Digital Arrest Scams | Banks Need To Alert Customers About Suspicious Transactions, Says Supreme Court During Hearing

The Supreme Court on Monday observed that the banks have the responsibility to develop mechanisms to alert the customers to stop large-scale transactions being undertaken by them after being duped by "digital arrest scams."When a retiree, who withdraws only amounts in the range of 10,000 or 20,000, suddenly undertakes transactions in the range of 25 lakhs or 50 lakhs, the banks should issue an alert, the Court remarked.A bench comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice NV Anjaria was hearing the suo motu case taken on the issue of digital arrest scams.Today, Attorney General for India R Venkataramani informed the Court that the Reserve Bank of India has drafted a Standard Operating Procedure (SOP) for banks to deal with such cases. The SOP, among other things, prescribes action by banks whereby temporary debit holds can be placed to prevent cyber-enabled frauds. The Court directed the Ministry of Home Affairs to formally adopt the SOP and issue directions for its implementation across the country.Senior Advocate NS Nappinai, the amicus curiae in the matter, submitted that the banks should be asked to issue alerts to customers about suspicious transactions, and AI-tools can be used for this purpose. She said that a mere circular by the RBI will not serve the purpose unless compliance is ensured through penalties.The bench observed that the banks should also play a pro-active role in preventing cyber frauds. CJI said, "If there is a business entity with crores of transactions, it may not raise suspicions. But there is a pensioner, who withdraws 15,000-20,000, suddenly from his account, 50 lakh, 70 lakh, 1 crore is being withdrawn, why your AI operated tools in the bank did not deem it fit to alarm him, that this transaction is suspicious?" AG said that RBI will address with concern."We hope you don't invite our directions. If RBI can introduce some mechanism..." CJI said. CJI added that defintion of suspicious transactions is the central point for consideration for the banks.Justice Bagchi said, "The problem is banks are more into business mode, and naturally so, and in doing that, what they are becoming, either innocently or connivingly, platforms through which there is a swift and seamless transmission of stolen proceeds of crime." Justice Bagchi noted that the MHA's report itself flagged that over Rs 52,000 crores have been misappropriated from April 2021 to November 2025 through cyber fraud.CJI Kant said that this amount is more than the budget of many States. Justice Bagchi said that the RBI needs to give points to the banks for better reporting compliance."In the over-anxiety of making profits, banks must realise they are trustees of public money. People have deposited because they trust the banks. These banks are becoming huge liability to the public. The Courts are becoming their recovery agents. They grant loans recklessly and then you have NCLAT, only to recover money for them!" CJI said.Nappinai said that liability should be imposed on banks which are negligent. She said that the RBI Ombudsman be authorised to take up petitions of fraud victims against the banks.Pursuant to the Supreme Court's order in the suo motu case taken up over "digital arrest" scams, the Ministry of Home Affairs has constituted a High-level Inter-Departmental Committee to comprehensively examine all facets related to "digital arrests”.The Committee will work under the Chairmanship of Special Secretary (Internal Security), MHA. It further comprises members at the Joint Secretary level (and above) from the Ministry of Electronics and Information Technology (MeitY), Department of Telecommunications (DoT), Ministry of External Affairs (MEA), Department of Financial Services, Ministry of Law & Justice, Ministry of Consumer Affairs, Reserve Bank of India (RBI), Central Bureau of Investigation (CBI), National Investigation Agency, Delhi Police, and the Indian Cyber Crime Coordination Centre (I4C).As per an earlier status report filed by the MHA in the Supreme Court, the first meeting of the Committee took place on December 29, when the CBI suggested having a monetary threshold for cases. Cases falling above this threshold can be dealt with by CBI, while those falling below can be dealt with by State/UT agencies with requisite assistance from the MHA.The RBI, on its part, informed that an advisory for using AI-based tools to detect fraud has been issued to banks. Further, it is in the advance stage of finalizing a Standard Operating Procedure regarding freezing of bank accounts involved in suspicious transactions. Case Title: In Re: Victims of Digital Arrest Related to Forged Documents, SMW (Crl.) 3/20

Digital Arrest Scams | Banks Need To Alert Customers About Suspicious Transactions, Says Supreme Court During Hearing

Anmol Kaur Bawa

The banks are trustees of public money and have the responsibility to guard them, the Court said.

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