HDFC Bank held responsible for illegal fund transfer

Consumer forum orders bank to compensate customer, says it did not follow RBI guidelines on online fund transfers

In a significant ruling, the District Consumer Complaints Redressal Forum has held HDFC Bank responsible for unauthorised fund transfer in an Internet banking transaction, reports PTI.

In an order dated 25th March, the Forum directed the Bank to pay a customer the whole amount which had been transferred from his HDFC Bank account without his authorisation. The Forum, headed by MG Rahatgaokar, held that the Bank had failed to implement the guidelines issued by the Reserve Bank of India (RBI), for Net banking facility.

Nikhil Phutane, the complainant, has an account with HDFC's Santa Cruz (a Mumbai suburb) branch. Qatar National Bank, where he works, transferred Rs4,60,000 to his account in October 2008. However, Mr Phutane found out in November that his bank balance was zero.

The entire amount had been transferred—through net banking—to the account of a person called Dinesh Shukla, at Lucknow. According to Mr Phutane, he never authorised HDFC Bank to add Mr Shukla's name to the list of "third party beneficiaries" on his online account.

A police complaint was lodged, and Mr Shukla and four others, including two Nigerian nationals, were arrested, and Rs70,500 was recovered from them.

Mr Phutane demanded that the Bank return him the rest of the amount, as he was not at fault.

Since HDFC Bank refused to pay him the balance amount, he filed a complaint before the Forum. The Bank argued before the Forum that either Mr Phutane had inadvertently revealed his transaction password to someone, or the computer used by him had a virus.

It also argued that after the request for fund transfer was received from his online account, an SMS was transmitted and an email was sent to Mr Phutane, for confirming the request. Since no reply came (from Mr Phutane), the funds were transferred.

But the Forum held that Bank failed to prove that such an alert had been sent. Further, it held that simply because Mr Phutane failed to respond to the mail, the Bank should not have proceeded with the transfer.

The Bank had failed to implement the "National Electronic Fund Transfer (NEFT) guidelines, issued by the RBI," the Forum held, asking it to pay Mr Phutane the balance amount. In addition, the Forum also asked the Bank to pay Rs35,000 to him, on account of "mental agony" faced by Mr Phutane, and legal expenses.

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    Rupesh Kumar Singh

    10 years ago


    Some unauthorized transaction has been done from my saving account and regarding the same i have logged the complain at customer care.
    complaint no are 69274 , 71726 , Del1228774. 4-5 wrong payment are done at IDEA Cellular.

    Till the date i have not received any resolution for the same as from customer care i have informed that in 2 weeks money will be refunded in my account but it's Appx 2 months,
    I am still waiting but this is the limit of my patience. i am unable to understate what kind of service HDFC is providing. 2 month back pending issue is not resolved. No reply for the same.

    Please clarify if you can not resolve the issue and deposit my amount please give me in written, so that i will move to next level like consumer court.

    K B Patil

    1 decade ago

    Currently, ICICI Bank is showing an ad on TV where the bank employees are seen pampering customers to any extent. In one ad, an elderly lady enters the bank to credit a cheque sent by her son from USA. The lady is chatty and the bank's employee is shown to be extremely indulgent and patient even when all the others have left. I think a poll should be taken as to how many customers of that bank share this exaggerated opinion. All the new private banks share a common ancestry with Shylock, the mechant of Venice.

    In my experience, the service orientation of these banks is quite poor. Any deficiency on their part is denied straightaway. For instance, weekly SMS alerts on the balance held. Sometimes I have not received this SMS and when I point this out to the bank, they plainly say that the SMS was sent and that I have to check with my service provider.

    Narendra Doshi

    1 decade ago

    Bank should do due checks BEFORE concluding that the client is on the wrong.
    Branch officials seem NOT to use their powers for satisfactorily solving the issues but ONLY want to show the rules.
    What checks/systems are there by the Bank's main/head office to be AWARE of such instances occuring , may be quite frequently, at the branch level?

    m k sujitkumar

    1 decade ago

    i hope that the above decision will help the consumer community & BRING some sense to the arrogant officials of such banks.
    such banks should be made to give copies of rules every year to the customer

    Brokerage houses insist on a demat account for derivatives trading

    Although a demat account has nothing to do with the derivatives segment, some brokers like MF Global are insisting on this requirement

    A derivatives trading account has nothing to with a demat account. A demat account is needed to transact in shares in the cash segment where deliveries of shares have to be received and given. A derivatives account allows one to trade in the futures and options segment where no deliveries are possible. An investor dealing in derivatives can pay the margin by cheque and transact to the extent his account balance allows him to. The only time demat and derivatives can get linked is when an investor prefers to offer his stocks as margin for derivatives trading.

    Even then, it would not be mandatory to open a demat account with the same broker where derivatives trading is done. However, some brokerage firms are insisting on a demat account even for opening an account in the derivatives segment.

    Recently, MF Global India Private Ltd, a leading brokerage house providing exchange and over-the-counter derivatives services, refused to open a client’s account because he only wanted to trade in the derivatives segment. The client’s application was refused on the grounds that it is mandatory to open a demat account with MF Global even when the client has no intention to buy and sell shares.

    “It is not mandatory to open a demat account to trade only in the derivatives segment. It is not our internal policy to compulsorily open demat accounts for our trading clients,” said Sandeep Gupta, compliance officer, MF Global, in an email sent to Moneylife. On the specific issue cited above, Mr Gupta could not be reached for his comments today.

    “They ask you to open the demat account in advance in case if you trade in the cash segment in the future. If a client only wants to deal in derivatives, then it is not mandatory,” said Ketan Malkan, senior vice president, India Infoline Ltd.

    “One can open as many demat accounts as one wants. We insist on having a demat account because the derivatives segment is a big game compared to the cash segment. If the market crashes or client loses we can use the stocks as collateral,” said a top official of a Mumbai-based brokerage house.

    “Currently, it’s not necessary, but it may become mandatory in the future if investors have an option of physical settlement of derivatives trade,” said Alok Churiwala of Churiwala Securities Ltd.

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    1 decade ago

    It seems slowly, the client is going to have all doors closed and will be prey for the so called stock brokers.
    While opening the new account everybody gives high hopes to the client and at end no body knows what happens to the clients money when they trade and booked losses with broker's calls.

    God can only save

    FCCBs may hold the key in battle for Fame India

    The FCCB issued by Fame India in 2006 and the stake owned by some inconspicuous parties could tilt the balance in either Inox's or RML's favour

    The fierce battle between Reliance Mediaworks Ltd (RML) and Inox Leisure Ltd (Inox) to buy Fame India Ltd has turned the multiplex industry into a battleground. Although RML has said that its open offer to buy additional 52.72% stake in Fame has been delayed pending approval from market regulator Securities and Exchange Board of India (SEBI), there are some other aspects that could impact the final outcome of the deal.

    One issue relates to the foreign currency convertible bonds (FCCBs) issued by Fame in 2006 and the second issue is the stake owned by some inconspicuous parties, which could turn the balance either towards Inox or RML.

    At present, three companies of the Anil Dhirubhai Ambani Group (ADAG)—RML, Reliance Capital Ltd and Reliance Capital Partners—hold a combined 13.79% stake in Fame. Inox holds 50.48% stake in Fame, including the 43.3% share that it had bought from South Yarra Holdings for Rs67 crore. As of end-December 2009, Gulshan Investment Co Ltd (Gulshan) and Shail Investments Pvt Ltd (Shail) held 6.54% and 5.26% stake, respectively, in Fame. On 25 March 2010, Religare Securities Ltd (Religare) increased its stake to 5.82% from 0.7% in Fame. Since Religare is a broker, shares are held in the ordinary course of business towards margin or collateral on behalf of clients.

    In April 2006, Fame issued two series of FCCBs, the 12,000 ‘Series A Bonds’ and 8,000 ‘Series B Bonds’, of face value of $1,000 each, aggregating to $20 million. The FCCBs are convertible at any time up to 12 April 2011 at the option of the holders into newly issued shares with a face value of Rs10 per share at an initial conversion price of Rs90 per share for ‘Series A Bonds’ and Rs107 per share for ‘Series B Bonds’.

    The only condition before these FCCBs get converted into shares is that the stock price has to be higher that the conversion price. During 2007-08, out of the total $20 million FCCBs issued, about 3,000 ‘Series A Bonds’ and 4,000 ‘Series B Bonds’—together worth $7 million—have already been converted into shares. That leaves FCCBs worth $13 million which are outstanding, which may hold the key to Fame for both RML and Inox.

    In case Fame’s share price goes above Rs90 and Rs107, then it will lead to conversion of FCCBs—from both series—into shares and reduce Inox's stake in Fame to 42.67%. Upon conversion, FCCB holders may have around 15.07% stake in Fame. This together with the stake of Gulshan, Shail and Religare will play a crucial role in determining the winner in this race.

    ADAG companies are shopping for Fame’s shares through open market deals, thereby increasing the group’s stake to 13.79% as of 8th March from the level of 4.65% before 5th February.

    However, even after the FCCB conversion, Inox would hold about 42.67% and thus can easily buy additional 8% stake in Fame from the markets.

    With Fame share prices now touching Rs90 and above, purchase of even a single share of Fame will considerably hike the Inox offer price. This may also lead to a situation like that of the Great Offshore Ltd (GOL) takeover battle, where ABG Shipyard Ltd sold its stake in GOL just one day prior to the open offer and made huge profits.

    Now, the moot question is, why are both Inox and ADAG fighting for Fame? The answer is simple. Fame owns 95 screens across 12 cities. ADAG wants to consolidate its position as the market leader in number of screens (to 337 screens from 242 screens). Similarly, after the acquisition, the number of screens for Inox would go up to 210 from 115, thus making it the second-largest player in the film-exhibition business.

    Apart from the rankings and consolidation, there is another crucial aspect to the acquisition of Fame. The acquisition doesn't just involve the film-exhibition business of Fame, but it brings along Fame's film distribution subsidiary, Shringar Films Ltd, and food courts and restaurant management subsidiary, Big Pictures Hospitality Services Pvt Ltd.

    Fame also holds a 50% stake in Headstrong Films Pvt Ltd (a film-production unit) and Swanston Multiplex Cinemas Pvt Ltd (primarily engaged in managing a multiplex in a Mumbai suburb), thus making the acquisition deal a complete package.

    With both the parties trying to become market leaders in this business, the battle is bound to heat up in the future. Amidst this scuffle, the debt of over Rs100 crore on Fame's account books seems to have taken a backseat.

    On Thursday, Fame India ended 0.06% down at Rs85; Inox surged 5.18% to Rs66.05 and RML shares inched up 1.04% to Rs218.40 on the Bombay Stock Exchange. The BSE 30-share Sensex closed 164.9 points up at 17,692.60 points.

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