Bank Held Liable as SC Finds No Customer Negligence in Fraudulent Transactions

State Bank of India Vs Pallabh Bhowmick & Ors (Supreme Court of India)

In this case, the Supreme Court upheld the High Court’s finding that a series of online transactions carried out on 18.10.2021 from the customer’s bank account were entirely unauthorized and fraudulent, and that no negligence on the part of the account holder was established. Agreeing with the High Court’s reasoning, the Court emphasized that Clauses 8 and 9 of the RBI Circular dated 06.07.2017 clearly mandate that where a customer is not negligent, the bank bears full liability for unauthorized electronic transactions. The Court noted that the customer had promptly reported the fraud within 24 hours, further supporting the conclusion that the account holder acted responsibly. It reiterated that while banks possess advanced technology and must remain vigilant to detect and prevent such fraudulent activities, customers are also expected to exercise caution, particularly by ensuring that OTPs are not shared with anyone. However, on the facts of this case, no contributory negligence could be attributed to the customer. The Supreme Court thus found no reason to interfere with the High Court’s order and confirmed that the bank was solely responsible for the financial loss arising from the fraudulent transactions. The Special Leave Petition was therefore dismissed, along with all pending applications, reinforcing the principle that in cases of unauthorized transactions where the customer is not at fault, liability cannot be shifted onto the account holder.