New Delhi, 29 October 2026: The Supreme Court of India has stressed that banks and other financial institutions must be held accountable for losses suffered by victims of digital arrest scams and other cyber frauds where the fraud is found to have resulted from a failure to exercise due diligence.
A Bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V. Mohana was hearing the suo motu proceedings titled In Re: Victims of Digital Arrest Related to Forged Documents, concerning the growing incidence of digital arrest scams and the misuse of forged judicial documents to deceive victims.
Compensation linked to failure of due diligence
The Court emphasised that the Reserve Bank of India’s proposed regulatory measures should provide for compensation to victims where a financial institution’s failure to exercise due diligence contributed to the fraud. The compensation contemplated by the Court should not be less than the amount lost by the customer.
The observation forms part of the Court’s scrutiny of the proposed regulatory framework. It should not be understood as an automatic guarantee of reimbursement in every cyber-fraud case, irrespective of the circumstances or the bank’s conduct.
Mandatory safeguards against suspicious transactions
The Bench stressed the need for preventive measures rather than action only after money has been lost. These include temporarily suspending transactions that are inconsistent with an account holder’s usual transaction pattern, automated reporting of suspicious activity and physical verification to establish whether a transaction is genuine.
The Court also examined how banks could identify unusual high-value transfers and alert the appropriate authorities where a customer might be acting under coercion or falling victim to a digital arrest scam.
RBI asked to provide regulatory details
The Court sought details of the proposed RBI framework and a list of authorised financial institutions that may be covered by the measures. It also directed state and Union Territory police authorities to provide information on digital arrest cases, investigations and preventive steps.
The proposed Know Your Customer (KYC) regulatory changes and their implementation remain subject to the regulatory process and further consideration by the Court. The matter is scheduled for further hearing on 30 November 2026, according to reports of the proceedings.
Legal significance
The proceedings highlight the growing importance of banking due diligence, consumer protection and institutional accountability in combating cyber-enabled financial crime. The Court’s observations may shape stronger preventive controls and a clearer compensation framework for victims when financial institutions fail to meet their due diligence obligations.
Case: In Re: Victims of Digital Arrest Related to Forged Documents, Suo Motu Writ (Criminal) No. 3 of 2025.