Mumbai: In a significant ruling amid rising digital banking fraud cases, the Bombay High Court has reinforced customer protection norms, directing Bank of Baroda to refund ₹1.24 crore to a private firm that lost funds in a SIM-swap fraud. The court made it clear that if a customer reports fraud promptly, “zero liability” applies, and the bank must compensate for the loss.
FCRF Academy Launches Premier Anti-Money Laundering Certification Program
Firm Reported Fraud Promptly After Suspicious Transactions
The order was passed by a division bench of the High Court, comprising Justices Bharati Dangre and Manjusha Deshpande, while hearing a petition filed by Mumbai-based PNP Polytex Pvt Ltd. The company had reported unauthorized withdrawals of ₹1.24 crore from its account in January 2020.
According to submissions before the court, the company informed the bank immediately after detecting suspicious transactions and requested that its account be frozen. While the bank managed to block ₹47.8 lakh, the remaining amount had already been withdrawn by fraudsters. The firm then approached the court seeking recovery of the lost funds.
Investigations revealed that the fraud was carried out through a SIM-swap technique, in which cybercriminals gain control of the victim’s registered mobile number. This allows them to intercept one-time passwords (OTPs) and carry out banking transactions without the account holder’s knowledge. The court observed that the fraud was executed entirely by third parties, with no proven negligence on the part of the customer.
RBI’s Zero Liability Rule
During the hearing, the bench referred to the July 6, 2017 circular issued by the Reserve Bank of India, which lays down customer protection guidelines in cases of unauthorized electronic banking transactions. As per the circular, customers are entitled to zero liability if they report fraudulent transactions within three days.
In its judgment, the court emphasized that once a customer notifies the bank about fraudulent activity, the responsibility shifts to the bank to credit the disputed amount back into the customer’s account. It further stated that the burden of proving customer negligence lies with the bank.
Rejecting the bank’s defense that it had followed all security protocols, the bench termed the argument a “lame excuse,” noting that such systems become ineffective once a SIM card is fraudulently replaced. The court also referred to a similar ruling in a case involving HDFC Bank, where banks were held liable under comparable circumstances.
Bank to Refund Remaining Amount With Interest
The High Court directed the bank to refund the remaining amount along with 6% interest within eight weeks, after adjusting the already frozen funds. The ruling underscores the judiciary’s firm stance on protecting customers in cases of digital fraud.
This decision comes at a time when SIM-swap and OTP-based frauds are witnessing a sharp rise across the country. The judgment is being seen as a strong message to banks to strengthen their cybersecurity frameworks and ensure swift response mechanisms for fraud reporting.
