“Banks will Compensate Victims of Digital Arrest Scams”: Supreme Court passes observation making banks liable to compensate in case of due negligence in digital frauds

ON OCTOBER 29, 2026, THE SUPREME COURT (SC) OF INDIA, directed the Reserve Bank of India (RBI) to authorize financial institutions for compensating individuals impacted by digital arrest in the country. As instances of digital arrest and the associated financial scams proliferate in the country, SC’s decision comes as a major safety valve against the dangers of digital fraud which have looted over Rs 800 crore till now. 

The court, expressing its "frustration" over the increasing number of individuals getting impacted by these digital fraudsters, sought to critically examine and consider the proposals in the Reserve Bank of India (Know your customer) Amendment Directions, 2026, intended at curbing cyber fraud.

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Additionally, it also directed the states to provide detailed information on the First Information Reports (FIR) registered in connection to the cases of digital arrest. 

Supreme Court hears the suo motu case on digital arrest scams

The observations were passed by a bench led by Chief Justice of India (CJI) Surya Kant, along with Justices Joymala Bagchi and V Mohana, while dealing the suo motu case over rising instances of digital arrest frauds across the country. 

Attorney General R Venkataramani who shared his insights before the bench detailed on the steps taken by the RBI to counter such practices, and are set to be operationalized by December, 2026.

However, the bench observed that despite such measures being taken, the RBI or the banks have not been able to create any effective safety valve against the digital arrests scams. CJI Surya Kant reiterated this point stating that despite the banks having information regarding everyone’s account, it is not able to block the fraudulent messages asking for money. 

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CJI Surya Kant said, “The Banks know very well who the account holder is. The moment you know there's an amount lying in the account, banks must create a protective umbrella. Why don’t the banks stop messages asking for money?” reported Live Law. 

Discussing further on the liability of the banks or other applications like WhatsApp, the bench led by CJI Surya Kant remarked that the banks seemed to be reluctant to address this issue, as people are already being defrauded over thousands of crores. 

Observations by the Supreme Court Bench on financial compensation

With this observation, the bench expressed its statement that the victims of digital arrest should bear zero costs of the act. In simple terms, in case of a digital arrest, the debit from the victim's bank account should be zero, and the financial liability should be borne by the banks.

Furthermore, the bench also stated its desire to issue an order that would direct the banks to compensate the victims and face prosecution. The amount to be compensated would not be less than the amount lost. 

Alongside CJI Surya Kant, Justice Joymala Bagchi also emphasized that the Supreme Court was proposing strict liability on financial institutions. “We may reiterate that regulatory measures proposed by the RBI must require financial institutions to indemnify the digital arrest or cyber fraud victims through compensation not less than the amount lost, if it is found that the fraud has taken place due to the failure of due diligence on behalf of the financial institution” the order recorded. 

[Rh/AR/RS]

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