Telecom providers are vicariously liable for financial losses resulting from negligent issuance of duplicate SIM cards.

The Petitioner (a Co-operative Bank) maintained a current account with Respondent No. 1 (Canara Bank) linked to a BSNL mobile number for OTP-based internet banking

Between Feb 6–7, 2019, unauthorized persons siphoned ₹87,70,000 via RTGS/NEFT

Investigation revealed BSNL officials issued a duplicate SIM card to an impostor without the Petitioner's consent or verification, enabling OTP interception

The Petitioner recovered ₹37,12,238 through reverse credits and police action, plus ₹57,65,329 from its insurer

The Permanent Lok Adalat (PLA) found BSNL negligent but awarded a "token" compensation of only ₹5,00,000

BSNL challenged the PLA’s jurisdiction and liability, while the Petitioner sought enhanced compensation

1. Whether the Permanent Lok Adalat had jurisdiction to adjudicate the dispute under Section 22C of the Legal Services Authorities Act, 1987, given the pendency of criminal fraud proceedings

2. Whether the unauthorized issuance of a duplicate SIM card constituted negligence/deficiency in service and the proximate cause of loss

3. Whether BSNL is vicariously liable for the acts of its officials despite allegations of personal criminal misconduct

4. Whether insurance proceeds received by the victim should reduce the tortfeasor’s (BSNL’s) liability under the principle of restitutio in integrum

The Court applied Section 22A(b)(ii) of the Legal Services Authorities Act, 1987, defining BSNL as a "public utility service"

It interpreted the jurisdictional bar in the first proviso to Section 22C(1) and Section 22C(8), distinguishing between "matters relating to an offence" (criminal adjudication) and civil claims for compensation arising from facts that also constitute an offence

It applied the "Close Connection" test for vicarious liability

The common law "Collateral Source Rule," which prevents a wrongdoer from benefiting from a victim’s independent insurance

The Court further relied on the doctrine of Res Ipsa Loquitur regarding the negligent issuance of SIM cards

The Court rejected BSNL’s jurisdictional challenge, holding that a civil claim for "deficiency in service" does not transform into a criminal matter simply because the underlying facts include fraud; thus, the PLA was competent to adjudicate

On merits, the Court found BSNL’s failure to follow KYC norms for duplicate SIM issuance was a direct breach of its duty of care and the "proximate cause" of the loss, as the OTP served as the final security layer

BSNL was held vicariously liable because the official (Mr. Karunakaran) performed an authorized function (SIM issuance) in an unauthorized manner using BSNL's infrastructure; notably, BSNL’s initiation of departmental proceedings confirmed the act was "in the course of employment"

Regarding quantum, the Court applied the Collateral Source Rule, ruling that insurance proceeds are a result of the Petitioner's prudence and cannot be set off to diminish BSNL’s liability

The Court found the PLA's award of ₹5 lakhs against a net loss of ₹50.50 lakhs was an "error apparent on the face of the record" for lack of reasoning

It enhanced the compensation, directing BSNL to pay: (a) ₹50,50,762 as principal net loss; (b) interest @ 9% p.a. from the date of fraud (07.02.2019) until payment; and (c) ₹5,00,000 as consequential damages for reputational harm and liquidity stress

Canara Bank was exonerated

BSNL was warned that failure to pay within three months would trigger an enhanced interest rate of 12% p.a.