The Supreme Court of India said victims of digital-arrest fraud should recover at least the amount they lost if a bank or financial institution failed to exercise due care, as it examined proposed RBI rules.

The case, heard on Thursday by Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice V. Mohan, concerns a suo motu matter over digital-arrest fraud involving forged documents. The court said it would review the Reserve Bank of India’s proposed Know Your Customer amendment directions, 2026, which are expected to be notified by November 30 and implemented by December 31, according to one report.

Bank liability moves to the centre of the case

The bench said financial institutions should not see their role as limited to processing transactions. Instead, it said they should detect suspicious activity and take steps to protect customers from fraud.

It also said unusual transfers that differ from an account holder’s normal pattern should be temporarily stopped. The court added that suspicious activity should be reported automatically to the relevant authorities, and that transaction authenticity should be checked in person when needed.

In digital-arrest cases, the bench said banks should also alert the nearest police station when they see abnormal customer transactions. The case concerns digital-arrest fraud.

RBI asked for a fuller picture

The court directed the RBI to come back with a list of all authorised financial institutions by the next hearing. It also asked which institutions would fall within the scope of the proposed KYC directions and what measures were being considered to compensate victims for financial losses.

That request matters because the bench said its eventual directions would apply to all relevant financial institutions, and that it would not be necessary to add every bank as a separate party in the case.

Attorney General R. Venkataramani said the Indian Cyber Crime Coordination Centre, or I4C, was working around the clock. The court also raised the problem of mule accounts, bank accounts used to receive proceeds from cybercrime and pass them on to others.

Losses remain high despite fewer cases

Attorney General R. Venkataramani told the court that reported digital-arrest cases had fallen by about 50% from the previous year, crediting the court’s intervention, joint government action and public-awareness campaigns. He also said banks were now identifying suspicious transactions and had met with the RBI about rules.

Even so, the chief justice said digital fraud had still caused losses of about 800 crore rupees this year. He said the main areas that still need action are bank accountability and mule accounts.

In separate remarks reported by Webdunia, the chief justice questioned why educated people were still falling for the scams and said the court was considering telling banks to compensate victims and face prosecution if fraud occurred because they failed to exercise due care. Senior advocate and amicus curiae N.S. Nappinai also referred to a recent case in which a woman lost 2.5 crore rupees.