Bankers’ Duty of Reasonable Care

A bank’s duty of reasonable care is a legal requirement and banks must exercise reasonable care and skill when transacting and providing other services to customers.

The bank has to carry out the instructions of the customer while dealing with the customer’s account. The clear order of the customer for payments should be promptly executed by the bank. This duty is subordinate to the bank’s obligation to carry out a customer’s orders and is only applicable when the bank has some discretion in how to execute the service. In case the instruction is unclear, the bank must use reasonable care and skill to interpret and execute it.

The duty of care also applies when a bank has reason to believe that a payment instruction is an attempt to defraud the customer. In such cases, the bank must refrain from executing the instruction directly and confirm with the customer whether they authorized it. If the bank breaches this duty, it cannot debit the payment from the customer’s account.

Case study:

In Santosh Kumar Sethi Vs Punjab National Bank, RP NO 1172 of 2017, dated July 29, 2021, the apex consumer court held the bank guilty of providing deficient service and said the consumer was entitled to a refund of the amount deposited by him, the penalty paid to the tax authorities, traveling expenses incurred on account of his visits to the income tax offices, cost of litigation and in addition, compensation for the physical and mental harassment undergone.

The case dates back to the income tax assessment year 2007-2008, when Santosh Kumar Sethi, a resident of Noida, deposited ₹13,880 at one of the branches of Punjab National Bank towards advance tax, to be remitted to the tax authorities. The amount however was never deposited with the income tax, resulting in Sethi being asked by the tax authorities to pay a penalty.

While upholding the order of the Delhi District Consumer Disputes Redressal Commission, awarding ₹50,000 as compensation and ₹10,000 as costs of litigation, the apex consumer court pointed out that the bank had not provided any evidence in support of its claim that it had paid the amount to the tax authorities. On the other hand, the consumer had placed on record the letter from the Income Tax Commissioner dated September 18, 2014, stating that the money had not been deposited by the bank.

The apex consumer court held the bank liable for the consequences of its failure to deposit the tax amount as per its customer’s instruction.

“I must point out that even if the bank had made the deposit, it would still be guilty of negligence for making a mistake, as per its admission, in the assessment year in the challan. First and foremost, when the consumer deposited the advance tax to be credited to the income tax authorities, the bank was duty-bound to credit the amount without any mistakes. Failure to do so constitutes deficiency” said Apex Consumer Court.

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