The Bombay High Court recently issued a significant ruling regarding unauthorized transactions in banking.
The court’s decision centered on a case involving the Bank of Baroda and a company whose account was fraudulently debited by Rs 76 lakh.
According to the ruling by a division bench comprising Justice Girish Kulkarni and Justice Firdaus Pooniwala, the responsibility for such unauthorized transactions lies neither with the bank nor the customer in cases where the system itself is flawed due to a third-party breach.
Court Directs Refund by Bank of Baroda
In response to a petition filed by Jaiprakash Kulkarni and Pharma Search Ayurveda Pvt Ltd, challenging the refusal of the banking ombudsman to direct Bank of Baroda to refund the amount, the court cited a July 2017 circular by the Reserve Bank of India (RBI).
The circular emphasizes that banks must adhere to Consumer Protection Policy (Unauthorized Electronic Banking Transactions), which absolves customers of liability in cases of cyber fraud due to third-party breaches, provided the customer promptly informs the bank.
Importance of Timely Notification to Banks
According to the court, customers must promptly inform their bank about any unauthorized transactions to avail themselves of protection under the RBI’s guidelines and the bank’s Consumer Protection Policy (Unauthorized Electronic Banking Transactions).
Customer Protection in Cyber Fraud Cases
The High Court underscored the vulnerability of innocent individuals to cyber fraud incidents. It reinforced that as per RBI guidelines and bank policies, customers must report unauthorized transactions within a specified timeframe to be eligible for refunds.
This ruling sets a precedent for similar cases, highlighting the importance of banks ensuring robust cybersecurity measures to protect customers’ funds from cyber threats.
This case underscores the vulnerability of innocent individuals to cyber fraud and reinforces the responsibility of banks to safeguard their customers’ funds.
