In the digital arrest matter, the Supreme Court today expressed that financial institutions must face strict liability in the event of a customer becoming victim to digital arrest/cyber fraud if the institution/its officials are found negligent in exercise of due diligence.

A bench of CJI Surya Kant, Justice Joymalya Bagchi and Justice V Mohana was dealing with the suo motu case taken up over rising incidents of digital arrest scams. Yesterday, the CJI took a strong view on persons accused in such crimes, saying that if law permits, such "ruthless criminals" targeting senior citizens must be punished even before trial.

Today, the Court was told by Attorney General R Venkataramani that while many steps have been taken to address the menace, the RBI is contemplating regulatory measures, which are likely to be operationalized by December. Considering Senior Advocate NS Nappinai's (Amicus) submission that despite the court taking cognizance of the matter and passing various directions, digital arrest incidents are rampantly taking place (last reported a week ago), the bench questioned why RBI was still consulting banks.

"Problem is - bank officials are involved. Even when we are asking to [take steps], RBI is consulting the banks!", the CJI commented.

The CJI also questioned the AG as to why banks, which have a complete record of amounts in people's accounts, don't intervene to stop suspicious or fraudulent messages asking for money. "They know very well who is the account holder. The moment you know there's amount lying in account, banks must create protective umbrella. Why don't [banks] stop messages asking for money? The moment a transaction comes, why can't it be withheld?"

The AG informed that many steps had taken place after the court's intervention and banks are now outlining suspicious transactions. He urged that RBI, MeiTY and the Department of Telecommunications are working extensively towards putting requisite measures in place and sought some more time for all banks to come in alignment. The AG further stated that the aspect of banking officials' liability (on being found in collusion with digital arrest accused) is also under consideration.

The CJI however commented, "unless there's a penal direction to banks, they will not mend their ways!" He added, "Biggest financial fraud on economy of the country has taken place through digital arrests...1000s of crores [gone]...Why can't banks be mandated to classify their accounts in 3-4 groups? Do the regulations provide that in event of unusual transaction, banks will stall and intimation will go to local police station? And a police officer will go and ask if you [customer] really operated the transaction?"

The bench further enquired whether the proposed regulations touched upon the role of intermediaries like WhatsApp, through which these frauds are increasingly taking place. The CJI also remarked that the banks seemed reluctant to address the problem, as their mindset was that their business will be affected.

Notably, the bench also expressed that in case of a digital arrest, the debit from a victim's account should be zero and the bank/financial institution should bear the entire liability. The CJI conveyed that the Court wished to pass an order directing that wherever such a fraud takes place, the banks will compensate victims (equivalent to an amount not less than the amount lost) and face prosecution.

Justice Bagchi on his part added that the court was proposing strict liability on financial institutions. While the RBI is proposing to put in guidelines/measures, it will have to be examined as to whether the regulations have sufficient "teeth", that is, what is the degree of protection, etc. There has to be a mandatory sting and transaction has to be suspended unless genuineness is verified in writing, the CJI remarked.

The order recorded:

"We may reiterate that regulatory measures proposed by RBI must mandate financial institutions to indemnify the digital arrest or cyber fraud victims through compensation not less than 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."

Also Read - 'What Kind Of People Believe They Can Get Arrested On Mobile?' CJI Expresses Shock At Digital Arrest Scams

Case Details : In Re: Victims of Digital Arrest Related to Forged Documents, SMW (Crl.) 3/2025