Compensation of at least the amount lost

India's Supreme Court said on Thursday 29 October that banks must be made accountable to indemnify losses suffered by digital fraud victims, who should receive compensation of at least the amount lost where an investigation establishes that the offence resulted from a failure of due diligence by the financial institution. A bench comprising Chief Justice Surya Kant and Justices Joymalya Bagchi and V Mohana said the Reserve Bank of India's proposed regulatory framework must incorporate enforceable provisions for compensation, preventive intervention and institutional accountability.

The bench will first examine the RBI's proposed Know Your Customer (KYC) Amendment Directions, 2026, before permitting the regulatory process to proceed. The directions are proposed to be notified by 30 November and operationalised by 31 December.

Scale of the scam problem

Digital arrest scams — in which callers pose as police, investigators or judges on video calls, tell victims they are under arrest, and frighten them into transferring money — have no legal recognition in India: law enforcement does not arrest people through video calls. The court noted that despite cyber crimes falling by 50%, victims lost around Rs 800 crore so far this year, against about Rs 3,000 crore the previous year.

The bench also called for preventive measures, including systems that temporarily hold transactions breaking from an account's usual pattern, alert police and verify them physically. The order is not yet a final rule: the court said it would examine the RBI directions first, and the compensation duty it describes applies where a bank's due-diligence failure is established — not automatically in every fraud case.

Sources: The Hindu BusinessLine | Outlook Money