SC directs Bank to compensate a school which lost money in a banking fraud

A Supreme Court Bench of Justices Dhananjaya Y Chandrachud and Hrishikesh Roy directed Indian Bank to compensate the complainant school to the tune of Rs. 25 lakhs for the misappropriation of funds caused by the negligence of the bank authorities.

The complainant School alleged deficiency of service against the respondent Bank (Indian Bank) as the School’s bank accounts which did not have net banking facility, were linked with the personal Customer Information File (CIF) of the Principal of the School, resulting in online transaction which led to siphoning of Rs. 30 Lakhs from the school’s account.

The complainant (Principal) demanded return of the siphoned sum with interest.

The Bank contested the case before the State Consumer Dispute Redressal Commission (State Commission). The Bank acknowledged that the school did not apply for net banking facility but inadvertently the personal CIF of the Principal of the School got tagged with the school’s accounts which facilitated the online transfer of school’s money.

The State Commission noted that there was gross error on the part of the Bank in the siphoning of the money from the school’s account and granted compensation of Rs. 1 lakh to the school. On appeal, the National Consumer Disputes Redressal Commission (NCDRC) concurred with the partial relief granted by the State Commission determining Rs. 1 lakh as the compensation payable by the Bank.

Aggrieved by this decision, the school appealed to the Supreme Court.

The Apex Court observed that the State Commission, the Banking Ombudsman and the NCDRC had concurrently found that the bank has rendered themselves liable by enabling net banking facility by linking the individual account of the school’s Principal, to the school’s account.

The Supreme Court held that there is fault of the bank as they have linked the school’s account with internet banking facility without any request from the school authorities which caused the fraud. The question before the Court was whether the Bank would be liable to compensate the school for the entire loss through such fraudulent transaction.

According to the Court, when the siphoning of a large sum of Rs. 25 lakhs was first detected by the school staff, the official complaint was not lodged immediately and only on the next date, the complaint was filed with the Bank authorities. Therefore the subsequent siphoning of Rs. 5 lakhs by the next day, could have been occasioned by the contributory negligence of the school authorities.

Thus the Supreme Court directed the Bank to compensate the sum of Rs. 25 lakhs when the misappropriation was first detected.

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