Supreme Court fixes banks liability on locker operation. Banks cannot wash off hands and claim no liability towards their customers–Supreme Court
ABCAUS Case Law Citation
ABCAUS 3456 (2021) (02) SC
Important case law relied referred:
UCO Bank v. RG Srivastava 1996 (1) CPR 97
Charan Singh v. Healing Touch Hospital & Ors. (2000) 7 SCC 668
Jagdish Chandra Trikha v. Punjab National Bank AIR 1998 Delhi 266
Natioal Bank of Lahore Ltd. v. Sohan Lal Saigal AIR 1962 P H 534
National Safe Deposit Company v. Stead, Attorney General 95 N.E.R. 973
Mohinder Singh Nanda vs. Bank of Maharashtra 1998 ISJ (Banking) 673
Atul Mehra vs. Bank of Maharashtra AIR 2003 P&H 11
Mamta Chaudaha vs. Branch Manager/Head Manager, State Bank of India
The appellant was a joint holder with his deceased mother in a safe deposit locker opened at a bank. One fine day when the appellant visited the Bank to operate the locker and deposit the locker rent, to his surprise he was informed that the Bank had broken open his locker for non-payment of locker rent dues and the locker was reallocated to another customer.
On the appellant’s protest that such breaking of his locker by the Bank was illegal since he had cleared dues prior to the breaking of the locker, the Manager of the bank admitted to have inadvertently broken open the locker, though there were no outstanding dues to be paid, and apologized for the same.
However, dispute arose as to contents of the jewellery kept locker. Against the claim of seven items of jewellery, the bank claimed that only two pieces were found in the locker when it was broken open which was evident from the inventory prepared in the presence of an independent witness.
Both the District Consumer Forum found that there was deficiency of service by the bank and ordered costs of lost jewellery and compensation for mental agony, harassment, and cost of litigation.
However, and the State Commission observed that the dispute on the contents of the locker can only be decided upon provision of elaborate evidence. That the Consumer Forum is not equipped to undertake such evaluation since it only has jurisdiction to conduct a summary trial. Therefore, the appellant was directed to approach the civil court for adjudication on the contents of the locker.
The National Commission by the impugned judgment, accepted the State Commission’s holding on the limited jurisdiction of the Consumer Forum to adjudicate on the recovery of the contents of the locker.
The Hon’ble High Court observed that the dominant view of courts around the globe has been that the bank is in the position of a bailee with respect to the goods placed inside the locker by the locker holder.
The Hon’ble Supreme Court noted that there is no substantive domestic legislation or sector specific regulations which may throw light upon the issue of whether banks are responsible under the laws of bailment for the loss of articles placed inside the locker.
However, it was observed that RBI in a Draft Circular issued in 2006 recommended that the laws of bailment ought to guide the relationship between the bank and the locker holder.
It was also noted in response to a Right to Information (‘RTI’) enquiry made in 2017, the RBI, and various public sector banks, stated that as per the agreement entered into with the customers who are hiring/leasing the lockers, the banks have no liability for loss or damage of articles placed inside the bank lockers.
The Apex Court observed that though it has also not given any authoritative pronouncement on the issue of whether banks are responsible as bailees, or in any other capacity, for any loss or damage to the contents of the lockers, however, various High Court judgments can be guiding factors in this regard.
However, it was noted that in those judgments, what was commonly contested was whether delivery of possession or entrustment of valuables from the locker holder to the bank had taken place, for the purpose of Section148 of the Contract Act. Even in the relevant foreign precedents, the application of the principles of bailment was contingent on determining whether possession was transferred in the facts of the case.
The Apex Court opined that such question requires factual findings on whether the bank had knowledge of the contents of the locker which cannot be adjudicated upon in the course of proceedings before the consumer fora. This aspect must be evaluated by a civil court, upon appreciation of evidence led by the parties.
The Hon’ble Supreme Court opined that the approach adopted by the National Commission was the correct approach as the number of items originally deposited by the Appellant inside the locker was a contested fact. Therefore, the Appellant must file a separate suit before the Civil Court for seeking desired relief.
However, the Hon’ble Supreme Court dwelled upon the duty of Care of the Bank with regard to the Locker Management and stated that it does not meant that the Appellant is left without any remedy.
The Hon’ble Supreme Court said that Banks as service providers are under both the earlier Consumer Protection Act, 1986, as well as the newly enacted Consumer Protection Act, 2019, owe a separate duty of care to exercise due diligence in maintaining and operating their locker or safety deposit systems. This includes ensuring the proper functioning of the locker system, guarding against unauthorized access to the lockers and providing appropriate safeguards against theft and robbery.
The Hon’ble Supreme Court stated that the duty of care is to be exercised irrespective of the application of the laws of bailment or any other legal liability regime to the contents of the locker. The banks as custodians of public property cannot leave the customers in the lurch merely by claiming ignorance of the contents of the lockers.
The Hon’ble Supreme Court stated that apparently, the present state of regulations on the subject of locker management is inadequate and muddled. Each bank is following its own set of procedures and there is no uniformity in the rules. The banks are under the mistaken impression that not having knowledge of the contents of the locker exempts them from liability for failing to secure the lockers in themselves as well.
The Court emphasized that irrespective of the value of the articles placed inside the locker, the bank is under a separate obligation to ensure that proper procedures are followed while allotting and operating the lockers.
Principles laid by Supreme Court to ensure due diligence by banks in operating locker:
Accordingly, the Hon’ble Supreme Court laid down following principles to ensure that the banks follow due diligence in operating their locker facilities, until the issuance of comprehensive guidelines in this regard:
(a) Maintenance of a locker register and locker key register.
(b) The locker register shall be consistently updated in case of any change in allotment.
(c) The bank shall notify the original locker holder prior to any changes in the allotment of the locker, and give them reasonable opportunity to withdraw the articles deposited by them if they so wish.
(d) Banks may consider utilizing appropriate technologies, such as blockchain technology which is meant for creating digital ledger for this purpose.
(e) The custodian of the bank shall additionally maintain a record of access to the lockers, containing details of all the parties who have accessed the lockers and the date and time on which they were opened and closed.
(f) The bank employees are also obligated to check whether the lockers are properly closed on a regular basis. If the same is not done, the locker must be immediately closed and the locker holder shall be promptly intimated so that they may verify any resulting discrepancy in the contents of the locker.
(g) The concerned staff shall also check that the keys to the locker are in proper condition.
(h) In case the lockers are being operated through an electronic system, the bank shall take reasonable steps to ensure that the system is protected against hacking or any breach of security.
(i) The customers’ personal data, including their biometric data, cannot be shared with third parties without their consent. The relevant rules under the Information Technology Act, 2000 will be applicable in this regard.
(j) The bank has the power to break open the locker only in accordance with the relevant laws and RBI regulations, if any. Breaking open of the locker in a manner other than that prescribed under law is an illegal act which amounts to gross deficiency of service on the part of the bank as a service provider.
(k) Due notice in writing shall be given to the lockerholder at a reasonable time prior to the breaking open of the locker. Moreover, the locker shall be broken open only in the presence of authorized officials and an independent witness after giving due notice to the locker holder. The bank must prepare a detailed inventory of any articles found inside the locker, after the locker is opened, and make a separate entry in the locker register, before returning them to the locker holder. The locker holder’s signature should be obtained upon the receipt of such inventory so as to avoid any dispute in the future.
(l) The bank must undertake proper verification procedures to ensure that no unauthorized party gains access to the locker. In case the locker remains inoperative for a long period of time, and the locker holder cannot be located, the banks shall transfer the contents of the locker to their nominees/legal heirs or dispose of the articles in a transparent manner, in accordance with the directions issued by the RBI in this regard.
(m) The banks shall also take necessary steps to ensure that the space in which the locker facility is located is adequately guarded at all times.
(n) A copy of the locker hiring agreement, containing the relevant terms and conditions, shall be given to the customer at the time of allotment of the locker so that they are intimated of their rights and responsibilities.
(o) The bank cannot contract out of the minimum standard of care with respect to maintaining the safety of the lockers.
In the instant case the Hon’ble Supreme Court opined that the breaking open of the locker was in blatant disregard to the responsibilities of the bank. The alleged loss of goods did not result from any force majeure conditions, or acts of third parties, but from the gross negligence of the bank itself.
The Hon’ble Supreme Court imposed costs of Rs. 5,00,000/ on the Bank which is to be paid as compensation from deducting from the salary of the erring officers, if still in service. If not, the amount shall be paid by the Bank. Additionally, Rs.1,00,000/ was also awarded as litigation expense.
RBI to issue suitable rules or regulations on bank locker management
The Hon’ble Supreme Court also directed the RBI to issue within 6 months, suitable rules or regulations laying down comprehensive directions mandating the steps to be taken by banks with respect to locker facility/safe deposit facility management. The banks should not have the liberty to impose unilateral and unfair terms on the consumers. Until such Rules are issued, the principles stated in the judgment shall remain binding. It was also left open to the RBI to issue suitable rules with respect to the responsibility owed by banks for any loss or damage to the contents of the lockers, so that the controversy on this issue is clarified as well.
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