Supreme Court: Seeks digital-fraud compensation framework

The Supreme Court has called for a proposed regulatory framework to require financial institutions to compensate digital-fraud victims when failures in due diligence caused their losses, CNBC-TV18 reported from a hearing on 29 October. The compensation should be at least equal to the victim’s loss, the report said. The framework remained under consideration, rather than an operational compensation requirement.

According to CNBC-TV18, the bench led by Chief Justice Surya Kant was examining measures against “digital arrest” scams, in which fraudsters impersonate authorities and use threats of arrest to induce payments. The proposed compensation condition would turn on due diligence: whether an institution failed to carry out the checks needed to detect and prevent suspect activity.

The written order for the 29 October hearing was unavailable for this report. The account of that hearing relies on CNBC-TV18; the court’s earlier orders of 17 October 2025 and 9 February 2026 establish the origins of the proceedings and its previous directions on preventing fraud and restoring money.

Compensation tied to institutional failure

CNBC-TV18 reported that Chief Justice Surya Kant discussed directions requiring banks to compensate victims and face prosecution in cases involving such fraud. Attorney General R. Venkataramani opposed an immediate direction on bank liability, submitting that the Reserve Bank of India should address the issue.

Justice Joymalya Bagchi said the court would consider strict liability, a form of responsibility that does not depend on proving fault in the usual way, according to the report. He questioned whether the proposed framework sufficiently protected victims and how institutions would be held accountable for non-compliance.

That discussion was distinct from the compensation condition described in the same report: a finding that an institution’s failure to exercise due diligence had resulted in the fraud. CNBC-TV18 did not report a final ruling imposing either automatic reimbursement for every cyber-fraud loss or strict liability on all banks.

The court said it would examine the proposed RBI (KYC) Amendment Directions, 2026, CNBC-TV18 reported. KYC means “know your customer”, the process through which financial institutions check customer identity. The report described a proposed timetable of notification by 30 November and implementation by December; it did not establish that those steps had occurred.

According to CNBC-TV18, the court also directed the RBI to provide a list of authorised financial institutions at the next hearing to assist compliance with the proposed measures and judicial directions.

Stopping suspicious transfers before money leaves

The proposed response extended beyond compensation after a loss. CNBC-TV18 reported that the bench wanted financial institutions to temporarily suspend transactions that were unusual for an account and inconsistent with its transaction history.

The court also identified automated reporting to the nearest police station, followed by physical verification of a transaction’s legitimacy, as preventive measures that should be mandated, according to the report.

These were measures discussed for the proposed framework, not evidence that every bank was already required to follow that process. The Attorney General told the court that banking officers’ liability was being addressed and that the RBI was accelerating its work, CNBC-TV18 reported.

The February order shows that transaction controls had already been placed before the court. On 9 February 2026, a bench comprising the Chief Justice, Justice Joymalya Bagchi and Justice N.V. Anjaria directed the RBI to examine recommendations for delaying transactions at the issuing bank and take an appropriate decision.

That order also recorded that the RBI had drafted a standard operating procedure for temporary debit holds – restrictions on money leaving an amount or account – to prevent cyber-enabled fraud and money-mule activity. Mule accounts are accounts used to receive or move fraud proceeds.

Earlier directions on returning defrauded funds

The 9 February order in In Re: Victims of Digital Arrest Related to Forged Documents, Suo Motu Writ Petition (Criminal) No. 3/2025, addressed both prevention and the return of money. A suo motu proceeding is one initiated by the court itself.

The court directed the Ministry of Home Affairs to formally adopt and implement a separate standard operating procedure approved on 2 January 2026 covering custody and restoration of money and grievance redressal through the cyber-fraud reporting system.

The stated purpose was a uniform process across participating entities, stronger coordination and timely restoration of defrauded funds wherever possible. The order also directed High Courts to ensure compliance by adjudicating authorities within their jurisdictions.

Restoration and compensation occupy different places in these proceedings. The February directions concerned returning defrauded funds where possible. According to CNBC-TV18, the October proposal concerned requiring institutions to pay for losses attributable to their failures.

The February bench had also invited the RBI, the Department of Telecommunications and the Ministry of Electronics and Information Technology to meet jointly with the departments responsible for legal affairs and consumer affairs to develop a victim-compensation framework. It sought a “pragmatic and liberal approach”, according to the order.

How the proceedings began

The Supreme Court’s 17 October 2025 order records that the case arose from a senior citizen couple’s complaint dated 21 September 2025. They alleged that people impersonating CBI officers, Enforcement Directorate officials and judicial authorities contacted them through telephone and video calls.

According to the complaint recorded in that order, forged Supreme Court documents and threats of arrest and property seizure were used to coerce transfers totalling Rs 105.5 lakh between 3 and 16 September 2025. The order recorded that two first information reports had been registered at the Cyber Crime Branch in Ambala.

Justices Surya Kant and Joymalya Bagchi said the alleged misuse of judicial names, seals and signatures raised concerns beyond an ordinary cheating case. The bench issued notice to the Union government, CBI, Haryana government and the Superintendent of Police, Cyber Crime, Ambala, and sought an investigation status report.

The later proceedings widened the request for information. According to CNBC-TV18’s account of the 29 October hearing, the court directed police chiefs across states and Union territories to provide details of digital-arrest cases, investigation status and recommendations for prevention and prosecution, with the information also sent to the Indian Cyber Crime Coordination Centre.