Unauthorized withdrawals –Can the Banks escape liability on the ground– SMS alert was sent and was not responded ? –Anil Tikotekar

All of us are now aware that banks have a system of sending SMS for the transactions that take place in our account.

Almost all of us do take care to get in touch with our bank in case there are unauthorized withdrawals in our account.

But what if, we are unable to respond to such SMS ? Are we to suffer the loss ? Do we have no remedy ?

The Kerala High Court  judgement —as reported in Economic Times and The Hindu Business Line  — should be a trend setter in such cases. 

The Case in short :

  • The victim had an account with SBI
  • From his account an amount of Rs.2.4 lacs was withdrawn by a fraudster in Brazil.
  • Victim took the stand the withdrawal was unauthorized.
  • Bank took the stand that SMS alert was sent but was not responded and pleaded he should have requested that his account be blocked immediately.
  • Bank tried to avoid the liability also on the ground that there is a specific term in the contract between the bank and the customer to the effect that the bank would be exonerated from the liability in connection with any unauthorized transaction if the customer did not respond to the SMS alerts.
  • Bank further took the stand that since the loss caused to the customer was not due to any action or inaction on the part of the bank, even if the withdrawals were made fraudulently by third-parties without the knowledge the knowledge of the Bank, the bank was not liable for the same.
  • Bank further pleaded that  the customer should have set the criminal law in motion in the foreign country for redressal of his grievance.

Lower court fixed the liability on the Bank who went into appeal.

The Kerala High Court confirmed the judgement given by the lower court and advised the Bank to make good the loss The High Court stated

  1. There would be account holders who may not be in the habit of checking SMS alerts regularly.
  2. Notifications —cited by Bank as above —cannot be the basis for determining the liability of the customer.
  3. Bank has a duty to its customers to take necessary steps to prevent unauthorized withdrawals from their accounts.
  4. If a customer suffered loss in connection with transactions made by fraudsters, it had to be presumed that it was on account of the failure of the bank to put in place a system which prevented such withdrawals, and the bank was, therefore, liable for the loss caused to the customer.

The Kerala High Court—while  referring to a Reserve Bank of India circular which stated that unauthorised transactions shall be brought to the notice of the bank forthwith to enable it to block the account— said it only reminds banks of their obligations and responsibilities and does not create any new rights or obligations.

Note of Caution

To be on the safer side, it is always better to respond to SMS alerts.

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