Page 25 - Banking Finance June 2020

LEGAL UPDATE

make an arrangement for the due bal- Bank liable for unautho- The Banking Ombudsman refused to
ance amount, UTI Asset Management entertain the grievance as it involved
said. It also argued that RBI circulars rised online transaction complex issues. The company then filed
were not applicable in the present case In a recent case National Commission a consumer complaint before the
and sought to dismiss the plea. has observed that Banks stand liable Punjab State Commission alleging that
for unauthorized Online transaction. the bank had been negligent in secur-
After hearing submissions, the bench
led by Justice Dhanuka accepted claims In the case the customer Leader Valves ing its net banking system and had
made by UTI the Asset Management had three accounts with Punjab Na- failed to follow the procedural guide-
and said the RBI circulars are not appli- tional Bank. Of these, only one was lines framed under the Payment and
cable to mutual funds and debentures. authorised for ebanking. The password Settlement System Act, 2007 and by
was changed every month for security. the IT Audit Cell.
Jurisdiction in Arbitration On January 25, 2010, the company The State Commission noted that even
appeals found that Rs. 40 lakh had been trans- though a part of the amount had been
ferred from its account which did not recovered, the loss was to the tune of
The question of choosing the court have e-banking facility. This amount over Rs. 20 lakh, involving 95 other
where an appeal against an arbitra- was credited to a thirty party's account accounts. So, the Commission con-
tion award is to be filed came up again with the same bank. The company cluded that the account had been
in the Supreme Court and it shifted the immediately brought this to the bank's hacked. It also observed that since the
case from Faridabad in Haryana to the notice, so it was recovered. transfers were to other accounts
Delhi High Court. In this appeal, Subsequently, an online transfer of Rs. within the same bank, it could have
Hindustan Construction vs NHPC, the frozen those accounts and blocked the
26,48,500 was also made from an-
commercial special court in Faridabad use of debit/credit cards, but did not
other account which too did not have
decided that the seat of adjudication do. Due to this, the fraudsters could
e-banking facility. On taking up the is-
is Faridabad. According to the con- sue with the bank, the company was siphon off the money. It indicted the
tract, Delhi, as well as Faridabad told that it was due to misuse of the bank for opening accounts without
courts, would have jurisdiction as the password for which the bank could was proper KYC and for failing to retain the
contract was executed between the not responsible. CCTV footage which could have helped
parties at Faridabad, and part of the in nabbing the fraudsters.
cause of action arose there, and the The bank froze the accounts contend- The State Commission held this to be
Faridabad court was invoked first. ing that the same password had been
used for both the online transfers. a deficiency in service. After adjusting
Section 42 of the Arbitration and Con- the recovered amount, it ordered the
Then, the fraudster attempted to
ciliation is meant to avoid conflicts in withdraw Rs. 20 lakh from the bank's bank to reimburse the loss of Rs.
the jurisdiction of courts by placing the Delhi Branch and after that, the 23,69,482, along with 9 per cent inter-
supervisory jurisdiction over all arbitral Bareily Branch, but did not succeed as est from the date of withdrawal. Ad-
proceedings in connection with the the amount in the account was only Rs. ditionally, Rs. 1 lakh was awarded as
arbitration in one court exclusively. If 10,87,737. Thereafter, the fraudster compensation and Rs. 21,000 towards
the agreement is clear on the jurisdic- withdrew money via ATMS. The com- litigation costs.
tion of the court, there is no problem. pany alleged that withdrawal of The bank challenged the order. While

But conflict arises when the contract amount from a frozen account could upholding the order, the National Com-
is vague on the seat or venue of the have happened only with the conniv- mission observed that there was mal-
arbitration and the cause of action ance of bank officials. feasance on the part of the bank offi-
arise in several states. In this case, The bank refused to furnish CCTV foot- cials in respect of breach of security of
though the Faridabad court was in- age of the ATM withdrawals. So, the its net banking system. Accordingly, by
voked first, the Supreme Court, citing company engaged private agencies to its order of March 13, 2020, delivered
its 2019 judgment involving NHPC investigate the fraud. Investigations by Dinesh Singh, the Commission dis-
again, ruled that the Delhi High Court revealed that the transactions were missed the appeal with further costs of
will hear the appeal. made from an IP address in USA. Rs. 1 lakh payable to legal aid. T

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