'Bank Should Remain Vigilant' : Supreme Court Holds SBI Liable To Refund Amount To Customer Who Reported Fraudulent Transaction

The Supreme Court recently observed that banks cannot shy away from the responsibility to safeguard their customers from unauthorized transactions reported from their accounts. The Court added that it expects the account holders to also remain extremely vigilant and to see that the O.T.Ps. generated are not shared with any third party. The Court upheld the State Bank of India's (“SBI”) liability for the fraudulent and unauthorized transactions reported in the customer's bank account. It advised banks to be vigilant, utilizing the best available technology to prevent fraudulent and unauthorized transactions. “All transactions relating to the account of the respondent No.1 – herein maintained with the petitioner - Bank were found to be unauthorized and fraudulent. It is the responsibility of the bank so far as such unauthorized and fraudulent transactions are concerned. The Bank should remain vigilant. The Bank has the best of the technology available today to detect and prevent such unauthorized and fraudulent transaction. Further, clauses 8 and 9 respectively of the RBI's Circular dated 6-7-2017 make the position further clear.”, the bench comprising Justices JB Pardiwala and R Mahadevan said. The bench was hearing the SLP filed by the SBI against the Gauhati High Court's decision which upheld the SBI's liability for the unauthorized and fraudulent transaction made from the Respondent- Customer's bank account. The High Court directed the SBI to refund the defrauded amount. The Respondent-Customer made an online shopping and later tried to return the item. He received a call from a fraudster posing as customer care for the retailer. Following instructions, he downloaded a mobile app, which led to unauthorized transactions totaling ₹94,204.80. SBI denied liability claiming the transactions to be authorized because of sharing of OTP's and M-PINs by the customer. On the contrary, the Respondent-Customer claimed that he never shared sensitive information like OTP or MPIN. He claimed the fraud occurred due to a data breach on the retailer's website, over which he had no control. The Single Bench held the Appellant-SBI liable, which was upheld by the Division Bench of the High Court. The High Court referred to clauses 8 and 9 of the Reserve Bank of India's (RBI) Circular dated July 6, 2017, which provide guidelines on customer liability in unauthorized transactions. It imposes “zero” liability on the customers for the unauthorized transaction reported from their bank account due to third-party data breaches, if reported promptly, as per RBI guidelines. Following this an appeal was preferred before the Supreme Court by the SBI. Noting that the transaction was fraudulent and unauthorized, which was promptly reported by the Respondent, the Court refused to interfere with the well-reasoned impugned judgment. Since the transaction was reported to the Appellant-Bank within 24 hours, the Court rejected the SBI's argument that it doesn't owe a liability towards the Respondent. “We also take notice of the fact that within 24 hours of the fraudulent transaction, the customer, i.e., the respondent No.1 – herein brought it to the notice of the Bank.”, the Court noted. Also, the Court expected the Customers to exercise vigilance, and not share OTPs and Passwords generated with a third person. “We expect the customers, i.e., the account holders also to remain extremely vigilant and see to it that the O.T.Ps. generated are not shared with any third party. In a given situation and in the facts and circumstances of some case, it is the customer also who could be held responsible for being negligent in some way or the other.” The petition was dismissed, accordingly. Appearance: For Petitioner(s) Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv. Mr. Arjun Bhatia, Adv. Ms. Shubhra Kapur, Adv. Ms. Mahima Kapur, Adv. For Respondent(s) Mr. Anil Shrivastav, AOR Case Title: STATE BANK OF INDIA VERSUS PALLABH BHOWMICK & ORS.Citation : 2025 LiveLaw (SC) 22Click here to read/download the orderRelated - Unauthorised Online Transactions From Bank Account; Gauhati High Court Orders SBI To Reimburse Cybercrime Victim

'Bank Should Remain Vigilant' : Supreme Court Holds SBI Liable To Refund Amount To Customer Who Reported Fraudulent Transaction

Yash Mittal

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