In short: On 29 October 2026, the Supreme Court said banks should compensate victims of digital arrest and similar cyber frauds, at least to the extent of the amount lost, if the fraud resulted from the bank's failure of due diligence. The court wants the RBI to frame the rules, including its proposed KYC Amendment Directions, 2026. The matter is still being heard.
What happened?
A bench of Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana was hearing a case the court had taken up on its own, on digital arrest scams. In these scams, fraudsters pose as police officers, government officials or judicial authorities and threaten victims with arrest to make them transfer money.
The court expressed frustration that the scams continue despite awareness campaigns, media coverage and its own earlier orders. It said banks should act as a "protective umbrella" for customers, who have given them access to their account details and transaction history.
The Chief Justice said the court was proposing to direct that where such fraud occurs, the bank will compensate the victim and face prosecution. These were oral remarks made during the hearing, not a final order.
What does the court want banks to do?
- Compensate victims: pay at least the amount lost, where the loss is found to have resulted from the bank's lapse in due diligence.
- Pause unusual transactions: have systems that temporarily suspend transactions that sharply depart from an account's usual pattern. The court gave an example of a person who normally withdraws small sums suddenly withdrawing a much larger amount.
- Alert the police: send automated alerts about such transactions to police authorities, followed by physical verification of whether the transaction is genuine.
What is the RBI being asked to do?
The court asked the Reserve Bank of India (RBI) to frame rules under which financial institutions are held strictly liable for such losses. It said it wanted to examine the proposed Reserve Bank of India (Know Your Customer) Amendment Directions, 2026, to see whether they provide for compensating victims when institutions fail in their due diligence duties. The RBI regulates banks under laws such as the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949.
The Attorney General, appearing for the Union government and the RBI, said the directions would be notified by 30 November and operationalised by 31 December. He asked for time and said the liability of banks needs to be addressed by the RBI. The court has also asked the RBI for a list of all authorised financial institutions by the next hearing. It said it may issue directions covering all institutions without making individual banks parties.
What do the numbers show?
| Point | Figure reported |
|---|---|
| Loss this year, per the Chief Justice | Nearly ₹800 crore |
| Loss the previous year, as reported | Around ₹3,000 crore |
| Complaints in first eight months of 2026 (status report by I4C and the home ministry, as reported) | More than 21,900, involving over ₹647 crore |
| Decline in digital arrest cases, per the Attorney General | About 50% compared with last year |
Other points from the hearing
- The court raised concerns that some bank employees were allegedly involved in misuse of accounts.
- It identified bank accountability and mule accounts (accounts used to receive or move money from crime) as key problem areas. In August, it had directed the RBI to set up a framework and standard operating procedure for banks on such accounts.
- States were asked to provide details of FIRs registered in digital arrest cases and the status of investigation and prosecution.
- WhatsApp was allowed to intervene and respond. Its counsel said it had banned 9,400 suspicious accounts.
- The case is to be listed again before 30 November.
What does this mean for you?
Nothing is binding on banks yet. The final rules will depend on what the RBI notifies and what the court finally directs. Until then, keep these points in mind:
- No one can be arrested over a phone or video call. Disconnect and contact your nearest police station.
- If you lose money to fraud, report it to your bank and the police at once, and keep records of the transactions and messages.
- Watch for the RBI's notified directions, which should clarify how and when compensation applies.
Frequently asked questions
Can I claim compensation from my bank today because of this hearing?
Not automatically. The court's remarks were made orally and it is still examining the RBI's proposed framework. Compensation will turn on the final rules and on whether the bank is found to have failed in due diligence.
What is a digital arrest scam?
It is a fraud in which criminals impersonate police, officials or judicial authorities and threaten victims with arrest to force them to transfer money.
When will the RBI's new directions come into effect?
The Attorney General told the court the proposed RBI (KYC) Amendment Directions, 2026 would be notified by 30 November and operationalised by 31 December.
Sources
- Times of India: 'What is wrong with victims': CJI on digital arrest cases; calls for compensation from banks
- The Hindu: Supreme Court calls for financial institutions to compensate digital arrest victims
- Mint: SC pulls up RBI over cyberfrauds, seeks strict liability for losses
- India Today: Banks must compensate digital fraud victims for losses if due diligence fails: SC