Supreme Court Flags Rs 800 Crore Digital Arrest Losses, Says Banks Must Compensate Victims

The Supreme Court on Thusday has asked the Reserve Bank of India (RBI) to provide a list of banks and financial institutions that will be covered by its proposed guidelines on digital arrest fraud, along with details of measures being considered to compensate victims for their losses.

It also said banks must be held accountable for compensating victims of digital fraud, including digital arrest scams, if the losses are found to have resulted from a financial institution's failure to exercise due diligence.

The court said victims should receive compensation of at least the amount they lost in such cases. A bench comprising Chief Justice Surya Kant and Justices Joymalya Bagchi and V Mohana said it would examine the Reserve Bank of India's proposed Know Your Customer (KYC) Amendment Directions, 2026, which are expected to be notified by November 30 and operationalised by December 31, PTI reported.

The bench stressed that the proposed regulatory framework must provide for appropriate compensation when financial institutions are found to have failed to meet their due diligence obligations. The bench reiterated the need for mandatory preventive measures to curb digital fraud.

These include temporarily suspending unusual transactions that deviate from an account holder's established transaction pattern, automated reporting of suspicious activity and physical verification to establish the genuineness of transactions.

The court also said banks should be responsible for alerting neighbouring police stations about unusual transactions involving customers who may be victims of digital arrest scams. Directing the RBI to submit a list of all authorised financial institutions by the next date of hearing, the bench said it would consider issuing directions applicable to all such institutions without necessarily impleading individual banks in the proceedings.

The court also asked the RBI to provide details of the financial institutions that would be covered by the proposed guidelines and the measures being considered to compensate victims for their losses. During the hearing, Attorney General R Venkataramani, appearing for the Centre and other authorities, informed the court that reported digital arrest cases had declined by around 50 per cent compared with the previous year.

He attributed the reduction to the court's intervention, coordinated action by government ministries and departments, and public awareness campaigns. Chief Justice Surya Kant, however, pointed out that the country had still suffered losses of nearly Rs 800 crore from such offences this year.

The CJI identified two key areas requiring further intervention: accountability of banks and the problem of mule accounts, which are frequently used to receive and transfer proceeds of cybercrime. The matter, titled In Re: Victims of Digital Arrest Related to Forged Documents, is being monitored by the Supreme Court as part of efforts to strengthen the country's institutional response to cyber-enabled financial fraud.

The Supreme Court directed the RBI to provide a list of financial institutions covered by proposed guidelines and details of measures to compensate victims. Banks must compensate victims of digital fraud if losses stem from the institution's failure in due diligence.

Victims should receive at least the amount they lost. The court suggests suspending unusual transactions, automated reporting of suspicious activity, and physical verification. Banks should also alert police about suspicious transactions.

Sneha is a Senior Copy Editor at ABP Live English, covering national and global news, politics, and social developments. She approaches every story with clarity, accuracy, and a reader-focused perspective. She holds a Master's degree in Mass Communication from Central University of Jharkhand.