The Supreme Court on Thursday said that it would examine the Reserve Bank of India's (RBI’s) proposed anti-cyber fraud regulations before they are notified.

A Bench of Chief Justice of India (CJI) Surya Kant and Justices Joymalya Bagchi and V Mohana was hearing suo motu proceedings concerning digital arrest scams. The case arose from a senior citizen couple’s complaint of losing ₹1.05 crore to impersonators using forged judicial orders.

It said that the regulations must require financial institutions to compensate victims where fraud results from failed due diligence. Compensation must be at least equivalent to the customer’s loss, the Court said.

“The amount will remain intact. The bank will have to pay. That is the only way,” the CJI remarked, stressing that liability could not stop with individual officers.

Justice Bagchi questioned why financial institutions should not face strict liability when their failure to provide safeguards enables misuse of banking products.

Banks must become a “protective umbrella” for customers, the CJI said, asking why an unusually large transfer from a pensioner’s savings should not trigger intervention. The Court emphasised mandatory suspension of unusual transactions, automated reporting and physical verification of genuineness.

“Do they have sufficient teeth to control it?” the CJI asked about RBI’s regulations. “Unless there is a penal direction to these banks, they will never mend their ways.”

He questioned the RBI’s “soft-pedalling” through consultations with banks when action was sought against them and contrasted banks’ loan settlements with their accountability towards victims.

Justice Bagchi sought data on suspicious transactions blocked and those unreported before fraud subsequently emerged.

Appearing for the RBI, Attorney General for India R Venkataramani said that bank employees had also prevented fraud and complaints had fallen by about 50%. He sought time for technical integration, proposing notification by November 30 and operationalisation by December 31.

The Bench sought the draft regulations and a list of authorised financial institutions.

“The regulation must include a liability clause. Otherwise, we will enforce it through a judicial order,” the CJI said.

Senior Advocate NS Nappinai, the amicus curiae assisting the Court, said that scams continued despite awareness campaigns and proposals for lagged payments and shared liability remained pending.

The Bench questioned how educated people continued falling prey to these scams despite publicity. Nappinai cited fear of arrest and misuse of forged Supreme Court orders.

The Court also discussed an optional WhatsApp “kill switch”, prolonged-call warnings and simultaneous cybercrime alerts.

Senior Advocate Kapil Sibal flagged legitimate medical consultations but agreed to consider an opt-in feature, citing preventive action against 9,400 accounts.

The Bench pressed for enforceable accountability over SIM misuse. Intermediaries were asked to submit safeguards to the inter-departmental committee. DGPs must ensure reports on FIRs, investigations and preventive suggestions.

The Court went on to record,

“We emphasise that the regulatory measures proposed by the RBI must mandate financial institutions to indemnify victims of digital arrest or cyber fraud through suitable compensation, not less than the amount lost by the customer, where the fraud or crime is found to have resulted from a failure of due diligence by the financial institution."

The order also called for mandatory safeguards against suspicious transactions.

“...temporary suspension of an unusual transaction inconsistent with an account’s past track record, automated reporting and physical verification to ascertain the genuineness of the transaction, must be mandatory for every financial institution.”

To ensure implementation without delay, the Court directed the RBI to submit a list of authorised financial institutions by the next hearing. It also directed state police to report on digital arrest cases and suggest preventive measures.

“The reports shall be submitted to the inter-departmental committee. The Directors General of Police of all States and Union Territories are directed to ensure compliance.”

The next hearing is on November 30.

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