SC Seeks Bank, Official Liability for Digital Scams
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By , ET BureauLast Updated: Oct 30, 2026, 04:54:00 AM IST
The Supreme Court on Thursday questioned the Reserve Bank of India’s approach to tackling digital arrest scams, disapproving of the regulator’s “soft-pedalling” by consulting banks instead of ensuring accountability.
The Supreme Court on Thursday questioned the Reserve Bank of India’s approach to tackling digital arrest scams, disapproving of the regulator’s “soft-pedalling” by consulting banks instead of ensuring accountability.The top court said financial institutions must be made liable to compensate victims for losses caused by their failure to exercise due diligence.
A three-judge bench, headed by Chief Justice of India (CJI) Surya Kant, and comprising Justices Joymalya Bagchi and V Mohana, said RBI’s proposed regulatory framework must contain a mandatory liability clause providing for compensation equivalent to at least the amount lost by a customer where fraud is found to have resulted from a financial institution’s failure to exercise due diligence.
“The problem is, bank officials are involved. Even when we are asking to take steps, RBI is consulting the banks,” the CJI remarked, questioning the regulator’s response to the court’s repeated concerns about the role of financial institutions in cyber fraud.
“Unless there is a penal direction to these banks, they will never mend their ways,” the bench said, stressing that advisory or normative standards would not suffice without enforceable consequences.
Justice Bagchi said the court was considering imposing strict liability on financial institutions where their failure to put adequate safeguards in place facilitated the misuse of banking services for cybercrime. He emphasised that accountability had to be incorporated into the regulatory framework rather than left to general guidelines.
“The biggest financial fraud on the economy of the country that has taken place through these digital arrests, running into thousands of crores of rupees and still we are not able to take very strong measures,” CJI Kant orally observed.
Attorney General R Venkataramani told the bench that RBI was expediting the proposed regulatory framework, which would address the liability of banks and their officials. He said officials found involved in fraud, including through collusion, could face personal liability and criminal prosecution.
The CJI said the proposed regulations must expressly provide for liability, warning that the court could otherwise impose the obligation through a judicial order.
“The regulation must include a liability clause. Otherwise, we will enforce it through a judicial order,” he said.
The court stressed that banks must act as a “protective umbrella” for customers and questioned why transactions markedly different from an account holder’s established banking pattern could not be intercepted before money was transferred.
“Report will only be post-mortem. What about prevention? The moment a transaction comes, why can’t it be withheld,” the CJI asked.
The bench said preventive measures must include temporary suspension of unusual transactions inconsistent with an account’s past transaction history, automatic communication of such transactions to the neighbouring police station and physical verification to establish their genuineness.
Unless there is a penal direction to these banks, they will never mend their ways. Advisory or normative standards would not suffice without enforceable consequences SURYA KANT.
