contractual relationship
exists between a bank and its customers are founded on customs and
usages. Many of these customs and usages have been recognized by
courts and it is now an accepted principle that to the extent that they
have been so recognized, they are implied terms of the contracts
between banks and their customers. Duties of care is an accepted
implied term in the contractual relationship that exists between a bank
and its customer. It is impossible to define exhaustively the duties of
care owed by a bank to its customer. It depends on the nature of
services extended by the bank to its customers. But one thing is certain
that 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. As a corollary, there is no difficulty in holding 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.
10. Coming to electronic banking regime, 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 basis of the said 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. In
developed countries, in the light of the said obligation, statutes are put in
place to protect the interests of the customers of the bank by defining
the liabilities and providing enforcement mechanism. The law that
governs the area in this connection in the United States of America is
Electronic Funds Transfer Act. The said statute provides that a consumer
is liable for any unauthorised electronic fund transfer involving his
account only if the card or other means of access utilised for such
transfer is an accepted card or other means of access and if the issuer of
such card or other means of access has provided a means whereby the
user of such card or other means could be identified as the person
authorised to use it such as by signature, photograph or fingerprint or by
electronic or mechanical confirmation. In Canada, electronic banking
consumers and card users are protected under the Canadian Code of
Practice for Consumer Debit Card Services. Under the said Code,
consumers are not liable for losses arising from unauthorised usage of a
card. In the absence of any statutory provision in India, the Reserve Bank
of India, excercising control over the banks has issued directions to the
banks from time to time indicating the various steps to be taken as part
of the duties owed by them to their customers. Considering the recent
surge in customer grievances relating to unauthorised transactions in
the accounts of the customers enjoying electronic banking facilities like
ATM-cum-Debit Cards, net banking etc, in terms of circular No. RBI/2017-
18/15 dated 6/07/2017, the Reserve Bank of India has directed all banks,
among others, to put in place, appropriate systems and procedures to
ensure safety and security of electronic banking transactions carried out
by customers; robust and dynamic fraud detection and prevention
mechanism; mechanism to assess the risks resulting from unauthorised
transactions and measure the liabilities arising out of such events;
appropriate measures to mitigate the risks and protect the banks against
liabilities arising therefrom and a system of continually and repeatedly
advising customers on how to protect themselves from electronic
banking and payment related frauds. It is clarified in the said circular that
the customer shall have no liability at all in the case of third-party breach
where the deficiency lies neither with the bank nor with the customer but
lies elsewhere in the system. The only obligation which casts on the
customers of the bank in terms of the circular is that the unauthorised
transactions shall be brought to the notice of the bank forthwith so as to
enable the bank to block the account. The circular aforesaid only
reminds the banks, their obligations and responsibilities and it does not
create any new rights or obligations. In short, there is also no difficulty in
holding 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. All over the world, the courts are
adopting the aforesaid approach to protect the interests of the customers
of electronic banking. Reverting to the facts of the case on hand, though
it was contended by the defendant in the written statement filed in the
suit that the disputed withdrawals cannot be said to be withdrawals
without the junction of the plaintiff, in the light of the facts established by
evidence, such a contention was not pressed into service by the
defendant in the second appeal. Instead, as noted, the main contention
pressed into service by the defendant in the second appeal is that the
defendant is not liable for the unauthorised withdrawals made from the
account of the plaintiff by fraudsters abroad. As the second contention
was found against, the question is answered against the appellant.
11. Question (ii): Various services are being provided by
banks to their customers. In fact, banks are soliciting business by
advertising the various services provided by them to their customers in
connection with different accounts. 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 ATMcum-
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 defendant has no case that there is a contract between
them and the plaintiff to the effect that if the plaintiff does not respond
to the SMS alerts given by them regarding the withdrawals from his
accounts, they would not be liable for the loss, if any, caused to the
plaintiff. In the circumstances, question (ii) is also answered against the
appellant.
In the light of the findings on the questions formulated for
decision, there is no merit in the second appeal and the same is,
accordingly, dismissed.
Sd/-
P.B.SURESH KUMAR, JUDGE
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