LEGAL IMPLICATION OF E-BANKING IN INDIA
Updated: Sep 9
Author: Kritika Mundra, V year of B.Com.,LL.B(Hons.) From Amity University, Kolkata
In Today’s world, there has been an increase in the no of online service providers. One of such increasing online services is that of E-Banking or online Banking. The satisfaction of customer is imperative. This paper focuses on tracing the present growth in E-Banking, and fills the gap about a customer’s prospective in regards with E-Banking. It also identifies weaknesses and helps in exploring the consumer awareness. It also highlights various strategies which can be adopted by a bank for the growth of E-Banking.
In most of the developed countries, Banking sector has always been an area with continuous improvement. The basic objective behind such continuous development was to meet the changing needs of the customers. E-Banking has been developed as a saviour in the 21st Century.
The banking system in the country has helped not only the people to inculcate the habit of savings, but also has helped in the development of the country.
Electronic or E- Banking is defined as a new method of banking, where a customer gets access to a wide variety of services over the internet, and which is completely safe and secure. It helps in the promotion of caseless transactions. It facilitates customers to avail various banking services through internet, at any point of time and according to their convenience.
The biggest example of Electronic Banking can be ATM (Automated Teller Machine). It is widely used by people across the world. It has emerged as a better option for withdrawing small amount of money, rather than waiting in long ques at the banks. Without the use of Debit or Credit Cards, ATM machine is of no use. These cards help in easy payment or withdrawal of money. Payments, so made are hassle free payments.
Thus, we can say that the E- Banking has made our lives very simple as everything can be done quickly, without actually visiting the bank. The IT has played an important role in the development of the E-Banks.
The paperwork which was involved in the traditional way of banking acted as a solid proof prior the introduction of internet banking. The concept of E-Banking was very new for the people and such a change was initiated with increase in the use of mobile phones in the country.
As many people were connected electronically, there was an initiative to connect them with the banks as well. Many people were not willing to accept this change in technology, but eventually they understood the benefits attached with the same. People were satisfied with the ease of receiving notifications with regards to their bank transactions and details.
There are various factors that are responsible for the emergence of this method of banking, the most prominent one being psychological reasons and trust. Trust played a vital role before the acceptance of such new technology.
Before the development of E-Banking, the customer had no option but to reach the banks in person, if they wanted to enquire about a particular transaction and to get their bank details. If the banks were deducting some amount, the account holder were not informed regarding the same immediately. But, after the introduction of E-Banking, the customers have built in a sense of security as they get instant information relating to any transaction that have taken place.
In today’s era, E-banking has become important as:
It removes the barriers for reaching the Banks, as now Banks can be accessed from any part of the world. Hence, making any payment relating becomes easy via E-Banking.
E-Banking is cost effective to banks as provides user-friendly platforms to all its customers.
It offers Bank Transaction 365 days a year and even on holiday hours, and also during the pandemic situation like COVID-19.
LEGAL ISSUES RELATING TO E-BANKING
The legal frameworks which govern the Banking system in the country are:
Reserve Bank of India Act,1934
Banking Regulation Act,1949
Indian Contract Act,1872
Indian Evidence Act,1872
FEMA (Foreign Exchange Management Act),1999
IT (Information Technology Act),2000
Negotiable Instruments Act, 1881
Even the Indian Penal Code provides for provision in case of any frauds caused by such kind of banking.
Though these banks are user friendly, there are various loopholes which causes harm to the security and privacy of a customer at large.
Privacy Risks- Various research shows that the Banking services which is provided through internet are weak and unsecured, which means that the customers are at risk of banking fraud. Even after taking various preventive measure like updating KYC, and biometric verification, the security and privacy issues still exists.
Legal Issues- Irrespective of having certain specific statutes like IT Act,2000 and Indian Penal Code,1860, for preventing cybercrimes, it is increasing with each passing day. This states that there are lacunas in the present Acts, which needs to be changed.
PROVISIONS OF INFORMATION TECHNOLOGY ACT,2000 AND INIDAN PENAL CODE,1860
INFORMATION TECHNOLOGY ACT,2000
S-3(2) of the Act, is a specific section which provides provision for a particular technology such as authenticating the records like the servers of Banks, which extend the E-Banking facilities.
Any Banking transactions require retention of various documents electronically and S-4 of the Act gives legal recognition to these electronic records.
Every transaction which is entered electronically, is recognised under the IT Act,2000. S-10A of the Act gives validity to these transactions and henceforth, without these provisions, no internet banking transaction could be challenged in any court.
Section 66 of the Act penalizes a number of acts which are related to theft done on computer system. Examples of theft that can be done are: hacking, introducing and spreading viruses through computer networks, etc. S-72 of the ACT states the liability in case of breach of privacy of the customers S-72 states that any person who has secured access to any electronic record or register, without the consent of the person whose record has been accessed, shall be punishable with imprisonment of a term of 2 years or fine of Rs. One Lakh, or even both. S-79 acts as a saving clause. It provides immunity to a service provider and excludes them from the liability in case any illegal activity is caused by a third person from their network.
In the year 2011, RBI had constituted a committee which is known as G. Gopalkrishna Working Group for reviewing the privacy and security measures in E-Banking services.
INDIAN PENAL CODE,1860
The provisions of Indian Penal Code,1860, which is related with E-banking are as follows:
Theft of Data- As per S-378 of IPC, theft includes theft of data which is available online. There are various ways by which a data can be stolen like by way of hacking, virus, destroying the computer systems. Punishment for data theft is provided under S-379 of the Code which may extend to 3years pf imprisonment or fine or both. S-424 of the code bars the data theft in India by punishing any person who dishonestly or fraudulently conceals the data.
Receipt of Stolen Property- If any person receives any property stolen from any e-banking transaction, would be held liable under S-411 of the Code and shall be liable to imprisonment up to 3 months or fine or both. This section corresponds with S-66B of the IT Act,2000, which highlights the punishment for dishonestly receiving any stolen computer resources.
Personification- S-411 of the Code provides for punishment for cheating by personification. S-66C of IT Act also provides for punishment for the same.
Criminal Breach of Trust- Any person who misappropriates any movable property like computer device or any electronic device which was entrusted to that person for some lawful purpose, shall be punished under S-406 of the Code.
Forgery- Any transaction forgery which is made in internet banking, by giving false documents, would be punishable for imprisonment which may extend to seven years and fine.
Apart from IT Act and IPC, there are few other legislations, which governs E-Banking in India. They are:
Income Tax Act,1961- S-40A (3) of the Act benefits to only those account holder where the money is transferred either through E-Banking or by a cheque. This helps in prevention of tax evasion and brings all transaction which are above Rs. 20,000 under the purview of the concerned banks.
Negotiable Instrument Act,1881- Under S-6 of the Act, the concept of E-cheques and truncated cheques were added. These cheques also form a part of negotiable instruments in electronic format and hence comes under the concept of E-Banking.
These also maintain minimum safety requirements, in order to protect the interest of its customers.
Consumer Protection Act,1986- the definition of services given under the act also includes Banking services. Thus, any issues relating to privacy or security, rights and duties of the customers and the banks are protected by this Act.
The Banking system is an integral part of our country. It has become a life-blood for the growth of the economy. With the increase in E-Banking services, there has also been an increase in the Cyber as well as Bank frauds. There is a need to ensure that the cyber laws become firmer in order to control the frauds. It is the duty of the banks and the NBFCs to maintain the confidential information of the customers a secret and there must be a statutorily recognised while imposing penalty to those authorities of the Bank in case of violation and leak of any information.
Some strict measures like Biometric Authentications at the ATM Machines or in the E-Banking portal, should be opted, to increase the security of the customers and the installation of the same should be made mandatory by RBI. Every bank must have a cyber grievance cell, which could directly control and deal with the banking frauds.