The Karnataka High Court recently emphasised that telecom service providers who enable SIM swap fraud through negligent issue of duplicate SIMs must be held fully liable for the consequential loss of money.
Justice Suraj Govindaraj underscored that verification of a subscriber's identity before a replacement or issuance of a duplicate SIM is not just an empty formality, particularly in the present-day era of digital finance transactions.
"It (verification before SIM issue) is a critical security measure upon which the financial safety of millions of bank account holders depends," the Court said.
Therefore, telecos found to have acted negligently or dishonestly while issuing duplicate SIMs must be held fully liable to compensate for the losses suffered by the customer due to ensuing cyberfraud, the Court observed.
The Court was dealing with a case in which Sri Basaveshwara Pattana Sahakara Bank Niyamitha, a cooperative bank holding a BSNL number, lost around ₹87 lakh from its bank account through a SIM swap fraud in 2019. The cooperative bank blamed BSNL for being negligent in issuing a duplicate SIM carrying the bank's number to a fraudster. The cooperative bank argued that this enabled the diversion of One Time Password (OTPs) required to transfer the bank's money to the holder of the duplicate SIM (fraudsters).
The High Court agreed that BSNL had been negligent and breached a duty of care that it owed to its customer, when its employee negligently issued a duplicate SIM without proper verification.
Justice Govindaraj noted that if proper verification had been carried out by BSNL, a duplicate SIM would not have been issued and the cyber fraud would not have taken place.
“The very fact that a duplicate SIM reached a non-subscriber is proof that verification was either not conducted, or was conducted in so perfunctory a manner as to be worthless," it added.
The Court further emphasised that telecom service providers like BSNL are critical infrastructure providers who hold in trust the mobile connectivity upon which millions of citizens and institutions depend for their financial security.
"With this position of trust comes an unequivocal obligation: to guard the gate conscientiously, to verify identity rigorously before issuing duplicate SIM cards, and to treat every such request with the gravity it deserves," the Court said.
When a telecom service provider issues a duplicate SIM carelessly, it does not merely cause harm to one subscriber, it introduces a systemic vulnerability into the digital financial architecture, the Court pointed out.
Therefore, the responsibility of telecom service providers like BSNL in the digital economy is not merely private and contractual - it is systemic and public, the Court underscored.
It also flagged concerns about the rise of SIM swap frauds in India and called for strict adherence to regulatory safeguards to tackle such cyberfraud.
"This Court notes with concern the pattern of SIM swap fraud in India. Reports from the Reserve Bank of India, the Ministry of Home Affairs, and State police cybercrime units consistently rank SIM swap fraud among the most prevalent and damaging forms of digital financial fraud ... In virtually all such cases, the fraud is enabled by the issuance of a duplicate SIM without proper verification at the telecom service provider's end," the judgment said.
In view of the above, the Court proceeded to order BSNL to pay ₹50.5 lakh as compensation to cover the losses that were not recovered or credited back to the bank. Additionally, BSNL was ordered to pay an additional ₹5 lakh as damages to make up for the difficulties faced (operational disruptions, liquidity crisis) by the bank due to the cyberfraud.
“Courts must send a clear message through their judgments that telecom service providers who enable SIM swap fraud through their negligence will be held fully accountable in civil law for the losses they cause... Where a telecom service provider's negligence or its official's misconduct directly enables a SIM swap fraud, the telecom service provider bears full civil liability for the consequential loss," the Court further highlighted.
Advocate Mahesh R Uppin represented the co-operative bank. Advocate M Mohan Rao appeared for Canara Bank. Advocate Gangadharaiah AN represented BSNL.
[Read Judgment]