ELECTROTEC POWER SYSTEMS v. Federal Bank and Others

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE V.G.ARUN** **FRIDAY, THE 19[TH] DAY OF MAY 2023 / 29TH VAISAKHA, 1945** ## **WP(C) NO. 31099 OF 2019** ## **PETITIONER/S:** ELECTROTEC POWER SYSTEMS REPRESENTED BY JACOB CLEATUS, S/O.(LATE) JOHN JACOB, AGED 66 YEARS, MANAGING PARTNER, NEW ISWARIYA NAGAR-49, MADANNADA, VADAKKEVILA P O, KOLLAM-691010. BY ADV K.N.SASIDHARAN NAIR ## **RESPONDENT/S:** - 1 MANAGER, FEDERAL BANK FEDERAL BANK. POLAYATHODE BRANCH, KURUMPELIL AVENUE, POLYATHODE, KOLLAM-691021. - 2 MANAGER, STATE BANK OF INDIA, MAYURI GARDEN LANE, ROAD NO.4, KAZHIPET, WARANGAL-506003. - 3 MANAGER, STATE BANK OF INDIA, ACME HEIGHTS, POLAYATHODE, KOLLAM-691001. 4 STATION HOUSE OFFICER, EAST POLICE STATION, KOLLAM-691001. 5 COMMISSIONER OF POLICE, KOLLAM, KERALA-691008. 6 NARAYANA LOKATIA, ACCENT FURNITURE HOUSE, 9487-MULTANI DHANDA, PAHAR GANJ, NEW DELHI-110055. 7 BANKING OMBUDSMAN (KERALA AND UNION TERRITORY OF LAKSHADWEEP AND MAHE), RESERVE BANK OF INDIA BIULDING (I FLOOR) BEKERY JUNCTION, THIRUVANANTHAPURAM-695033. 8 THE CHIEF GENERAL MANAGER, DEPARTMENT OF PAYMENT AND SETTLEMENT SYSTEMS, RESERVE BANK OF INDIA, 14TH FLOOR, CENTRAL OFFICE BUILDING, SHAHID BHAGAT SINGH ROAD, MUMBAI-4000001. W.P.(C).31099/2019 2 ADDL.R9 GENERAL MANAGER, STATE BANK OF INDIA, LOCAL HEAD OFFICE, BANK STREET, KOTI, HYDERABAD, TELENGANA PIN-500095. (ADDITIONAL R9 IMPLEADED A PER ORDER DATED 5-1-2022 IN IA NO.2/2021). BY ADVS. SRI.JACOB P.ALEX JAWAHAR JOSE MILLU DANDAPANI SRI.JOSEPH P.ALEX SHRI.MANU SANKAR P. THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 09.01.2023, THE COURT ON 19.05.2023 DELIVERED THE FOLLOWING: W.P.(C).31099/2019 3 ## **JUDGMENT** Dated this the 19[th] day of May, 2023 The petitioner, a partnership firm engaged in the sale and installation of power inverters, holds a current account with the first respondent Bank since 2009. In connection with its business, the petitioner used to purchase batteries from the 6[th] respondent and effect payment through the National Electronic Fund Transfer System ('NEFT' for short) to the account of the 6[th] respondent, maintained at the HDFC Bank, Pahar Ganj Branch, New Delhi. On 23.04.2019 the petitioner received Ext.P2 email containing a proforma invoice for Rs.58,056/towards the price of batteries purchased. The email also contained details of the 6[th] respondent's bank account, to which the amount was to be transferred. Accordingly, the petitioner transferred Rs.58,056/-through NEFT to the account number mentioned in the email. To the petitioner's dismay and shock, the transferred amount was not credited in the 6[th] respondent's account. On inquiry, the 1[st] respondent informed W.P.(C).31099/2019 4 that in the request for transfer, the petitioner had mentioned the account number of one Mr.Gono Richard Mewasel, instead of the 6[th] respondent's. It also came to light that Ext. P2 email had been hacked and the 6[th] respondent's account number replaced with the account number of Gono Richard Mewasel. On coming to know about the foul play, petitioner demanded the 1[st] respondent to take immediate steps for reversing the wrong credit and reimbursing the amount. By Ext. P6 letter, the 1[st] respondent informed the petitioner that the amount of Rs.58,056/- was transfer credited to the account number mentioned in the petitioner's application. The petitioner's repeated requests for reversing the wrong credit having failed to evoke any positive response, he approached the Banking Ombudsman. Thereupon, the 1[st] respondent filed its objection admitting that the mistake had occurred since the email id of the 6[th] respondent was hacked and a false mail request sent to the petitioner. It was also made clear that, based on the petitioner's complaint, the 1[st] respondent had lodged a charge back request with the 2[nd] respondent Bank. Later, by Ext. P11 communication, it was informed that the W.P.(C).31099/2019 5 petitioner's complaint had been rejected by the Banking Ombudsman, finding no deficiency in the service rendered by the 1[st] respondent. Aggrieved, this writ petition is filed seeking the following reliefs; (i) issue a writ of certiorari or any other appropriate writ, direction or order to the seventh respondent calling for the records leading to the issuance of Ext.P11 order and quashing it. (ii) Issue a writ of mandamus or any other appropriate writ, direction or order commanding respondents 1, 2 and 8 to refund the loss of Rs.58,056/- sustained by the petitioner along with reasonable interest. (iii) issue a writ of mandamus or any other appropriate writ, direction or order commanding respondents 4 and 5 to take action on Ext.P7 and Ext.P8 complaints respectively preferred by the petitioner to get refund of the loss of Rs.58,056/- sustained by the petitioner. (iv) Issue such other further relief as this Honourable Court may deem fit and proper to grant in the circumstances of the case. ## 2. Heard Adv. K.N. Sasidharan Nair for the petitioner, Adv.Jacob P Alex for the 1[st] respondent, Adv. Jawahar Jose for the 2[nd] respondent and Adv. Millu Dandapani for the Reserve Bank of India. 3. Learned counsel for the petitioner relied on Ext. P1 NEFT Guidelines to contend that the sending Bank is under W.P.(C).31099/2019 6 an obligation to verify and ensure correctness of all details submitted by the sender/originator before executing the payment instruction. In the instant case, the 1[st] respondent's failure to cross check the account number with the name and details of the beneficiary had resulted in the wrong credit. As such, the 1[st] respondent Bank is under an obligation to cause the 2[nd] respondent to reverse the wrong credit and refund the amount to the petitioner. 4. Learned counsel for the 1[st] respondent challenged the maintainability of the writ petition, relying on the decision of the Apex Court in **Federal Bank Limited v. Sagar Thomas and Ors.** [(2003) 10 SCC 733]. On merits it was contended that Ext. P1 guidelines specifically states that the sender/originator shall be responsible for the accuracy of the particulars given in the payment instruction and special care should be taken to give the correct account number of the beneficiary. It is also specified that the payment instruction will become irrevocable once it is executed by the Bank. As the petitioner has no case that the amount was transferred to an account other than the one mentioned in the payment W.P.(C).31099/2019 7 instruction, the 1[st] respondent cannot be attributed with either negligence or deficiency in service. Even then, the 1[st] respondent requested the 2[nd] respondent Bank to reverse the wrong credit. So far no action in that regard has been taken by the 2[nd] respondent. 5. Learned counsel for the 2[nd] respondent contended that the petitioner has no cause of action in the State of Kerala since the alleged wrong credit was made in an account maintained with the Nayeem Nagar Branch of the 2[nd] respondent in the State of Telengana. The petitioner cannot seek to recover the amount credited in an account maintained in Telengana, by filing a writ petition before this Court. Learned counsel pointed out that a mechanism for resolving disputes, like the one raised by the petitioner, is provided by Section 24 of the Payment and Settlement Systems Act, 2007 and the petitioner's remedy is to cause the 1[st] respondent to raise a dispute in the manner provided in Section 24. 6. Learned counsel for respondents 7 and 8 referred to Ext. R7(a) Extant Guidelines issued by the Reserve Bank of W.P.(C).31099/2019 8 India, as per which, the responsibility to provide correct inputs in the payment instruction, particularly the beneficiary account number, is that of the remitter/originator. It is specifically stated that for the purpose of affording credit reliance will only be on the account number. Attention is also drawn to the disclaimer in Ext.R7(b) application, which is to the effect that fund transfer/credit made to the beneficiary's account based solely on the account number of the beneficiary, as furnished in the application form and the name particulars of the beneficiary shall not be a criteria for effecting fund transfer/credit. It is contended that, in view of Ext. P1 guidelines, Ext. R7(a) Guidelines and the disclaimer in Ext. R7(b), the Banking Ombudsman was fully justified in rejecting petitioner's complaint. 7. Having heard the learned counsel and having gone through the Guidelines and disclaimer, I find substantial merit in the contention that it was the petitioner's duty to ensure the correctness of the beneficiary's account number. As submitted by the 1[st] respondent, in its objection before the Banking Ombudsman, the petitioner is having a long relationship of ten W.P.(C).31099/2019 9 years with the 6[th] respondent and should therefore have verified the authenticity of the account number on receiving Ext. P2 email containing different account number. Be that as it may, the indisputable fact is that the mistake had occurred consequent to the hacking of the 6[th] respondent's email id. As such, the entire fault cannot be mulcted on the petitioner. In this context, the provisions of Payment and Settlement Systems Act assumes relevant. The Act empowers the Reserve Bank of India to regulate and oversee the various payment systems in the country. Section 24 of the Act dealing with settlement of disputes, reads as under; “ **24. Settlement of disputes** .—(1) The system provider shall make provision in its rules or regulations for creation of panel consisting of not less than three system participants other than the system participants who are parties to the dispute to decide the disputes between system participants in respect of any matter connected with the operation of the payment system. (2) Where any dispute in respect of any matter connected with the operation of the payment system arises between two or more system participants, the system provider shall refer the dispute to the panel referred to in sub-section (1). (3) Where any dispute arises between any system participant and the system provider or between system providers or where anyj of the system participants is not satisfied with the decision of W.P.(C).31099/2019 10 the panel referred to in sub-section (1), the dispute shall be referred to the Reserve Bank. (4) The dispute referred to the Reserve Bank for adjudication under sub-section (3) shall be disposed of by an officer of the Reserve Bank generally or specially authorised in this behalf and the decision of the Reserve Bank shall be final and binding. (5) Where a dispute arises between the Reserve Bank, while acting in its capacity as system provider or as system participant, and another system provider or system participant, the matter shall be referred to the Central Government which may authorise an officer not below the rank of Joint Secretary for settlement of the dispute and the decision of such officer shall be final.” As it has come out from the statement of the 1[st] respondent that the Bank has already approached the 2[nd] respondent with a charge back request, it will only be appropriate for the 1[st] respondent to follow up its action by resorting to the procedure prescribed in Section 24. Even though a specific direction in that regard cannot be issued in exercise of the power under Article 226, the 1[st] respondent not being an instrumentality of the State and no public duty being involved, the fair banking practice principle should prompt the 1[st] respondent to take necessary steps for redressing the petitioner's grievance. W.P.(C).31099/2019 11 The writ petition is disposed of with the above observation. Sd/- **V.G.ARUN** **JUDGE** sb W.P.(C).31099/2019 12 ## **APPENDIX OF WP(C) 31099/2019** PETITIONER EXHIBITS |EXHIBIT P1|TRUE COPY OF THE NATIONAL ELECTRONIC FUNDS| |---|---| ||TRANSFER SYSTEM PROCEDURAL GUIDELINES ISSUED| ||BY THE RESERVE BANK OF INDIA.| |EXHIBIT P2|TRUE COPY OF THE EMAIL COMMUNICATION FROM THE| ||SIXTH REPRESENTED TO THE PETITIONER DATED| ||23.04.2019.| |EXHIBIT P3|TRUE COPY OF THE COUNTERFOIL OF THE NEFT| ||REQUISITION FORM FOR RS-58056/- DATED| ||24.04.2019.| |EXHIBIT P4|TRUE COPY OF THE THIRD RESPONDENT'S LETTER| ||NO.RM/I/KLM/40/19 DATED 30.04.2019.| |EXHIBIT P5|TRUE COPY OF THE LETTER ADDRESSED BY THE| ||PETITIONER TO THE FIRST RESPONDENT BANK DATED| ||29.04.2019.| |EXHIBIT P6|TRUE COPY OF THE FIRST RESPONDENTS LETTER TO| ||THE PETITIONER BEARING NO.QLNB/NCI/NN/2019| ||DATED 10.06.2019.| |EXHIBIT P7|TRUE COPY OF THE PETITION PREFERRED BY THE| ||PETITIONER TO THE FOURTH RESPONDENT DATED| ||30.04.2019.| |EXHIBIT P8|TRUE COPY OF THE COMPLAINT FILED BY THE| ||PETITIONER BEFORE THE FIFTH RESPONDENT DATED| ||02.05.2019.| |EXHIBIT P9|TRUE COPY OF THE REPLY BEARING| ||NO.SQD/SNG/OBO-TVM/83/2019-20 FILED ON BEHALF| ||OF THE FIRST RESPONDENT BEFORE THE SEVENTH| 13 ## W.P.(C).31099/2019 RESPONDENT DATED 08.07.2019. EXHIBIT P10 TRUE COPY OF THE REPLY FILED BY THE PETITIONER BEFORE THE BANKING OMBUDSMAN DATED 24.07.2019. EXHIBIT P11 TRUE COPY OF THE ORDER PASSED BY THE SEVENTH RESPONDENT DATED 14.08.2019.