In recent years, cases of misconduct within financial institutions have raised significant legal questions regarding the liability of banks for the actions of their employees. One crucial aspect of this debate revolves around the concept of vicarious liability. This article aims to explore the legal principles governing vicarious liability in the context of a bank’s responsibility for the actions of its employees

Understanding Vicarious Liability:

According to a legal theory of “vicarious liability,” an employer is liable for wrongdoings done by its workers while they were employed. This principle is predicated on the notion that employers should be held accountable for any harm caused by their employees since they profit from their services.

The question of vicarious liability is crucial when it comes to banks because they handle sensitive financial matters and operate in a highly regulated environment. If a bank employee commits wrongdoings like embezzlement, fraud, or unlawful transactions, the question of whether the bank is accountable for these acts emerges.

Factors determining vicarious liability:

When deciding whether vicarious liability is applicable in a specific situation involving a bank and one of its employees, a number of factors are taken into the account. Among these are:

  1. The nature of the employee’s job: Vicarious liability is more likely to apply if the employee’s actions furthered the employer’s business or were closely related to their job duties.
  2. The level of control exercised by the bank: The bank is more likely to be held vicariously liable if it has substantial control over the employee’s behavior, such as through training and supervision.
  3. The foreseeability of the misconduct: If the bank could have reasonably foreseen the possibility of the employee’s misconduct, it may be held liable for failing to prevent it.

Legal Precedents:

Numerous legal precedents established that banks may be held vicariously liable for the actions of their employees. Courts have held time and time again that banks must take reasonable precautions when hiring, training, and supervising their staff. Should an employee’s misconduct transpire while they are working for the bank, the bank might be responsible for any ensuing losses.

In the case of Lloyd’s Bank Ltd v. Bundy [1975], the court held that the bank was vicariously liable for the fraudulent actions of one of its employees who misappropriated funds. Similarly, in Mohammed v. HSBC Bank plc [2017], the court found the bank vicariously liable for the actions of its employee who disclosed confidential information to a third party.

In the recent case of Leelawati Devi & Anr. v. District Cooperative Bank Ltd., the Supreme Court issued a significant ruling, holding banks responsible for the criminal actions of their officials, particularly concerning fixed deposit holders. In this case, the bench consisting of Justices P.S. Narasimha and Aravind Kumar, considered an appeal challenging a decision made by the National Consumer Disputes Redressal Commission (NCDRC). They emphasized the NCDRC’s failure to take into the account important findings by the District Forum regarding the wrongful withholding of fixed deposit funds by bank employees. The case centers on a consumer dispute between the District Cooperative Bank Ltd. in Varanasi and their customers, the appellants, who sought the release of fixed deposit receipts worth Rs. 1,60,000. Despite the District Consumer Forum ruling in favor of the appellants, directing the bank to return the funds along with interest and damages, the bank persisted in denying them. The bank’s later appeals to the State and National Consumer Dispute Redressal Forums were unsuccessful. Upon review, the NCDRC discovered discrepancies in the bank’s records, casting doubt on the authenticity of the fixed deposit receipts. Nevertheless, during the hearing of the customers’ appeal, the Supreme Court acknowledged the appellants’ assertion that they had indeed entrusted Rs. 1,60,000 to the bank officials, as indicated by the bank’s ledger. Additionally, the Court recognized the bank’s initiation of criminal proceedings against implicated officials. Highlighting the NCDRC’s failure to consider these vital findings, the Supreme Court ruled that the bank was vicariously liable for its employees’ actions. It found the NCDRC’s findings inconsistent with the evidence and reinstated the District Forum’s initial decision.


In conclusion, banks can be held vicariously liable for the conduct of their employees under certain circumstances. Given the high stakes involved in the banking industry, it is essential for banks to exercise due diligence in the selection, training, and supervision of their employees to mitigate the risk of liability. Understanding the principles of vicarious liability is crucial for both banks and employees to ensure accountability and compliance with legal standards.

~Arisha Qureshi (Legal Intern)

Leave a Reply

Your email address will not be published. Required fields are marked *

This field is required.

This field is required.


The following disclaimer governs the use of this website (“Website”) and the services provided by the Law offices of Kr. Vivek Tanwar Advocate & Associates in accordance with the laws of India. By accessing or using this Website, you acknowledge and agree to the terms and conditions stated in this disclaimer.

The information provided on this Website is for general informational purposes only and should not be considered as legal advice or relied upon as such. The content of this Website is not intended to create, and receipt of it does not constitute, an attorney-client relationship between you and the Law Firm. Any reliance on the information provided on this Website is done at your own risk.

The Law Firm makes no representations or warranties of any kind, express or implied, regarding the accuracy, completeness, reliability, or suitability of the information contained on this Website.

The Law Firm disclaims all liability for any errors or omissions in the content of this Website or for any actions taken in reliance on the information provided herein. The information contained in this website, should not be construed as an act of solicitation of work or advertisement in any manner.