GUIDELINES OF RBI:

The digital transactions have been increasing rapidly in India. But, at the same time, we are
also witnessing an increase in unauthorized electronic banking transactions / online banking
frauds. With the rise in the volume of funds transmitted via electronic channels, the banking
sector is facing new challenges as unscrupulous elements are devising new methods to
commit online banking frauds.

The Reserve Bank of India had issued draft norms related to “customer protection—limiting
liability of customers in unauthorized electronic banking transactions” in August, 2016.

Given the recent surge in grievances relating to unauthorized banking transactions, the
banking regulator has now revised the guidelines and has issued latest norms  in determining
Customers/Banks liability in case of fraudulent online banking transactions. Below are the
new norms on banking customer’s liability in case of unauthorized electronic or online
transactions;

Limited Liability of a Customer

(a) Zero Liability of a Customer

A customer’s entitlement to zero liability shall arise where the unauthorised transaction
occurs in the following events:

 Contributory fraud/ negligence/ deficiency on the part of the bank (irrespective of

whether or not the transaction is reported by the customer).
 Third party breach where the deficiency lies neither with the bank nor with the
customer but lies elsewhere in the system, and the customer notifies the bank
within three working days of receiving the communication from the bank regarding
the unauthorised transaction.

UNDER INFORMATION TECHNOLOGY 2002, BELOW GIVEN ARE THE

PROVISIONS:

One can file an application before the Adjudicating Officer appointed under Section 46 of
Information Technology Act, 2000 claiming breach of reasonable security procedures by the
bank. An analysis of selected cases ordered by the Adjudicating Officer in the state of
Maharashtra revealed that the banks and telecom operators in most cases have failed to
maintain reasonable security procedures, including non-compliance of KYC norms, Anti-
money laundering guidelines, and automatic suspicious transaction monitoring facilities. As
per Section 43A of Information Technology Act, 2000 the banks and other intermediaries
who have failed to maintain reasonable security procedure must pay adequate damages as
compensation to such person to cover the loss. The Adjudicating Officer has the power to
adjudicate in the matters where the claim does not exceed Rs 5 crores. The bank must prove
that they have maintained reasonable security procedures to prevent such fraudulent acts. In
case the bank fails to prove that they have maintained reasonable security procedure, the
Adjudicating Officer who has the powers of a Civil Court, may order the bank to pay
damages as compensation to the victim.

PROCEDURE UNDER CONSUMER PROTECTION ACT, 1986.

When a service is found deficient by a consumer, they can lodge a complaint under the
Consumer Protection Act, 2019. Thus, the prime requirement is that the matter must fall
within the "definition of service", and it must entail a deficiency as per the requirements
provided under the Consumer Protection Act, 2019.

What is "Deficiency of Service"?

According to the definition under Section 2(11) of Consumer Protection Act 2019 ("the
Act"), any sort of imperfection, or defect in the feature, quality, amount, worth, authenticity,
its capacity or potential, and standard which is obligatory to be maintained and regulated as
per the laws and statutes in function or any agreement/contract claimed by the seller, with
respect to the products and goods, is known as deficiency.

Wilful and deliberate concealment of important information, omission or negligence of acts

by seller which may lead to injury or loss to the consumer(s), also comes under the ambit of
deficiency of service.

Any act(s), which a prudent seller is supposed to do or is supposed to omit, but deliberately
does the contrast, such actions amount to 'deficiency of service'.

Deficiency of service can be witnessed in any service sector where there is buyer-seller
relationship, such as, railways, banks, legal aid, electricity, construction, education,
transportation, aviation, hospitality, restaurants, entertainment etc. Deficiency of service can
have minor to grave consequences, ranging from inconvenience or harassment to mental or
physical injury to death, thereby leading to legal consequences.

Cases where the value of goods or services exceeds Rs 20 lakh can be filed and orders of the
district forum challenged here within 30 days of the order being passed.
The court fee for cases above Rs 20 lakh and up to Rs 50 lakh is Rs 2,000 while the court fee
for cases up to Rs 1 crore is Rs 4,000. The demand draft should be made in favour of the
registrar, (name of) state commission and be payable in that state only. To file an appeal you
need the following:

(a) Documents of record with correct name of all parties and their addresses;
(b) Certified copy of the district forum order;
(c) More than four additional copies for each respondent for filing an appeal;
(d) Any conditional delay, interim orders and other petitions to be submitted along with
an affidavit;
(e) A statutory deposit of Rs 25,000 or 50 per cent of the award / compensation amount,
whichever is less, is to be made by the appellant / opposite parties.

Sanjay Chopra v. Manager, Punjab National Bank & Ors.1

When the complainant sought transfer of his account to another place, he was made to sign
on different papers including withdrawal slip. An amount of Rs.40,000/- was withdrawn from
the account. The District Forum dismissed the complaint on the ground that allegations of
fraud levelled cannot be gone into in summary proceedings and hence this appeal. It was
observed that the complaint can be disposed of if finding was recorded that Bank was
deficient in rendering service and the complainant was put to loss due to the negligence of the
bank. The order of District Forum was set aside and compensation was awarded. 

Branch Manager, Canara Bank Vs. K.R. Hanumatha Rao2

When cheques given by the complainant to the bank for collection were lost due to
negligence of the employees of the bank it was held that such account holder cannot be made
to suffer. It was held that a person holding a savings bank a/c with a bank would fall within
the definition of consumer under the Consumer Protection Act and the difference in the
1
1998 (1) CPR 358 (SCDRC - Punjab)
2
1992(1) CPR 401 (SCRDC – Kar)
interest paid to the account holder and the interest earned by the bank by lending his amount
is the consideration for the service of the bank.