Supreme Court Pushes For Bank Compensation In Digital Arrest Fraud Cases

A Supreme Court Bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana, while hearing the suo motu proceedings on digital arrest scams, has said that banks should compensate victims for losses if inadequate due diligence by an institution contributes to the fraud. The Supreme Court has also directed the Reserve Bank of India (RBI) to identify all financial institutions that would fall under its proposed rules on digital arrest fraud. 

The Supreme Court also called for preventive measures to stop suspicious transfers before money leaves the victims’ accounts. The Bench will examine the RBI’s proposed Know Your Customer (KYC) Amendment Directions, 2026, which are expected to be notified by November 30, 2026 and implemented by December 2026.

Supreme Court Seeks Mandatory Safeguards From Banks

The apex court has questioned whether banks can temporarily block transactions that differ sharply from a customer’s usual account activity. It has also proposed automated alerts to nearby police stations, followed by verification to establish whether such transfers are genuine.

Chief Justice Surya Kant has argued that action after money has been transferred would not adequately protect victims. He has questioned why banks, which hold detailed information about customers, cannot use transaction histories to identify suspicious activity.

The Bench has also reiterated that voluntary guidelines would be insufficient without mandatory obligations and enforceable penalties.

Banks Could Face Compensation And Prosecution

Financial institutions could face compensation requirements and prosecution if fraud occurs because they fail to exercise due diligence. Justice Joymalya Bagchi has raised concerns about accountability under the proposed framework, questioning whether violations would attract meaningful consequences or lead only to notices and litigations.

The Bench has emphasised that the proposed rules should provide compensation of at least the amount lost by victims where institutional negligence contributes to the fraud. Attorney General, R Venkataramani, has informed the court that banks have improved their identification of suspicious transactions over the last six months. He also highlighted coordination between the RBI, the Indian Cyber Crime Coordination Centre (I4C), the Ministry of Electronics and Information Technology (MEITY) and the Department of Telecommunications (DoT).

WhatsApp Bans 9,400 Suspicious Accounts

The court has also examined the role of messaging platforms and telecom operators in digital arrest scams. WhatsApp informed the Bench that it has banned 9,400 suspicious accounts. The court has permitted the platform to intervene in the proceedings.

Senior advocate Kapil Sibal has discussed software designed to detect suspicious account activity and alert customers. Justice Bagchi also proposed an optional kill-switch feature that users could activate to protect themselves from fraudulent calls.

The Attorney General said that the DoT has been examining issues related to SIM cards.

Police Asked To Submit State-Wise Fraud Details

The Chief Justice also cited estimated net economic losses of around Rs 800 crore from digital arrest offences this year. The Bench directed the Director Generals of Police across all states and Union Territories to submit details of FIRs, investigations, and proposed measures to prevent and prosecute these crimes. The information must also reach the I4C, the Bench said.

In addition, the Bench also asked RBI to submit a list of authorised financial institutions covered by its proposed framework at the next hearing.