New Delhi: The Supreme Court of India has called for stricter rules to protect digital fraud victims, saying banks and financial institutions must compensate customers if their failure to follow proper checks leads to cyber fraud. The Court will examine the Reserve Bank of India’s (RBI) proposed regulations before they are officially notified. It has also called for mandatory action against suspicious transactions to prevent people from losing their savings.
Why Did The Supreme Court Take Up The Digital Fraud Case
The Supreme Court was hearing a suo motu case related to rising digital arrest scams in India.
Read also: SC Flags ‘Fake Arrest’ Cyber Fraud Surge, Calls CBI for Unified Investigation
The case started after a senior citizen couple reportedly lost ₹1.05 crore to fraudsters who used fake judicial orders to threaten and deceive them. The fraudsters reportedly pretended to be officials and used fear of arrest to force the victims into transferring money.
A three-judge Bench comprising Chief Justice of India (CJI) Surya Kant and Justices Joymalya Bagchi and V Mohana heard the matter. The Court expressed concern over the growing number of cyber fraud cases and questioned why banks were not doing enough to protect their customers.
Supreme Court Directions for Digital Fraud Compensation
One of the biggest developments in the hearing was the Court’s strong position on bank accountability. The Bench said the RBI’s proposed regulations must include a clear provision requiring financial institutions to compensate victims when cyber fraud happens because of their failure to follow proper due diligence.
The compensation should be at least equal to the amount lost by the customer.
Chief Justice Surya Kant stressed that banks must take responsibility when their failure to follow security procedures allows fraudsters to misuse banking services. The Court also warned that if the proposed regulations do not include a proper liability provision, it may enforce the requirement through a judicial order.
Digital Fraud Compensation: Supreme Court Wants Banks To Stop Suspicious Transactions
The Supreme Court also highlighted the need for stronger systems to identify and stop unusual banking transactions. It said every financial institution should follow three important safety measures.
1. Temporary Suspension Of Unusual Transactions
Banks should temporarily stop transactions that are unusual compared with a customer’s normal banking history.
For example, if a retired person who usually makes small payments suddenly tries to transfer a very large amount, the bank should check the transaction before allowing it.
2. Automatic Reporting Of Suspicious Activity
Financial institutions should have systems to automatically identify and report suspicious transactions.
This could help banks and law enforcement agencies take action before fraudsters move the stolen money to other accounts.
3. Physical Verification Of Transactions
The Court also called for physical verification wherever necessary to confirm whether a suspicious transaction is genuine.
This measure could help protect senior citizens and other vulnerable customers from digital arrest scams.
Digital Fraud Compensation: RBI Seeks Time To Implement New Digital Fraud Regulations
During the hearing, Attorney General R Venkataramani appeared for the Reserve Bank of India. He informed the Court that banks and financial institutions had already taken several steps to prevent cyber fraud.
He also stated that complaints had reportedly fallen by around 50 per cent. However, he explained that technical integration and other preparations would take time.
The RBI proposed November 30, 2026, as the target for notifying the proposed regulations and December 31, 2026, for making them operational.
The Supreme Court asked the RBI to submit the draft regulations and a list of authorised financial institutions.
The Bench made it clear that the proposed framework must include clear responsibilities and consequences for financial institutions that fail to protect customers.
Supreme Court Also Examines WhatsApp’s Role In Preventing Digital Arrest Scams
The Bench also discussed how messaging platforms could help prevent digital arrest scams. The Court considered several possible safety measures, including:
- An optional WhatsApp kill switch to help users respond to suspicious calls.
- Warnings during unusually long calls.
- Alerts to users about possible cybercrime threats.
- Better action against SIM cards used by fraudsters.
Senior Advocate Kapil Sibal, appearing for WhatsApp, discussed the platform’s preventive measures.
He informed the Court about action taken against around 9,400 accounts and said that the company was considering additional technology to identify suspicious accounts and warn users. However, the discussion also considered the need to avoid unnecessary interruptions to genuine calls, including medical consultations.
Digital Fraud Compensation: Supreme Court Seeks Reports From State Police Departments
The Supreme Court also directed the Directors General of Police (DGPs) of all States and Union Territories to ensure that detailed reports are prepared on digital arrest cases. These reports must include:
- Details of FIRs registered in digital arrest cases.
- Information about ongoing investigations.
- Suggestions to prevent future cyber fraud.
- Measures to improve the detection and investigation of such offences.
The reports will be submitted to the inter-departmental committee working on the issue. The Court also stressed the need for stronger action against SIM misuse and the banking accounts used by fraudsters to transfer stolen money.
When Will The Supreme Court Hear The Case Again
The Supreme Court has scheduled the next hearing for November 30, 2026.
Before that hearing, the RBI is expected to submit its proposed regulatory framework and the list of authorised financial institutions.
The Court will examine whether the proposed rules provide sufficient protection to customers and include clear provisions for compensation when financial institutions fail to exercise due diligence. The proposed regulations are expected to be notified by November 30 and operationalised by December 31, 2026, subject to the regulatory process and the Court’s examination.
Read also: Why Supreme Court Is Concerned About CCTV Gaps in India and What Makes Kerala’s Model Stand Out
FAQs
The RBI has proposed notifying the regulations by November 30, 2026, and making them operational by December 31, 2026. The Supreme Court will examine the proposed framework before notification.
The Supreme Court has said that RBI’s proposed regulations must require financial institutions to compensate victims when cyber fraud results from their failure to exercise due diligence. Compensation should be at least equal to the amount lost.
The Supreme Court has called for temporary suspension of unusual transactions, automatic reporting of suspicious activity and physical verification wherever necessary. It has also discussed additional safety measures involving messaging platforms.
