Banking institutions have acquired a significant role in both domestic
and international economic transactions
Banking institutions have acquired a significant role in both domestic and international economic transactions. Given that India is 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 banking institution.
Each bank follows its own set of procedures and there is no uniformity in the rules when it comes to rules concerning lockers. 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 Supreme Court of India addressed these issues in its judgment in Amitabha Dasgupta v. United Bank of India.
Brief Facts of the Case:
- The Appellant's mother in the early 1950's took a locker on rent in United Bank of India.
- In 1995, the Appellant visited the Bank to operate the locker and deposit the locker rent. When he was informed that the Bank had broken open his locker in 1994 for non-payment of rent dues for the period of 1993 to ¬1994.
- Further, that the locker had subsequently been reallocated to another customer.
- The Appellant claimed that such breaking of the locker by the Bank was illegal since the dues for 1994¬ to 1995 were cleared prior to the breaking of the locker.
- The Chief Manager of the bank admitted to have inadvertently broken open the locker even when there were no outstanding dues to be paid.
- When the Appellant went to collect the contents of the locker, he found only two (a pair of bangles and a pair of earrings) of the seven ornaments that had been deposited in the locker in an envelope.
- The Bank on the other hand contended that only two ornaments were found in the Appellant's locker when it was broken open.
Procedural Background of the Case:
- The Appellant had filed a consumer complaint before the District Consumer Forum calling upon return of the ornaments and claiming compensation towards recovery of the cost of jewellery.
- The Bank was directed to either return the contents of the locker misplaced by them, or alternatively pay the Appellant a sum¬ towards the cost of the jewellery and an additional sum of INR 50,000 as compensation for mental agony, harassment, and cost of litigation.
- The State Commission upheld this order, but reduced the compensation.
- The National Consumer Disputes Redressal Commission (NCDRC) dismissed the Revision Petition filed against the judgment of the State Consumer Disputes Redressal Commission.
Analysis by the Supreme Court:
I. 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?
Disputes between banks and locker holders, pertaining to loss of articles placed inside the locker, have been subject to judicial consideration for a while now.
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. In In Roberts v. Stuyvesant Safe Deposit Co., the Courts held that legal relationship between a person who deposits something for safekeeping in the custody of another, was that of a bailee or depositary for hire. Therefore, if someone keeps money for safekeeping in a bank locker, and the bank loses the said money, they will be held liable under the laws of bailment.
Legal Duty of care arising out of the Indian Contract Act:
To identify if the relationship of bailment exists between the bank and the locker holder under Indian law, it is necessary at the outset to refer to the definition of Bailment as provided under the Indian Contract Act, 1872 (ICA). As per the definition, there are three components which are to be fulfilled for the existence of bailment:
- Delivery of goods from one person to another by transfer of possession, actual or constructive:
- An express or implied contract for delivery;
- Delivery should be for accomplishment of a purpose.
Reserve Bank of India on the relationship between a bank and a locker hirer:
There is, however, no substantive domestic legislation or sector specific regulation 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. In 2006, the Reserve Bank of India (RBI) had issued a Draft Circular on Safe-deposit Lockers (2006 Circular). It clarified that the relationship between the bank and the locker hirer was in the nature of a 'bailor and bailee' and not 'landlord and tenant' though the bank has no knowledge of the contents of the locker and the bank is required to exercise due care and necessary precaution for the protection of the lockers provided to the customer.
Similarly in 2007, the RBI also issued guidelines covering the subject of safe custody of articles placed inside the lockers advising the banks to be guided by the provisions of Sections 45 ZC to 45 ZF of the Banking Regulation Act, 1949 and the Banking Companies (Nomination) Rules, 1985 and the relevant provisions of Indian Contract Act and Indian Succession Act.
In 2017, in response to a Right to Information (RTI) enquiry made, 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 had no liability for loss or damage of articles placed inside the bank lockers.
Current position of law:
Hence, the position of the RBI had undergone several changes. The position adopted by the banks was challenged before the Competition Commission of India (CCI) for being an anti-competitive practice in nature. The CCI dismissed the claim, while making the following observations:
It is common industry practice for banks to disclaim liability for loss of articles placed inside the locker, though there are no uniform parameters or policies guiding the same. Additionally, the banks have stated that acceptance of responsibility for loss of articles placed in their locker facility will depend upon the relevant facts and circumstances of each case, such as the terms of the locker hiring agreement, the circumstances under which the articles were lost or stolen, and so on.
The Delhi High Court in the case of Jagdish Chandra Trikha v. Punjab National Bank had held that Banks bear a complete entrustment of possession of the contents of a locker. When a Bank accepts items to be placed in their locker, they accept to do the as a bailee and it is expected that the usual care which is demanded in such matters would be undertaken.
Modernization of the locker system:
Due to modernization of the locker system, banks now provide customers with partial access to the lockers. Under the current system, the bank allocates a locker to the customer on the payment of rent. The customer is then provided with a key to the locker through which they can gain partial access to the locker. The bank has a master key to the locker and the customer can gain complete access to the locker only when the bank uses its own key to the locker. Therefore, a combination of the bank's key and the locker holder's key is required for opening a locker, providing neither with complete access.
Whether the modern day bank locker system would be guided by the laws of bailment?
In more advanced, digitally operated locker systems, the keys might not be physical keys but may consist of passwords or data which is exclusively known to the bank and the customer.
The Courts have maintained the position that exclusive possession is a sine qua non for bailment. This means that mere hiring of a locker would not be sufficient to constitute a contract of bailment as provided under Section 148 of the ICA. In order to constitute bailment, as provided under this Section, it is necessary to show that the actual exclusive possession of the property was given by the hirer of the locker to the bank. It is only thereafter that the question of reasonable care and quantum of damages would arise.
Therefore, mere leasing out of the locker would not establish a relationship of bailment between the bank and the locker holder. In order to establish exclusive possession, the claimant must prove that the bank had knowledge of the contents of the locker. Alternatively, where the locker holder alone has knowledge of the contents, they must lead independent evidence to prove that their articles or valuables were actually inside the locker, and the valuation of the same.
II. Whether the Banks owe an independent duty of care to its customers with respect to diligent management and operation of the locker, separate from its contents?
Imposition of liability upon the bank with respect to the contents of the locker is dependent upon provision and appreciation of evidence in a civil suit for such purpose. Banks owe a separate duty of care to exercise due diligence in maintaining and operating their locker or safety deposit systems as service providers under the earlier Consumer Protection Act, 1986, and The Consumer Protection Act, 2019.
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. This 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.
Considering that the state of regulations on the subject of locker management was inadequate and muddled, the Supreme Court formulated principles to ensure that the banks would follow due diligence in operating their locker facilities:
- Banks must maintain a locker register and locker key register.
- The locker register must be updated in case of any change in allotment.
- The bank is supposed to 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 wish to.
- Banks may consider utilizing appropriate technologies, such as block chain technology which is meant for creating digital ledger for this purpose.
- The custodian of the bank must 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.
- 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 must be promptly intimated so that they may verify any resulting discrepancy in the contents of the locker.
- In case the lockers are being operated through an electronic system, the bank must take reasonable steps to ensure that the system is protected against hacking or any breach of security.
- 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.
- 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.
- The locker holder must be given due notice about breaking open of the locker at a reasonable time prior to the act itself.
- In case the locker is to be broken open, then the same is to be done only in the presence of authorized officials and an independent witness. 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 bank must undertake proper verification procedures to ensure that no unauthorized party gains access to the locker.
- A copy of the locker hiring agreement, containing the relevant terms and conditions, must be given to the customer at the time of allotment of the locker so that they are intimated of their rights and responsibilities.
The Supreme Court upheld the decision of the NCDRC, but did not record any conclusions on whether the locker holder in the case was entitled to claim return or recovery of the value of the ornaments alleged to have been deposited by him. The Court directed the Appellant to file a separate suit before the competent civil court for seeking relief and for proving that the items which were missing were actually in the custody of the bank.
The Supreme Court finally held that at this juncture, it was pertinent for the RBI to lay down comprehensive directions mandating the steps to be taken by banks with respect to locker facility or 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, they directed the RBI to issue suitable rules or regulations within six months from the pronouncement of the judgment.