SRI BASAVESHWARA PATTANA SAHAKARA BANK NIYAMITHA vs. CANARA BANK

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®




IN THE HIGH COURT OF KARNATAKA AT BENGALURU

ST
DATED THIS THE 1 DAY OF JUNE, 2026

BEFORE


THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ

WRIT PETITION NO. 16104 OF 2025 (GM-RES)

C/W

WRIT PETITION NO. 4674 OF 2025 (GM-RES)



IN W.P.NO.16104/2025
BETWEEN

SRI BASAVESHWARA PATTANA SAHAKARA BANK NIYAMITHA
(A SOCIETY REGISTERED UNDER KCS ACT, 1959)
H.K. RASTE, NEAR BUS STAND,
SHIRALKOPPA,-577428
SHIVAMOGGA DISTRICT
REPRESENTED BY:SECRETARY.

...PETITIONER
(BY SRI. MAHESH R. UPPIN., ADVOCATE)

AND









Digitally signed
by SHWETHA
RAGHAVENDRA
Location: HIGH
COURT OF
KARNATAKA
1. CANARA BANK

SHIRALKOPPA BRANCH,
SHIRALKOPPA-577428,
SHIVAMOGGA DISTRICT.
BY ITS MANAGER.


2. THE GENERAL MANAGER,
TELCOM DISTRICT,
BSNL BHAVAN, SAGAR ROAD,
SHIVAMOGGA -577205
3. THE CPIO/DGM (ADMN),
O/O. PGM BANGALORE TELCOM
DISTRICT,

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TELEPHONE BHAVAN,
RAJ BHAVAN ROAD,
BENGALURU-560001

…. RESPONDENTS
(BY SRI. M.MOHAN RAO., ADVOCATE FOR R1;
SRI. GANGADHARAIAH. A.N., ADVOCATE FOR R2)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 & 227
OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDR
DT: 09.08.2024 PASSED BY THE PERMANENT LOK ADALT AT
MANGALURU, DAKSHINA KANNADA IN CASE BEARING
NO:PLD.64/2021 MARKED AS ANNEXURE-F BY ISSUING A WRIT IN
THE NATURE OF CERTIORARI AND ETC.

IN W.P.NO.4674/2025
BETWEEN


1. THE GENERAL MANAGER
TELECOM DISTRICT
BSNL BHAVAN, SAGAR ROAD
SHIVAMOGGA - 277205

2. THE CPIO/DGM (ADMN.,)
O/O. PGM BANGALORE TELECOM DISTRICT
TELEPHONE BHAVAN, RAJ BHAVAN ROAD
BENGALURU – 560001
...PETITIONERS
(BY SRI. GANGADHARAIAH A.N., ADVOCATE)

AND


1. CANARA BANK
SHIRALKOPPA BRANCH,
SHIRALKOPPA-577428,
DISTRICT SHIVAMOGGA
REP BY ITS MANAGER.


2. THE BASAVESHWARA PATTANA
SAHAKARA BANK NIYAMITHA,
H.K. RASTE, NEAR BUS STAND,
SHIRALKOPPA-577428
DIST:SHIVAMOGGA
REP BY ITS SECRETARY

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3. THE STATE OF KARNATAKA
REP BY THE POLICE INSPECTOR,
CYBER CRIME POLICE STATION,
BANGALORE
…. RESPONDENTS
(BY SRI. M.MOHAN RAO., ADVOCATE FOR R1;
SRI. MAHESH R. UPPIN., ADVOCATE FOR R2;
SRI. MAHANTESH SHETTER, AGA FOR R3)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 & 227
OF THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE LOK
ADALATH AWARD/ORDER PASSED IN PLD NO.64/2021 DATED
09.08.2024 PASSED BY THE PERMANENT LOK ADALATH, DAKSHINA
KANNADA AS PER ANNEXURE-A AND CONSEQUENTLY DISMISS THE
ND
PETITION FILED BY THE 2 RESPONDENT. FURTHER PASS SUCH
OTHER ORDER/S OR RELIEF/S AS DEEM FIT TO GRANT IN THE
FACTS AND CIRCUMSTANCES OF THE CASE, IN THE INTEREST OF
JUSTICE AND EQUITY.

THESE WRIT PETITIONS COMING ON FOR ORDERS AND
HAVING BEEN RESERVED FOR ORDERS ON 25.02.2026, THIS DAY,
THE COURT PRONOUNCED THE FOLLOWING:

CORAM: HON'BLE MR. JUSTICE SURAJ GOVINDARAJ

CAV ORDER


1. The Petitioners in W.P.No.4674/2025 are before this
Court seeking for the following reliefs:
“Set aside the Lok Adalath Award/Order passed in
PLD No.64/2021 dated 09.08.2024 passed by the
Permanent Lok Adalath, Dakshina Kannada as per
Annexure-A and consequently dismiss the petition
nd
filed by the 2 respondent. Further pass such other
order/s or relief/s as deem fit to grant in the facts
and circumstances of the case, in the interest of
justice and equity.”

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2. The Petitioner in W.P.No.16104/2025 is before this
Court seeking for the following reliefs:
a. Quash the Order dated:09.08.2025 passed by the
Permanent Lok Adalat at Mangaluru, Dakshina
Kannada in case bearing No. PLD.64/2021 marked as
Annexure-F by issuing a writ in the nature of
Certiorari.

b. Issue a writ in the nature of Mandamus directing the
Permanent Lok Adalat at Mangaluru, Dakshina
Kannada to hold fresh enquiry and pass fresh order
in case No.PLD No.64/2021; and

c. Pass such other orders as deems fit to grant under
the circumstances of the case in the interest of
justice.


Facts in WP No.4674/2025

3. The petitioners are the General Manager and Central
Public Information Officer/Deputy General Manager
of BSNL. Respondent No.2 – Basaveshwara Pattana
Sahakara Bank Niyamitha (hereinafter referred to as
“the Co-operative Bank”) initiated proceedings before
the Permanent Lok Adalat under Section 22A(b) read
with Section 22C of the Legal Services Authorities
Act, 1987, seeking recovery of a sum of
Rs.50,50,762/- together with interest at 15% per
annum from 17.02.2019 till realisation and further
compensation of Rs.20,00,000/- towards alleged

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financial loss, loss of credibility and reputation, and
other consequential damages.

4. The Co-operative Bank was established in the year
1913. It maintained a current account with
Respondent No.1 – Canara Bank (hereinafter referred
to as “Canara Bank”), in which it also maintained the
requisite Cash Reserve Ratio (CRR). The Co-operative
Bank had availed internet banking facilities from
Canara Bank by registering a BSNL mobile number.
Whenever online transactions were undertaken
through the said current account, One-Time
Passwords (OTP) required for authentication of such
transactions were received on the said registered
BSNL mobile number.

5. On 07.02.2019, the Co-operative Bank noticed seven
unauthorised transactions involving
transfer/withdrawal of funds from its current account
through RTGS/NEFT between 06.02.2019 and
07.02.2019, aggregating to Rs.87,70,000/-. Out of
the said amount, a sum of Rs.30,00,000/- was
subsequently reverse-credited to the account of the
Co-operative Bank. Immediately upon discovering
the unauthorised transactions, the Co-operative Bank
informed Canara Bank and lodged a complaint before

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the Cyber Crime Police Station, Bengaluru, on
08.02.2019.

6. Upon enquiry, it was allegedly discovered that certain
unknown persons had obtained a duplicate SIM card
pertaining to the registered mobile number of the
Co-operative Bank from the BSNL office at Bengaluru
and had thereby gained access to the OTP
mechanism associated with the Co-operative Bank’s
internet banking operations. Using such access, the
said persons are stated to have effected
unauthorised online transfers from the account
maintained with Canara Bank.

7. The Co-operative Bank alleged that the aforesaid
incident occurred solely due to negligence and lapses
on the part of officials of BSNL in issuing a duplicate
SIM card without any request, authorisation or
consent from the Co-operative Bank. During the
course of investigation, the Cyber Crime Police
recovered a sum of Rs.7,12,238/-, which was
subsequently released to the Co-operative Bank
pursuant to orders of the competent Court. However,
the remaining amount could not be recovered.

8. Thereafter, on 28.01.2021, the Co-operative Bank
issued a legal notice to BSNL and Canara Bank.

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Pursuant thereto, proceedings were initiated before
the Permanent Lok Adalat in PLD No.64/2021.

9. Upon service of notice, BSNL entered appearance
and filed its statement of objections. Though Canara
Bank entered appearance, it did not file any
objections.

10. In its objections, BSNL contended that the alleged
fraud was attributable to internal lapses within the
Co-operative Bank and that there existed a nexus
between the persons who perpetrated the fraud and
the officials of the Co-operative Bank and/or Canara
Bank. It was further contended that the Co-operative
Bank and Canara Bank had failed to maintain
confidentiality with respect to the internet banking
login credentials and passwords. On such basis,
BSNL denied any negligence or liability in respect of
the transactions carried out from the Co-operative
Bank's account. BSNL further contended that criminal
proceedings had already been initiated and an
investigation was underway, and therefore, the
proceedings initiated against BSNL were premature
and liable to be dismissed.

11. The matter was thereafter referred for conciliation on
several occasions. Since no settlement could be

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arrived at between the parties, the Permanent Lok
Adalat proceeded to adjudicate the dispute on
merits. Evidence was adduced by the parties and,
upon consideration thereof, the Permanent Lok
Adalat partly allowed the claim petition and directed
BSNL to pay compensation of Rs.5,00,000/- together
with interest at 6% per annum from 01.03.2021 until
realisation, payable within three months from the
date of the order. The claim against Canara Bank
came to be dismissed.

12. Aggrieved by the said order, BSNL has filed the
present writ petition in W.P. No.4674/2025.
Facts in WP No.16104/2025:

13. The above writ petition has been filed by the Co-
operative Bank. Respondent No.1 therein is Canara
Bank and Respondent No.2 is BSNL. The challenge in
the present writ petition is also directed against the
very same order dated 09.08.2024 passed by the
Permanent Lok Adalat. The factual matrix giving rise
to the proceedings remains substantially identical
and therefore need not be repeated in detail.

14. The Co-operative Bank contends that during the
course of investigation, the Cyber Crime Police were

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able to recover only a sum of Rs.7,12,238/- by
defreezing the account of the accused persons and
releasing the said amount in favour of the Co-
operative Bank. Further, a sum of Rs.30,00,000/-
had been reverse-credited to the account of the Co-
operative Bank. Thus, according to the Co-operative
Bank, after giving credit to the aforesaid amounts, a
sum of Rs.50,50,762/- remained unrecovered and
continued to represent the actual loss suffered by it.

15. It is further contended by the Co-operative Bank that
the award of compensation of only Rs.5,00,000/- by
the Permanent Lok Adalat, despite the unauthorised
withdrawal of Rs.87,70,000/- from its account, is
wholly arbitrary and unsustainable in law.

16. The Co-operative Bank further contends that the
unauthorised transactions could not have taken place
but for the issuance of a duplicate SIM card by BSNL
without any request, consent or knowledge of the
Co-operative Bank. It is contended that such
issuance of the duplicate SIM directly facilitated
access to the One-Time Passwords (OTP) associated
with the internet banking facility, thereby enabling
the fraudulent transfer of funds.

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17. Sri.A.N.Gangadharaiah, learned counsel for BSNL,
would submit that:

17.1. The order passed by the Permanent Lok Adalat
directing BSNL to pay compensation of
Rs.5,00,000/- is perverse and unsustainable in
law.

17.2. According to him, the Permanent Lok Adalat
lacked jurisdiction to adjudicate the dispute
referred to it under Section 22C of the Legal
Services Authorities Act, 1987. The Permanent
Lok Adalat could only conduct conciliation
proceedings and assist the parties in arriving at
an amicable settlement in an independent and
impartial manner and could not assume
adjudicatory powers in respect of the dispute.
He therefore submits that the Permanent Lok
Adalat exceeded its jurisdiction in entertaining
and deciding the matter, particularly when the
dispute related to allegations of fraud and non-
compoundable offences in respect of which
criminal proceedings had already been initiated
before the Cyber Crime Police.

17.3. He refers to Section 22-A(b), of the Legal
Services Authorities Act, 1987 reads as under:-

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22A. (b) “ public utility service ” means any—

(i) transport service for the carriage of
passengers or goods by air, road or water; or

(ii) postal, telegraph or telephone service; or

(iii) supply of power, light or water to the public
by any establishment; or

(iv) system of public conservancy or sanitation; or

(v) service in hospital or dispensary; or

(vi)insurance service,

and includes any service which the Central
Government or the State Government, as the
case may be, in the public interest, by
notification, declare to be a public utility service
for the purposes of this Chapter.



17.4. By referring to Section 22-A(b) he submits that
the jurisdiction of the Permanent Lok Adalat
extends only to disputes concerning a public
utility service as defined under the Act.
According to him, though BSNL may otherwise
fall within the ambit of a public utility service
being a provider of telephone services, the
dispute in the present case is not one relating
to the provision of telecommunication services
as such, but concerns allegations of cheating,
fraud and criminal misconduct by certain
individuals. He submits that the dispute

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substantially arises out of alleged unauthorised
and fraudulent acts committed by third parties
and not from any deficiency in the
telecommunication service rendered by BSNL.

17.5. Learned counsel submits that the substance of
the dispute and not merely the identity of the
service provider is required to be examined
while determining jurisdiction under Section
22A(b). According to him, merely because
BSNL is a provider of a public utility service,
every dispute in which BSNL is arrayed as a
party would not automatically become
amenable to the jurisdiction of the Permanent
Lok Adalat.

17.6. Learned counsel further submits that where the
allegations relate to fraud, impersonation,
criminal conspiracy and offences requiring
detailed adjudication upon evidence, such
disputes travel beyond the limited scope
contemplated under Chapter VI-A of the Legal
Services Authorities Act. He submits that the
adjudicatory mechanism before the Permanent
Lok Adalat was intended for resolution of
disputes concerning deficiencies or obligations

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arising out of public utility services and was not
intended to adjudicate upon allegations
involving criminality and disputed questions
requiring a detailed trial.

17.7. On that basis, he submits that the Permanent
Lok Adalat lacked jurisdiction to entertain the
proceedings and consequently the award
passed is liable to be set aside.

17.8. He refers to Section 22-C of the Legal Services
Authorities Act, 1987 reads as under:-
22C. Cognisance of cases by Permanent Lok
Adalat .—(1) Any party to a dispute may, before the
dispute is brought before any court, make an
application to the Permanent Lok Adalat for the
settlement of dispute:

Provided that the Permanent Lok Adalat shall not have
jurisdiction in respect of any matter relating to an
offence not compoundable under any law:

Provided further that the Permanent Lok Adalat shall
also not have jurisdiction in the matter where the
value of the property in dispute exceeds ten lakh
rupees:

Provided also that the Central Government, may by
notification, increase the limit often lakh rupees
specified in the second proviso in consultation with the
Central Authority.

(2) After an application is made under sub-section(1)
to the Permanent Lok Adalat, no party to that
application shall invoke jurisdiction of any court in the
same dispute.

(3) Where an application is made to a Permanent Lok
Adalat under sub-section(1), it—

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(a) shall direct each party to the application to file
before it a written statement, stating therein the facts
and nature of dispute under the application, points or
issues in such dispute and grounds relied in support of,
or in opposition to, such points or issues, as the case
may be, and such party may supplement such
statement with any document and other evidence
which such party deems appropriate in proof of such
facts and grounds and shall send a copy of such
statement together with a copy of such document and
other evidence, if any, to each of the parties to the
application;

(b) may require any party to the application to file
additional statement before it at any stage of the
conciliation proceedings;

(c) shall communicate any document or statement
received by it from any party to the application to the
other party, to enable such other party to present
reply thereto.

(4) When statement, additional statement and reply, if
any, have been filed under sub-section(3), to the
satisfaction of the Permanent Lok Adalat, it shall
conduct conciliation proceedings between the parties to
the application in such manner as it thinks appropriate
taking into account the circumstances of the dispute.

(5) The Permanent Lok Adalat shall, during conduct of
conciliation proceedings under sub-section(4), assist
the parties in their attempt to reach an amicable
settlement of the dispute in an independent and
impartial manner.

(6) It shall be the duty of the every party to the
application to cooperate in good faith with the
Permanent Lok Adalat in conciliation of the dispute
relating to the application and to comply with the
direction of the Permanent Lok Adalat to produce
evidence and other related documents before it.

(7) When a Permanent Lok Adalat, in the aforesaid
conciliation proceedings, is of opinion that there exist
elements of settlement in such proceedings which may
be acceptable to the parties, it may formulate the
terms of a possible settlement of the dispute and give
to the parties concerned for their observations and in
case the parties reach at an agreement on the

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settlement of the dispute, they shall sign the
settlement agreement and the Permanent Lok Adalat
shall pass an award in terms thereof and furnish a
copy of the same to each of the parties concerned.

(8) Where the parties fail to reach at an agreement
under sub-section (7), the Permanent Lok Adalat shall,
if the dispute does not relate to any offence, decide the
dispute.



17.9. By referring to Section 22-C he submits that
the statutory scheme governing proceedings
before a Permanent Lok Adalat contemplates a
two-stage process. The first stage concerns
conciliation proceedings, wherein efforts are
made to facilitate an amicable settlement
between the parties and only thereafter, in
certain circumstances contemplated under the
statute, can the Permanent Lok Adalat proceed
further.

17.10. Learned counsel submits that a conjoint reading
of the proviso to Section 22C(1) and Section
22C(8) would indicate that the adjudicatory
powers of the Permanent Lok Adalat are not
unqualified or unrestricted. According to him,
the statute expressly excludes matters relating
to offences which are not compoundable under
law. Therefore, while the Permanent Lok Adalat
may proceed to decide disputes where

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conciliation has failed, such power is confined
only to disputes that do not involve allegations
constituting criminal offences or matters
requiring adjudication of criminal conduct.

17.11. Placing reliance upon Sections 22C(7) and
22C(8) of the Act, learned counsel submits that
though the Permanent Lok Adalat may proceed
to decide a dispute upon failure of settlement,
such power can be exercised only where the
dispute otherwise falls within the statutory
limits of its jurisdiction. According to him, the
present dispute is founded upon allegations of
cheating, impersonation, fraud and criminal
conspiracy, in respect of which criminal
proceedings had already been initiated before
the Cyber Crime Police and investigation was
underway. The gravamen of the dispute,
according to learned counsel, relates to alleged
commission of non-compoundable offences and
not merely deficiency in service.

17.12. Learned counsel would therefore submit that
the Permanent Lok Adalat could not have
assumed adjudicatory jurisdiction by entering
into disputed questions involving alleged

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criminal conduct, determination of culpability
and examination of allegations of fraud
requiring detailed evidentiary analysis. He
submits that the jurisdiction of the Permanent
Lok Adalat stood excluded and consequently
the impugned award passed by it is without
jurisdiction and liable to be set aside.

17.13. Learned counsel further submits that a sum of
Rs.7,12,238/- had already been recovered and
released in favour of the Co-operative Bank,
and a further amount of Rs.30,00,000/- had
been reverse-credited to its account. Apart
from the same, the Co-operative Bank had also
received compensation from the Insurance
Company amounting to Rs.57,65,329/-. In view
thereof, according to him, the Co-operative
Bank has been adequately compensated for the
alleged loss suffered and consequently there
was no justification for directing BSNL to pay an
additional amount of Rs.5,00,000/- together
with interest as compensation.

17.14. Learned counsel further submits that BSNL
itself had initiated necessary action against the
persons involved in the alleged fraudulent acts.

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In this regard, he submits that on 09.04.2025,
the Chief General Manager, BSNL recommended
initiation of departmental disciplinary
proceedings against Mr. Karunakaran, who was
stated to be the official responsible for issuance
of the duplicate SIM card. The recommendation
was forwarded to the Superintendent of Police
for appropriate action. He further submits that
the statement of Mr. Karunakaran had been
recorded on 12.02.2019, 31.07.2023 and
01.10.2024, and that Mr. Karunakaran, having
also been arrayed as an accused in the criminal
proceedings, had been remanded to judicial
custody. On that basis, it is contended that
BSNL had taken all necessary steps against
those allegedly involved in the commission of
the fraud.

17.15. He therefore submits that the Writ petition filed
by BSNL is required to be allowed and the writ
petition filed by the Co-operative Bank is
required to be dismissed.

18. Shri Mahesh R. Uppin, learned counsel appearing for
the Co-operative Bank, would submit as follows:

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18.1. The Secretary of the Co-operative Bank had
entered the witness box and adduced oral
evidence and produced documentary evidence,
all of which had been taken on record by the
Permanent Lok Adalat. Learned counsel submits
that it is upon appreciation of the evidence
placed on record that the Permanent Lok Adalat
arrived at a conclusion regarding negligence
attributable to BSNL. However, having arrived
at such a conclusion, the Permanent Lok Adalat
committed an error in restricting compensation
to only Rs.5,00,000/- without granting the
entirety of the compensation claimed by the
Co-operative Bank.

18.2. Learned counsel submits that the fraudulent
transactions in question could not have
occurred independently or in the ordinary
course. According to him, the sequence of
fraudulent transactions commenced only after a
duplicate SIM card pertaining to the registered
mobile number of the Co-operative Bank came
to be issued without any request, authority,
consent or knowledge of the Co-operative Bank.
The issuance of such duplicate SIM enabled
diversion and interception of One-Time

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Passwords (OTP) associated with internet
banking transactions and thereby facilitated
unauthorised access to the banking system and
consequent transfer of funds.

18.3. It is submitted that the OTP mechanism
constituted the final layer of authentication in
respect of internet banking transactions and
consequently access to such OTP authentication
effectively amounted to access to the banking
account itself. Thus, the unauthorised issuance
of a duplicate SIM was not merely an isolated
procedural lapse, but constituted the originating
and foundational event that enabled the entire
chain of fraudulent transactions.

18.4. Learned counsel submits that the registered
mobile number belonged to the Co-operative
Bank and was directly linked to sensitive
banking operations involving substantial
financial transactions. Therefore, before
issuance of a duplicate SIM card, BSNL was
under an obligation to exercise the highest
degree of care and due diligence in verifying
the identity and authority of the applicant. Such
obligation assumed greater significance having

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regard to the increasing dependence upon
mobile-based authentication systems for
banking and financial transactions.

18.5. Learned counsel would further submit that
telecommunication service providers occupy a
position of trust and confidence in the present
digital ecosystem. Such service providers are
required to maintain strict safeguards and
verification mechanisms while dealing with
services involving issuance or replacement of
SIM cards, since any failure therein would have
a direct impact upon banking security systems
and digital financial transactions.

18.6. Learned counsel further submits that the
duplicate SIM card was admittedly not issued
by an individual acting in his personal capacity
but by an employee functioning within the
framework of BSNL's official structure and while
discharging functions entrusted by BSNL. The
issuance of SIM cards and duplicate SIM cards
forms part of the regular duties and functions
entrusted to BSNL officials and is undertaken
through systems, procedures and infrastructure
established and controlled by BSNL.

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18.7. Learned counsel submits that under settled
principles governing vicarious liability, an
employer is liable for acts and omissions of its
employees committed in the course and scope
of employment. The relevant consideration is
not whether the act complained of was
wrongful, negligent or even fraudulent, but
whether the employee was acting in the
discharge of duties entrusted to him by the
employer.

18.8. It is submitted that the issuance of a duplicate
SIM card was itself an authorised function of
the concerned official. The allegation is not that
the employee performed an act wholly outside
his employment or undertook an independent
activity unrelated to his official functions. The
allegation is that an authorised act was
performed negligently, improperly or in
collusion with third parties. Learned counsel
submits that where an employee misuses
authority vested in him or performs an
authorised act in a wrongful manner, the
employer cannot evade responsibility vis-à-vis
third parties who suffer loss as a consequence
thereof.

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18.9. Learned counsel would further submit that
BSNL itself has admitted initiation of
disciplinary proceedings against Mr.
Karunakaran, who is alleged to have been
responsible for issuance of the duplicate SIM
card. Statements of the said official were
recorded during investigation and he had also
been arrayed as an accused and remanded to
judicial custody. According to learned counsel,
these circumstances demonstrate that the
lapses were not speculative in nature and had
been recognised by BSNL itself. Once BSNL has
acknowledged internal lapses and initiated
disciplinary proceedings, it cannot
simultaneously contend that it bears no
responsibility for the consequences arising
therefrom.

18.10. Learned counsel submits that BSNL cannot
avoid liability merely by contending that its
employee acted negligently or in collusion with
third parties. Acceptance of such a contention
would effectively permit every employer to
escape liability by attributing misconduct to its
employees and would render the doctrine of
vicarious liability wholly ineffective. Any internal

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misconduct by employees may give rise to
independent rights and remedies available to
BSNL against such employees, but such internal
issues cannot defeat the rights of innocent third
parties who have suffered loss.

18.11. Learned counsel further submits that both BSNL
and Canara Bank were under corresponding
obligations to maintain adequate security
measures and safeguards in respect of digital
banking operations and authentication
procedures. The fact that unauthorised
transactions involving substantial amounts were
effected through OTP-authenticated
transactions itself demonstrates serious
deficiencies in the mechanisms maintained by
the concerned entities.

18.12. Learned counsel further submits that the
compensation received from the insurance
company cannot constitute a ground either to
extinguish or reduce the liability of BSNL. The
payment made by the insurer arose out of an
independent contractual arrangement between
the Co-operative Bank and the insurer based

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upon payment of insurance premiums by the
Co-operative Bank.

18.13. It is submitted that the liability of BSNL and the
obligation of the insurer arise from entirely
different legal sources and operate in distinct
fields. The insurer merely discharges a
contractual obligation arising under the
insurance policy, whereas BSNL's liability arises
out of the alleged negligence and wrongful acts
attributable to its officials. Consequently,
discharge of one obligation cannot result in
extinguishment of the other.

18.14. Learned counsel submits that acceptance of the
contention advanced by BSNL would result in
an anomalous situation whereby a wrongdoer
derives benefit from the prudence and foresight
of the injured party. The Co-operative Bank had
independently obtained insurance coverage by
payment of premium and the benefits arising
therefrom cannot be appropriated by BSNL to
avoid or reduce its own liability.

18.15. Learned counsel further submits that a
wrongdoer cannot take advantage of collateral
benefits received by the injured party from

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independent sources. Any amount received
under an insurance policy is a collateral benefit
flowing from an independent contractual
relationship and cannot be utilised as a shield
by the party responsible for the wrongdoing.

18.16. Learned counsel submits that the subsequent
recovery of Rs.7,12,238/- through police
investigation and release of the said amount
pursuant to Court orders, as also the reverse
credit of Rs.30,00,000/- and insurance
reimbursement, are subsequent and
independent events and do not alter the
original liability arising from the wrongful acts
complained of.

18.17. Learned counsel further submits that the
subsequent receipt of insurance proceeds after
nearly two years did not effectively redress the
immediate prejudice suffered by the Co-
operative Bank. On account of the illegal
withdrawals and the delay in settlement of the
insurance claim, the Co-operative Bank was
constrained to utilise funds maintained with
various other banks towards statutory deposits
and operational requirements, thereby

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adversely affecting its liquidity and day-to-day
banking activities.

18.18. It is submitted that the issue is not confined
merely to reimbursement of the amount
withdrawn from the account but extends to all
natural and consequential losses arising
therefrom. The Co-operative Bank was deprived
of use of substantial funds required for conduct
of its banking business and consequently
suffered additional financial prejudice.

18.19. Learned counsel submits that once the
unauthorised issuance of the duplicate SIM card
and the resultant diversion of OTP
authentication is accepted as the originating
cause of the fraudulent transactions, BSNL
becomes liable for all direct and natural
consequences flowing therefrom.

18.20. On all these grounds, learned counsel submits
that BSNL ought to have been held liable for
the entire loss suffered by the Co-operative
Bank together with consequential damages and
that the Permanent Lok Adalat, having accepted
negligence on the part of BSNL, ought to have

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awarded the entire claim instead of restricting
compensation to Rs.5,00,000/-.

19. Sri Mohan Rao, learned counsel appearing for Canara
Bank, would submit that:

19.1. The Co-operative Bank is one of the customers
of Canara Bank and had maintained a current
account with it. He does not dispute that the
mobile number in question had been registered
for the purpose of internet banking operations
in relation to the said account. He also does not
dispute the occurrence of the transactions
between 06.02.2019 and 07.02.2019 involving
an aggregate amount of Rs.87,70,000/-, nor
the fact that a complaint came to be lodged
before the Cyber Crime Police Station on
08.02.2019 immediately upon discovery of the
unauthorised transactions.

19.2. Learned counsel submits that the internet
banking architecture followed by Canara Bank
operates on a multi-factor authentication
process, wherein access to the account requires
use of the customer's login credentials together
with authentication through One-Time
Passwords (OTP) transmitted to the registered

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mobile number. According to him, while the OTP
mechanism forms part of the authentication
process, the primary login credentials, namely
the user identification details and password,
remain exclusively within the knowledge and
control of the account holder.

19.3. Learned counsel submits that the login
credentials and passwords relating to internet
banking are generated and maintained in a
confidential manner and are not accessible to
bank officials. Canara Bank neither stores nor
communicates such confidential credentials to
third parties and therefore could not have
disclosed the same to any person involved in
the alleged fraud.

19.4. It is submitted that for the fraudulent
transactions to have been completed, apart
from access to OTP authentication, access to
the internet banking login credentials would
also have been necessary. Since such
credentials remained within the exclusive
knowledge of the Co-operative Bank and its
authorised officials, learned counsel submits
that if such information had reached

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unauthorised persons, the same could only
have occurred due to compromise or disclosure
at the end of the Co-operative Bank itself and
not due to any act attributable to Canara Bank.

19.5. Learned counsel therefore submits that the Co-
operative Bank had a corresponding obligation
to maintain confidentiality and security of the
internet banking credentials entrusted to its
officials. Any failure to maintain such
confidentiality or any internal compromise of
login credentials would constitute negligence
attributable to the Co-operative Bank itself and
cannot be shifted onto Canara Bank.

19.6. Learned counsel further submits that
immediately upon being informed of the alleged
unauthorised transactions, necessary steps
were undertaken by the bank in accordance
with applicable procedures. According to him,
Canara Bank cooperated with the investigation
and the subsequent recovery proceedings
undertaken by the investigating authorities.

19.7. Learned counsel submits that the proceedings
before the Permanent Lok Adalat did not
disclose any specific allegation of negligence on

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the part of Canara Bank relating to operation of
its banking systems or any failure of its security
architecture. According to him, no independent
material had been placed on record
demonstrating any lapse on the part of Canara
Bank in relation to processing of the
transactions in question.

19.8. Learned counsel further submits that no specific
substantive relief had been sought against
Canara Bank before the Permanent Lok Adalat.
Therefore, according to him, the conclusion
reached by the Permanent Lok Adalat in not
fastening liability upon Canara Bank and in
proceeding only against BSNL cannot be said to
suffer from any illegality.

19.9. On these grounds, learned counsel submits that
Canara Bank cannot be held liable for the losses
alleged to have been suffered by the Co-
operative Bank and that the order passed by
the Permanent Lok Adalat insofar as it declined
to fasten liability upon Canara Bank does not
call for interference.

20. When the matter was pending, a charge sheet came
to be laid by the Cybercrime Police, giving up the

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Manager of BSNL and making allegations against
various other persons. On that basis.
Sri.A.N.Gangadharaiah, learned counsel submitted
that when there is no charge sheet filed against the
officer of BSNL, BSNL cannot be held responsible. On
that ground, he submits that the petition filed by the
Co-operative Bank is required to be dismissed, and
the petition filed by the BSNL is required to be
allowed.

21. Heard Sri.A.N.Gangadharaiah, learned counsel for
BSNL, Sri Mahesh Uppin, learned counsel for the Co-
operative Bank and Sri Mohan Rao, learned counsel
for Canara Bank. Perused papers.


22. The points that would arise for consideration are:

i. Whether the Permanent Lok Adalat had
jurisdiction to adjudicate the dispute
under Section 22C of the Legal Services
Authorities Act, 1987?
ii. Whether the unauthorised issuance of the
duplicate SIM card amounted to
negligence/deficiency in service
attributable to BSNL, and whether the
same constituted the proximate cause for
the loss suffered by the Co-operative
Bank?

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iii. Whether BSNL can be held vicariously
liable for the acts of its officials, and
whether Canara Bank bears any liability in
relation to the disputed transactions?
iv. Whether amounts recovered through
reverse credits, police proceedings and
insurance reimbursement would reduce or
extinguish the liability, if any, of BSNL?
v. Whether the impugned award dated
09.08.2024, passed in PLD No.64/2021,
calls for interference and, if so, to what
extent?
vi. What Order?

23. This Court answers the above points as under:-

24. Answer to Point No. (i): Whether the
Permanent Lok Adalat had jurisdiction to
adjudicate the dispute under Section 22C of the
Legal Services Authorities Act, 1987?

24.1. Sri A.N. Gangadharaiah, learned counsel
appearing for BSNL, raised at the very
threshold a challenge to the jurisdiction of the
Permanent Lok Adalat, Mangaluru, to entertain
and adjudicate the dispute. He contended that
the entire proceedings before the Permanent
Lok Adalat were without jurisdiction and, as a
consequence, the award passed therein is
without legal foundation and must be set aside
in its entirety. He urged that jurisdiction is a

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threshold issue and that, if the forum lacked
jurisdiction, all subsequent proceedings and
findings are void.

24.2. Sri A.N. Gangadharaiah drew this Court's
attention to Section 22-A(b) of the Legal
Services Authorities Act, 1987 (hereinafter
referred to as 'the Act' or 'the LSA Act'), which
defines the expression 'public utility service'. He
read out the provision as follows:
22A. Definitions.— In this Chapter and for the purposes
of sections 22 and 23, unless the context otherwise
requires,—
(a) “Permanent Lok Adalat” means a Permanent Lok
Adalat established under sub-section (1) of section22B;
(b) “public utility service” means any—
(i) transport service for the carriage of passengers or
goods by air, road or water; or
(ii) postal, telegraph or telephone service; or
(iii) supply of power, light or water to the public by any
establishment; or
(iv) system of public conservancy or sanitation; or
(v) service in hospital or dispensary; or
(vi)insurance service, and includes any service which
the Central Government or the State Government, as
the case may be, in the public interest, by notification,
declare to be a public utility service for the purposes of
this Chapter.

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24.3. By refering to Section 22-A(b), Sri
Gangadharaiah submitted that the jurisdiction
of the Permanent Lok Adalat under Chapter VI-
A of the Act is expressly limited to disputes
concerning a 'public utility service' as defined
therein. He acknowledged that BSNL, being a
provider of telephone services, falls within
Section 22-A(b)(ii) of the Act. However, he
emphasised that the identity of the party is not
determinative; what matters is the character of
the dispute.

24.4. The dispute, he argued, involves complex
allegations of cheating, fraud, criminal
conspiracy and impersonation, not an ordinary
deficiency in telecom service.

24.5. Sri Gangadharaiah then specifically drew this
Court's attention to Section 22-C of the Legal
Services Authorities Act, 1987, and particularly
to the first proviso to Section 22-C(1) and to
sub-section (8) thereof which is reproduced
hereunder for easy reference:
22C. Cognizance of cases by Permanent Lok
Adalat .—

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(1) Any party to a dispute may, before the dispute is
brought before any court, make an application to the
Permanent Lok Adalat for the settlement of dispute:
Provided that the Permanent Lok Adalat shall not have
jurisdiction in respect of any matter relating to an
offence not compoundable under any law:
Provided further that the Permanent Lok Adalat shall
also not have jurisdiction in the matter where the value
of the property in dispute exceeds ten lakh rupees:
Provided also that the Central Government, may by
notification, increase the limit of ten lakh rupees
specified in the second proviso in consultation with the
Central Authority.
(2) After an application is made under sub-section(1) to
the Permanent Lok Adalat, no party to that application
shall invoke jurisdiction of any court in the same
dispute.
(3) Where an application is made to a Permanent Lok
Adalat under sub-section(1), it—
(a) shall direct each party to the application to file
before it a written statement, stating therein the facts
and nature of dispute under the application, points or
issues in such dispute and grounds relied in support of,
or in opposition to, such points or issues, as the case
may be, and such party may supplement such
statement with any document and other evidence which
such party deems appropriate in proof of such facts and
grounds and shall send a copy of such statement
together with a copy of such document and other
evidence, if any, to each of the parties to the
application;
(b) may require any party to the application to file
additional statement before it at any stage of the
conciliation proceedings;
(c) shall communicate any document or statement
received by it from any party to the application to the
other party, to enable such other party to present reply
thereto.

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(4) When statement, additional statement and reply, if
any, have been filed under sub-section(3), to the
satisfaction of the Permanent Lok Adalat, it shall
conduct conciliation proceedings between the parties to
the application in such manner as it thinks appropriate
taking into account the circumstances of the dispute.
(5) The Permanent Lok Adalat shall, during conduct of
conciliation proceedings under sub-section(4), assist the
parties in their attempt to reach an amicable settlement
of the dispute in an independent and impartial manner.
(6) It shall be the duty of the every party to the
application to cooperate in good faith with the
Permanent Lok Adalat in conciliation of the dispute
relating to the application and to comply with the
direction of the Permanent Lok Adalat to produce
evidence and other related documents before it.
(7) When a Permanent Lok Adalat, in the aforesaid
conciliation proceedings, is of opinion that there exist
elements of settlement in such proceedings which may
be acceptable to the parties, it may formulate the terms
of a possible settlement of the dispute and give to the
parties concerned for their observations and in case the
parties reach at an agreement on the settlement of the
dispute, they shall sign the settlement agreement and
the Permanent Lok Adalat shall pass an award in terms
thereof and furnish a copy of the same to each of the
parties concerned.
(8) Where the parties fail to reach at an agreement
under sub-section (7), the Permanent Lok Adalat shall,
if the dispute does not relate to any offence, decide the
dispute.

24.6. Learned counsel submitted that the first proviso
to Section 22-C(1) is an express statutory bar
on the jurisdiction of the Permanent Lok Adalat
in respect of 'any matter relating to an offence
not compoundable under any law'. Criminal

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proceedings for cheating and fraud, non-
compoundable offences under the Indian Penal
Code, had already been initiated before the
Cyber Crime Police Station, Bengaluru, at the
time the proceedings were initiated before the
Permanent Lok Adalat. Accordingly, the first
proviso operated as an express exclusion.

24.7. Sri Gangadharaiah submitted that Section 22-
C(8) separately conditions the adjudicatory
power: the Permanent Lok Adalat 'shall, if the
dispute does not relate to any offence, decide
the dispute.' The word 'if' is a condition
precedent. Since the dispute relates to offences
involving cheating, fraud and criminal
conspiracy, in respect of which criminal
proceedings were pending, the condition in
Section 22-C(8) was not satisfied and the
Permanent Lok Adalat had no power to
adjudicate.

24.8. Learned counsel submitted that the summary
adjudicatory mechanism before the Permanent
Lok Adalat cannot substitute for a full
evidentiary trial before a civil or criminal court,
particularly in cases involving fraud and

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disputed questions of fact that require cross-
examination of witnesses and examination of
documentary evidence.

24.9. Sri Gangadharaiah additionally contended that
the value of the property in dispute in the
present case far exceeded Rs.10 lakhs, which
was the original monetary ceiling in the second
proviso to Section 22-C(1). Unless the Central
Government had issued a valid notification
increasing this limit, the Permanent Lok Adalat
also lacked jurisdiction on account of the
monetary threshold.

24.10. Sri Gangadharaiah further submitted, on an
additional and independent ground, that during
the pendency of the proceedings before the
Permanent Lok Adalat, a charge sheet was filed
by the Cybercrime Police, in which the Manager
of BSNL was given up from prosecution for
want of sufficient evidence. He submitted that
when the investigating authority itself, after
thorough investigation, found it unnecessary to
charge the BSNL Manager, the Permanent Lok
Adalat ought not to have held BSNL
responsible.

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24.11. On all the above grounds, Sri Gangadharaiah
urged this Court to hold that the Permanent Lok
Adalat lacked jurisdiction and that the award is
null and void.

24.12. Sri Mahesh R. Uppin, learned counsel appearing
for the Co-operative Bank, submitted that the
Permanent Lok Adalat was fully vested with
jurisdiction. BSNL is indisputably a 'telephone
service' provider, a 'public utility service' under
Section 22-A(b)(ii) of the Act. This is not
disputed by BSNL itself. Accordingly, disputes
involving BSNL's telephone service provision
are, in principle, within the Permanent Lok
Adalat's jurisdiction.

24.13. Sri Uppin submitted that the proceedings
before the Permanent Lok Adalat were civil
proceedings for recovery of monetary
compensation for deficiency in service. The Co-
operative Bank claimed compensation for
financial loss suffered on account of the
negligent issuance of a duplicate SIM card. This
is a civil claim for money arising out of a
deficiency in telephone service, squarely within
the Permanent Lok Adalat's jurisdiction.

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24.14. Learned counsel submitted that the mere
pendency of criminal proceedings before the
Cyber Crime Police Station does not oust the
jurisdiction of the Permanent Lok Adalat over a
civil compensation claim. Civil proceedings and
criminal proceedings arising from the same
facts co-exist as a matter of course in Indian
law. They operate in different spheres, serve
different purposes, and apply different
standards of proof.

24.15. Sri Uppin submitted that the first proviso to
Section 22-C(1) excludes matters 'relating to
an offence not compoundable under any law'.
The dispute before the Permanent Lok Adalat
did not 'relate to an offence', it related to
deficiency in service and consequential civil
compensation. A civil compensation claim does
not 'relate to an offence' merely because the
underlying facts also disclose criminal offences
committed by third parties.

24.16. Sri Uppin submitted that Section 22-C(8) must
be read in harmony with Section 22-C(1) and
its first proviso. The phrase 'if the dispute does
not relate to any offence' in Section 22-C(8)

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refers to disputes that are intrinsically criminal
in nature, whose resolution requires
adjudication of criminal guilt. A civil
compensation claim does not fall within this
category.

24.17. Learned counsel submitted that accepting
BSNL's interpretation would render Chapter VI-
A practically unworkable. Any dispute involving
a public utility service could involve negligent or
fraudulent conduct, which is also potentially a
criminal offence. If every such dispute were
excluded, the purpose of Chapter VI-A,
providing a speedy forum for resolution of
public utility service disputes, would be entirely
defeated.

24.18. Regarding the second proviso (value cap), Sri
Uppin submitted that the Central Government
has, by notification, increased the monetary
ceiling. In any event, this objection was never
raised before the Permanent Lok Adalat, and
BSNL cannot raise it for the first time in writ
proceedings after having participated fully in
the PLA proceedings on merits.

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24.19. Sri M. Mohan Rao, learned counsel appearing
for Canara Bank, did not raise specific
jurisdictional objections to the proceedings
before the Permanent Lok Adalat. His
submissions were primarily directed at
demonstrating that Canara Bank had no liability
in relation to the disputed transactions. He
submitted that the Permanent Lok Adalat had
jurisdiction to examine and decide the matter
and that the finding exonerating Canara Bank
does not call for interference.

24.20. Sri Mahantesh Shetter, learned Additional
Government Advocate appearing for the State
of Karnataka (Respondent No.3), submitted
that the Permanent Lok Adalat is a statutory
forum established under the Legal Services
Authorities Act, 1987, a Central enactment. The
challenge to jurisdiction raised by BSNL is
misconceived; the dispute is properly
characterised as a civil claim for compensation
for deficiency in telephone service, which falls
squarely within the PLA's jurisdiction.

24.21. Learned AGA further submitted that the State
has a legitimate interest in ensuring that

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victims of digital fraud who suffer financial
losses have access to effective legal remedies.
The Permanent Lok Adalat provides such a
forum for public utility service disputes.
Restricting access to this forum on the ground
that the underlying facts also constitute
criminal offences would deprive aggrieved
parties of a speedy remedy, which cannot be
the legislative intent.

24.22. Jurisdiction is the threshold upon which all else
rests. A decree or award passed by a forum
without jurisdiction is a nullity, void ab initio.
This Court must therefore carefully examine the
statutory scheme governing the Permanent Lok
Adalat's jurisdiction before proceeding to the
merits.

24.23. The Permanent Lok Adalat for Public Utility
Services is constituted under Chapter VI-A of
the Legal Services Authorities Act, 1987.
Chapter VI-A was inserted by the Legal
Services Authorities (Amendment) Act, 2002.
Its purpose, as disclosed by the Statement of
Objects and Reasons, was to provide a pre-
litigation forum for the settlement of disputes

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relating to public utility services, to avoid the
delays associated with conventional litigation,
and to promote access to justice. The
Permanent Lok Adalat is a beneficent and
purposive forum, and its jurisdiction should be
interpreted in a manner that advances, not
defeats, this beneficial purpose.

24.24. The jurisdictional gateway is Section 22-A(b),
which defines 'public utility service'. BSNL
provides telephone and telecommunication
services. Section 22-A(b)(ii) specifically
includes 'postal, telegraph or telephone
service'. BSNL therefore falls squarely within
the definition. This is not disputed by BSNL.

24.25. The next question is whether any of the
exclusionary provisos to Section 22-C(1)
applies. The main provision permits any party
to approach the Permanent Lok Adalat 'before
the dispute is brought before any court'. The
first proviso excludes 'any matter relating to an
offence not compoundable under any law'. The
second proviso originally excluded disputes
where 'the value of the property in dispute
exceeds ten lakh rupees'. The Central

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Government has, by notification, increased this
ceiling. Accordingly, the second proviso is not a
bar in the present case.

24.26. The critical exclusion relied upon by Sri
Gangadharaiah is the first proviso. The
expression to be interpreted is: 'matter relating
to an offence not compoundable under any
law'. This Court must give this expression its
proper legal meaning, having regard to the
purpose of the exclusion.

24.27. The word 'relating' in the phrase 'relating to an
offence' is a connecting phrase that requires a
close and direct nexus between the 'matter'
before the Permanent Lok Adalat and 'an
offence'. The object of the exclusion is to
ensure that the Permanent Lok Adalat, a forum
designed for settlement and civil adjudication,
is not used as a mechanism to compound or
otherwise deal with non-compoundable criminal
offences. The State has an overriding interest
in the prosecution of such offences, which
cannot be defeated through the PLA settlement
mechanism. The first proviso protects that
interest.

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24.28. A 'matter relating to an offence' is a matter
whose very substance and resolution requires
an inquiry into whether an offence was
committed, by whom, and what punishment
should follow. A criminal prosecution is the
paradigm example. In contrast, a civil
compensation claim, even one arising from
facts that also constitute criminal offences,
does not 'relate to an offence' in this sense. Its
resolution requires only a determination of civil
liability on the balance of probabilities. It does
not require adjudication of criminal guilt, does
not result in punishment, and does not affect
any State interest in prosecution.

24.29. The proceedings before the Permanent Lok
Adalat were initiated by the Co-operative Bank
as a civil claim for recovery of monetary
compensation for financial loss suffered on
account of deficiency in BSNL's telephone
service. The relief sought was payment of
money as compensation. The Permanent Lok
Adalat was not asked to determine whether any
offence was committed, to convict any person,
or to impose any penalty. These proceedings

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did not 'relate to an offence' within the meaning
of the first proviso.

24.30. The argument of Sri Gangadharaiah that the
'substance' of the dispute is criminal because
fraud and cheating are criminal offences cannot
be accepted. In the Indian legal system,
virtually every fraud gives rise to both civil and
criminal liability. If a civil compensation claim
arising from fraud were excluded from the
PLA's jurisdiction merely because the same
facts constitute criminal offences, no civil claim
involving any element of fraud could ever go
before a Permanent Lok Adalat. This absurd
result cannot reflect the legislative intent
behind Chapter VI-A.

24.31. The first proviso, read in its proper context,
prevents the use of the PLA mechanism to
compound non-compoundable offences through
consensual settlement. It does not, and cannot,
bar genuine civil compensation claims merely
because the underlying deficiency also involved
criminal conduct.

24.32. This reading is confirmed by Section 22-C(8),
which empowers the Permanent Lok Adalat to

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decide the dispute 'if the dispute does not
relate to any offence'. The phrase in Section
22-C(8) is the adjudicatory counterpart of the
exclusion in the first proviso to Section 22-
C(1). Both refer to the same category: disputes
that are intrinsically criminal in nature. A civil
compensation claim for deficiency in service
does not fall within this category even if the
deficiency was caused by criminal conduct on
the part of an employee.

24.33. The issuance of a SIM card, including a
duplicate SIM card, is a core function of BSNL's
telephone service. The allegation against BSNL
is that its official issued a duplicate SIM card
without proper verification and without the
subscriber's authorisation. This act, whether
negligent or fraudulent, is fundamentally an act
performed in the course of providing a
telephone service. Any civil claim for
compensation arising from such an act is a
claim for deficiency in telephone service,
squarely within Section 22-C read with Section
22-A(b)(ii) of the Act.

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24.34. The argument regarding the second proviso
(monetary ceiling) is without merit. BSNL did
not raise this objection before the Permanent
Lok Adalat and chose to participate in the
proceedings and contest the matter on merits.
Having allowed the proceedings to reach
conclusion, BSNL cannot raise a threshold
monetary objection for the first time in these
writ proceedings.

24.35. The contention based on the charge sheet, that
the Cybercrime Police gave up the BSNL
Manager from prosecution, has no bearing on
the question of jurisdiction. Jurisdiction is
determined by the nature and character of the
claim, not by the outcome of parallel criminal
proceedings. The question of what weight the
charge sheet should carry on the merits,
including on the question of BSNL's negligence
and civil liability, is a separate matter that is
addressed under Points 2 and 5. For the limited
purpose of Point 1, it suffices to note that the
filing or non-filing of a criminal charge sheet, or
the inclusion or exclusion of a particular person
from a charge sheet, cannot affect the
jurisdiction of the Permanent Lok Adalat to

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entertain a civil compensation claim for
deficiency in telephone service.

24.36. For all the foregoing reasons, this Court holds
that the Permanent Lok Adalat, Mangaluru, had
full and proper jurisdiction to entertain and
adjudicate the dispute filed by the Co-operative
Bank. The dispute was a civil claim for
compensation for deficiency in telephone
service rendered by BSNL, which is a 'public
utility service' under Section 22-A(b)(ii) of the
Act. The dispute did not 'relate to an offence'
within the meaning of the first proviso to
Section 22-C(1) or Section 22-C(8) of the Act.
The monetary ceiling in the second proviso is
not a bar. The pendency of criminal proceedings
did not oust the jurisdiction of the Permanent
Lok Adalat. All submissions of Sri
Gangadharaiah on jurisdiction are rejected.

24.37. Before analysing the specific provisions in
dispute, it is necessary to set out the full
scheme of Chapter VI-A, as the provisions must
be read as a whole and not in isolation. Section
22-B provides for the constitution of Permanent
Lok Adalats. Section 22-C deals with the

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cognisance of cases. Section 22-D lays down
the procedure to be followed. Section 22-E
declares the finality of awards. The scheme is
as follows: a party files an application before
the Permanent Lok Adalat under Section 22-
C(1). The PLA then invites the parties to appear
and assists them in conciliation under Section
22-C(2) to (7). If a settlement is reached, it is
reduced to an award under Section 22-C(7). If
no settlement is reached, the PLA proceeds to
adjudicate the dispute under Section 22-C(8),
but only 'if the dispute does not relate to any
offence'. The PLA's award is final and binding
under Section 22-E. This scheme reveals the
legislature's intent: the PLA is primarily a
conciliation body. Its adjudicatory role is
secondary and residual. The adjudicatory power
can be exercised only over disputes of a civil
character. The entire chapter is premised on the
concept of 'public utility service' disputes, not
criminal matters.

24.38. The distinction between a conciliation body and
an adjudicatory body is important in
understanding the jurisdictional exclusions.
When the legislature granted the Permanent

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Lok Adalat the power to adjudicate (as opposed
to merely facilitate settlement), it was
conscious that this was a departure from the
purely consensual model of the original Lok
Adalats under Chapter VI of the Act. Original
Lok Adalats can only pass consent awards; they
cannot adjudicate. The Permanent Lok Adalat
under Chapter VI-A, by contrast, can adjudicate
even without the consent of parties. This
greater power comes with greater restraint in
the form of the exclusions under Section 22-
C(1) provisos and Section 22-C(8). These
exclusions must be understood in the context of
the PLA's expanded adjudicatory power, not as
a general bar on entertaining all disputes
involving any connection with criminality.

24.39. The principles of statutory interpretation
applicable to the phrase 'matter relating to an
offence not compoundable under any law' must
be applied carefully. Several principles are
relevant.

24.40. First, the principle of beneficial construction:
Chapter VI-A is a beneficent legislative measure
enacted to provide access to justice and speedy

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resolution for citizens dealing with public utility
service providers. A beneficial statute must be
construed liberally so as to advance, not defeat,
the purpose for which it was enacted.

24.41. Second, the principle of purposive construction:
the purpose of the first proviso is, as this Court
has held, to prevent the compounding of non-
compoundable offences through the PLA
settlement mechanism.

24.42. Third, the principle that exceptions and
exclusions are to be construed strictly: an
exclusion from a beneficent provision must be
given its natural and precise meaning without
enlargement.

24.43. Fourth, the principle that a statute should not
be so construed as to produce an absurd or
unworkable result. Applying all these principles,
the expression 'matter relating to an offence
not compoundable under any law' must be
given a narrow and precise meaning: it applies
to matters that are intrinsically criminal in
nature, not to civil compensation claims that
happen to arise from facts also constituting
criminal offences.

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24.44. The word 'matter' in the expression 'matter
relating to an offence' refers to the subject-
matter of the proceedings before the
Permanent Lok Adalat. The subject-matter of
the proceedings initiated by the Co-operative
Bank was civil compensation for financial loss.
The subject-matter was not criminal
prosecution, not adjudication of guilt, and not
settlement of a criminal dispute. The subject-
matter was a monetary claim arising from a
civil wrong. This is not a 'matter relating to an
offence' by any ordinary or technical meaning
of those words.

24.45. The phrase 'not compoundable under any law'
qualifies the type of offence that triggers the
exclusion. A compoundable offence is one that
can be settled between the parties with
permission of the court or without such
permission, under the Code of Criminal
Procedure. The legislature specifically excluded
'non-compoundable' offences from the PLA's
jurisdiction. The purpose is clear: non-
compoundable offences are those considered so
serious that the State has decided they must be
prosecuted to conviction regardless of a private

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settlement. The legislature did not want the
PLA's settlement mechanism to be used to
bring about a resolution that effectively bars or
impedes prosecution of such offences. This
purpose is served by excluding criminal
matters, where the PLA would be mediating or
adjudicating on the guilt or punishment of an
accused person. It is not served by excluding
civil compensation claims arising from facts
that also constitute non-compoundable
offences.

24.46. The argument that the substance of the dispute
is criminal because it involves cheating and
fraud conflates the civil and criminal dimensions
of the same set of facts. In law, a single
wrongful act can simultaneously give rise to
civil and criminal liability. A person who
defrauds another commits the tort of deceit (or
fraud) and simultaneously commits the criminal
offence of cheating under the IPC and now the
BNS. The defrauded person has two remedies:
(a) a civil suit or a claim before an appropriate
forum for compensation for the loss suffered;
and (b) a criminal complaint seeking
prosecution and punishment of the fraudster.

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These two remedies operate independently of
each other. Pursuing one does not bar pursuing
the other. A finding of civil liability does not
depend upon a finding of criminal guilt, and
vice versa. The existence of a criminal remedy
does not convert the civil remedy into a
criminal matter.

24.47. In the present case, the Co-operative Bank
pursued both remedies. It filed a criminal
complaint before the Cyber Crime Police
Station, which led to the investigation and,
eventually, the charge sheet. Separately, it filed
a claim for civil compensation before the
Permanent Lok Adalat. These are two
independent proceedings before two
independent forums. The Permanent Lok Adalat
was dealing with the civil compensation claim.
Its jurisdiction to deal with that claim cannot be
affected by the fact that a criminal investigation
was underway in respect of the same
underlying facts. Indian law routinely permits
civil and criminal proceedings to run
concurrently, and provides mechanisms to
address any conflict where necessary. There is
no principle of law that a civil forum loses

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jurisdiction over a civil claim merely because
parallel criminal proceedings are pending.

24.48. The reading of Section 22-C(8) as applied to
the present facts reinforces the conclusion on
jurisdiction. The provision states that the
Permanent Lok Adalat 'shall, if the dispute does
not relate to any offence, decide the dispute'.
The word 'shall' indicates a mandatory duty to
adjudicate once the condition is satisfied. The
condition is that the dispute does not relate to
any offence. This condition is satisfied in the
present case, the dispute is a civil
compensation claim and does not relate to any
offence. Therefore, the Permanent Lok Adalat
was not merely empowered but obligated to
decide the dispute. This Court finds it
noteworthy that the Permanent Lok Adalat
discharged this statutory duty by adjudicating
the matter and passing a reasoned award. It
acted precisely as the legislature intended it to
act.

24.49. Sri Gangadharaiah's submission that the PLA's
summary procedure is unsuitable for
adjudicating fraud-related disputes is also

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without merit. The Permanent Lok Adalat has
the power and duty to adjudicate disputes
within its jurisdiction. Questions of procedure,
whether the proceedings are summary or
otherwise, do not affect jurisdiction; they relate
to the manner of exercise of jurisdiction. If
BSNL believed that the proceedings before the
PLA were procedurally inadequate, it should
have raised specific procedural objections at the
appropriate time and in the appropriate
manner. A general argument that fraud-related
disputes require elaborate procedures does not
go to the PLA's jurisdiction. Moreover, the PLA
follows an adversarial procedure, parties file
claims and objections, lead evidence, and make
submissions. The label 'summary' does not
mean that parties are deprived of the
opportunity to present their case.

24.50. This Court also notes that BSNL's interpretation
of the jurisdictional provisions, if accepted,
would produce consequences far beyond the
present case. BSNL's argument, that any
dispute involving criminal fraud is outside the
PLA's jurisdiction, would exclude from the PLA's
jurisdiction the following categories of disputes:

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(a) complaints against insurance companies
involving fraudulent repudiation of claims
(where the company's officers may have
committed criminal fraud); (b) complaints
against power utilities involving meter
tampering (a criminal offence under the
Electricity Act); (c) complaints against postal
services involving theft of parcels (a criminal
offence); and (d) complaints against hospitals
involving criminal medical negligence. In all
these categories, the dispute would involve
facts constituting criminal offences, and yet the
PLA's jurisdiction over the civil compensation
claims would be well-recognised. BSNL's
argument would sweep all these cases out of
the PLA's jurisdiction. This is manifestly not
what the legislature intended, and this Court
cannot adopt an interpretation that produces
such wide-ranging and unintended
consequences.

24.51. There is one further aspect of the charge sheet
argument that requires attention for the sake of
completeness. Sri Gangadharaiah submitted
that the charge sheet, by giving up the BSNL
Manager from prosecution, effectively

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exonerates BSNL from liability. This argument
confuses two entirely distinct matters: (a) the
question of whether the Permanent Lok Adalat
had jurisdiction (which is determined by the
nature of the claim, not by the outcome of
criminal proceedings); and (b) the question of
whether BSNL is substantively liable on the
merits (which involves an assessment of civil
negligence on the balance of probabilities). The
charge sheet argument is relevant, if at all, to
the second question, not to the first. This Court
has deliberately addressed it under Point 1 only
to the extent necessary to clarify that it has no
bearing on jurisdiction. The substantive
assessment of the charge sheet argument on
the question of negligence and civil liability is
addressed fully and separately under Point 2.

24.52. This Court answers Point No.1 by holding that
the Permanent Lok Adalat had jurisdiction to
adjudicate the dispute. The challenge to
jurisdiction is rejected.

25. Answer to Point No. (ii): Whether the
unauthorised issuance of the duplicate SIM
card amounted to negligence/deficiency in
service attributable to BSNL, and whether the

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same constituted the proximate cause for the
loss suffered by the Co-operative Bank?

25.1. Sri Gangadharaiah submitted that the alleged
fraud was not attributable to any negligence or
deficiency in service on BSNL's part. He argued
that the real cause of the fraudulent
transactions was the compromise of the
internet banking login credentials (username
and password) of the Co-operative Bank, which
occurred entirely outside BSNL's domain and
knowledge.

25.2. Learned counsel submitted that to complete the
fraudulent transactions, the perpetrators
needed two distinct items: (a) the internet
banking login credentials of the Co-operative
Bank; and (b) the OTP transmitted to the
registered mobile number. The login credentials
were at all times in the exclusive custody of the
Co-operative Bank and its officials. BSNL had
no access to, and no connection with, these
credentials. If they were compromised, the
breach must have occurred at the Co-operative
Bank's end, possibly through an internal
employee’s deliberate disclosure.

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25.3. Sri Gangadharaiah further submitted that the
Cyber Crime Police, after thorough investigation
including recording Mr. Karunakaran's
statement on multiple occasions (12.02.2019,
31.07.2023 and 01.10.2024), filed a charge
sheet without naming the Manager of BSNL as
an accused. He argued that if the investigating
agency, with all its powers of investigation,
found insufficient evidence against the BSNL
Manager to prosecute him in a criminal court,
the Permanent Lok Adalat's finding of
negligence against BSNL is unsustainable.

25.4. Learned counsel contended that BSNL took
appropriate institutional action upon learning of
the allegations: it recorded Mr. Karunakaran's
statement, the Chief General Manager
recommended initiation of departmental
disciplinary proceedings on 09.04.2025, Mr.
Karunakaran was arrayed as an accused and
remanded to judicial custody.

25.5. Sri Gangadharaiah submitted that these steps
demonstrate that BSNL treated Mr.
Karunakaran's alleged act as his personal

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misconduct, not as an institutional failure of
BSNL.

25.6. Sri. Gangadharaiah further submitted that the
Permanent Lok Adalat arrived at a finding of
negligence without calling for or examining
BSNL's official records relating to the SIM
issuance process, specifically, the subscriber
request form, the identity verification
documents submitted (if any), the system logs
of the SIM issuance transaction, and the
records of the SIM swap activation. He
submitted that in the absence of these official
records, it was impossible for the Permanent
Lok Adalat to determine precisely what
verification was or was not done, who
processed the request, and what protocol was
followed or violated. To hold BSNL negligent
without examining these foundational records
was, he submitted, a conclusion without an
evidentiary basis.

25.7. Sri Uppin submitted that the unauthorised
issuance of the duplicate SIM card was the
originating cause without which the fraud could
not have been carried out. He explained the

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technological architecture of the internet
banking system involved. The Co-operative
Bank maintained a current account with Canara
Bank (Shiralkoppa Branch). This account was
linked to an internet banking facility, and a
BSNL mobile number was registered with
Canara Bank for the purpose of receiving One-
Time Passwords (OTPs). Every RTGS/NEFT
transaction required authentication by an OTP
sent to this registered mobile number. The OTP
was the final and indispensable security layer
before any transaction could be completed.

25.8. Sri Uppin explained the SIM swap fraud
mechanism. The two-factor authentication
(2FA) model works on the principle of
'something you know' (the login credentials:
username and password) and 'something you
have' (the registered mobile phone, which
receives the OTP). The two factors are
independent, and the security of the system
depends on no single point of compromise
being sufficient to enable a fraudulent
transaction. However, if a fraudster obtains a
duplicate SIM card for the registered mobile
number, the original SIM is automatically

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deactivated and all calls and SMS messages,
including OTPs, are diverted to the duplicate
SIM. Armed with login credentials (obtained
through phishing or other means) and the OTPs
received on the duplicate SIM, the fraudster can
then complete transactions at will. This is
exactly what occurred in the present case.

25.9. Learned counsel emphasised that seven
RTGS/NEFT transactions amounting to
Rs.87,70,000/- were effected from the Co-
operative Bank's current account between
06.02.2019 and 07.02.2019. Each transaction
was authenticated by an OTP received on the
duplicate SIM. Without the duplicate SIM, no
OTP could have been intercepted; without the
OTP, no transaction could have been completed.
The duplicate SIM was therefore the necessary
and irreplaceable link in the chain of causation.

25.10. Sri Uppin submitted that the mobile number
registered for OTP purposes was associated
with a banking institution that conducted high-
value transactions. BSNL, as a telecom service
provider operating in the digital economy, is
fully aware that mobile numbers are used for

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OTP-based banking authentication. The
Department of Telecommunications (DoT) and
the Telecom Regulatory Authority of India
(TRAI) have issued detailed guidelines on Know
Your Customer (KYC) norms governing SIM
issuance, including duplicate/replacement SIM
issuance. These guidelines require rigorous
identity verification before a duplicate SIM is
issued. This is not merely a best practice, it is a
regulatory obligation imposed on every telecom
service provider including BSNL.

25.11. Sri Uppin submitted that the Co-operative Bank
made no request for a duplicate SIM card. No
authorised representative appeared before
BSNL seeking such a card. No written
application was submitted. No identity
verification documents were produced on the
Co-operative Bank's behalf. Yet, a duplicate SIM
was issued and the original SIM was
deactivated, all without the Co-operative Bank's
knowledge.

25.12. Sri Uppin relied upon the principle of res ipsa
loquitur, 'the thing speaks for itself'. He
submitted that the ordinary course of events

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does not result in a subscriber's mobile number
being reassigned to a stranger without the
subscriber's knowledge. The very fact that the
duplicate SIM was issued to an impostor
without the legitimate subscriber's knowledge
or consent is, in itself, sufficient evidence of a
fundamental failure in the verification process.
The doctrine of res ipsa loquitur raises a
presumption of negligence, which BSNL must
rebut by producing evidence of the verification
procedure it followed. BSNL has not done so.

25.13. Sri Uppin submitted that the trust factor in the
relationship between a telecom subscriber and
the telecom service provider is fundamental. A
subscriber who registers a mobile number for
internet banking OTPs reposes complete trust in
the telecom service provider to ensure that no
other person can take control of that number.
This trust is the bedrock of the entire OTP-
based digital authentication architecture. When
BSNL, through its official, destroyed this trust
by issuing a duplicate SIM to a fraudster, it
caused direct and irreparable financial harm to
the Co-operative Bank.

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25.14. Sri M. Mohan Rao submitted, in the context of
causation, that the fraudsters must have
obtained the login credentials from somewhere,
and since those credentials were never in
BSNL's possession, the compromise of
credentials must have occurred at the Co-
operative Bank's end. He raised this as a factor
going to the chain of causation and the
attribution of responsibility. Learned counsel
submitted that Canara Bank's internet banking
system was architecturally sound: it employed
the two-factor authentication model, and both
factors, login credentials and OTP, were
required for every transaction. The failure in the
present case was not due to any vulnerability in
Canara Bank's system but due to the external
subversion of the OTP channel through the
duplicate SIM issued by BSNL. Canara Bank's
system worked exactly as intended; it was the
BSNL-side subversion that caused the failure.

25.15. Sri Mahantesh Shetter, learned AGA, submitted
that the State has a compelling interest in the
protection of citizens and institutions engaged
in digital transactions. India's digital economy
depends critically on the integrity of the OTP-

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based authentication system. When telecom
service providers, who occupy a position of
public trust, issue duplicate SIM cards without
following prescribed verification procedures,
they strike at the very heart of digital security.
The AGA submitted that such conduct
constitutes negligence and deficiency in service,
and that the Permanent Lok Adalat correctly
found BSNL liable.

25.16. Learned AGA submitted that BSNL, as a public
sector undertaking of the Government of India,
is bound by a higher standard of public
accountability. When a government entity's
failure to follow basic verification procedures
causes financial loss to a member of the public,
the accountability must be complete and cannot
be deflected by reference to the criminal
conduct of a particular employee or the
outcome of criminal proceedings.

25.17. This Point requires this Court to determine two
inter-connected questions: (a) whether the
issuance of the duplicate SIM card by BSNL's
official amounted to negligence and/or
deficiency in service attributable to BSNL; and

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(b) whether such issuance constituted the
proximate cause of the loss suffered by the Co-
operative Bank.

25.18. To appreciate these questions properly, it is first
necessary to understand the technological
context. India has transitioned to a largely
digital economy. The National Electronic Funds
Transfer (NEFT) and Real Time Gross
Settlement (RTGS) systems handle massive
volumes of electronic fund transfers daily. The
security of these transactions depends heavily
on the OTP mechanism.

25.19. The two-factor authentication (2FA) model used
in internet banking works on the principle of
'something you know' (the login credentials:
username and password, exclusively held by
the account holder) plus 'something you have'
(the registered mobile phone, which receives
the OTP for each transaction). Both factors
must be presented together to authenticate a
transaction. This architecture ensures that even
if one factor is compromised, the transaction
cannot be completed without the other. The
OTP, transmitted to the registered mobile

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number in real time, is the final and decisive
authentication mechanism. The entire security
of OTP-based banking rests on one irreducible
assumption: the registered mobile number
remains under the exclusive control of the
legitimate account holder.

25.20. SIM swap fraud exploits the vulnerability
created when this assumption fails. If a
fraudster obtains a duplicate SIM card for the
registered number, the original SIM is
automatically deactivated. All OTPs meant for
the legitimate account holder are then diverted
to the fraudster's duplicate SIM. The fraudster,
already in possession of the login credentials
(obtained through phishing or other means),
can then authenticate and complete
transactions undetected. Financial loss can be
enormous and swift, as demonstrated in the
present case, where Rs.87,70,000/- was
siphoned in this case.

25.21. SIM swap fraud is well-known and extensively
documented. The DoT and TRAI have issued
guidelines on KYC norms for SIM issuance,
precisely because of the potential for financial

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harm from unauthorised SIM swaps. BSNL, as
one of India's largest telecom service providers,
is aware of these guidelines and is legally
obligated to comply with them. The duty to
conduct rigorous identity verification before
issuing a duplicate SIM is not a
recommendation, it is a regulatory mandate.

25.22. With this background, this Court now applies
the three-fold test for negligence: (a) existence
of a duty of care; (b) breach of that duty; and
(c) consequential loss arising from the breach.

25.23. Duty of Care: BSNL, as a telecom service
provider, enters into a contractual relationship
with each subscriber. Under this relationship,
BSNL undertakes to provide exclusive
connectivity on the subscribed number to the
subscriber. The subscriber's mobile number is
the subscriber's exclusive digital identifier for
communication and, increasingly in the digital
economy, for financial authentication. BSNL's
obligation to maintain exclusive connectivity for
the subscriber necessarily implies an obligation
to ensure that the subscriber's number is not

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transferred to any other person without the
subscriber's knowledge and consent.

25.24. This duty flows from three independent
sources. First, the contract between BSNL and
the subscriber. Second, the regulatory
framework prescribed by the DoT and TRAI,
which mandates KYC compliance and identity
verification before SIM-related services are
rendered. Third, the general duty of care under
the law of torts, which requires every person to
take reasonable care to avoid acts or omissions
that can foreseeably cause harm to others. In
the digital era, the foreseeability of financial
harm from an unauthorised SIM swap is not
theoretical, it is documented, widespread and
well-known.

25.25. The duty is particularly heightened when the
subscriber is a banking institution that has
registered the mobile number for OTP-based
authentication of high-value financial
transactions. The potential for catastrophic
financial harm from a negligent SIM swap in
such a case is disproportionately high.

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Heightened risk demands a heightened
standard of care.

25.26. This Court holds that BSNL owed a clear and
non-negotiable duty of care to the Co-operative
Bank, as its subscriber, to ensure that no
duplicate SIM card was issued for the Co-
operative Bank's registered mobile number
without the Co-operative Bank's express and
verified consent.

25.27. Breach of Duty : The Co-operative Bank made
no request for a duplicate SIM card. No
authorised representative of the Co-operative
Bank appeared before any BSNL office seeking
such a card. No written application was made.
No identity verification documents were
submitted on behalf of the Co-operative Bank.
Yet, a duplicate SIM card was issued and the
Co-operative Bank's original SIM was
deactivated without its knowledge.

25.28. The manner in which the duplicate SIM was
issued to an impostor without the subscriber's
knowledge is itself evidence of a fundamental
failure in the verification process. Proper
verification, if followed, would have revealed

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that the applicant seeking the duplicate SIM
was not the legitimate subscriber. 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.

25.29. The doctrine of res ipsa loquitur applies. The
ordinary course of events does not result in a
subscriber's mobile number being reassigned to
a stranger without the subscriber's knowledge.
When such a result occurs, it speaks for itself:
something went wrong in the process of SIM
issuance. The evidential burden shifts to BSNL
to explain how the duplicate SIM came to be
issued. BSNL has not discharged this burden. It
has produced no record showing that a proper
verification was conducted before the duplicate
SIM was issued.

25.30. BSNL's own conduct confirms the breach. BSNL
initiated departmental disciplinary proceedings
against Mr. Karunakaran. Disciplinary
proceedings under service rules are the
employer's mechanism for addressing an
employee's misconduct in the discharge of

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official duties. The very initiation of these
proceedings by BSNL is an institutional
acknowledgment that Mr. Karunakaran's
conduct in connection with the SIM issuance
was improper and that something went
seriously wrong in the process. If the
prescribed verification had been properly
followed, no unauthorised duplicate SIM could
have been issued.

25.31. Deficiency in Service: In addition to the
common law tort of negligence, the issuance of
the duplicate SIM card without verification
constitutes 'deficiency in service'. 'Deficiency'
means any fault, imperfection, shortcoming or
inadequacy in the quality, nature and manner of
performance of a service. When BSNL issued a
duplicate SIM card for the Co-operative Bank's
registered number without any verification and
without the Bank's knowledge, it fell
fundamentally short of the standard of service
that a subscriber is entitled to expect from its
telecom provider. This is a deficiency in service
in the most basic sense, a failure to perform
the most elementary safeguard before acting

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on a request that has the potential to destroy
the subscriber's financial security.

25.32. The Co-operative Bank had placed its trust in
BSNL to maintain exclusive connectivity for its
registered mobile number. That trust is not
merely a commercial expectation, it is the very
foundation of OTP-based digital authentication.
When BSNL violated that trust by issuing a
duplicate SIM to an impostor, it committed a
fundamental deficiency in the service it owed to
its subscriber.

25.33. Proximate Cause : The doctrine of proximate
cause requires that the defendant's breach of
duty be the dominant and effective cause of the
plaintiff's loss. Two tests are applied: (a) the
'but for' test, but for the defendant's act, would
the loss have occurred?; and (b) the 'natural
and probable consequence' test, was the loss a
natural and foreseeable consequence of the
breach?

25.34. Applying the 'but for' test: but for the issuance
of the duplicate SIM card, would the fraudulent
transactions have occurred? The answer is
clearly 'No'. The OTP was the final and

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indispensable authentication step for each
RTGS/NEFT transaction. Without the duplicate
SIM, the OTPs would have been received by the
Co-operative Bank's legitimate SIM. Without
the OTPs, the fraudsters could not have
authenticated and completed the seven
transactions amounting to Rs.87,70,000/-. The
chain of causation is direct and unbroken:
→ →
duplicate SIM OTP diversion authentication
→ →
of transactions fraudulent withdrawal
financial loss.

25.35. Applying the 'natural and probable
consequence' test: financial fraud through SIM
swap is a natural, probable and well-
documented consequence of negligent SIM
issuance. BSNL, as a sophisticated telecom
service provider, knew or ought to have known
that SIM swap fraud is a prevalent and serious
risk. The loss suffered by the Co-operative Bank
is the natural and foreseeable consequence of
BSNL's failure to verify identity before issuing
the duplicate SIM.

25.36. This Court specifically addresses and rejects the
argument of Sri Gangadharaiah that the

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compromise of login credentials, which was also
necessary for the fraud, breaks the chain of
causation. It is true that the fraudsters required
both credentials and OTPs. However, the
availability of a concurrent contributing factor
does not automatically break the chain of
causation from BSNL's breach to the loss. The
doctrine of “ ” requires
novus actus interveniens
the intervening act to be independent,
voluntary, and wholly unconnected from the
original breach. The use of stolen credentials by
the fraudsters was their own criminal act; it
was not an act of the Co-operative Bank nor
one that the Co-operative Bank could have
anticipated or prevented in the circumstances.
Moreover, the credentials alone were legally
insufficient to enable the fraud: without the
OTPs, no transaction could be completed.
BSNL's act provided the missing link that made
the fraud possible. The proximate cause of the
loss was BSNL's negligent SIM issuance.

25.37. The argument based on the charge sheet: the
Cybercrime Police filed a charge sheet without
naming the BSNL Manager. This Court must
reject this argument for the following well-

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founded reasons. Civil liability and criminal
liability are independent of each other and are
governed by entirely different standards of
proof. In a civil case, the standard is
'preponderance of probabilities', it is more
probable than not that the negligence occurred.
In a criminal case, the standard is 'proof
beyond reasonable doubt', a substantially
higher standard. A decision by the police or the
public prosecutor not to charge a particular
person in a charge sheet reflects a prosecutorial
assessment of whether evidence is sufficient to
sustain a criminal conviction beyond reasonable
doubt. It does not, and cannot, constitute a
finding that the person was not negligent or
that no deficiency occurred. The same evidence
that may be insufficient for a criminal conviction
may be entirely sufficient to establish civil
negligence on the balance of probabilities. The
charge sheet argument must therefore be
rejected.

25.38. The argument that the Permanent Lok Adalat
arrived at its negligence finding without calling
for BSNL's official records of the SIM issuance
process must also be addressed. BSNL is

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correct that the specific SIM issuance records
were not produced before the Permanent Lok
Adalat. However, this gap operates against
BSNL, not in its favour. The Co-operative Bank
established, by oral and documentary evidence,
that: (a) the registered mobile number was
linked to its internet banking account; (b) no
request for a duplicate SIM was ever made by
the Co-operative Bank; (c) the Co-operative
Bank's original SIM was deactivated without its
knowledge; and (d) seven transactions totalling
Rs.87,70,000/- were fraudulently completed
using OTPs received on the duplicate SIM.
These facts, which go uncontroverted in any
material respect, are sufficient to establish the
breach by the doctrine of res ipsa loquitur, as
explained above. The burden then shifted to
BSNL to produce evidence showing that proper
verification was done. BSNL was in the best
position to produce its own SIM issuance
records. It chose not to do so. It cannot now
complain that the Permanent Lok Adalat found
negligence without those records. The non-
production of records by the party holding them

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is itself a circumstance from which an adverse
inference may be drawn.

25.39. This Court pauses to note the broader
significance of this case. India's digital economy
depends on the integrity of the OTP-based
authentication architecture. The Government of
India's Digital India programme, the NEFT and
RTGS payment systems, the UPI ecosystem,
and virtually every internet banking platform
use OTP-based 2FA as the last line of defence.
That last line of defence is only as strong as the
telecom service provider's fidelity to the
obligation of exclusive SIM control. When a
telecom company, through its official, issues a
duplicate SIM to a fraudster, it demolishes that
last line of defence and exposes the subscriber
to catastrophic financial loss. The duty of care
of telecom service providers in relation to SIM
issuance is therefore not a peripheral concern,
it is central to the integrity of the digital
financial system.

25.40. Telecom service providers like BSNL are critical
infrastructure providers. They hold in trust the
mobile connectivity upon which millions of

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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. When a gatekeeper opens the gate
to a fraudster, whether through negligence or
through the misconduct of its own official, it
enables the fraud and must bear the civil
consequences.

25.41. For all the foregoing reasons, this Court holds:
(a) The issuance of the duplicate SIM card by
BSNL's official without proper verification and
without the Co-operative Bank's authorisation
amounted to negligence and deficiency in
service attributable to BSNL. (b) The issuance
of the duplicate SIM card constituted the
proximate cause of the loss suffered by the Co-
operative Bank, as it directly enabled the
diversion of OTPs and thereby made possible
the authentication and completion of the
fraudulent transactions.

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25.42. The scale and speed of SIM swap fraud is
important to appreciate. Once a duplicate SIM
is activated, the original SIM is deactivated
within seconds, automatically, without any
action by the legitimate subscriber. The
transition is seamless from the network's
perspective. The legitimate subscriber may be
asleep, or simply may not notice the loss of
connectivity immediately. In the present case,
the fraudulent transactions of Rs.87,70,000/-
were completed overnight on 06-07.02.2019.
By the time the Co-operative Bank's officials
discovered the fraud on the morning of
07.02.2019, the money had already been
transferred to multiple accounts and dispersed.
This speed and finality is a characteristic
feature of SIM swap fraud that underscores the
critical importance of verification before the
duplicate SIM is issued. Prevention is the only
effective remedy; detection after the fact is
almost always too late.

25.43. The DoT and TRAI's concern about SIM swap
fraud and their regulatory response deserve
specific note. The Telecommunications Act (and
its predecessor, the Indian Telegraph Act) and

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the rules and regulations made thereunder,
together with the licensing conditions applicable
to telecom service providers, impose
comprehensive obligations on service providers
in relation to subscriber identity management.
In particular, the pre-Telecom Commercial
Communications Customer Preference
Regulations and the Telecom Subscribers
Protection Regulations impose mandatory KYC
requirements. Every request for SIM
replacement or SIM swap must be verified
against the subscriber's identity on record. The
subscriber's identity documents must be
checked against the original registration
documents. A cooling-off period may be
mandated. The subscriber may be required to
be notified through an alternate channel before
the swap takes effect. These are not
aspirational guidelines, they are regulatory
obligations backed by penalties for non-
compliance. BSNL, as a licensee under the
Telecom Department, is bound by these
regulations. The failure to follow KYC
verification protocols before issuing the
duplicate SIM is therefore not merely a

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negligent act under the law of torts; it is also a
breach of BSNL's statutory and regulatory
obligations.

25.44. The significance of BSNL's regulatory position
adds a further dimension to the duty of care
analysis. BSNL is not merely a private
commercial entity providing a service in a
competitive marketplace and subject only to
ordinary tortious duties. It is a licensee
entrusted by the State with the use of public
spectrum and authorised to operate critical
communication infrastructure for the benefit of
the public. Its position as a licensed telecom
operator carries with it public law obligations.
In discharging these obligations, BSNL's officials
are expected to exercise the degree of care that
a responsible licensed operator in that position
must exercise. The standard of care applicable
to a licensed public utility service provider is
higher than that applicable to an ordinary
commercial entity, precisely because public
utility service providers occupy a position of
trust and their failures can cause widespread
harm.

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25.45. The duty of care analysis is further
strengthened when one considers the specific
circumstances: the subscriber is a banking
institution. BSNL's subscriber database, which
records the identity and nature of its
subscribers, would show that the Co-operative
Bank is a registered co-operative banking
institution. A banking institution is precisely the
category of subscriber most likely to have its
registered mobile number linked to high-value
financial transactions. BSNL knew or ought to
have known, as a matter of commercial and
market reality, that banking and financial
institutions use their registered mobile numbers
for OTP-based authentication. The heightened
financial risk associated with a banking
institution subscriber demanded a
correspondingly heightened level of verification
before any SIM-related change was effected in
respect of that subscriber's number. If
anything, the issuance of a duplicate SIM card
for a number registered to a banking institution
should have triggered enhanced scrutiny rather
than reduced scrutiny.

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25.46. The non-production of verification records by
BSNL is a matter of particular significance. In
civil proceedings, a party that withholds
relevant documents that are within its exclusive
power to produce invites an adverse inference
that those documents, if produced, would have
been adverse to its case. This principle, codified
in Section 114, illustration (g) of the Indian
Evidence Act, 1872, applies with full force here.
BSNL maintained, and continues to maintain,
the subscriber records, SIM issuance logs,
identity verification documents (if any), and
system records of the SIM swap activation.
These records are exclusively within BSNL's
possession and control. The Co-operative Bank
cannot be expected to produce records held by
BSNL. BSNL chose not to produce any of these
records before the Permanent Lok Adalat nor
before this Court. The only reasonable
inference, and the inference this Court draws, is
that these records, if produced, would have
shown that no proper verification was
conducted before the duplicate SIM was issued.

25.47. The issue of concurrent causation deserves a
more detailed examination. In some cases, two

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independent acts may each be sufficient to
cause the same loss, these are 'sufficient'
concurrent causes. In other cases, two acts
together may be necessary to cause the loss,
while neither alone would be sufficient, these
are 'necessary' concurrent causes. The present
case falls into the second category. The
fraudsters needed both the login credentials
and the OTPs. The compromise of the
credentials alone was insufficient, without the
OTPs, no transaction could be completed. The
diversion of OTPs through the duplicate SIM
alone was also insufficient, without the
credentials, the fraudsters could not log in.
Both elements were necessary. In such cases,
where there are two necessary concurrent
causes, the law attributes liability to the actor
whose contribution was the more proximate,
dominant and foreseeable cause. BSNL's act,
the issuance of the duplicate SIM, was the more
proximate cause because it was the final
enabling act without which the fraud was
factually impossible. Moreover, BSNL's
contribution was a direct and identifiable act
that can be specifically attributed to a specific

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official, at a specific time, through a specific
process. The compromise of the login
credentials, on the other hand, involves
speculation, it is not known precisely how,
when, or by whom the credentials were
obtained. Between a specific, identified,
proximate cause (BSNL's act) and a speculative,
unidentified background condition (the
credential compromise), the law fastens liability
on the specific, identified, proximate cause.

25.48. The digital economy argument must be given
its full weight. The phrase 'digital economy' is
not mere rhetoric in the present context.
According to data published by the Reserve
Bank of India, NEFT and RTGS transactions run
into hundreds of lakhs of crores of rupees
annually. The UPI platform alone processes
hundreds of crores of transactions every month.
India's digital payment ecosystem is one of the
largest and most sophisticated in the world.
This ecosystem operates on the premise that
the mobile number is a secure authentication
anchor. The Reserve Bank of India's regulations
on internet banking mandate multi-factor
authentication. The entire edifice of India's

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digital financial architecture rests upon the
assumption that the mobile number registered
for OTP purposes is controlled by the legitimate
subscriber. Telecom service providers, who are
the gatekeepers of this assumption, bear a
commensurate obligation. 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. Every entity that has linked a
mobile number to a bank account, an
investment account, a payment wallet, or any
OTP-dependent financial service is at risk if the
telecom service provider's verification standards
are inadequate. The responsibility of telecom
service providers like BSNL in the digital
economy is therefore not merely private and
contractual, it is systemic and public.

25.49. 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

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financial fraud. Tens of thousands of SIM swap
fraud cases are reported annually across India,
causing financial losses running into hundreds
of crores of rupees. 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 telecom
industry is aware of this pattern. Regulatory
advisories have been issued. And yet, as the
present case demonstrates, the problem
persists. 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.


25.50. This court answers point No.2 by holding that
the unauthorised issuance of the duplicate SIM
card amounted to negligence and deficiency in
service attributable to BSNL, and constituted
the proximate cause of the loss suffered by the
Co-operative Bank.

26. Answer to Point No. (iii): Whether BSNL can be
held vicariously liable for the acts of its
officials, and whether Canara Bank bears any
liability in relation to the disputed transactions?

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26.1. Sri Gangadharaiah submitted that even if this
Court were to find that the issuance of the
duplicate SIM card amounted to negligence
(which BSNL contests), BSNL cannot be held
vicariously liable because Mr. Karunakaran was
not acting within the course and scope of his
employment. According to learned counsel,
vicarious liability requires that the employee's
wrongful act be committed 'in the course of
employment', meaning within the authority
actually conferred by the employer.

26.2. Learned counsel submitted that the issuance of
a duplicate SIM card without following
prescribed verification procedures, and
allegedly in collusion with criminals, was an act
of personal criminal misconduct by Mr.
Karunakaran. This was committed for Mr.
Karunakaran's personal benefit, wholly outside
the scope of his authorised employment duties
and in direct contravention of BSNL's own
policies and procedures. Such deliberate
dishonesty and criminal collusion, he
submitted, cannot ground an employer's
vicarious liability.

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26.3. Sri Gangadharaiah submitted that the test for
vicarious liability is whether the employer
authorised the act, not merely whether the
employer authorised the category of work
within which the act fell. Since BSNL's
procedures require verification before a
duplicate SIM is issued, the issuance of a SIM
without verification was not an authorised act.
Mr. Karunakaran, by bypassing the verification
requirement, acted in a manner completely
contrary to his employer's directions and was
on an 'act of his own'.

26.4. Learned counsel submitted that the steps taken
by BSNL after discovery of the fraud
demonstrate that BSNL itself treated Mr.
Karunakaran's alleged act as personal criminal
misconduct unconnected with official duty. He
argued: if BSNL truly regarded the act as
having been committed 'in the course of
employment', BSNL would have admitted
institutional liability. Instead, BSNL recorded Mr.
Karunakaran's statement as a witness and later
as a person of interest, recommended
disciplinary proceedings, and supported his
criminal prosecution. These steps, according to

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learned counsel, show that BSNL consistently
treated the alleged act as Mr. Karunakaran's
personal delinquency for which he alone, and
not BSNL, should be held responsible.

26.5. Sri Uppin submitted that the doctrine of
vicarious liability applies fully to BSNL. The
foundational principle is that an employer is
responsible for the wrongful acts of its
employees committed 'in the course of
employment'. The modern approach to this
doctrine asks not whether the specific wrongful
act was authorised, but whether it was so
closely connected with acts the employee was
authorised to perform that it is fair and just to
hold the employer responsible.

26.6. Learned counsel drew a fundamental distinction
between the 'nature' of the act and the
'manner' of its performance. The 'nature' of the
act, issuance of a SIM card, including a
duplicate SIM card, is squarely within the scope
of the functions entrusted to officials at BSNL's
subscriber management offices. Mr.
Karunakaran's authorised daily work included
precisely this category of activity. The 'manner'

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of performance, without verification, in alleged
collusion with fraudsters, was wrongful. But the
wrongful manner does not change the nature of
the act, and does not take it outside the course
of employment.

26.7. Sri Uppin submitted that if the test were 'did
the employer authorise this specific act?', no
employer could ever be vicariously liable for an
employee's wrongdoing. By definition,
employers do not authorise theft, fraud, or
negligence. The proper test is whether the
wrongful act was committed in the exercise of
functions the employer entrusted to the
employee. Applied here: BSNL entrusted Mr.
Karunakaran with SIM issuance. He performed
SIM issuance in a wrongful manner. The
employer is vicariously liable.

26.8. Learned counsel submitted that the 'close
connection' test is clearly satisfied. Mr.
Karunakaran used BSNL's subscriber
management system, BSNL's official records,
BSNL's office infrastructure, and BSNL's
authority to issue SIM cards. He performed the
act within BSNL's office, during office hours,

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wielding the authority of his employer. The Co-
operative Bank had no way of knowing that the
official performing this function was acting
improperly. From the Bank's perspective, the
duplicate SIM was issued by BSNL itself.

26.9. Sri Uppin submitted that the 'act of his own'
doctrine requires a complete departure from
employment functions, as when an employee
abandons his work entirely and does something
wholly personal and unrelated to his job. Mr.
Karunakaran did not abandon his official
functions; he performed the very function he
was employed to perform (SIM issuance) but
improperly. This is not a 'independent act’; it is
an improper performance of an authorised
function, for which the employer is vicariously
liable.

26.10. Learned counsel submitted, in direct response
to BSNL's argument, that the initiation of
departmental disciplinary proceedings against
Mr. Karunakaran is conclusive evidence of the
opposite of what BSNL contends. Departmental
disciplinary proceedings are available only
against an employee for misconduct committed

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in the discharge of official duties, not for purely
private criminal acts. If Mr. Karunakaran's act
were wholly personal and unconnected with his
official employment, BSNL would have had no
jurisdiction to proceed departmentally against
him. The fact that BSNL did invoke the
departmental machinery confirms that the act
was connected with official duty. BSNL cannot
simultaneously invoke disciplinary jurisdiction
over Mr. Karunakaran (which requires the act to
be connected with employment) and disclaim
vicarious liability (which requires the act to be
disconnected from employment). These two
positions are mutually contradictory.

26.11. Sri Uppin further submitted that any right of
indemnity that BSNL may have against Mr.
Karunakaran personally is a separate matter.
Such internal rights do not affect the right of an
innocent third party, the Co-operative Bank, to
recover from BSNL as the employer.

26.12. Sri Mohan Rao submitted that Canara Bank
bears no liability whatsoever in relation to the
disputed transactions, for the following reasons.

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26.13. As explained under Point 2, Canara Bank's
internet banking system was built on the two-
factor authentication (2FA) model: login
credentials plus OTP. This model is mandated
by the Reserve Bank of India and is the gold
standard in Indian banking security. Both
authentication layers were operative at all
times. The fraud succeeded not because of any
architectural weakness in Canara Bank's
system, but because the OTP channel, which
operates through the telecom network, was
externally subverted by the duplicate SIM
issued by BSNL. The system worked exactly as
designed; the failure was entirely on the BSNL
side.


26.14. Canara Bank had no knowledge of, and no role
in, the issuance of the duplicate SIM card. The
SIM management process is entirely within
BSNL's domain. Canara Bank cannot be
expected to monitor BSNL's subscriber
management operations. The fraudulent
transactions were presented to Canara Bank's
system as apparently authenticated: both login
credentials and OTPs were provided. The bank

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had no basis to suspect fraud at the time of
processing.

26.15. The login credentials of the Co-operative Bank's
internet banking account were not in Canara
Bank's possession. Canara Bank does not store
customers' login credentials in a decryptable
form. If the credentials were compromised, that
compromise occurred outside Canara Bank's
sphere of control. Canara Bank is not
responsible for a security lapse in the Co-
operative Bank's own custody of its credentials.

26.16. Upon being informed of the fraud on
08.02.2019, Canara Bank acted promptly,
cooperated with the investigation, and
facilitated the reverse credit of Rs.30,00,000/-.
No specific act or omission of Canara Bank
amounting to negligence or deficiency was
established before the Permanent Lok Adalat.
The finding exonerating Canara Bank is correct
and should be upheld.

26.17. Sri Mahantesh Shetter, learned AGA, submitted
that BSNL's vicarious liability is well-founded in
law. The State's interest lies in ensuring that
public sector undertakings are held to the same

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standards of accountability as private entities, if
not higher. A public sector entity cannot invoke
the personal misconduct of its employee to
escape civil liability when the wrongful act was
committed using the entity's official
infrastructure, authority and resources. The
AGA submitted that there is no basis in law for
BSNL's contention that the act was outside the
course of employment.

26.18. The learned AGA also submitted that the
exoneration of Canara Bank is proper in the
circumstances. The State has no interest in
fastening liability upon a bank that acted in
accordance with prescribed security norms and
cooperated with the investigation. The fault, as
identified in the evidence, lies entirely with
BSNL's SIM management process.

26.19. Part A, Vicarious Liability of BSNL : The
doctrine of vicarious liability rests on three
policy pillars. First, the employer creates the
risk by employing the employee and authorising
him to perform functions that can affect third
parties. Second, the employer has the power
and obligation to supervise and control the

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employee's performance. Third, as between an
innocent third party who suffers harm and the
employer who selected, trained and deployed
the employee, it is just that the loss falls on the
employer. The employer can protect against
such losses through proper hiring, training,
supervision and insurance. The innocent third
party has no such recourse.


26.20. The principal question is whether the employee
was acting 'in the course of employment'. The
modern approach, reflected in the 'close
connection' test, asks whether the wrongful act
was so closely connected with acts the
employee was authorised to do that it would be
fair and just to hold the employer liable. This
test does not require the employer to have
specifically authorised the wrongful conduct. It
recognises that employers can never be said to
have 'authorised' wrongdoing in the ordinary
sense.

26.21. Applying this test: Mr. Karunakaran was an
official of BSNL posted at its office. His official
duties included subscriber account
management, which encompassed the issuance

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of new SIM cards, activation and deactivation of
SIM cards, and issuance of replacement and
duplicate SIM cards. SIM issuance is the core
daily function of officials at BSNL's subscriber
management centres. The category of act that
Mr. Karunakaran performed, issuance of a SIM
card, was squarely within his authorised duties.

26.22. The 'independent act” doctrine requires a
complete and genuine departure from
employment functions. When an employee
performs his authorised work in a wrongful
manner it cannot be said that it is an
“independent act”. Mr. Karunakaran did not
leave his employment to commit this act. He
committed this act using his employment
authority, within his employment premises, in
the course of his employment functions. The
wrongfulness of his manner of performance
does not constitute a 'independent act’. It is a
culpable performance of an authorised function.

26.23. The argument that BSNL did not 'authorise' the
specific act (issuance without verification) is
rejected. The employer's vicarious liability is
not confined to acts which the employer

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explicitly authorised. The employer is liable for
wrongful acts committed by the employee in
the exercise of functions the employer
entrusted to him. When the employee performs
those functions improperly, the employer is
liable to the third party, even if the employer
did not authorise and would not have approved
the improper performance.


26.24. BSNL argued that its post-discovery steps,
recording Mr. Karunakaran's statement,
recommending disciplinary proceedings,
supporting his prosecution, show that BSNL
treated the act as Mr. Karunakaran's personal
misconduct, not BSNL's institutional act. This
argument is self-defeating. Departmental
disciplinary proceedings under service rules are
available to an employer only for misconduct
committed by an employee in the discharge of
his official duties. They are not available for
purely private criminal acts that have no
connection with official employment. If Mr.
Karunakaran's act were genuinely a private
criminal act wholly disconnected from his
official functions, BSNL would have no
disciplinary jurisdiction over him at all, the only

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recourse would be to file a criminal complaint
as a private citizen. The fact that BSNL chose to
invoke the departmental disciplinary
mechanism confirms that the act had a
sufficient connection with official employment
to attract that mechanism.

26.25. BSNL cannot maintain two contradictory
positions simultaneously: that the act was
within official employment (so as to justify
disciplinary proceedings) and that it was
outside official employment (so as to escape
vicarious liability). The initiation of disciplinary
proceedings is, therefore, an institutional
admission that Mr. Karunakaran's wrongful act
was connected with his official duties.

26.26. BSNL is a public sector undertaking of the
Government of India. It owes an elevated duty
of accountability to the citizens it serves. When
a PSU's official misuses his official authority,
whether negligently or corruptly, to cause
financial loss to a member of the public, the
PSU must answer for it. Any right of indemnity
that BSNL has against Mr. Karunakaran
personally is a separate matter between them.

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This does not ofcourse mean that a private
player or private service provider is exempt, it
is only that a public sector undertaking has an
heightened responsibility and accountability.

26.27. This Court holds that BSNL is vicariously liable
for the wrongful act of Mr. Karunakaran and/or
any other officials in issuing the duplicate SIM
card without proper verification and without the
subscriber's authorisation. The act was
performed in the course of Mr. Karunakaran's
employment, using BSNL's authority,
infrastructure and official processes.

26.28. Part B, Liability of Canara Bank : This Court
now examines whether Canara Bank bears any
liability. After careful examination, this Court
holds that Canara Bank does not bear any
liability, for the following reasons.

26.29. As established under Point 2, Canara Bank's
internet banking system employed a sound
two-factor authentication architecture, as
mandated by the Reserve Bank of India. Both
authentication layers, login credentials and OTP,
were operational. The fraud succeeded not
because Canara Bank's architecture failed, but

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because the OTP channel was subverted
externally by the duplicate SIM issued through
BSNL's process. The fraud exploited a
vulnerability in the telecom infrastructure, not
in Canara Bank's banking system.

26.30. Canara Bank had no knowledge of, and no role
in, the issuance of the duplicate SIM card. The
SIM management process lies entirely within
BSNL's domain. Canara Bank cannot be
expected to monitor the subscriber
management operations of telecom service
providers. There was no early warning signal
available to Canara Bank: the transactions were
presented with what appeared to be complete
authentication.

26.31. The login credentials were not in Canara Bank's
possession. If they were compromised, that
compromise occurred outside Canara Bank's
sphere of control. Canara Bank is not
responsible for a lapse in the Co-operative
Bank's own custody of its credentials.

26.32. Upon being informed of the fraud, Canara Bank
cooperated promptly and facilitated the reverse
credit of Rs.30,00,000/-. No specific act or

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omission of Canara Bank amounting to
negligence or deficiency in service has been
established. The Hon'ble Permanent Lok
Adalat's finding exonerating Canara Bank is
correct in law and fact and is affirmed.

26.33. This Court answers Point N.3 by holding that
(a) BSNL is vicariously liable for the wrongful
act of Mr. Karunakaran and/or any other
officials of BSNL in issuing the duplicate SIM
card, which was performed in the course of his
employment using BSNL's authority,
infrastructure and official processes. (b) Canara
Bank does not bear any liability in relation to
the disputed transactions. Both findings of the
Permanent Lok Adalat on these sub-issues are
affirmed.

27. Answer to Point No. (iv): Whether amounts
recovered through reverse credits, police
proceedings and insurance reimbursement
would reduce or extinguish the liability, if any,
of BSNL?

27.1. Sri Gangadharaiah submitted that the Co-
operative Bank had, by the time of the PLA
proceedings, received substantial amounts from
three separate sources: (a) Rs.7,12,238/-
recovered through police proceedings by

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defreezing accounts of accused persons and
released by court order; (b) Rs.30,00,000/- as
a reverse credit to the Co-operative Bank's
account; and (c) Rs.57,65,329/- received from
the Co-operative Bank's insurer as insurance
compensation. The aggregate of these three
amounts is Rs.94,77,567/-, which substantially
exceeds the gross fraudulent withdrawal of
Rs.87,70,000/-.

27.2. Learned counsel submitted that the
fundamental principle of compensation in civil
proceedings is restitutio in integrum, to restore
the claimant to the position it was in before the
wrong, neither more nor less. Compensation
aims to make good the actual loss. He
submitted that the aggregate receipts of
Rs.94,77,567/- not only fully compensate but
actually over-compensate the Co-operative
Bank for its gross loss of Rs.87,70,000/-. To
additionally direct BSNL to pay Rs.5,00,000/-
would therefore constitute a windfall for the Co-
operative Bank, resulting in over-compensation
of Rs.12,07,567/- above the gross loss. This is
impermissible under the law of compensation.

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27.3. Sri Gangadharaiah therefore submitted that
BSNL's liability, if any, is fully extinguished by
the total receipts of Rs.94,77,567/-, and the
award of Rs.5,00,000/- against BSNL must be
set aside.

27.4. Sri Uppin presented a two-part argument:
treating the reverse credit and police recovery
differently in law from the insurance proceeds.
He submitted that the three categories of
receipts have fundamentally different legal
characters and cannot be aggregated and set
off against BSNL's liability without
distinguishing between them.

27.5. Regarding the reverse credit of Rs.30,00,000/-
and the police recovery of Rs.7,12,238/-, Sri
Uppin conceded that these amounts represent
partial recovery of the very funds fraudulently
transferred from the Co-operative Bank's
account. They are the Bank's own money
returned to it. He submitted that these
amounts must be credited towards the gross
loss in computing the net compensable loss.
After crediting both amounts (Rs.37,12,238/-),
the net unrecovered loss is Rs.50,57,762/-. The

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Co-operative Bank has claimed this net loss as
Rs.50,50,762/-, which represents the amount
actually claimed as compensation.

27.6. Regarding the insurance proceeds of
Rs.57,65,329/-, Sri Uppin submitted a
fundamentally different legal argument. He
invoked the collateral source rule, which
provides that a tortfeasor cannot reduce his
liability by pointing to benefits received by the
injured party from a source independent of and
collateral to the tortfeasor.

27.7. The insurance proceeds arose from an
independent contractual arrangement between
the Co-operative Bank and its insurer. The Co-
operative Bank paid insurance premiums over
the years and earned the right to
indemnification under the policy. These
proceeds are the realisation of the Bank's own
investment in financial protection. BSNL had no
role in procuring the insurance, paying the
premiums, or maintaining the coverage. To
allow BSNL to reduce its liability by the amount
of the insurance proceeds would be to allow

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BSNL to benefit from the Co-operative Bank's
own prudence, at no cost to BSNL.

27.8. Sri Uppin submitted that accepting BSNL's
argument would produce a perverse outcome:
the more diligent an institution is in obtaining
insurance coverage, the less it can recover from
those who negligently cause it loss. Prudently
insured institutions would effectively subsidise
negligent tortfeasors. This is manifestly unjust
and would directly penalise good risk
management.

27.9. Learned counsel also submitted that the
doctrine of subrogation reinforces the collateral
source rule. When the insurer paid the claim, it
acquired by subrogation the Co-operative
Bank's rights against the tortfeasor. If BSNL
were allowed to extinguish its liability on
account of the insurance payment, the insurer's
subrogated right against BSNL would also be
effectively destroyed. The insurer would have
paid the claim but would have no remedy
against the wrongdoer. This doubly unjust
outcome would, over time, drive up insurance
premiums for all policyholders.

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27.10. Sri Uppin further submitted that the Co-
operative Bank suffered significant
consequential losses beyond the mere financial
quantum of the fraudulent withdrawals. As a
co-operative banking institution regulated
under the Karnataka Cooperative Societies Act,
1959, the Co-operative Bank is required to
maintain statutory reserve deposits and
statutory liquidity norms. The sudden and
unexpected depletion of Rs.87,70,000/- from
its current account on 06-07.02.2019 created
an acute liquidity crisis. During the period
between the fraud (February 2019) and the
receipt of the insurance proceeds
(approximately two years later), the Co-
operative Bank had to make emergency
arrangements from its own limited resources,
including its depositors' funds, to meet its
statutory obligations. This imposed additional
financial costs. Furthermore, the Co-operative
Bank is an institution established in 1913 that
has served the community of Shiralkoppa for
over a century. News of a fraud of over Rs.87
lakhs severely damaged its reputation among
its members and depositors, causing loss of

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public confidence. Sri Uppin submitted that
these consequential losses, including the cost of
managing the liquidity crisis, the loss of interest
during the period of deprivation, and the
reputational damage, must be independently
compensated.

27.11. Sri M. Mohan Rao did not make specific
submissions on how the recoveries affect
BSNL's liability. His primary position was that
Canara Bank bears no liability and the PLA's
finding on that issue should be upheld.

27.12. Sri Mahantesh Shetter, learned AGA, submitted
that the collateral source rule is a sound and
equitable principle. The insurance proceeds
were earned by the Co-operative Bank through
its own premium payments and prudence. They
should not reduce BSNL's liability. The learned
AGA submitted that only the direct recoveries
(reverse credit and police recovery) should
reduce the gross loss computation, and the
insurance proceeds should be treated as a
collateral benefit. The AGA supported the grant
of interest from the date of the loss and the
award of consequential damages to address the

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interim hardship suffered by the Co-operative
Bank.

27.13. This Point requires this Court to determine the
legal effect of three categories of post-fraud
receipts on BSNL's liability. The three categories
have different legal characters and must be
treated differently. This Court examines each in
turn.

27.14. Category 1, The Reverse Credit of
Rs.30,00,000/-: The sum of Rs.30,00,000/-
was reverse-credited to the Co-operative
Bank's current account. This amount represents
a partial return of the very funds fraudulently
transferred from the Co-operative Bank's
account. It is not a payment by an independent
third party, it is the restoration of a portion of
the Bank's own money. Crediting this amount in
computing the net compensable loss is
consistent with the principle of restitutio in
integrum and prevents over-compensation.
After this reverse credit, the residual loss is
Rs.57,70,000/-.

27.15. Category 2, The Police Recovery of
Rs.7,12,238/-: The sum of Rs.7,12,238/- was

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recovered by the Cyber Crime Police by
defreezing accounts of the accused persons and
released to the Co-operative Bank by court
order. This recovery also represents a partial
return of fraudulently transferred funds. Like
the reverse credit, it is a direct recovery of the
Co-operative Bank's own money. It must be
credited against the gross loss. After both the
reverse credit and the police recovery
(aggregate Rs.37,12,238/-), the residual
unrecovered loss is Rs.50,57,762/-. This Court
accepts the Co-operative Bank's claimed net
loss figure of Rs.50,50,762/-, which is the
specific amount the Co-operative Bank itself
calculated and claimed as compensation in
these proceedings. The minor difference of
Rs.7,000/- likely reflects incidental transaction
or rounding adjustments in the Bank's own
internal accounts, and this Court treats that
difference as de minimis and accepts the Co-
operative Bank's own stated figure.

27.16. Category 3, The Insurance Proceeds of
Rs.57,65,329/-: The insurance proceeds
present a distinct legal question of the greatest
importance. BSNL's argument, in effect, is that

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the aggregate of all three categories
(Rs.94,77,567/-) exceeds the gross fraudulent
loss (Rs.87,70,000/-) and that therefore the
Co-operative Bank has been over-compensated
and BSNL's liability is extinguished. This
argument must be rejected for the following
reasons.

27.17. BSNL's arithmetic of aggregation is flawed in its
legal premise. The over-compensation
argument would be valid only if all three
receipts were of the same legal character,
namely, payments towards compensating the
same loss. But they are not. The reverse credit
and police recovery are returns of the Co-
operative Bank's own money, partial undoing of
the fraud. They properly reduce the net loss.
The insurance proceeds, however, are not a
payment towards the same loss from the same
pool. They are an independent contractual
payment arising from a separate insurance
relationship. Adding them to the reverse credit
and police recovery to arrive at a total of
Rs.94,77,567/- and comparing that total with
the gross loss of Rs.87,70,000/- to conclude
over-compensation confuses legally distinct

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categories of receipts. It is like saying that
because a robbery victim received
compensation from his insurer, the robber need
not pay or can not be prosecuted and even
worse the stolen goods cannot be recovered
from the robber or from a person to whom such
goods have been sold. The law does not permit
such an equation.


27.18. The collateral source rule provides the correct
legal framework. Insurance proceeds are a
benefit conferred on the injured party by a
source, the insurer, that is independent of and
collateral to the tortfeasor. The rule holds that
such collateral benefits shall not reduce the
tortfeasor's liability. The rationale is simple: the
wrongdoer should not benefit from the foresight
and expenditure of the victim in obtaining
insurance protection. The Co-operative Bank
paid insurance premiums over the years and
earned the right to indemnification under the
policy. BSNL paid nothing towards those
premiums. BSNL has no contractual relationship
with the insurer. It would be deeply unjust to
allow BSNL to escape liability because the Co-
operative Bank had prudently insured itself.

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27.19. The doctrine of subrogation further reinforces
this conclusion. When the insurer paid the
claim, it stepped into the Co-operative Bank's
shoes and acquired the right to sue BSNL (the
tortfeasor) to recover what it paid. This
subrogated right would be meaningless if
BSNL's liability were extinguished by the
insurance payment. The proper mechanism is:
BSNL pays the compensation to the Co-
operative Bank; the insurer's subrogated claim
against BSNL can then be separately
adjudicated. BSNL must not escape liability at
the insurer's expense.

27.20. Regarding the consequential losses submitted
by Sri Uppin, the liquidity crisis, the cost of
meeting statutory reserve obligations during
the interim period, and the reputational
damage, this Court holds that these are real
and foreseeable consequences of BSNL's
negligence. They are not speculative losses.
The period between the fraud (February 2019)
and the receipt of the insurance proceeds
(approximately two years later, in 2021)
represents a substantial period during which
the Co-operative Bank operated under financial

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stress caused entirely by BSNL's breach. These
consequential losses are properly compensable
and are taken into account in the determination
of the total compensation payable under Point
5.

27.21. This Court therefore holds: (a) The reverse
credit of Rs.30,00,000/- and the police
recovery of Rs.7,12,238/- are direct recoveries
of fraudulently transferred funds. They reduce
the gross loss of Rs.87,70,000/-. (b) After
giving credit for these direct recoveries, the net
compensable loss is Rs.50,50,762/-, being the
specific figure claimed by the Co-operative
Bank in these proceedings; the minor
arithmetic difference of Rs.7,000/- from the
computed figure of Rs.50,57,762/- is de
minimis and is resolved in favour of the Co-
operative Bank's own stated claim. (c) The
insurance proceeds of Rs.57,65,329/- are a
collateral benefit earned by the Co-operative
Bank from an independent contractual source
and do not reduce BSNL's liability. The collateral
source rule applies. (d) BSNL's argument of
over-compensation is rejected; the aggregation
of legally distinct categories of receipts does

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not constitute over-compensation in law. (e)
BSNL's liability is to be computed on the net
loss of Rs.50,50,762/-, plus interest and
consequential damages as determined under
Point 5.

27.22. BSNL's reliance on the principle of restitutio in
integrum to support its over-compensation
argument is, ironically, self-defeating. The
principle of restitutio in integrum requires that
the compensation put the claimant in the
position it would have been in had the wrong
not occurred. If BSNL's argument were
accepted and its liability extinguished by the
insurance proceeds, the Co-operative Bank
would receive nothing from BSNL. The
insurance proceeds would have been consumed
by the loss. BSNL would have escaped liability
entirely. The insurer, having paid the claim,
would lose its subrogated right against BSNL.
The net result: BSNL, the wrongdoer, pays
nothing; the insurer, an innocent contractual
party, bears the entire loss; and the Co-
operative Bank, the victim, recovers only
through its own insurance, not from the party
that caused the harm. This is the very

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antithesis of restitutio in integrum and of
justice.

27.23. This court answers point No.4 by holding that
the reverse credit and police recovery reduce
the gross loss to a net compensable loss of
Rs.50,50,762/-. The insurance proceeds do not
reduce BSNL's liability, the collateral source rule
applies. BSNL's argument of over-compensation
is rejected. The net loss for the purpose of
BSNL's liability is Rs.50,50,762/-.

28. Answer to Point No. (v): Whether the impugned
award dated 09.08.2024, passed in PLD
No.64/2021, calls for interference and, if so, to
what extent?

28.1. Sri Gangadharaiah submitted that the
impugned award dated 09.08.2024 is liable to
be set aside in its entirety on all the grounds
urged before this Court. He summarised his
grounds as follows.

28.2. First: the Permanent Lok Adalat lacked
jurisdiction to entertain the dispute, for the
reasons set out under Point No.1. An award
passed without jurisdiction is a nullity.

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28.3. Second: the finding of negligence against BSNL
is erroneous in law and on facts. BSNL was not
negligent; the fraud was caused by the
compromise of login credentials outside BSNL's
domain. The Permanent Lok Adalat reached its
finding without examining BSNL's official SIM
issuance records.

28.4. Third: BSNL cannot be held vicariously liable for
Mr. Karunakaran's act, which was committed
outside the scope of employment and in
collusion with criminals.

28.5. Fourth: the Co-operative Bank has received
amounts aggregating to more than the gross
loss from various sources and has been over-
compensated. No further direction against
BSNL is warranted.

28.6. Fifth: the charge sheet filed by the Cybercrime
Police gave up the BSNL Manager from
prosecution, negating any finding of BSNL's
culpability. The Permanent Lok Adalat failed to
give weight to this crucial development.

28.7. On all these grounds, Sri Gangadharaiah
submitted that W.P.No.4674/2025 be allowed

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and the impugned award set aside in its
entirety.

28.8. Sri Uppin submitted that the impugned award is
liable to be interfered with only to the extent of
the quantum of compensation. He submitted
that the award correctly found BSNL negligent
and correctly held BSNL liable, those findings
are sound in law and fact and do not call for
interference.

28.9. However, having correctly found negligence and
liability, the Permanent Lok Adalat awarded
only Rs.5,00,000/- as compensation without
explaining why such a token amount was
awarded in the face of an established net loss
of Rs.50,50,762/-. The restriction of
compensation to approximately 9.9% of the
established loss, without any reasoning, is
arbitrary, capricious, and an error apparent on
the face of the record.

28.10. Sri Uppin submitted that this Court, in exercise
of its writ jurisdiction under Articles 226 and
227 of the Constitution of India, should modify
the impugned award and enhance the
compensation to: (a) Rs.50,50,762/- as the

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principal net loss; (b) interest at an appropriate
rate from the date of the fraud (07.02.2019),
since the PLA's starting date of 01.03.2021 is
irrational; and (c) a reasonable sum towards
consequential damages for reputational harm,
liquidity crisis, and operational disruption
caused during the nearly two-year gap between
the fraud and the insurance recovery.


28.11. Sri M. Mohan Rao submitted that the impugned
award is correct insofar as it exonerates Canara
Bank. The Permanent Lok Adalat, after
examining the evidence and submissions,
rightly concluded that Canara Bank bears no
liability. This finding is well-founded and does
not call for any interference by this Court.

28.12. Sri Mahantesh Shetter, learned AGA, submitted
that the award of a mere Rs.5,00,000/- against
BSNL, in the face of an established net loss of
Rs.50,50,762/-, does not serve the cause of
justice and does not reflect the actual loss
suffered. The State has an interest in ensuring
that statutory fora like the Permanent Lok
Adalat pass awards commensurate with
established losses, so as to inspire public

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confidence and deter negligent conduct by
service providers.

28.13. Learned AGA submitted that this Court should
exercise its writ jurisdiction to correct the
manifest inadequacy in the quantum of
compensation, while upholding the core finding
of BSNL's liability and the exoneration of
Canara Bank. The State has no objection to the
dismissal of BSNL's writ petition.

28.14. This Court is exercising jurisdiction under
Articles 226 and 227 of the Constitution of
India. The scope of writ jurisdiction when
applied to orders and awards of statutory
tribunals is well-settled. This Court functions as
a supervisory court, not a court of appeal. It
does not re-appreciate evidence or substitute
its own view on questions of fact that fall within
the domain of the tribunal. It interferes only
where there is: (a) an error of jurisdiction; (b)
an error apparent on the face of the record; (c)
a violation of natural justice; or (d) a finding so
perverse that no reasonable tribunal could have
arrived at it on the available evidence.

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28.15. The scope of writ jurisdiction in relation to a
Permanent Lok Adalat's award has a specific
statutory dimension. Section 22-E of the Legal
Services Authorities Act, 1987 provides as
follows:
'22E. Award of Permanent Lok Adalat to be final.—
(1) Every award made by the Permanent Lok Adalat under
this Chapter shall be final and binding on the parties thereto
and their heirs, legal representatives or assigns.
(2) Every award made by the Permanent Lok Adalat under
this Chapter shall be deemed to be a decree of a civil court.
(3) Every award made by the Permanent Lok Adalat shall be
final and shall not be called in question in any original suit,
application or execution proceedings.'

28.16. Section 22-E declares PLA awards 'final and
binding' and states they 'shall not be called in
question in any original suit, application or
execution proceedings'. This provision
forecloses challenge by way of an original suit
or an application before a civil court or
execution proceedings. However, Section 22-E
does not, and cannot, oust the supervisory
jurisdiction of the High Court under Articles 226
and 227 of the Constitution of India. The
Constitutional jurisdiction of the High Court
over courts and tribunals is part of the basic
structure of the Constitution and cannot be

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taken away by an ordinary statute. Section 22-
E bars challenges in original civil proceedings; it
does not bar the constitutional remedy by way
of a writ petition. The impugned award is
therefore subject to this Court's supervisory
jurisdiction on the grounds recognised in
constitutional law.

28.17. Part A, BSNL's Challenge
(W.P.No.4674/2025): This Court has, in the
course of addressing Points 1 through 4,
examined and resolved every ground urged by
Sri Gangadharaiah on behalf of BSNL. The
conclusions reached are summarised below.

28.18. On jurisdiction (Point 1): The Permanent Lok
Adalat had full and proper jurisdiction. BSNL's
jurisdictional challenge fails on all sub-grounds,
the dispute was civil in character, did not 'relate
to an offence' within the meaning of the first
proviso to Section 22-C(1), and the monetary
ceiling is not a bar.

28.19. On negligence and proximate cause (Point 2):
The issuance of the duplicate SIM card without
verification amounted to negligence and
deficiency in service, and was the proximate

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cause of the loss. The finding is based on
evidence and is not perverse. The argument
that BSNL's records were not examined before
the Permanent Lok Adalat does not assist
BSNL, since the burden to produce those
records lay with BSNL itself.

28.20. On vicarious liability (Point 3): BSNL is
vicariously liable. Mr. Karunakaran's act was
performed in the course of employment using
BSNL's authority and infrastructure. The
'independent Act’ defence fails. The steps taken
by BSNL post-discovery (disciplinary
proceedings) support, rather than negate, the
connection between the act and his
employment.

28.21. On recoveries (Point 4): The insurance
proceeds do not reduce BSNL's liability. The
aggregate of all three receipts does not
constitute legal over-compensation because the
insurance proceeds are a collateral source. The
net compensable loss is Rs.50,50,762/-.

28.22. On the charge sheet argument: As held under
Point 2, civil liability is governed by the
standard of preponderance of probabilities. The

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omission of Mr. Karunakaran from the charge
sheet reflects a prosecutorial assessment under
the criminal standard (beyond reasonable
doubt) and does not determine BSNL's civil
liability.

28.23. BSNL has not demonstrated any jurisdictional
error, error apparent on the face of the record,
violation of natural justice, or perverse finding
by the Permanent Lok Adalat. The impugned
award, insofar as it holds BSNL liable and
directs it to compensate the Co-operative Bank,
does not call for interference.
W.P.No.4674/2025 filed by BSNL is liable to be
dismissed.

28.24. Part B, Co-operative Bank's Challenge
(W.P.No.16104/2025):

28.25. The Co-operative Bank's challenge concerns the
quantum of compensation. The Permanent Lok
Adalat awarded Rs.5,00,000/- with interest at
6% per annum from 01.03.2021.

28.26. This Court has carefully read the impugned
award. The Permanent Lok Adalat found BSNL
negligent and held BSNL liable. These findings

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are sound. However, when it came to quantum,
the award directed payment of Rs.5,00,000/-
without providing any explanation for this
drastic restriction. The award does not state
that the loss was proved only to the extent of
Rs.5,00,000/-. It does not make any finding of
contributory negligence in quantified terms. It
does not identify any principle under which only
9.9% of the established net loss could be
awarded. It does not explain why the interest
period begins on 01.03.2021 rather than on the
date of the loss (07.02.2019). In short, the
Permanent Lok Adalat found full liability but
awarded a fraction of the established loss
without any reasoning for the discrepancy.


28.27. An award that is internally inconsistent in this
manner, finding full liability but awarding a
fraction of the established loss without
explanation, is an error apparent on the face of
the record. Reasoned decision-making is not
merely a judicial virtue; in the context of a
statutory adjudication, it is a legal requirement.
An adjudicatory body that finds a party liable
for a loss must award compensation
proportionate to that loss, or, if it departs from

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proportionality, must give a reason for doing
so. The Permanent Lok Adalat gave none. This
is a fatal error in the award that this Court
must correct.

28.28. This Court is therefore satisfied that
W.P.No.16104/2025 calls for limited but
important interference: the finding of liability
against BSNL is affirmed, but the quantum of
compensation must be revised to reflect the
actual net loss established on the evidence.

28.29. Quantum of Compensation:

28.30. Principal Compensation: The net unrecovered
loss of the Co-operative Bank, after crediting
the reverse credit (Rs.30,00,000/-) and the
police recovery (Rs.7,12,238/-), stands at
Rs.50,50,762/-, being the specific net loss
claimed by the Co-operative Bank, which this
Court accepts for the reasons set out under
Point 4. BSNL is directed to pay Rs.50,50,762/-
as principal compensation.

28.31. Interest on Principal: The Co-operative Bank
suffered the loss when the seven fraudulent
transactions were completed on 06.02.2019

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and 07.02.2019. From that date, the Bank was
deprived of its funds. The Permanent Lok
Adalat awarded interest from 01.03.2021,
approximately two years after the date of loss,
with no explanation. This anomalous starting
date is an additional error in the award.
Interest should ordinarily run from the date on
which the cause of action accrued. This Court
directs that interest shall be paid on
Rs.50,50,762/- at the rate of 9% (nine per
cent) per annum from 07.02.2019 (the date of
the last fraudulent transaction) until the date of
actual payment. The earlier direction in the
impugned award for interest at 6% from
01.03.2021 is subsumed and superseded by
this direction.

28.32. Consequential Damages: As noted under Point
4, the Co-operative Bank claimed
Rs.20,00,000/- before the Permanent Lok
Adalat towards consequential damages. The
Permanent Lok Adalat awarded nothing under
this head. This Court holds that the Co-
operative Bank did suffer real and foreseeable
consequential loss: (a) an acute liquidity crisis
from February 2019 onwards, during which the

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Bank had to make emergency arrangements
from its own resources to meet its statutory
reserve obligations under the Karnataka
Cooperative Societies Act, 1959; (b) the
reputational damage suffered by an institution
established in 1913 and serving the Shiralkoppa
community for over a century, on account of a
fraud involving over Rs.87 lakhs becoming
public knowledge; and (c) the operational
disruption and management costs incurred
during the nearly two-year gap between the
fraud and the receipt of insurance proceeds.
These are natural and foreseeable
consequences of BSNL's negligence. This Court
awards Rs.5,00,000/- (Rupees Five Lakhs) as
compensation for these consequential
damages.

28.33. Part C, Position of Canara Bank:

28.34. The Permanent Lok Adalat's finding that Canara
Bank is not liable for the loss suffered by the
Co-operative Bank is correct in law and fact, for
the detailed reasons set out under Point 3. The
Co-operative Bank shall have no claim against
Canara Bank arising from the disputed

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transactions. No relief is granted against
Canara Bank.

28.35. Criminal Proceedings, Independence from Civil
Findings: All findings in this judgment are
findings on civil liability, based on the civil
standard of proof (preponderance of
probabilities). None of the findings in this
judgment constitute findings of criminal guilt
against any person. The criminal proceedings
pending before the competent criminal court
against the accused persons, including Mr.
Karunakaran, shall continue entirely unaffected
by any observation or finding in this judgment.
The criminal court shall evaluate the criminal
charges independently, applying the criminal
standard of proof (beyond reasonable doubt),
and shall not be influenced by any finding in
this civil judgment. As held under Points 2 and
5, the fact that Mr. Karunakaran was not
chargesheeted in the criminal proceedings has
no bearing on BSNL's civil liability, the two
standards of proof operate differently.

28.36. The Co-operative Bank's right to pursue any
other civil remedy available in law, including

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any claim against Mr. Karunakaran personally,
is preserved. The compensation awarded in
these proceedings shall be accounted for in any
such future proceedings so as to avoid double
recovery.

28.37. The scope of judicial review under Article 226
of the Constitution of India is broad and
multifaceted. Article 226 empowers the High
Court to issue directions, orders or writs to any
person or authority, including the Government,
for the enforcement of any of the rights
conferred by Part III and 'for any other
purpose'. This 'other purpose' jurisdiction is not
limited to fundamental rights enforcement; it
extends to all cases where a party has a legal
right and a legal wrong has been committed. A
party who has suffered by reason of an
erroneous, arbitrary or unlawful exercise of
statutory power may seek relief under Article
226. The jurisdiction under Article 227,
separately, is a supervisory jurisdiction over all
courts and tribunals within the territorial limits
of the High Court. These two Constitutional
provisions together give this Court

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comprehensive supervisory authority over the
Permanent Lok Adalat.

28.38. The grounds for interference with a statutory
tribunal's order under Articles 226 and 227 are
well-established. They include: (a) want of
jurisdiction, where the tribunal acted without or
in excess of jurisdiction; (b) error of law
apparent on the face of the record, where the
tribunal has committed a manifest error of law
that does not require elaborate argument to
establish; (c) violation of principles of natural
justice, where the tribunal denied a fair hearing
or was biased; (d) abuse of jurisdiction, where
the tribunal exercised its jurisdiction for an
improper purpose; and (e) perversity, where
the conclusion reached is so unreasonable that
no reasonable tribunal could have arrived at it
on the available material. The Co-operative
Bank's challenge falls under ground (b): the
restriction of compensation to Rs.5,00,000/-
without any reasoning, in the face of an
established net loss of Rs.50,50,762/-, is an
error of law apparent on the face of the record.

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28.39. The analysis of Section 22-E requires this Court
to address a deeper constitutional question:
can the legislature deprive the High Court of its
supervisory jurisdiction under Articles 226 and
227? The answer is clearly 'No'. The jurisdiction
of the High Court under Articles 226 and 227 is
a constitutional jurisdiction, it flows directly
from the Constitution itself, not from any
statute. The legislature can curtail, modify or
channel the jurisdiction of courts established by
statute. It cannot take away or abridge the
constitutional jurisdiction of High Courts.
Section 22-E, which says PLA awards 'shall not
be called in question in any original suit,
application or execution proceedings', is a
statutory provision. It can bar challenges in civil
courts and can restrict the manner and forum
of challenge in ordinary civil proceedings. It
cannot, however, bar the extraordinary
constitutional jurisdiction of the High Court
under Articles 226 and 227. The impugned
award remains subject to this Court's
supervisory jurisdiction on constitutional
grounds.

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28.40. This reading of Section 22-E is consistent with
the Supreme Court's position on the
relationship between statutory finality clauses
and constitutional jurisdiction. It is a well-
settled constitutional principle that finality
clauses in statutes, however broadly worded,
cannot oust the jurisdiction of the High Court
under Articles 226 and 227. These articles
represent a constitutional guarantee of judicial
oversight over all statutory bodies and
tribunals. Any statute that purports to take
away this jurisdiction would be invalid as
offending the basic structure of the
Constitution. Section 22-E must therefore be
read as barring challenges in ordinary civil
proceedings while leaving intact the High
Court's constitutional supervisory jurisdiction.
On this reading, Section 22-E and Articles
226/227 operate harmoniously in their
respective spheres.

28.41. The doctrine of 'error apparent on the face of
the record' requires careful application. Not
every error of fact or law constitutes an error
apparent on the face of the record. The error
must be one that is self-evident, one that

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strikes the reader immediately upon perusing
the record, without the need for elaborate
argument, external evidence, or detailed legal
analysis. In the present case, the error is
precisely of this character. The Permanent Lok
Adalat's own award establishes the following:
(a) BSNL was negligent; (b) BSNL caused the
loss to the Co-operative Bank; (c) the Co-
operative Bank suffered a substantial financial
loss. Having established these three things, all
of which point inescapably to full compensation
for the established loss, the Permanent Lok
Adalat then awarded Rs.5,00,000/- without a
single sentence of explanation. The award does
not say 'only Rs.5,00,000/- of the loss was
caused by BSNL'. It does not say 'the balance
of the loss was the Co-operative Bank's own
fault'. It does not say 'the Co-operative Bank
did not prove its loss beyond Rs.5,00,000/-'.
The award simply moves from a finding of full
liability to a direction for partial compensation,
with no logical bridge. This is the very definition
of an error apparent on the face of the record.

28.42. The duty to give reasons for a decision is not
merely a procedural requirement; it is a

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substantive safeguard against arbitrariness.
When a statutory adjudicatory body gives
reasons, it demonstrates that its decision is
based on a rational assessment of the evidence
and the law. The requirement to give reasons
disciplines the decision-making process itself. It
forces the decision-maker to confront the
evidence and the arguments and to explain
how the evidence and the arguments lead to
the conclusion reached. When reasons are
absent, particularly in relation to a key finding
such as the quantum of compensation, the
decision cannot be assessed for correctness,
cannot be effectively challenged, and may
conceal an arbitrary exercise of power. In a
legal system committed to the rule of law,
reasoned decision-making is not optional. The
Permanent Lok Adalat's failure to give any
reason for restricting the compensation to
Rs.5,00,000/- is a failure of this fundamental
obligation.

28.43. The quantum of interest at 9% per annum
requires specific justification. The choice of an
appropriate interest rate in compensation cases
involves a judgment about what rate would

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fairly reflect the cost of being deprived of the
use of money during the relevant period.
Several factors are relevant: (a) the prevailing
rates of interest during the relevant period; (b)
the rate at which the claimant could borrow
money to replace the lost funds; (c) the rate of
return that the claimant could have earned on
the lost funds; and (d) the desirability of
providing a fair and realistic compensation
without being punitive to the tortfeasor. In
India, prevailing bank lending rates during
2019-2024 generally ranged from 8% to 12%.
A rate of 9% per annum is below the lower end
of bank lending rates and does not therefore
involve any element of punishment of BSNL. It
represents a moderate, fair and principled rate
that adequately compensates the Co-operative
Bank for the loss of use of its money without
unjustly burdening BSNL. The Permanent Lok
Adalat's rate of 6% was below market rates and
inadequately compensated the Co-operative
Bank for its deprivation. The enhanced rate of
9% from the date of loss is both fair and
appropriate.

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28.44. The consequential damages of Rs.5,00,000/-
represent this Court's assessment of a fair and
proportionate sum for the non-monetary losses
suffered by the Co-operative Bank. This Court
has considered: (a) the reputational harm to an
institution established in 1913 and serving its
community for over a century; (b) the acute
liquidity stress during the two-year gap
between the fraud and the insurance proceeds;
(c) the management bandwidth consumed in
dealing with the aftermath of the fraud,
including the criminal investigation, the PLA
proceedings, and the regulatory consequences;
and (d) the disruption to the Co-operative
Bank's members and depositors. The sum of
Rs.5,00,000/- is a conservative estimate of
these real and quantifiable consequences. This
Court is satisfied that it is a fair and
proportionate award under this head, not
designed to punish BSNL but to make the Co-
operative Bank as whole as possible in terms of
the non-monetary dimensions of its loss.

28.45. In closing the analysis under Point 5, this Court
reiterates the following. The Permanent Lok
Adalat's core findings, that BSNL was negligent,

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that BSNL was liable, and that Canara Bank
was not liable, are sound, well-reasoned and
supported by the evidence. This Court has
examined these findings carefully and has
affirmed them. The deficiency in the impugned
award is limited to the quantum of
compensation, a failure to carry the sound
liability finding through to its logically
necessary conclusion of full compensation. This
Court's intervention is directed precisely at
correcting this limited but important deficiency.
The award is not set aside; it is modified.
BSNL's core finding of liability stands, enhanced
to its legally correct consequence.

28.46. One important aspect of writ jurisdiction under
Article 226/227 deserves specific mention in
the context of Permanent Lok Adalat awards.
The PLA is not an ordinary court or civil
tribunal. It is a statutory alternative dispute
resolution body with limited jurisdiction,
created for a specific purpose and governed by
a specific statute. When such a body exercises
its adjudicatory power under Section 22-C(8),
that is, when it decides the dispute without the
parties' consent after conciliation has failed, it

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is functioning more like a tribunal than a
settlement facilitator. Its adjudicatory decisions
are therefore subject to the standards of
reasoned adjudication that apply to all
statutory tribunals. The duty to decide on the
basis of evidence, to consider all relevant
factors and ignore irrelevant ones, and to give
reasons for the decision reached, applies in full
force to the PLA when it adjudicates under
Section 22-C(8).

28.47. This Court also notes that BSNL's writ petition
(W.P.No.4674/2025) was filed challenging an
award that is favourable only to a partial
degree to the Co-operative Bank. The award
imposed a payment of Rs.5,00,000/- on BSNL,
a small fraction of the established loss. Had
BSNL simply complied with this award, the
present proceedings would have been
unnecessary. BSNL chose instead to challenge
even this limited award. In dismissing
W.P.No.4674/2025, this Court is merely
upholding a lawful, properly-jurisdictioned,
evidence-based finding of liability against BSNL.
The dismissal of BSNL's petition is the natural

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and inevitable consequence of the findings
recorded under Points 1 through 4.

28.48. The Co-operative Bank's challenge in
W.P.No.16104/2025, by contrast, is a challenge
to the adequacy of the relief granted, not to the
finding of liability. The Co-operative Bank
accepts the Permanent Lok Adalat's finding that
BSNL was negligent and liable. It complains
only that the compensation of Rs.5,00,000/- is
grossly disproportionate to the established net
loss of Rs.50,50,762/-. This limited challenge,
seeking adequacy of compensation without
challenging any substantive finding, is precisely
the kind of challenge that writ courts routinely
entertain in relation to statutory awards. The
basis of interference (error apparent on face of
record in the form of inadequate and
unexplained compensation) is well-established
and clearly made out.

28.49. The enhancement of compensation from
Rs.5,00,000/- to Rs.50,50,762/- is a tenfold
increase. This may appear dramatic, but it is
only because the Permanent Lok Adalat's award
was so dramatically low relative to the

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established loss. This Court is not awarding any
amount above the established net loss
(Rs.50,50,762/-); it is directing payment of the
established loss. The award of interest at 9%
from the date of the loss and consequential
damages of Rs.5,00,000/- represent modest
additions that reflect the full compensatory
principle. The combined amount,
Rs.50,50,762/- + 9% interest from 07.02.2019
+ Rs.5,00,000/-, is the legally correct
compensation for a loss of this nature, and
nothing more.

28.50. This Court has not awarded any punitive or
exemplary damages against BSNL. The
compensation directed is purely compensatory
in character. It is calculated to make the Co-
operative Bank whole, no more, no less. BSNL
is not being punished through this judgment. It
is being required to pay for the loss it caused.
This is the basic obligation of any tortfeasor: to
make good the loss. The fact that the loss is
large reflects the seriousness of the negligence
and the scale of the harm it enabled, not any
punitive intent on this Court's part.

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28.51. This court answers point no, 5 by holding that
(a) The impugned award calls for interference
to the extent of the quantum of compensation,
which is manifestly inadequate and constitutes
an error apparent on the face of the record. (b)
W.P.No.4674/2025 filed by BSNL is dismissed.
The finding of BSNL's liability is affirmed. (c)
W.P.No.16104/2025 filed by the Co-operative
Bank is partly allowed. The quantum of
compensation is enhanced as directed.


29. Answer to Point No. (6): What Order?

29.1. Before issuing the operative directions, this
Court considers it appropriate to step back from
the specific legal issues addressed under each
Point and to reflect on the broader legal, social
and economic landscape in which this case is
situated. Such a reflection is not merely an
academic exercise. It contextualises the
judgment, explains the rationale behind the
directions, and may serve as guidance to
similar disputes that are likely to arise with
increasing frequency as India's digital economy
deepens.

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29.2. The Digital Economy and the OTP Ecosystem:
India's transition to a digital economy over the
past decade has been one of the most
remarkable transformations in the country's
economic history. The Pradhan Mantri Jan Dhan
Yojana brought hundreds of millions of citizens
into the formal banking system. The
introduction of the Unified Payments Interface
(UPI) by the National Payments Corporation of
India (NPCI) created a real-time, low-cost
payment infrastructure that now handles over a
thousand crore transactions per month. NEFT
and RTGS facilitate trillions of rupees in fund
transfers annually. The Digital India
programme, e-governance initiatives, and the
proliferation of fintech services have made
digital transactions the norm rather than the
exception for individuals, businesses and
institutions across India. This transformation
has brought immense economic benefits:
efficiency, financial inclusion, reduction in
transaction costs, and the formalisation of the
economy.

29.3. However, this transformation has also created
new vulnerabilities. The security of digital

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transactions depends on layered authentication
systems, of which the OTP-based two-factor
authentication is the most widely deployed in
Indian banking. This system has a single critical
dependency: the mobile number registered for
OTP purposes must remain under the exclusive
control of the legitimate account holder. If this
dependency fails, as it does in a SIM swap
fraud, the entire security architecture is
bypassed instantly. The criminal who controls
the duplicate SIM becomes, from the banking
system's perspective, indistinguishable from
the legitimate account holder. The fraud is
perfect and is complete before the victim even
becomes aware.


29.4. The Role of Telecom Service Providers in the
Digital Financial Ecosystem: Telecom service
providers occupy a unique and irreplaceable
position in this architecture. They are not
merely peripheral service providers. They are
the custodians of the mobile numbers that
serve as the authentication anchors for the
entire OTP-based digital payment system. Their
role in the digital financial ecosystem is
structurally equivalent to the role of a vault

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keeper in a traditional banking system. Just as
a vault keeper who carelessly or dishonestly
gives access to unauthorised persons bears
responsibility for the resulting theft, a telecom
service provider that carelessly or dishonestly
issues a duplicate SIM bears responsibility for
the financial fraud that the duplicate SIM
enables.


29.5. This structural position of telecom service
providers has several important implications for
civil liability. First, the standard of care
applicable to telecom service providers in
relation to SIM management must reflect the
severity of the potential harm and the
importance of the function. A minor
administrative lapse in the issuance of a
physical magazine subscription is a very
different matter from a negligent SIM swap that
enables the theft of lakhs of rupees from a
anyone including a banking institution as in this
case. The standard of care must be calibrated
to the risk. Second, the duty of care is owed
not only to the subscriber directly affected but
to the banking and financial system as a whole,
which relies on the integrity of the telecom

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layer for its security. Third, regulators, courts
and the telecom industry itself must recognise
and act upon the role of telecom service
providers as critical infrastructure providers in
the digital financial system.

29.6. The Present Case as a Paradigm: The present
case is a paradigmatic instance of SIM swap
fraud. A banking institution had its registered
mobile number compromised through a
duplicate SIM issued by a telecom service
provider's official. Within hours, substantial
funds were drained from its account. The harm
was swift, severe and largely irreversible at the
moment of fraud. The pattern is precisely that
which has been documented in thousands of
similar cases across India. The legal response
must be clear and consistent: 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.

29.7. The Civil-Criminal Boundary: This Court wishes
to emphasise the importance of maintaining a
clear boundary between civil and criminal

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proceedings. It is not this Court's function, in
these writ proceedings, to assess the criminal
guilt of any person. The criminal proceedings
before the competent criminal court will run
their course, with all the procedural safeguards
that criminal law provides. This judgment is
confined to the civil liability of BSNL as a
service provider for the deficiency in its service
and the consequent loss suffered by the Co-
operative Bank. The findings in this judgment,
based as they are on the civil standard of proof
(preponderance of probabilities), are not
findings of criminal guilt and must not be read
as such.

29.8. Treatment of Recoveries in the Digital Fraud
Context: This Court also addresses, for future
guidance, the appropriate treatment of
insurance proceeds and other recoveries in
digital fraud compensation cases. The principle
that this Court has applied, that direct
recoveries of the stolen funds reduce the net
compensable loss, while collateral insurance
proceeds do not reduce the tortfeasor's liability,
is of general application. It protects the
incentive for institutions to obtain insurance

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coverage against digital fraud risks. It also
preserves the insurer's subrogation rights,
which are essential to the functioning of the
commercial insurance market.

29.9. The verification of subscriber identity before
issuing a duplicate or replacement SIM card is
not a bureaucratic formality. It is a critical
security measure upon which the financial
safety of millions of bank account holders
depends. Every telecom service provider must
treat every request for a duplicate SIM card
with the gravity it deserves. The verification
must be thorough, the documentation must be
examined carefully, and where there is any
doubt about the identity or authority of the
applicant, the request must be declined and the
subscriber must be contacted through alternate
channels. The financial consequences of issuing
a duplicate SIM to a fraudster can be
catastrophic for the victim and, as this
judgment demonstrates, equally consequential
for the telecom service provider in civil law.

29.10. While the primary fault in the present case lies
with BSNL, banking institutions must also take

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proactive steps to protect their customers and
themselves from SIM swap fraud. These steps
may include: registering multiple OTP delivery
channels so that the loss of one channel can be
detected and compensated; implementing
time-delays between SIM swap notifications
and large transactions to provide a window for
detection; sending transaction alerts to
alternate communication channels; and
educating customers about the risks of SIM
swap fraud and the precautions they can take.
These measures are not a substitute for
telecom service providers' duty of care but are
an additional layer of protection. The Court
recognises that Canara Bank, in the present
case, had a sound authentication system.
Future enhancements to the system, however,
can only strengthen the overall security
architecture.

29.11. This Court notes that while it is not the function
of a court to issue directions to regulators in
these proceedings, the present case highlights
the importance of effective regulatory oversight
of SIM swap procedures by the Department of
Telecommunications and the Telecom

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Regulatory Authority of India. The regulatory
framework must ensure that prescribed
verification procedures are actually followed in
practice, that penalties for non-compliance are
meaningful and enforced, and that customers
are notified promptly and effectively when any
SIM swap is requested in respect of their
numbers. Regulatory oversight of telecom
service providers' SIM management practices is
a matter of urgent public importance in the
digital economy.

29.12. In view of the finding on point no.1 to 5 above
this court passes the following:
ORDER

i. W.P.No.4674/2025 (BSNL's Petition) is
DISMISSED . BSNL's challenge to the
impugned award dated 09.08.2024
passed by the Permanent Lok Adalat in
PLD No.64/2021 is rejected on all
grounds. The finding of negligence against
BSNL, the finding of BSNL's vicarious
liability, and the direction to pay
compensation to the Co-operative Bank,
as contained in the impugned award, are
affirmed, subject to the enhancement of
quantum directed herein.

ii. W.P.No.16104/2025 (Co-operative Bank's
Petition) is PARTLY ALLOWED . The