People who lose their savings to "digital arrest" scams may soon have a stronger claim on their banks. On Thursday (October 29), a Supreme Court bench led by Chief Justice of India Surya Kant said banks and other financial institutions must compensate victims at least the amount they lost whenever the fraud succeeded because the institution failed in its due diligence.
The bench, which also included Justices Joymalya Bagchi and V Mohana, made the remarks while hearing the suo motu case In Re: Victims of Digital Arrest Related to Forged Documents, which the court took up last year to tackle the wave of scams in which fraudsters pose as police, CBI or customs officers and frighten people into transferring money.
What the Supreme Court said
The court's message to banks was blunt: reporting a suspicious transaction after the money has already left the account is not enough. "Report will only be post-mortem. What about prevention?" the CJI asked during the hearing.
The bench said the regulatory framework being prepared by the Reserve Bank of India must require financial institutions to indemnify victims with compensation not less than the amount lost, in cases where the fraud resulted from a failure of due diligence. The CJI also floated the idea that, in such cases, the victim's loss should effectively be zero, with the bank bearing full liability, and said the rules must have real "teeth".
The judges also reiterated the preventive steps they want banks to take:
- Temporarily holding transactions that sharply depart from a customer's usual banking pattern.
- Automated alerts and reporting of suspicious activity.
- Physical verification to confirm that a large transfer is genuine before it goes through.
- Alerting the nearest police station when an unusual transaction suggests a customer may be under "digital arrest".
The bench also asked whether the proposed rules cover intermediaries such as WhatsApp, which scammers frequently use for fake video calls, and pointed to mule accounts, which are used to receive and move stolen money, as a key problem area.
RBI's new rules and the Centre's response
Attorney General R Venkataramani told the court that the RBI, the Ministry of Electronics and IT and the Department of Telecommunications are working together on new safeguards. The court will examine the RBI's proposed KYC Amendment Directions, 2026, which, according to PTI, are expected to be notified by November 30 and made operational by December 31.
The bench directed the RBI to place before it a list of all authorised financial institutions, details of which institutions the proposed guidelines will cover, and the compensation measures under consideration. It indicated that it may issue directions binding on all such institutions without making each bank a separate party to the case.
| Case | In Re: Victims of Digital Arrest Related to Forged Documents (suo motu) |
| Bench | CJI Surya Kant, Justices Joymalya Bagchi and V Mohana |
| Hearing date | October 29, 2026 |
| Key position | Banks to pay at least the amount lost if due diligence failed |
| RBI rules | KYC Amendment Directions, 2026 - notification expected by Nov 30, in force by Dec 31 |
| Complaints (Jan-Aug 2026) | Over 21,900 digital arrest complaints, over Rs 647 crore involved (I4C-MHA report) |
How big is the problem
The Attorney General said reported digital arrest cases had fallen by about 50% compared with last year, crediting the court's intervention, coordinated government action and awareness campaigns. But the CJI noted that losses this year have still touched nearly Rs 800 crore.
A status report by the Indian Cyber Crime Coordination Centre (I4C) and the Ministry of Home Affairs recorded more than 21,900 digital arrest complaints involving over Rs 647 crore between January 1 and August 31, 2026. Amicus curiae NS Nappinai told the court that such incidents are still happening regularly and cited a recent case in which a woman lost Rs 2.5 crore, adding that fear of arrest often makes victims follow the fraudsters' every instruction.
What this means for bank customers
For ordinary account holders, especially senior citizens who are often targeted, the court's stand could shift the burden in a big way. Until now, victims usually had to chase police complaints and hope that frozen funds could be traced back. If the RBI's final rules reflect the court's view, a bank that ignored clear red flags, such as a pensioner suddenly wiring lakhs to an unknown account, could be required to make good the loss.
It is important to note that the compensation principle is tied to a failure of due diligence by the institution. Customers still need to stay alert, because no law-enforcement agency in India places anyone under arrest over a video call or asks for money to "clear" a case.
How to protect yourself from a digital arrest scam
- Disconnect any call or video call in which someone claims you are under "digital arrest" - it is not a legal procedure.
- Never transfer money to "verify" your account or "settle" a case, no matter who the caller claims to be.
- Report the fraud immediately on the national cyber crime helpline 1930 or at cybercrime.gov.in, and inform your bank to freeze the transaction.
- Talk to a family member before acting on any threatening call - scammers rely on keeping victims isolated.
What happens next
The Supreme Court will take up the matter again after the RBI files the details sought. The final shape of the KYC amendments, and whether they include a clear compensation rule for victims, will be closely watched by banks and customers alike as the December deadline approaches.
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