Module: General Practice
Q186: Scenario: A branch manager opens a current account for a new customer, Mr. Fraud, accepting only a generic electricity bill as proof of address, without obtaining an officially valid document (OVD) or verifying the identity as per RBI KYC norms. Two days later, Mr. Fraud deposits a stolen crossed cheque of 50 Lakh Rupees into this account. The bank collects the proceeds. It is later found that Mr. Fraud was an imposter. Is the collecting banker protected under Section 131?
✅ Correct Answer: C
The protection under Section 131 is strictly conditional on the banker acting "Without Negligence." The courts and the RBI have established that negligence is not just about the act of collecting the cheque, but extends to the opening of the account.
Failure to follow mandatory KYC (Know Your Customer) norms—such as obtaining Officially Valid Documents (OVD) like Aadhaar, Passport, or Voter ID—is considered "Statutory Negligence." Since the bank failed to verify the customer's identity properly at the gateway (account opening), they lose the statutory shield of Section 131.
Consequently, the bank is liable to the true owner for the wrongful conversion of the funds.
Failure to follow mandatory KYC (Know Your Customer) norms—such as obtaining Officially Valid Documents (OVD) like Aadhaar, Passport, or Voter ID—is considered "Statutory Negligence." Since the bank failed to verify the customer's identity properly at the gateway (account opening), they lose the statutory shield of Section 131.
Consequently, the bank is liable to the true owner for the wrongful conversion of the funds.