New Delhi: The Supreme Court on Thursday said that banks should be held accountable for compensating victims of digital fraud for their losses. The apex court said that in cases where fraud occurs due to a financial institution’s failure to conduct due diligence, victims should receive compensation at least equal to the amount lost.
A bench comprising Chief Justice Surya Kant, Justice Joymalya Bagchi, and Justice V. Mohana said it will review the Reserve Bank of India’s (RBI) proposed Know Your Customer (KYC) Amendment Directions, 2026. These directions are expected to be notified by November 30 and implemented by December 31.
Mandatory fraud prevention measures
The bench emphasized that the proposed regulatory framework should provide for appropriate compensation to victims in cases where financial institutions fail to fulfill their investigative obligations. The Supreme Court also emphasized the need for mandatory fraud prevention measures, including temporarily freezing account holders’ accounts in case of unusual transactions, automatically reporting suspicious transactions to the relevant authorities, and directly contacting account holders to verify transactions.
The bench said that banks should be responsible for reporting unusual transactions in the accounts of customers suspected of being victims of fraud such as “digital arrest” to nearby police stations. “Digital arrest” is a form of cyber fraud in which fraudsters, posing as police or investigative agency officials, threaten people with arrest and extort money from them.
Supreme Court asks RBI to provide this list
The Supreme Court also asked the RBI to provide a list of all authorized financial institutions by the next hearing. It also asked for details of the institutions covered by the proposed guidelines and the measures being considered to compensate victims for losses. The bench clarified that directives applicable to all financial institutions could be issued without making each bank a party to the proceedings.
Attorney General R. Venkataramani, representing the central government and other authorities, stated during the hearing that the number of digital arrest cases reported had declined by approximately 50 percent compared to last year. He attributed this to court intervention, coordinated action by government ministries and departments, and public awareness campaigns.
However, the Chief Justice noted that these fraudulent crimes have already caused a loss of approximately ₹8 billion to the country this year. He identified two key areas requiring further intervention: accountability of banks and the problem of fake accounts used to deposit and transfer funds obtained through cybercrime.
