Unauthorised Debit from Doctor's Account: Madras HC Holds PayTM Liable, asks RBI to Take Action for Violation of Guidelines

Chennai: Coming to the rescue of a doctor, who lost around Rs 3 lakh because of fraudulent unauthorised transactions on Paytm, the Madras High Court bench held Paytm liable for the same.

While the court could not issue straight-way directions to Paytm, a private body, it directed the Reserve Bank of India (RBI) for taking action against the financial technology company Paytm for violating its own guidelines.

"Even though the petitioner has sought compensation from the 7th respondent banker, the facts and materials available on record as discussed above would only fix the liability on the payment bank [the 10th respondent] and not upon the 7th respondent bank. Though a straight away directions can not be given against the 10th respondent, since it is a private body, this Court can mould the relief in such a way that directions should be given to the 6th respondent, RBI, to take action against the 10th respondent for violating its own guidelines. The RBI guidelines are issued not as a formality, but the entities subjected to the RBI regulations should comply with the conditions of the master circular in its true letter and spirit," the HC bench of Justice RN Manjula noted in the judgment.

Further addressing the issue of violations or fraudulent intervention by such 3rd party in general, the court observed, "Even though the public is encouraged to use payment banks such as PayTM, Google Pay, Amazan Pay, etc., the customer is made to run from pillar to post, in case he is affected due to any 3rd party violations or fraudulent intervention. What is surprising is that even when the RBI has issued detailed master directions for both banks and Prepaid Payment Instruments [PPI], every institution shifts the blame upon the other and no one has come up with a concrete idea as to who has to bear the loss suffered by the petitioner, for none of her mistakes."

The petitioner doctor, a postgraduate medical student at SRM Medical College at Trichy, was being paid a stipend of Rs 25,000 per month during her service as a resident doctor during the pandemic. The stipend money was being deposited to her account at City Union Bank and out of the said earnings she had saved a sum of Rs 3,20,000 and she was planning to utilise the same to meet her final year fees during April 2021. 

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However, on 09.02.2021, an attempt was made by some miscreant to hack into her savings account and she had been alerted about the same through SMS. After noticing the SMS on 11.02.2021, on which date she received another SMS. Immediately, she informed the Bank about the same and asked them to block the account.

While she assumed that her account had been blocked, on 13.02.2021, she received another SMS informing her that there had been an attempt to break into her savings account. Despite repeated request, her account was not blocked and on 15.02.2021, someone hacked into her account and there was unauthorised debit of Rs 3 lakh from her account. 

Following this, she rushed to the bank and submitted a written complaint and also filed a police complaint on the same day. She received the information from the City Union Bank at Aminjikarai branch that her money had been transferred fraudulently to the PayTM account. Immediately, she called PayTM and registered a complaint. The money was taken away from her account and transferred to the accounts of some unknown accused. PayTM had shared the customer ID, bank account details, etc. of the accused through P2P wallet transfers. The money appeared to have been illegally transferred from her account to six accounts.

Someone attempted to hack into her account once again and her bank advised her to reset her mobile PIN and to enable BIOMETRIC authorization. Despite the reset, someone broke into her account once again, even though funds could not be transferred this time.

It has been alleged by the petitioner doctor that City Union Bank had been utterly careless during the entire process. However, her bank denied its liability to refund the loss and shifted the blame on the petitioner. Following this, the doctor approached the Madras HC bench.

After considering the submissions made by the City Union Bank, Paytm, and the Reserve Bank of India, the HC bench observed that in the circular issued in respect of Customer Liability in case of Unauthorized Electronic Payment Transactions through Paypointz Wallet, whenever a complaint is filed after 7 days, the liability of the customer is based on the policy of the prepaid payment instrument.

The bench noted that in the present case, even though Paytm alleged that it was not informed about the fraud, the petitioner had immediately complaint about the fraud to the banker. At this outset, the bench also clarified that it was not possible for the petitioner doctor to know how the fraud was committed.

Apart from this, the HC bench also noted that Paytm could not establish the liability of the customer within 90 days as required under the RBI circulars. Referring to this, the court noted that according to the guidelines, the amount needs to be paid to the customer irrespective of the fact whether or not the negligence was on the part of the customer.

The RBI has taken action against PayTM under Sec.35-A of the Banking Regulation Act 1949 and directed PayTM to appoint an IT audit firm to conduct a comprehensive system audit of its IT system, the Court noted.

Providing relief to the doctor, the bench observed,

"In fact, it is stated by the RBI that such an action has been taken based on certain materials connecting to supervising concerns observed by the bank itself. So the system audit is required for the IT system adopted by the 10th respondent, which is vulnerable to fraudulent activities. The petitioner is one among the several users and hence the 10th respondent is liable to make out the loss suffered by the petitioner. As it has been stated already that the complaint has been made by the customer to her banker, and the banker has kept in touch with PayTM, PayTM can not disown its liability."

"Since the RBI has been issuing directions to PayTM, as already cited, it is essential to issue one such direction to the 10th respondent to settle the loss suffered by the petitioner within the next two weeks. It is emphasised that the 10th respondent had failed to establish the liability on the part of the customer within 90 days as prescribed in the guidelines of the RBI, and hence the 10th respondent cannot state that the matter in issue involves a lot of facts to be gone into. The violations are crystal clear, and the 6 th respondent has got the obligation to intervene when to the knowledge of the 6th respondent, the 10th respondent continues to violate the RBI guidelines and adopts an unfriendly attitude towards its users," the bench further noted.

"...6th respondent is directed to issue directions to the 10th respondent to make good the loss suffered by the petitioner without any other reduction, except the reduction of the amount, if any already reversed to the account of the petitioner in pursuant to the earlier order of this Court, within a period of two weeks," the bench ordered.

To view the order, click on the link below:

https://medicaldialogues.in/pdf_upload/madras-hc-paytm-209556.pdf

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