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Introduction:

The internet revolution may be a worldwide phenomenon and moving forward by progressive data. India is looking towards a rise during internet penetration shortly within the area of electronic commerce. The beginning of the web era and therefore the development of data technology and telecommunications are undisputed are inflicting a major impact on the financial market and institution. The delivery channel includes directs dial-ups connections, public networks, and personal networks and therefore the device includes telephones, personal computers, etc.

The term “Electronic Banking” or E-banking is defined as remote banking services provided by authorized banks or either representative through a device operated. Banking is the growth engine of an economy. During the past few decades, there has been a technology outburst altogether sectors and banking has been one among the sectors to adopt information technology[1]. Internet or e-banking implies any client with a PC and a browser can get related to his bank’s site to play out any of the virtual banking functions. 

Broadly the extent of banking services offered through the internet are often categorized into three types :

i. The basic level service whereby the banks, the different products, and services offered to customers and therefore the members of the public generally. 

ii. In the next level are simple transactional websites that permit customers to submit their instruction, application for various services. 

iii. The third level of internet banking services are offered by fully transactional websites that permit a customer to operate their account for the transfer of funds and payments of various bills, sale of securities and, etc. 

Some of these are referred to as “Virtual “ or “Internet-only” banks and should not have any physical presence during a country despite offering different banking services. Certainly, as banks and financial institutions have in their huge majority presented new technology services delivery. The handling which shall be the one among the foremost interesting and sophisticated legal challenges. 

The working party because its term of reference was to look at the various perspective of Internet banking and recommended appropriated standard to adoption in India, particularly with references to the subsequent[2] :

1) Risk to the organization and banking industry, related to internet banking and method of adopting managing risk. 

2) Identifying the gaps in the supervisory and legal framework with references to the prevailing banking and financial regulation, IT regulations, tax laws, consumer protection, criminal laws and concealment, and other cross border issues.

3) Identifying international best practices on operational and control issues[3]

4) Recommending minimum technology and security standard. 

Information Security

There are two main areas of risks that are inherent in conducting over the web: 

1. Preventing unauthorized transaction: It generally applied into the contract between banks and its customers, in the absence of any negligence on the behalf of the customer, the bank is going to be responsible for any transaction occurring on the account that is perpetrated by fraud. Bhashyam and Adiga’s Negotiable Instrument Act states that the connection of the banker and therefore the customers are of a creditor and a debtor with the requirement of honoring the customer order of the funds within the hands.

2. Maintaining Integrity of Customer’s transactions: The danger here that a customer’s transaction history or account details are accessed by the third party. The ability of a hacker to crack encryption products has been widely published and a bank is probably going to be liable under one among the heads: Contractual Liability Negligent Misstatement, Jurisdiction Issue, International Legislation.

Security and Privacy Issue

Security in internet banking compromises both PC and communication security. The computer security aims are to preserves computing resources against abuse and unauthorized use, and to guard data from accidental and deliberate damages disclosure and modification. 

Attacks and Compromises

An attack might be formed like : 

  • The intruder may gain unauthorized access and zip more.
  • The intruder gain access and destroys corrupts, or otherwise alter data.
  • The intruder doesn’t gain access but instead forges messages from your system. 
  • The intruder gain access and seizes control partly or wholly, denied access to privilege user.
  • Common cracking attacks like E-mail bombs, denial of service, sniffer attack, holes, firewalls.

Security Policy

  • Priorities of data and knowledge systems must be protected.
  • The use of out of doors consultants.
  • Identification of data security risk and their management.
  • Decision-making process of completing information security measures.
  • Procedure for receiving information security measures.
  • Auditing of the compliance to the safety policy.
  • Business continuity plan.
  • Procedure for periodic review policy. 

Current Legal Issues in India

  • The Banking Regulation Act 1949 
  • The Federal Reserve Bank of India Act,1934 
  • The Exchange Management Act, 1999 

Internet banking is an extension of normal banking, which uses the internet both as a medium of receiving instruction from the customer and also delivering banking services. In this digital age, the issue which has arisen is regarding the legality under the existing laws, of certain sorts of electronic, banking transactions on the web. Banking over the internet has attracted increasing attention from a banker and other financial services industry participants, business press, regulator, and therefore the lawmakers. The government of India has sanctioned the knowledge Technology Act 2000 to offer legal identification for financial transactions by the banks administered by the way of electronic data, which has also drawn upon the Model law came into force with effect from Oct 17, 2000. This act also amends a certain provision of the Indian Penal code, the Indian Evidence Act 1872, Federal Reserve Bank of India Act 1934 to facilitate e-commerce in India. 

However, this act doesn’t apply to[4]

  • Negotiable instrument has defined in section 3 of the legal document Act 1881, 
  • Power of attorney defined in section 1A of the Power of Attorney Act 1882,
  • Will as defined within the clause (h )of section 2 within the Indian succession Act 1925, Ø
  • Contract of the sale or conveyance of immovable property or any interest in such property,
  • Such class of documentation or transaction as could also be notified in Central Government in the official gazette, 

Case Laws

  • The ICICI Bank has begun web banking in 1996 describing it as rubbish and useless, which was even done by the host of other banks. But the usage of the E-Banking in India, raised gradually only from 1999, due to lower ISP Charges, and increased penetration of PCs with a tech-friendly atmosphere.
  • Union Bank of India and Anr. V. State of West Bengal[5] 

The difficulty raised before the Calcutta supreme court was whether a secured creditor is entitled to invoke the provisions of section 14 of the SARFAESI subsequently to the sale of immovable property under the SARFAESI ACT, 2002, on the idea of symbolic possession? The court, while answering the difficulty, held that the bank as a secured creditor cannot maintain an application under section 14 of the secularization and Reconstruction of monetary Assets and Enforcement of interest Act, 2002 to get actual physical possession of the property after issuance of a purchase certificate. 

  • Asian resurfacing of road agency Pvt. Ltd. V. Central bureau of investigation, [6]

It was held before the high court or other courts pending matters, where a stay of proceedings during a pending trial is working, stay will automatically lapse after 6 months from the date of this judgment unless extended by speaking order. The court further held that for future proceedings where a stay is granted, unless an extension is granted by way of a speaking order, the stay will endways the expiry of six months from the date of the order. The speaking order, extending the stay must show that the case was of outstanding that continuing the stay was more important than having the trial finalized. 

India’s Position

The Indian banks’ record in Internet banking is nothing much to write down about. The ICICI Bank began online banking in 1996, followed by some other banks. On the opposite hand, the general public Sector Banks (PSUs) lagged within the race for adopting Internet banking practices[7]. While, among the PSUs, the depository financial institution of India took the lead, others are yet to catch abreast of Internet banking services.

Some banks blame it on the shortage of regulations and procedures to travel online. But, not many are willing to shop for any transactional services over the web. This was however shelved, giving banks more autonomy on the webspace, though ensuring at an equivalent time, that it might be strictly under the provisions of the RBI. Earlier, the RBI had adopted the recommendations of the ‘Working Group on Internet Banking,’ which examined three thrust areas like Technology and security issues, legal issues, and regulatory and supervisory issue. 

Major Issue in India’s E-Banking System

Though the Banks are providing virtual and user-friendly E-Banking Systems in India, yet it’s facing and affected by some major loopholes which are likely causing harm and detriment to the privacy and security of the purchasers at large, some such major issues are: 

Security and Privacy Risks: 

The purchasers too susceptible to Banking Frauds and E-Banking Scams. Even after taking preventive measures during this regard like Know Your Customer (KYC) and Biometric Finger Verification the safety concerns and privacy issues are major roadblocks within the pathway of a smooth and successful E-Banking in India. This situation widely forecasts that there’s still a lacuna within the present system and structure for tackling the Cyber Crimes and Criminals more strictly and perfectly. 

It must be noted that the E-Banking isn’t a separate business among the Banking Channels, but it’s only a further facility provided by the Banks to its customers on a further monthly charge like SMS, Annual Membership, etc., which is optional i.e. depends on the purchasers to avail it or not. The Federal Reserve Bank of India is regulated by the RBI Act, 1934[8], and for Electronic Records and System consistent with the provisions of the Information and Technology Act, 2000. 

It is often widely seen that despite having all this set of regulations and Hon’ble Authorities for the regulation and maintenance of E-Banking, even then we aren’t having any specific provisions for curbing the E-Banking Frauds and Cyber Frauds in India, instead of the normal ones. albeit a number of my able readers disagrees with me then too they need to accept the very fact that the enforcement structure and personnel involved within the same is just too timid and UN-trained which is that the main reason behind the rapid increment within the Cyber Crimes in India, since the past decade.

Suggestions and Measures

  • The duty which is imposed on the Banks and NBFC’s to take care of the secrecy and confidentiality for the sensitive information of the purchasers must be statutorily recognized for giving it status and imposing a penalty on the Banking Authorities on its violation so that its enforcement is often ensured more stringently than it’s there presently. ·
  • The Internal Auditing or the Statutory Auditing love it is there for the govt Companies by the Auditor appointed with the instructions of the Comptroller and Auditor General of India must be made compulsory for all the Banks in India, at the beginning, we’ll face some teething issues but eventually, it’ll end in maintaining the transparency in Internal Affairs of the Bank, which can ultimately serve the interests of the consumers and can end in their benefit at large. ·
  • Some concrete measures like biometric identification at the ATM Machines, or before logging within the E-Banking Website Portal which has started being opted by certain Banks within the Country must be made mandatory for all Banks by the Federal Reserve Bank of India. ·
  • Each Bank should incorporate one In-House Cyber Grievance Redressal Cell, who could directly affect the Banking Frauds happening in their Banks, they need to analyze their functions and affairs annually and send their Annual report back to the concerned State Cyber Cell or the District Cyber Cell for his or her Expert Advice and Guidance during this reference.

Conclusion 

As with everyone connected with the internet, banking, and electronic commerce on the internet is changing rapidly. To properly advise their clients, a lawyer must be able to understand the technology involved and must also be prepared to review and if possible adapt traditional legal principles in their applications to the new technology.

According to the survey of International privacy laws and practice, there is no general privacy law in India.RBI ombudsmen offices have been flooded with such complaints. In these circumstances, online banking in Indian is risky.E-banking in India cannot succeed until a strong legal framework in this is enacted. We have no specific e-banking laws in India.RBI is issued many guidelines in this regard and even our Information Technology Act 2000 contains some indirect and implied provision for the internet or E-banking. It is high time the banks operating in India to keep their e-banking infrastructure technologically and legally sound. Online banking in India or e-banking in India is increasingly being used by both banks and customers alike. This brings mobility and convenience to both banks and customers. With the benefits, there are negative aspects of e-banking as wells.


References:

[1]  http://www.legalserviceindia.com/legal/article-2513-legal-challenges-in-internet-banking.html

[2]  http://www.india-today.com/ctoday/20000501/mit.html.

[3]  Legal Policy framework of e-commerce in Indian

[4] http://rbidocs.rbi.org.in/rdocs/PublicationReport

[5] 1 September, 2017

[6] 159 (2009) DLT 636

[7] http://rajdeepandjoyeeta.com/internet-banking-legal-issues/

[8] https://blog.ipleaders.in/major-legal-issues-indian-e-banking-system/


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