The bank is liable to make complete payment to the consumer in case of - wrongful transfer of funds - without any contributory negligence of consumer; SC.

Supreme Court of India

Justice Hrishikesh Roy and Justice D Y Chandrachud

In the present case, the key question to be considered by the SC was whether, without the school’s account being linked with net banking facility, any money from the bank account could have been siphoned out by the miscreants.

It was held by the SC {DAV Public School v. The Senior Manager, Indian Bank & Ors.} that the obvious answer to this question has to be in the negative. As concurrently found by the State Commission, the Banking Ombudsman and also by the NCDRC, 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 only reason why the State Commission as well as the NCDRC had limited the compensation sum to Rs. 1,00,000/- was because of the perceived complicity of the Principal. But the charge sheet filed by the police reveals how the fraudulent transaction was made by the two charge sheeted accused and more importantly the police did not find complicity of the Principal of the school, with those fraudulent transactions. The Banking Ombudsman too declared that the Bank was at fault which facilitated the loss to the School but declined to order refund as the demanded sum (Rs 30,00,000/-) was beyond the pecuniary jurisdiction of the Banking Ombudsman.

Considering the above, It was held by the SC that the denial of the compensation corresponding to the extent of the School’s loss, by the State Commission as well as by the NCDRC would not be justified.

It was held that the question then is whether the Bank should be asked to compensate the school for the entire loss through such fraudulent transaction when the siphoning of a large sum of Rs. 25,00,000/- 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. Whether the Bank Manager was verbally informed on the very date of detection or on the next day is an aspect which is difficult to conclude conclusively and therefore the subsequent siphoning of Rs. 5,00,000/- by the next day, may have been occasioned by the contributory negligence of the school authorities.

It was held, but, insofar as the loss of Rs. 25,00,000/- is concerned, the complainant cannot be held responsible directly or even vicariously, either as an institution or the Principal, as an individual. The SC holds that the respondent Bank should be directed to compensate the School to the tune of Rs. 25,00,000/- transferred until 9.9.2014, when the misappropriation was first detected but not for the additional sum siphoned on the next date from the School’s account. The impugned orders were interfered to this extent by the SC.