A Kerala consumer commission has ordered Federal Bank to pay Rs 17,854 to a customer after it reversed a fraud refund it had already credited to his account, and then blamed him for the unauthorised transactions that triggered the dispute in the first place.
The order was passed on 5 August 2026 by the District Consumer Disputes Redressal Commission, Thiruvananthapuram, four years after the complaint was filed in 2021.
Fake UPI Cashback Scratch Card Scam
In July 2021, the complainant came across what appeared to be a UPI cashback scratch card on Facebook. He scratched it and followed the steps it directed him to take, which involved a PhonePe transaction. On 13 July 2021, two amounts, Rs 4,885 and Rs 4,969, totalling Rs 9,854, were debited from his Federal Bank account without his authorisation.
The complainant immediately filed a complaint with the Kattakkada Police Station and reported the fraud to Federal Bank.
What Federal Bank did next
Federal Bank, in compliance with RBI guidelines on unauthorised electronic transactions, credited both amounts back to the complainant's account on 15 July 2021, two days after the fraud occurred.
Then, on 4 August 2021, the bank reversed both credits and pulled the money back out of his account. It gave no reason for doing so at the time.
The bank's position, filed before the commission, was that its internal inquiry found the transactions had occurred using credentials known only to the account holder, his UPI payment address and PIN, and that these could not have been used without his knowledge or sharing. The bank argued the complainant was therefore solely responsible. It further submitted that the Banking Ombudsman had also closed the complainant's grievance on the same basis.
Did Federal Bank prove the customer was negligent?
The commission examined the evidence filed by both sides and found that Federal Bank's case rested entirely on presumption.
The commission held that the bank's position was premised on the assumption that the complainant would have unknowingly shared his OTP with a third party, but noted there was no material on record to substantiate this. It stated that the bank must prove the account holder was negligent, meaning intentionally sharing a PIN or OTP, before it can deny liability. Federal Bank, the commission found, had not done that.
The commission also noted the complainant's conduct after the fraud. He had filed a police complaint, reported the matter to the bank promptly, and pursued the grievance through the Banking Ombudsman. The commission said his diligent steps clearly showed he had taken all necessary action upon becoming aware of the unauthorised transactions.
What courts and RBI say about bank fraud liability
The commission applied the RBI circular dated 6 July 2017, which places the burden of proving customer negligence squarely on the bank in cases of unauthorised electronic transactions. Where a bank fails to establish negligence and the customer has reported the fraud in time, the circular requires the bank to recredit the disputed amount.
The commission also cited the Supreme Court's ruling in State Bank of India versus Pallabh Bhowmick, which held that banks carry an absolute responsibility to protect accounts from unauthorised electronic banking fraud, particularly when the customer reports the issue within 24 to 48 hours. The complainant in this case reported it the same day.
The commission ruled that in the absence of credible material establishing negligence, the liability to cover the loss falls squarely on the bank, and the bank cannot make the complainant suffer on the basis of perceived negligence alone.
Federal Bank Consumer Court Order
The commission directed Federal Bank to remit Rs 9,854 back to the complainant's account, along with Rs 5,000 as compensation for mental agony and financial loss, and Rs 3,000 towards litigation costs, totalling Rs 17,854.The bank must comply within 30 days of receiving the order. If it fails to do so, the principal amount and compensation will attract interest at 9 per cent per annum from the date of the order until full payment is made.
Check the case judgement here:
