Banks can't recover money from customers lost in online fraud: HC

The Kerala High Court on Wednesday said banks cannot recover the money withdrawn through fraudulent online transactions from cash credit and overdraft accounts of customers if it cannot be unequivocally proved that the customer was responsible for such transaction.

New Delhi:The Kerala High Court on Wednesday said that banks cannot ask a customer to repay money lost through fraudulent online transactions using its powers under the SARFAESI Act as it is a 'disputed transaction'.

However, if the loss is due to the customer’s negligence, she/he would have to bear the entire loss. On the other hand, banks cannot claim any amount from the customer if the online transaction indicates that it was carried out by some other person other than the customer.

Justice A Muhamed Mustaque passed the order considering the petition filed by two businessmen from Kochi.

In this case, criminals obtained duplicate sim cards of the businessmen's mobile phone to execute online theft.

The petitioners, who lost Rs 16.25 lakh and Rs 23 lakh from their cash and credit card and overdraft accounts through a fraudulent online transaction, approached the court challenging that the action of banks in withdrawing money from their accounts online and therefore sought a declaration to the effect that they have zero liability in fraudulent transactions in their bank accounts.

The high court mentions that it is the responsibility of the bank to identify the fraud risk and also devise mechanisms to protect customers. There are counter technologies to identify the location behaviour of operators. The bank, therefore, is bound to protect the interest of the customer in all circumstances.

The court observed that the transaction could be treated as 'disputed transaction'. These transactions would fall within the sweep of zero liability as per the circular issued by Reserve Bank of India.

The remedy for the bank in such circumstances was to approach the civil court and recover the amount from the persons who were responsible for such transactions.

The court added that the petitioners could not be held responsible for such debit without establishing through the civil court that they are responsible for such withdrawal from the loan account.