Supreme Court: banks must compensate 'digital arrest' victims where due diligence failed

The Chief Justice noted digital-arrest fraud losses this year have crossed Rs 800 crore.

The Supreme Court on Thursday said banks must be made accountable to indemnify losses suffered by digital fraud victims.

A bench of Chief Justice Surya Kant and justices Joymalya Bagchi and V Mohana said victims should receive compensation of at least the amount lost if an investigation establishes that the offence resulted from a failure of due diligence by the financial institution.

The court said the RBI's proposed regulatory framework must incorporate enforceable provisions for compensation, preventive intervention and institutional accountability. It wants to examine the proposed RBI Know Your Customer Amendment Directions, 2026, before they are notified.

The observations came during suo motu proceedings on digital arrest scams, in which fraudsters pose as police or officials over video calls and pressure victims into transferring money. The court noted cyber crimes fell 50 per cent, yet victims lost Rs 800 crore so far this year.

The Attorney General said the RBI's directions would be notified by November 30 and operationalised by December 31. The court warned it would enforce a liability clause through a judicial order if the regulations lack one.