Banks' Liability for Unauthorized Electronic Transactions in India: A Study of Customer Protection in Digital Banking

Abstract

India has made significant shifts towards digital banking, using UPI, mobile banking, cards and net banking to make payments faster and cheaper. However, as a result of these developments, the risk of banking fraud has shifted from the branch counter to the customer's phone. In cases where a customer's bank account is debited without her authority, the law in India attempts to answer the question as to who should bear that loss – the bank or the customer. This paper discusses the law on this issue in India. It begins by discussing the relationship between the banker and the customer, then analyses the Reserve Bank of India's circular of 6 July 2017 on limiting the liability of customers. It also analyses the approach of the courts; in particular the Gauhati High Court and the Supreme Court in State Bank of India v. Pallabh Bhowmick. Furthermore, the paper investigates the remedies available to customers under the Consumer Protection Act 2019, the Information Technology Act 2000 and the RBI Integrated Ombudsman Scheme. Additionally, the paper evaluates the RBI's 2026 amendment directions on digital fraud compensation for small values. The Indian law on this issue is also compared to the laws of the United Kingdom, the United States and Singapore. The paper argues that the 2017 RBI framework is sound in principle, but could be improved with more specific standards, better enforcement and changes to accommodate socially engineered fraud. Finally, specific suggestions are made for the reform of the digital fraud compensation framework.