The Bombay High Court clarified that the bank’s duty of care is heightened in cases involving illiterate depositors, and therefore, the conversion of an individual’s account into a joint account without her informed consent or proper witness authentication constituted a serious procedural lapse. Further, the Reserve Bank of India’s (RBI) Know Your Customer (KYC) guidelines and IBA’s directives explicitly bar the operation of “either or survivor” joint accounts by cheque where one holder is illiterate or semi-literate.
The Court therefore quashed the orders of the National Consumer Disputes Redressal Commission (NCDRC), and reinstated the order of the State Consumer Disputes Redressal Commission, which had directed a nationalized bank to refund Rs. 25.28 lacs along with interest and compensation to an illiterate widow who was fraudulently deprived of her deceased husband’s compensation amount.
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 Court further observed that the NCDRC’s reversal of the well-reasoned State Commission order was legally unsustainable.
A Single Judge Bench of Justice Milind N. Jadhav observed 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.
It is shocking that the bank officers allowed repeated withdrawals despite clear procedural lapses, and the record reflects an utter disregard for RBI and IBA norms designed to protect depositors, added the Bench while concluding that the loss suffered by the illiterate widow is a direct consequence of the bank’s gross negligence and breach of fiduciary duty.
The Bench also 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.”
Briefly, 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 compensation of USD 55,000 from her late husband’s employer. When she approached the concerned bank to open a new savings account, an individual, 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.
Later, 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. During her absence, the respondent withdrew the entire amount, aided by the bank’s lax procedural oversight. The State Commission found the bank and its officials jointly liable and ordered repayment of Rs. 25.28 lacs. The NCDRC, however, overturned this decision.
Appearances:
Advocate Chhangur S. Chauhan, for the Petitioner
Advocates T.N. Tripathi, Somya Tripathi, Vipul Patil, and Prashant Aher, for the Respondent
