Banks Liable For Unauthorised Withdrawals Even If Customers Did Not Respond To 'SMS Alerts': Kerala HC [Read Judgment]
"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."
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, while dismissing the second appeal filed by State Bank of India, observed 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The case of PV George was that a total sum of Rs.2, 40,910.36 was withdrawn from his SBI NRE account between 22.03.2012 and 26.03.2012 through the ATMs at different places in Brazil.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 First Appellate 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.
Justice Suresh Kumar considered the following substantial questions of law
- 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?;
- 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?
Bank's duty to take necessary steps to prevent unauthorised withdrawals
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.
"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", the court said.
Create a safe electronic banking environment
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.
Referring to RBI Circular, 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 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.