Kerala High Court Orders SBI to Refund Rs 3.73 Lakh to Cyber Fraud Victim Within 4 Weeks
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The Kerala High Court has directed the State Bank of India (SBI) to refund Rs. 3.73 lakh to a customer who lost money in an online banking fraud. The court observed that the bank had failed to prove that the customer was involved in the fraudulent transaction. Justice Harisankar V. Menon held that the customer was entitled to zero liability under the applicable Reserve Bank of India (RBI) guidelines because she reported the fraud promptly to the bank and the police.
The case relates to an SBI account holder who also had an ATM card. She received information that SBI would block non-chip-based debit cards from April 29, 2019. Later, she received an SMS stating that her debit card would be blocked but could be reactivated online. She then received a phone call from the same number, with the caller claiming that her card had been blocked and that she needed to provide certain details to reactivate it. The caller asked her to share an OTP for registering the State Bank Secure App, which she provided.
Soon after sharing the OTP, around Rs. 3.75 lakh was debited from her bank account. She immediately contacted SBI customer care and informed the bank about the unauthorised transaction. The bank blocked her internet banking account. She also submitted a complaint to the branch manager and filed a police complaint. During the investigation, the police identified a person named Sandip Bauri from West Bengal as the alleged fraudster who siphoned off the money. However, SBI did not refund the amount to the customer.
The customer subsequently approached the Banking Ombudsman, but her complaint was rejected on the ground that she had been involved in the fraudulent transaction by sharing the OTP. She then moved the Kerala High Court, challenging the Ombudsman’s decision. Before the court, she relied on an RBI Master Circular on customer liability in unauthorised electronic banking transactions. She argued that she was entitled to zero liability because she had reported the fraud promptly and there was no established evidence that she had acted negligently.
The customer argued that Clause 6(ii) of the RBI circular provided for zero liability where an unauthorised transaction resulted from a third-party breach and the customer notified the bank within three working days of receiving communication about the transaction. She also explained that the State Bank Secure App had not been widely publicised, and she believed that sharing the OTP would not be sufficient to complete a fraudulent transaction because additional authentication would be required. However, the fraudster allegedly used the OTP to register the app and transfer the money from her account.
SBI argued that the case fell under Clause 7(i) of the RBI circular, which deals with losses resulting from customer negligence, such as sharing payment credentials. According to the bank, in such cases, the customer is responsible for losses incurred until the unauthorised transaction is reported, while the bank is responsible only for losses occurring after the report.
After hearing both sides, the Kerala High Court referred to a 2024 judgment of a Division Bench of the Gauhati High Court in WA No. 364 of 2022. In that case, a bank had been directed to refund money to a customer who had suffered a similar cybercrime. The Supreme Court had also dismissed a Special Leave Petition challenging the Gauhati High Court’s decision.
The Kerala High Court noted that the customer’s explanation about the app and the manner in which the money was transferred had not been disputed by SBI. The court also considered the fact that she had reported the fraud on the same day and that the police investigation supported her claim that she was not involved in the fraudulent transaction. Despite receiving the complaint and learning about the identification of the alleged fraudster, the bank had not taken steps to credit the money back to her account.
The court held that the customer’s case fell under Clause 6(ii) of the RBI circular and that she was entitled to zero liability. It set aside the Banking Ombudsman’s order and directed SBI to compensate the customer for the loss by refunding Rs. 3.73 lakh within four weeks. The ruling highlights the importance of timely reporting of cyber fraud and the need for banks to assess customer liability in accordance with RBI guidelines before denying refunds in unauthorised electronic banking transactions.
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