‘Bank Should Remain Vigilant': Supreme Court Holds SBI Liable for Fraudulent Transaction

In a landmark ruling, the Supreme Court has reinforced the responsibilities of banks, holding the State Bank of India (SBI) liable for a fraudulent transaction. The verdict provides significant relief to customers and emphasizes the dual responsibility of both banks and account holders to combat online fraud.

Context: Supreme Court Holds SBI Liable for Fraudulent Transactions

The Supreme Court has upheld the liability of the State Bank of India (SBI) for fraudulent and unauthorized transactions reported by a customer. The judgment emphasized the bank's duty to protect its customers’ accounts while urging account holders to stay vigilant about sharing sensitive information like OTPs and M-PINs.

In a significant relief to account holders, the bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan emphasized the duty of banks to protect their customers from fraud. The Court stated:

“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 transactions.”

Supreme Court Holds SBI Liable for Fraudulent Transactions: Banks Urged to Remain Vigilant

Case Background

A customer became a victim of fraud when attempting to return an online purchase. Following instructions from a fraudster posing as customer care, the customer downloaded a malicious mobile app, which facilitated unauthorized transactions.

SBI argued that the customer had shared sensitive information, authorizing the transactions. However, the customer denied this, attributing the fraud to a third-party data breach on the retailer's website.

Supreme Court’s Observations

The Court ruled that banks cannot evade responsibility for safeguarding customer accounts from unauthorized transactions. It highlighted that banks have access to advanced technology capable of detecting and preventing such frauds.

The judgment also cited the RBI’s Circular dated July 6, 2017, which provides guidelines for customer protection in cases of unauthorized electronic banking transactions:

Clause 8: Zero Liability of CustomersCustomers have zero liability if the fraud results from:

• The bank’s negligence or deficiency.

• A third-party data breach without the customer’s fault.

• Reporting the fraud within 3 working days.

Clause 9: Limited Liability of Customers Customers may have limited liability if:

• The fraud occurred due to their negligence, such as sharing OTPs or sensitive information.

• The incident is reported after 3 days but within 4-7 days.

Court’s Decision

The Supreme Court dismissed SBI’s appeal, holding the bank liable and rejecting its argument that the customer shared sensitive information. The Court upheld the High Court’s ruling and reiterated that prompt reporting of fraud is crucial for zero liability protection under RBI rules.

Key Takeaways for the Public : 

1. Zero Liability for Fraud:Customers are not liable for fraud caused by third-party data breaches, provided they report the incident within 3 days. 

2. Awareness About Cyber Scams:Fraudsters may impersonate customer support or use malicious apps. Avoid sharing OTPs, passwords, or M-PINs with anyone.

3. Importance of Prompt Reporting:Reporting unauthorized transactions immediately ensures protection under RBI guidelines.

4. Dual Responsibility:While banks must protect customer accounts, customers must remain vigilant and cautious to avoid falling for scams.

   
   

Steps for the Public to Follow :

1. Report Fraud Quickly: Notify your bank within 24-72 hours of noticing any unauthorized transactions.

2. Protect Sensitive Information: Never share OTPs, passwords, or M-PINs with anyone.

3. Verify Sources: Double-check the authenticity of calls, emails, or messages claiming to be from your bank.

4. Monitor Accounts Regularly: Keep an eye on your account for unauthorized transactions and report them immediately.

This ruling underscores the importance of both technological vigilance by banks and proactive caution by customers in preventing and addressing online fraud.

Conclusion: A Joint Effort to Combat Online Fraud

This ruling serves as a reminder of the critical role banks and customers play in preventing cyber fraud. While the Supreme Court’s decision ensures banks are held accountable, customers must also exercise caution to protect their financial security. Together, vigilance and prompt action can thwart online scams effectively.

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