Daijiworld Media Network – New Delhi
New Delhi, Oct 30: The Supreme Court on Thursday stressed that banks must be held accountable for losses suffered by victims of digital fraud, asserting that protecting customers from such crimes is a fundamental responsibility of financial institutions. It said victims of offences such as digital arrest scams must be compensated for at least the amount lost if investigations establish that the fraud resulted from a bank's failure to exercise due diligence.
A bench headed by Chief Justice of India Surya Kant emphasised the need for mandatory safeguards, including suspending unusual transactions that deviate from an account holder's normal transaction pattern, automatically reporting suspicious activity and physically verifying transactions to establish their genuineness.
"It is your duty as bankers to protect victims. What is the competent authority doing?" the Chief Justice asked during the hearing.
"Maybe you cannot flag transactions by big companies, but shouldn't a transaction be flagged when a person who usually withdraws only Rs 10,000 or Rs 20,000 at a time suddenly withdraws Rs 50,000?" he added.
The bench, comprising CJI Surya Kant and Justices Joymalya Bagchi and V Mohana, was hearing a public interest litigation (PIL) taken up suo motu. It stressed that the proposed regulatory framework must provide for adequate compensation to victims when financial institutions are found to have failed in their due diligence obligations.
"We are proposing to direct that wherever such fraud takes place, bank will compensate victim and suffer prosecution. It has to be done," CJI Surya Kant said.
The court also expressed strong concern over the continuing instances of digital arrest scams, with the Chief Justice questioning how even educated citizens continued to fall prey to such frauds.
"What are they afraid of with digital arrest? It's something wrong with fear psychosis. How are people getting trapped like this? Someone tells you on the mobile that you're arrested you agree you're arrested? In a country like this, how are you becoming victims like this? What will you pass on to the next generation of you become a victim at this age?" the CJI asked.
The Supreme Court directed the Reserve Bank of India (RBI) to submit a list of all authorised financial institutions by the next date of hearing. The bench said it would issue directions applicable to all such institutions without necessarily impleading individual banks in the proceedings.
It also sought details of the financial institutions that would fall within the scope of the proposed guidelines and the measures being considered to compensate victims for their losses. The bench further emphasised that banks were responsible for alerting neighbouring police stations about unusual transactions involving customers who might be victims of digital arrest scams.
Digital arrest cases decline by 50%: Centre to SC
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% compared with the previous year.
He attributed the reduction to the Supreme 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 continued to suffer losses of nearly Rs 800 crore from such offences this year.
The Chief Justice identified two key areas requiring further intervention: accountability on the part of banks and the problem of mule accounts, which are frequently used to receive and transfer proceeds of cybercrime.
The court's observations underscored the need to strengthen financial institutions' due diligence obligations and introduce effective mechanisms to detect and respond to unusual transactions.
The bench said it would examine the RBI's proposed KYC Amendment Directions, 2026, to assess the provisions for compensating victims when financial institutions are found to have failed in their due diligence obligations.