Allahabad HC: Bank Not Liable for Alleged Cyber Fraud When Transactions Were Made by Account Holders Themselves

The petitioners, a father-son engaged in transformer fabrication, maintained cash credit accounts with Bank of Baroda along with active net-banking facilities. On 19 June 2022, petitioner No.1 transferred Rs. 37,85,000 to petitioner No.2, after which the amount was further transferred to other beneficiary accounts. Claiming that the money was siphoned off fraudulently, the petitioners filed a cybercrime complaint and later approached the High Court seeking restoration of Rs. 38.78 lakh with penal interest. They relied heavily on the RBI Circular on “Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Banking Transactions.”

Main Issue: Whether the petitioners were entitled to restoration of funds under the RBI’s 2017 Customer Protection circular on the ground of “unauthorised electronic banking transactions,” or whether the transfers were self-executed, rendering the claim unsustainable.

HC’s Order: The Hon’ble High Court examined the debit/credit trail, IP logs, OTP records, and beneficiary details placed by the bank and found no evidence of hacking or third-party breach. Instead, the material clearly indicated that both petitioners had logged into their respective accounts, added beneficiaries, generated OTPs, executed the transfers, and even changed passwords after completing the transactions. The Court held that the petitioners’ narrative of SIM blocking and unauthorised access was inconsistent with the technical evidence and the timing of their own complaints. The delay in reporting, despite real-time SMS alerts, also weakened their claim.

Applying the RBI Circular, the Court held that the protections under clauses granting “zero liability” apply only when the customer is a victim of third-party fraud and reports promptly. The precedents cited SBI v. Pallabh Bhowmick and Jaiprakash Kulkarni, were found to be inapplicable to this case, as it involved genuine unauthorized withdrawals, unlike the present case. Therefore, the bank had discharged its burden of proof, and the writ petition was dismissed.

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