In a major ruling aimed at curbing escalating cybercrimes, the Supreme Court of India on Thursday declared that banks and financial institutions must be held accountable for financial losses suffered by victims of digital fraud.
A three-judge bench comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi, and Justice V. Mohana asserted that financial institutions must compensate victims of offenses—such as “digital arrest” scams—if the fraud stems from a failure of banking due diligence.
Duty to Detect Unusual Transactions & Mule Accounts
The top court emphasized mandatory preventive protocols for financial institutions, recommending automated alerts, physical verification, and temporary holds on transactions that deviate significantly from a customer’s established banking patterns.
Addressing counsel representing financial regulators, Chief Justice Surya Kant highlighted the duty of care expected from bankers:
”It is your duty as bankers to protect victims. What is the competent authority doing? Maybe you cannot flag transactions by big companies, but shouldn’t a transaction be flagged when a person who usually withdraws only ₹10,000 or ₹20,000 at a time suddenly withdraws ₹50,000?”
The bench further proposed directing that wherever such fraud occurs due to negligence in due diligence, banks will compensate the victim and face prosecution. The court also identified “mule accounts”—frequently bought or rented to transfer illegal proceeds—as a core area requiring strict banking accountability and immediate reporting to local police stations.
Centre Reports 50% Drop in Digital Arrests, But Losses Exceed ₹800 Crore
During the proceedings of the suo motu Public Interest Litigation (PIL), Attorney General R. Venkataramani, appearing for the Centre, informed the court that reported digital arrest cases had dropped by approximately 50 percent compared to the previous year. He attributed this reduction to Supreme Court interventions, multi-ministerial coordination, and heightened public awareness campaigns.
However, CJI Surya Kant pointed out that despite the decline, citizens across India have still suffered losses totaling nearly ₹800 crore from cyber frauds this year alone. Expressing concern over how educated individuals fall prey to intimidation tactics, the CJI remarked on the psychological fear surrounding fake law enforcement calls on mobile devices.
Next Steps for the RBI
The Supreme Court directed the Reserve Bank of India (RBI) to submit a comprehensive list of all authorized financial institutions before the next hearing date, noting that court directions will apply across all entities without needing to implead individual banks.
Additionally, the bench confirmed it will review the RBI’s proposed KYC Amendment Directions, 2026, to evaluate compensation frameworks for victims when institutional due diligence breaks down.
