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DAV Public School v. The Senior Manager, Indian Bank, Midnapur Branch

Civil Appeal · 2019 INSC 1402Decided 18 Dec 2019
Civil Appeal No. 9352 of 2019
Dr. Justice D.Y. Chandrachud · Justice Hrishikesh Roy

Background

DAV Public School's bank accounts, which had no net-banking facility, were mistakenly linked to the personal online-banking profile of the school's Principal by Indian Bank without any request from the school. This error allowed unidentified fraudsters to siphon off Rs. 30 lakh from the school's accounts through online transactions in September 2014. The State Consumer Commission and the National Consumer Disputes Redressal Commission (NCDRC) both found the Bank guilty of "gross deficiency of service" but limited compensation to only Rs. 1 lakh, suspecting the Principal may have been complicit in the fraud.

Decision Breakdown

The Supreme Court noted that a subsequent police chargesheet had named two other individuals as the actual culprits and had explicitly found no complicity by the school's Principal, undercutting the main reason the lower forums had limited compensation. The Court held that without the Bank's unauthorized linking of accounts, the fraud could not have occurred, so the Bank was liable for the resulting loss. It distinguished between the first Rs. 25 lakh siphoned (for which the school bore no blame) and a further Rs. 5 lakh taken the next day (which may have been avoidable had the school reported the fraud more promptly), and accordingly directed the Bank to compensate the school for Rs. 25 lakh but not the additional Rs. 5 lakh.

Lesson Learnt

A bank that enables risky features like net banking without a customer's request or consent can be held liable for resulting fraud losses, but a customer's own delay in reporting a detected fraud can reduce (though not eliminate) the compensation they are entitled to.

Official source (sci.gov.in)View Judgment (PDF)

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