India
Banks must compensate digital arrest victims if due diligence fails: Supreme Court
By: Hindustan Times
Published: 29 October 2026
Photo / Illustration: Haldwani Times News Desk
<p>The Supreme Court on Thursday said banks and other financial institutions must compensate victims if the fraud is found to have resulted from a failure of due diligence, and called for preventive safeguards to stop suspicious transactions before money is transferred.</p>
<p>The court also emphasised the need for banks to alert neighbouring police stations about unusual transactions. (Representational Image)A bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana said it would examine the Reserve Bank of India's proposed Know Your Customer (KYC) Amendment Directions, 2026, which are expected to be notified by November 30 and operationalised by December 31, news agency PTI reported.</p>
<p>The court stressed that the framework must provide for suitable compensation to victims where financial institutions fail to meet their due diligence obligations.</p>
<p>During the hearing, the CJI also expressed frustration over people continuing to fall prey to digital arrest scams despite public awareness campaigns and media coverage.</p>
<p>"What kind of person you are in a democratic country if you think you are getting arrested on mobile? Hit the mobile on the wall, and the arrest goes," he remarked, as reported by LiveLaw.</p>
<p>The amicus curiae, senior advocate NS Nappinai, told the bench that such scams continued despite earlier interventions and cited a recent case in which a woman lost ₹2.5 crore, the report further added.</p>
<p>She submitted that fear of arrest often drives victims to comply with the demands of fraudsters, with some psychologists describing the phenomenon as a form of hypnosis.</p>
<p>The Attorney General, R Venkataramani, appearing for the Centre and other authorities, told the court that reported digital arrest cases had declined by around 50% compared with the previous year.</p>
<p>The CJI, however, pointed out that losses from such offences had still reached nearly ₹800 crore this year, according to news agency PTI .</p>
<p>The bench stressed the need for preventive measures, including temporarily suspending unusual transactions that deviate from an account holder's established transaction pattern, automated reporting of suspicious activity and physical verification to establish the genuineness of transactions.</p>
<p>"Report will only be post-mortem. What about prevention? Moment a transaction comes, why can't it be withheld?" the CJI asked.</p>
<p>The bench asked the RBI to submit a list of all authorised financial institutions by the next date of hearing, indicating that it could issue directions applicable to all such institutions without requiring individual banks to be impleaded in the proceedings.</p>
<p>It also sought details of the institutions that would be covered by the proposed guidelines and the measures being considered to compensate victims for their losses.</p>
<p>The court said it would examine the RBI's proposed KYC Amendment Directions, 2026, before issuing further directions.</p>
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