Friday, February 19, 2021

Banks Duty-Bound To Exercise Due Diligence In Maintaining And Operating Their Locker Facility: Supreme Court Issues Guidelines


The Supreme Court observed that the banks owe a duty of care to exercise due diligence in maintaining and operating their locker or safety deposit systems and that they cannot contract out of the minimum standard of care in this regard.

The banks cannot wash off their hands and claim that they bear no liability towards their customers for the operation of the locker. the bench comprising Justices Mohan M. Shanthanagoudar and Vineet Saran said while directing the Reserve Bank of India to lay down Rules and Regulations mandating the steps to be taken by banks with respect to locker facility/safe deposit facility management.

Until such regulations are framed and issued by the RBI, the bench observed that the following guidelines have to be followed by the bank

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:

(a) This includes maintenance of a locker register and locker key register.

(b) The locker register shall be consistently updated in case of any change in the allotment.

(c) The bank shall notify the original locker holder prior to any changes in the allotment of the locker, and give them a 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 that 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 locker holder 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 as outlined supra.

The bench issued these directives while disposing an appeal against a judgment of National Consumer Disputes Redressal Commission. In this case, the complainant filed a consumer complaint before the District Consumer Forum seeking a direction to United Bank of India to return the seven ornaments that were in the locker; or alternatively pay Rs. 3,00,000/­ towards the cost of jewelry, and compensation for damages. The Forum directed the bank to return the entire contents of the locker, or alternatively pay the complainant Rs. 3,00,000/­ towards cost of the jewelry and, Rs. 50,000/­ as compensation for mental agony, harassment, and cost of litigation. In appeal, the State Consumer Disputes Redressal Commission, though accepted the District Commission's findings on the question of deficiency of service, reduced the compensation from Rs. 50,000/­ to Rs. 30,000/­ and further observed that the dispute on the contents of the locker can only be decided upon provision of elaborate evidence. NCDRC upheld this order of the State Commission.

The appeal before the Apex Court filed by the appellant raised these issues: First, Whether the Bank owes a duty of care to the locker holder under the laws of bailment or any other law with respect to the contents of the locker? Whether the same can be effectively adjudicated in the course of consumer dispute proceedings? Second, irrespective of the answer to the previous issue, whether the Bank owes an independent duty of care to its customers with respect to diligent management and operation of the locker, separate from its contents? Whether compensation can be awarded for non­compliance with such duty?

The bench did not answer the first issue conclusively. It upheld the NCDRC finding that the complainant must file a separate suit before the competent civil court for seeking this relief and for proving that the missing items were actually in the custody of the bank. The court said that all questions of fact and law are left open before the civil court to decide on the merits of the case, including as to whether the law of bailment is applicable, or any other law as the case may be.

On the second issue, the bench observed that Banks as service providers under 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

"It appears to us that 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. Further, going by their stand before the consumer fora, it seems that 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. In as much as we are the highest Court of the country, we cannot allow the litigation between the bank and locker holders to continue in this vein. This will lead to a state of anarchy wherein the banks will routinely commit lapses in proper management of the lockers, leaving it to the hapless customers to bear the costs. Hence, we find it imperative that this Court lays down certain principles which will ensure that the banks follow due diligence in operating their locker facilities, until the issuance of comprehensive guidelines in this regard.", the court said.

While disposing the appeal, the bench also observed that the banks cannot wash off their hands and claim that they bear no liability towards their customers for the operation of the locker. It observed:

Before concluding, we would like to make a few observations on the importance of the subject matter of the present appeal. With the advent of globalization, banking institutions have acquired a very significant role in the life of the common man. Both domestic and international economic transactions within the country have increased multiple folds. Given that we are steadily moving towards a cashless economy, people are hesitant to keep their liquid assets at home as was the case earlier. Thus, as is evident from the rising demand for such services, lockers have become an essential service provided by every banking institution. Such services may be availed of by citizens as well as by foreign nationals. Moreover, due to rapid gains in technology, we are now transitioning from dual key operated lockers to electronically operated lockers. In the latter system, though the customer may have partial access to the locker through passwords or ATM pin, etc., they are unlikely to possess the technological know­how to control the operation of such lockers. On the other hand, there is the possibility that miscreants may manipulate the technologies used in these systems to gain access to the lockers without the customers' knowledge or consent. Thus the customer is completely at the mercy of the bank, which is the more resourceful party, for the protection of their assets. In such a situation, the banks cannot wash off their hands and claim that they bear no liability towards their customers for the operation of the locker. The very purpose for which the customer avails of the locker hiring facility is so that they may rest assured that their assets are being properly taken care of. Such actions of the banks would not only violate the relevant provisions of the Consumer Protection Act, but also damage investor confidence and harm our reputation as an emerging economy.

The court also directed RBI to lay down comprehensive directions mandating the steps to be taken by banks with respect to locker facility/safe deposit facility management.

Thus it is necessary that the RBI lays 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. In view of the same, we direct the RBI to issue suitable rules or regulations as aforesaid within six months from the date of this judgment. Until such Rules are issued, the principles stated in this judgment, in general and at para in particular, shall remain binding upon the banks which are providing locker or safe deposit facilities. It is 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.

CASE: Amitabha Dasgupta vs. United Bank of India [CIVIL APPEAL NO. 3966 OF 2010]

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