The Supreme Court has said banks and other financial institutions should compensate victims of digital arrest and cyber fraud when losses are found to have resulted from failures in the institutions’ due-diligence obligations. The court said compensation should be at least equivalent to the amount lost by the customer in such cases.
A three-judge Bench headed by Chief Justice Surya Kant, along with Justices Joymalya Bagchi and V. Mohana, is examining the Reserve Bank of India’s proposed KYC Amendment Directions, 2026. The directions are expected to be notified by November 30 and operationalised by December 31.
The court emphasised that banks should focus on prevention rather than merely reporting fraud after losses occur. Proposed safeguards include temporarily withholding unusual transactions that deviate from a customer’s established transaction pattern, automated reporting of suspicious activity and physical verification before allowing potentially fraudulent transactions to proceed. Banks should also alert nearby police stations about suspicious transactions involving possible digital-arrest victims.
The CJI noted that India has suffered nearly ₹800 crore in losses from such offences in 2026, despite reported digital-arrest cases declining by around 50% from the previous year.
The case places greater emphasis on bank accountability, transaction monitoring, KYC, mule-account controls and preventive fraud detection, potentially raising the importance of stronger operational and cyber-risk frameworks across financial institutions.
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