Banks must compensate victims of digital fraud: SC

New Delhi: The Supreme Court on Thursday stated that banks must indemnify victims of digital fraud, such as digital arrests, if the fraud is due to the financial institution's failure in due diligence.

The court will examine the RBI's proposed KYC Amendment Directions, 2026, which are expected to be notified by November 30 and operationalised by December 31.

The proposed regulatory framework must include suitable compensation for victims where financial institutions fail in their due diligence obligations.

Mandatory preventive measures, including suspending unusual transactions and automated reporting of suspicious activity, were reiterated by the bench.

The CJI highlighted the continued loss of nearly Rs 800 crore from such offences this year and identified bank accountability and mule accounts as key areas for intervention.

Observing that banks must be made accountable to indemnify losses of victims of digital fraud, the Supreme Court on Thursday said victims of offences like digital arrests should receive compensation of at least the amount lost if the fraud is found to have 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 it would examine the Reserve Bank of India's proposed Know Your Customer (KYC) Amendment Directions, 2026, which are expected to be notified by November 30 and operationalised by December 31.

SC expressed shock at how educated people are getting "arrested on mobile" despite public awareness campaigns, news reports and court orders.

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