Banks can’t impose charges on customers who reported fraud transaction: Delhi HC
The ruling was delivered in a petition filed by an advocate, who was hounded for repayment of a fraudulent credit card transaction which he never authorised
The Delhi high court on Thursday ruled that banks cannot impose late fees, interest or other charges on customers who have reported fraudulent credit card transactions, particularly when their complaints remain unresolved.
“The charging of late payment of fee, interest, etc., in such cases when customers have lodged complaints and that too without resolving the same, shall not be permissible,” justice Prathiba M Singh said in the verdict.
The ruling was delivered in a petition filed by Sarwar Raza, an advocate, who was hounded for repayment of a fraudulent credit card transaction which he never authorised. In the present case, Citibank had issued him a credit card in January 2022 without any request; despite his complaint, the bank assured him it would not be activated. However, a day after issuance, a transaction of ₹76,777 appeared, and subsequent statements continued to reflect the charge.
Although Raza immediately complained to the bank and the Delhi Police cyber cell, and later approached the RBI Ombudsman, both banking authorities closed his complaints. He finally moved the high court seeking a refund of ₹76,777 with interest and restoration of his original CIBIL score.
Despite the court’s direction of no coercive action, the bank sent a demand notice claiming ₹1,00,972 including interest and penalties, received numerous calls and was visited by collection agents who demanded ₹80,000 for settling the matter.
Citibank’s lawyer Suruchi Suri asserted that the relevant transactions were carried out using Raza’s own credentials. The bank said that it however re-credited the amount of ₹76,777 along with interest and penalty in June, 2023.
The Reserve Bank of India (RBI)’s lawyer Ramesh Babu, defended the decision to close the complaint on the ground that the same was not maintainable since it was lodged through an advocate and Raza had not approached the regulated entity to register the complaint, prior to approaching the ombudsman.
Raza consistently maintained during the proceedings that he never received any notification of the fraudulent transaction on his registered mobile number. He further stated that recovery agents of Citibank sent him threatening messages, visited his home, and demanded payment of the alleged outstanding dues.
In its 23-page judgment, the bench directed Citibank not to levy late fees, interest, or any other charges and also directed for restoration of the CIBIL score to the position it held before the disputed transaction. Condemning the conduct of recovery agents, the court also slapped a cost of ₹1 lakh on the bank and directed it to pay the same to Raza by January 15, 2026.
Taking note of the fact that the RBI rejected the complaints filed by Raza, through system-generated responses, the court also issued a series of directions to strengthen the RBI’s complaint-handling systems.
The bench said that RBI must ensure that customer complaints are not rejected for minor technical errors or via automated closure, and the complainants should be allowed to rectify the mistakes.
“Rejection of complaints by the Ombudsman by a mechanised model results in more disputes being filed in consumer forums, commercial courts, civil courts and writ petitions. Issues which ought to be resolved at the level of the Ombudsman of the RBI shall be resolved at that stage itself, and for the said purpose, if any strengthening, expansion or supplementing of the human resource at the Ombudsman’s office is required, the same shall be undertaken,” the court maintained.
Every final rejection by the Ombudsman must undergo human supervision by legally trained personnel (e.g., retired judicial officers or lawyers with at least 10 years’ experience), the court also directed. It also asked RBI to direct all the regulated banks to publish a clear flowchart on their websites showing how a customer may escalate complaints.
