Court’s Decision
In a landmark consumer rights ruling, Justice Milind N. Jadhav of the Bombay High Court set aside the orders of the National Consumer Disputes Redressal Commission (NCDRC), New Delhi, and reinstated the order of the State Consumer Disputes Redressal Commission, Maharashtra, which had directed a nationalized bank to refund ₹25,28,515 with interest and compensation to an illiterate widow who was fraudulently deprived of her deceased husband’s compensation amount.
The Court held:
“An illiterate widow was wrongfully deprived of her rightful compensation through deceit and collusion. The bank’s negligence in allowing such withdrawal despite clear procedural restrictions constitutes a serious breach of duty.”
While restoring the State Commission’s order, the Court enhanced the interest rate to 9% per annum and directed the bank to refund the remaining balance with costs and compensation. The High Court further observed that the NCDRC’s reversal of the well-reasoned State Commission order was legally unsustainable and ignored material evidence on record.
Facts
The case arose from a complaint filed by an illiterate widow, whose husband died in a work-related accident in Tianjin Port, China in 2003. She received a compensation of USD 55,000 (approximately ₹25,28,515) from her late husband’s employer.
When she approached the concerned bank to open a new savings account, an individual (Respondent No. 3) — allegedly acting in collusion with the bank staff — fraudulently added her name as a joint account holder to his pre-existing account, without her knowledge or the signature of any witness. The account was converted into a joint “either or survivor” account, contrary to banking norms for illiterate persons.
Believing it to be her own account, the petitioner deposited the compensation cheque and returned to her native village in Deoria, Uttar Pradesh. During her absence, Respondent No. 3 withdrew the entire amount, aided by the bank’s lax procedural oversight.
The State Commission found all three respondents — the bank, the individual fraudster, and its officials — jointly liable and ordered repayment of ₹25,28,515 with 6% interest, ₹2,00,000 for mental harassment, and ₹25,000 litigation cost. The NCDRC later overturned this decision in January 2022, prompting the writ petition before the High Court.
Issues
- Whether the bank’s conduct in permitting withdrawals from a joint account (where one holder was illiterate) amounted to negligence and deficiency in service.
- Whether the NCDRC erred in overturning the well-reasoned order of the State Commission.
- Whether the petitioner, being illiterate, was capable of giving valid consent to open a joint account on an “either or survivor” basis.
Petitioner’s Arguments
The petitioner’s counsel argued that she had gone to the bank to open a separate account, but the bank’s staff — in collusion with Respondent No. 3 — forged and manipulated documents to add her as a joint holder in his account. She was unaware of this manipulation and presumed the account to be her own.
The petitioner asserted that she was an illiterate widow, unaware of banking procedures, and therefore not competent to authorize an “either or survivor” account. The withdrawals permitted by the bank were in blatant violation of RBI and Indian Banks’ Association (IBA) guidelines, which prohibit such operation when one account holder is illiterate.
Her counsel emphasized that the entire fraud was facilitated by the bank’s officers, who allowed multiple cheque-based withdrawals even though the petitioner’s physical presence and signature verification were absent. It was further argued that the NCDRC ignored crucial documentary evidence and that the State Commission’s order was founded on sound reasoning and factual analysis.
Respondent’s Arguments
The bank’s counsel contended that the petitioner herself consented to the joint account, affixed her thumb impression, and submitted identification documents and photographs. It was also claimed that the petitioner admitted in related criminal proceedings to having received partial repayment — ₹6,90,000 — from Respondent No. 3, including ₹2,42,000 and ₹1,50,000 transferred directly to her other accounts.
The bank further argued that since the petitioner described Respondent No. 3 as a close relative, it was reasonable to presume that she understood the “either or survivor” mandate. The bank thus denied negligence and claimed that the fraud arose solely from personal trust and family dealings.
Counsel for Respondent No. 3 argued that he had compensated the petitioner by transferring agricultural land to her in lieu of the withdrawn amount. Hence, no liability could now be fastened upon him.
Analysis of the Law
Justice Jadhav examined whether the bank violated the Reserve Bank of India’s (RBI) Know Your Customer (KYC) guidelines and IBA’s directives. These explicitly bar the operation of “either or survivor” joint accounts by cheque where one holder is illiterate or semi-literate.
The Court held that the bank’s duty of care is heightened in cases involving illiterate depositors. The conversion of an individual’s account into a joint account without her informed consent or proper witness authentication constituted a serious procedural lapse.
The Court reiterated that banks are custodians of public trust, and negligence in adhering to procedural safeguards cannot be excused on grounds of private arrangements. The NCDRC’s reliance on partial admissions from the criminal case, ignoring the bank’s systemic negligence, was termed a “grave misdirection in law.”
Precedent Analysis
- State Bank of India v. Shyama Devi (1978) 3 SCC 399 – The Supreme Court held that a bank’s liability is strict in cases of fraud or misappropriation by its employees, especially when a depositor’s illiteracy or ignorance is exploited.
- Punjab National Bank v. K.B. Shetty (1991) 1 SCC 175 – Established that negligence by bank staff in verifying signatures or authorizations amounts to deficiency in service under consumer law.
- Central Bank of India v. Ravindra (2002) 1 SCC 367 – Reiterated that banking operations must adhere to the highest standards of transparency and regulatory compliance.
Applying these rulings, the Court affirmed that consumer protection extends to illiterate depositors who are defrauded due to institutional negligence.
Court’s Reasoning
The Court found that the entire transaction was vitiated by fraud, and the bank’s failure to observe mandatory safeguards facilitated the crime. It stressed that when one joint account holder is illiterate, the bank must not only record verbal consent but also ensure independent witness verification and maintain detailed documentation.
Justice Jadhav observed:
“It is shocking and surprising that the bank officers allowed repeated withdrawals despite clear procedural lapses. The record reflects an utter disregard of RBI and IBA norms designed to protect depositors.”
The Court noted that the NCDRC overlooked these foundational aspects and instead relied on irrelevant admissions to absolve the bank. It concluded that the State Commission’s order was fair, reasoned, and supported by evidence, and therefore deserved to be restored.
Conclusion
The High Court allowed the writ petition, set aside the NCDRC’s orders dated 3 January 2022 and 12 April 2022, and restored the State Commission’s order dated 14 September 2016 with a modification enhancing interest to 9% per annum.
The bank was directed to refund ₹25,28,515 with the enhanced interest rate, pay ₹2,00,000 as compensation for mental harassment, and ₹25,000 as litigation costs within two months.
“The loss suffered by the petitioner is a direct consequence of the bank’s gross negligence and breach of fiduciary duty. Regulatory norms are not empty formalities but vital safeguards against precisely such exploitation.”
Implications
- The ruling reaffirms the liability of banks for lapses in compliance with RBI and IBA procedural norms.
- It strengthens consumer protection jurisprudence by safeguarding vulnerable depositors, especially illiterate individuals.
- The judgment underscores that financial institutions bear a fiduciary responsibility towards customers and cannot evade liability by citing “joint account consent” where fraud is apparent.
- It sets a precedent ensuring heightened due diligence in account operations involving illiterate or semi-literate persons.
