Madras High Court orders RBI to direct Paytm to compensate doctor who lost ₹3 lakh to hackers; says Paytm liable to protect customers

The Madras High Court recently ruled that though digital payment platform, Paytm is a private entity and not a bank amenable to writ jurisdiction, it still cannot evade its liability to protect its customers as per the guidelines of the Reserve Bank of India (RBI) [Dr R Pavithra v The Commissioner of Police]. .Justice RN Manjula, therefore, directed the RBI to issue directions to Paytm to compensate a post-graduate medical student who had lost around ₹3 lakh to fraudulent transactions on Paytm.Investigations into the petitioner Pavithra's complaints had revealed that two persons had hacked into her savings bank account and siphoned off the money to their Paytm accounts using the latter's digital payment interface. Both her Bank, the City Union Bank, and Paytm had refused to accept responsibility for the illegal transactions. While Paytm told the Court it did not come under the Court's jurisdiction, the RBI told the Court it does not interfere in transactions between "regulated entities and their customers."The High Court, however, said that while every institution was shifting the blame from itself to another, the petitioner must not suffer for no mistake of hers. ."Even though the public is encouraged to use payment banks such as Paytm, Google Pay, Amazan Pay, etc., the customer is made to run from pillar to post, in case he is affected due to any 3rd party violations or fraudulent intervention. What is surprising is that even when the RBI has issued detailed master directions for both banks and Prepaid Payment Instruments [PPI], every institution shifts the blame upon the other and no one has come up with a concrete idea as to who has to bear the loss suffered by the petitioner, for none of her mistakes," the Court said..The Court further said that the petitioner had promptly given her complaint to her bank, which in turn, had communicated the same to Paytm. It also noted that as per RBI circulars, Paytm had to establish within 90 days of the incident that the petitioner herself was liable for the loss.However, it had failed to do so.Thus, as per the RBI guidelines, the amount was to be repaid to the customer irrespective of whether negligence was on her part or not, the Court said."The violations are crystal clear, and the 6th respondent (RBI) has got the obligation to intervene when to the knowledge of the 6th respondent, the 10th respondent (Paytm) continues to violate the RBI guidelines and adopts an unfriendly attitude towards its users," the High Court said..Hence, it ordered RBI to direct Paytm to make good the loss. "In the result, this Writ Petition is allowed. However, the relief is modified to the effect that the 6th respondent is directed to issue directions to the 10th respondent to make good the loss suffered by the petitioner without any other reduction, except the reduction of the amount, if any already reversed to the account of the petitioner in pursuant to the earlier order of this Court, within a period of two weeks," the order said..Advocate Sharath Chandran appeared for the petitioner. Government Advocate A Gopinath appeared for the State police. Advocate VS Rishwanth and T Poornam appeared for the RBI. Advocates Shivakumar and Suresh appeared for Paytm. .[Read Order]