Author: Prabhpreet Singh, student of University of Lucknow

To The Point

This case is a reality check — what happens when a customer commits fraud using the bank’s services? Can the bank still be held liable? The Supreme Court in Manager, Punjab & Sind Bank v. Sukhdev Singh clarified the limited liability of banks when fraud is initiated by the customer, especially when the bank has acted within its scope and without negligence. It draws the line between banking responsibility and customer misuse.

Use of Legal Jargon

This case revolves around unauthorised transactions, forged endorsements, negligence, and banker- customer fiduciary duty. The key legal question was — whether the bank manager or the bank as an entity could be held responsible for funds wrongly credited and withdrawn by the customer through dishonest means.

The Proof

Sukhdev Singh was an employee in a government department. Over a period of time, he opened multiple accounts in Punjab & Sind Bank under fake or misleading names. He cleverly deposited cheques that were not in his name and withdrew the amounts using fake documents. When the fraud came to light, a criminal case was filed. However, the real legal twist came when the bank’s manager — who was alleged to have overlooked this — was dragged into civil proceedings.

The issue before the Court was: Can the bank or its manager be held liable when the fraud was done by the customer himself, and the bank acted as per standard procedure?

Abstract

The Supreme Court held:

• A bank is not liable for a fraud committed by the customer if the bank had no knowledge or participation in the fraud.
• The burden of proving negligence or collusion on the part of the bank lies with the complainant.
• Simply being negligent in a minor way is not enough to fix criminal or civil liability on the bank manager.
• Unless the bank clearly violated rules, or helped in committing the fraud, it cannot be held responsible.

In this case, the Court found that although the fraud was serious, the bank followed proper procedure on paper and had no clear role in helping Sukhdev Singh commit the fraud.

Case Law

1. Canara Bank v. Canara Sales Corporation, AIR 1987 SC 1603: The bank was held liable due to gross negligence in honouring forged cheques. Different from Sukhdev’s case, where the fraud was customer-initiated.
2. State Bank of India v. Shyama Devi, AIR 1978 SC 1263: The bank was made liable due to failure to detect forgery in endorsements.
3. In contrast, the present case highlights that when fraud originates from the customer, and the bank has followed protocols, liability does not automatically arise.

Conclusion

This judgment is important for both banks and customers. It makes it clear that banks are not insurance agents against customer fraud. They are expected to act carefully, but they cannot be punished every time a customer misuses the system, unless they are involved or clearly negligent.

From a legal standpoint, the case defines the boundaries of bank liability, especially when the fraud is self-initiated by the customer and there’s no concrete evidence of collusion or failure of duty on the bank’s part.

FAQs

Q1. What is the main takeaway from this case?

Ans. The bank is not liable for a fraud done by the customer if it followed proper rules and did not help in the wrongdoing.

Q2. Did the bank act negligently in this case?

Ans. No. The Court found that the bank had no active role in the fraud and did not break any major banking protocol.

Q3. Can banks be punished for customer fraud?

Ans. Yes — but only if there is proof of gross negligence, active collusion, or ignorance of obvious red flags.

Q4. Is this case still relevant today?

Ans. Absolutely. In the digital era, where online frauds are increasing, this case helps define what a bank’s responsibility is — and what it isn’t.

Q5. What was Sukhdev Singh’s role in this case?

Ans. He was the mastermind. He opened accounts under false names and misused banking procedures to withdraw unauthorised funds.