Victims of digital arrest scams could soon have a clear legal route to get their money back from banks. The Supreme Court on Thursday, 29 October 2026, said that the Reserve Bank of India’s new rules must force financial institutions to compensate customers whenever a fraud happens because the bank failed in its due diligence, and that the payout should be no less than the amount the customer lost, BusinessLine reported.
A bench of Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V Mohana made the remarks while hearing a suo motu case on digital arrest frauds. The court said it would first study the RBI’s draft Know Your Customer (KYC) Amendment Directions, 2026, before issuing its own directions.
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What the Supreme Court said on digital arrest losses
In its order, the bench stressed that the RBI’s measures must require banks to indemnify victims of digital arrest or cyber fraud with compensation “not less than” the amount lost, where an inquiry finds that the crime took place because of a lapse by the institution, Verdictum reported after quoting the order. The court said the framework must carry real obligations for banks and consequences for those that do not comply, rather than general advice.
Chief Justice Kant was blunt about why. “Unless there is a penal direction to these banks, they will never mend their ways,” he said in court, according to BusinessLine. Justice Bagchi said the bench was thinking of a strict liability rule for banks whose savings accounts or other products are misused for such frauds, Verdictum reported.
Stopping suspicious transfers before money leaves
The bench repeated that prevention matters more than reports filed after the money is gone. It said banks should be required to temporarily hold a transaction that sharply departs from an account holder’s usual pattern, send automatic alerts about such transfers to the nearest police station, and carry out physical verification to confirm that the payment is genuine, The Economic Times reported.
“Report will only be post mortem,” the Chief Justice remarked, asking why a transaction could not simply be withheld the moment it is flagged, Hindustan Times reported. He described banks as a “protective umbrella” for customers, since they already know the balances and spending history of each account holder.
If a retired saver who usually withdraws small sums suddenly tries to send a large amount through RTGS, the bank should step in, the CJI said, adding that banks could use artificial intelligence to spot such activity, according to BusinessLine.
RBI rules due by 30 November
Attorney General R Venkataramani, appearing for the Centre and the RBI, told the court that the draft KYC directions would be notified by 30 November and put into operation by 31 December 2026, The Hindu reported. He cautioned against haste, saying the measures needed consultation with banks.
The bench asked the RBI to file a list of all authorised financial institutions by the next hearing. That would let the court apply its directions to every such institution without adding each bank as a party to the case, Verdictum reported. The Hindu said the court directed States to share details of FIRs registered in digital arrest cases, along with the status of investigation and prosecution, and agreed to take up the matter again before 30 November.
Cases down, but losses still about Rs 800 crore
The Attorney General said reported digital arrest cases had fallen by about 50 per cent compared with last year. The Chief Justice replied that the losses this year had still reached nearly Rs 800 crore, The Hindu and The Economic Times reported. According to The Hindu, about Rs 3,000 crore had been lost to such scams the previous year.
Hindustan Times noted that a status report filed by the Indian Cybercrime Coordination Centre (I4C) and the Ministry of Home Affairs counted more than 21,900 digital arrest complaints, involving over Rs 647 crore, between 1 January and 31 August 2026.
Amicus curiae N S Nappinai told the bench the scams continued unabated and cited a woman who lost Rs 2.5 crore the previous week. The CJI voiced frustration that people still believed they could be arrested over a phone call.
WhatsApp and mule accounts in focus
Senior advocate Kapil Sibal, appearing for WhatsApp, said the platform had already blocked 9,400 suspicious accounts and was building software to identify accounts that pose as police officers or government agencies, The Hindu reported. The court allowed WhatsApp to join the case and file its response.
The Chief Justice also flagged mule accounts, the bank accounts used to receive and pass on stolen money, as a major gap, The Economic Times reported.
How the case began
The court took up the matter on its own in October 2025 after an elderly couple from Haryana wrote to it. They said fraudsters posing as CBI and ED officials, and showing forged Supreme Court orders on video calls, had made them transfer about Rs 1.05 crore, Verdictum reported. The case is titled In Re: Victims of Digital Arrest Related to Forged Documents.
What this means for bank customers
Nothing changes overnight. Final directions are pending and the RBI rules are still in draft. But the order sets a clear expectation: a customer who loses money because a bank ignored warning signs should not bear that loss alone. Until then, remember that no police officer or agency arrests anyone over a video call, and report such demands on the national cybercrime helpline 1930.
Read more on Bharat Stories about the RBI data centre and cyber security institute in Bhubaneswar, simple ways to avoid credit card fraud, and India’s record run of UPI transactions.
Featured image photo: Subhashish Panigrahi, CC BY SA 4.0, via Wikimedia Commons (dome of the Supreme Court of India, New Delhi, photographed in December 2019).
FAQ
What did the Supreme Court say about digital arrest victims?
It said the RBI’s new rules must make banks compensate victims, with at least the amount lost, when a fraud results from the bank’s failure of due diligence.
When will the new RBI rules come into force?
The Attorney General said the RBI (KYC) Amendment Directions, 2026, would be notified by 30 November and operationalised by 31 December 2026.
How much have people lost to digital arrest scams this year?
The Chief Justice said losses had reached nearly Rs 800 crore this year, even though reported cases had fallen by about half.
Sources
- BusinessLine (PTI), 29 October 2026: order on compensation, CJI remarks on penal direction, RTGS and AI.
- Verdictum, 29 October 2026: text of the order, list of financial institutions, strict liability remark and case background.
- The Hindu, 29 October 2026: RBI timeline, FIR directions to States, losses this year and last year, WhatsApp submission.
- Hindustan Times, 29 October 2026: preventive measures, post mortem remark and I4C complaint figures.
- The Economic Times, 29 October 2026: preventive safeguards, fall in cases and mule accounts.