Banks must compensate digital fraud victims if due diligence fails: SC

New Delhi: The Supreme Court on Thursday said banks must be held accountable for losses suffered by victims of digital fraud, observing that protecting them is the responsibility of financial institutions. The court asserted that victims of offences such as digital arrest scams should be compensated for at least the amount lost if the fraud is found to have resulted from a failure of due diligence by the bank.

A bench headed by Chief Justice of India Surya underlined the need for mandatory preventive measures, including suspending unusual transactions that deviate from an account holder’s transaction pattern, automated reporting of suspicious activity and physical verification to establish the genuineness of transactions.

“It is your duty as bankers to protect victims. What is the competent authority doing?” the Chief Justice asked during the hearing. “Maybe you cannot flag transactions by big companies, but shouldn’t a transaction be flagged when a person who usually withdraws only Rs 10,000 or Rs 20,000 at a time suddenly withdraws Rs 50,000?” he added. The bench comprising CJI Surya Kant and Justices Joymalya Bagchi and V Mohana was hearing a Public Interest Litigation taken up on its own initiative. It stressed that the proposed regulatory framework must provide for adequate compensation to victims if financial institutions are found to have failed in their due diligence obligations.

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The Hans India