Supreme Court calls on financial institutions to compensate victims of digital arrests

The court said it wanted to examine the proposed guidelines to the Reserve Bank of India (Know Your Customer) Amendment, 2026 to curb cyber fraud. File | Photo credit: The Hindu

The Supreme Court on Thursday (October 29, 2026) asked the Reserve Bank of India (RBI) to mandate financial institutions to fully compensate victims of digital arrests if the crime happened due to lack of institutional care. Expressing “frustration” at digital arrest fraudsters siphoning millions from the national economy every year, the court also questioned how educated people remained gullible enough to believe they could be arrested through mobile phones.

Chief Justice of India (CJI) Surya Kant noted that more than ₹800 crore had fallen into the hands of cyber fraudsters posing as law enforcement agents and said, “We are really shocked… Why can’t people understand? What is the problem with these victims? Aren’t they normal, sane people?”

The court said it wanted to examine the proposed guidelines to the Reserve Bank of India (Know Your Customer) Amendment, 2026 to curb cyber fraud. He said financial institutions must have systems in place to temporarily freeze transactions that deviate atypically from the account’s transaction history. Automatic alerts on such transactions must be forwarded to police authorities, followed by physical verification and verification of their authenticity, the court said.

The bench directed the states to provide information about the FIRs registered in digital arrests and the status of their investigation and prosecution. The court agreed to reschedule the case until November 30.

‘Just throw your cell phone…’

A visibly aggrieved CJI said that the warning against the digital arrest scams appeared in all media, apart from repeated orders issued by the Supreme Court itself.

Amicus curiae NS Nappinai said even educated people have fallen into the trap.

“What is this fear of arrest? Don’t they understand the basic thing that no one can be arrested over a mobile phone… Just throw the mobile against the wall,” the chief justice said.

Ms Nappinai pointed out that psychologists said the victims may have undergone some kind of hypnosis.

The CJI questioned the state of mind of people who, instead of springing into action to alert the nearest police officer, allowed themselves to be persecuted in a democracy. “We feel frustrated… Why can’t we stop this crime?” he asked. He said digital arrests had turned into “the biggest financial scam in the history of this country.”

The court said that “the problem was that bank employees are involved.” The CJI asked if the RBI was “trampling” in introducing regulatory measures.

No “magic wand”

Attorney General (AG) R. Venkataramani, appearing for the Union government and the RBI, advised against a rush, saying countermeasures could not be done “with a magic wand” but only through ongoing and exhaustive consultations between the central bank and various stakeholders. He said the proposed RBI Change (KYC) Guidelines 2026 will be notified by November 30 and operationalized by December 31.

Mr. Venkataramani said the cases of digital arrests have reduced by 50% this year compared to the previous year. He said the money was recovered in more than 11 thousand cases. Over seven thousand requests for reconstruction were received. Authorities issued warrants in more than 5.5 million cases. “RBI is not sleeping on this,” the AG said.

“But despite all these good efforts, the net loss suffered by the country’s economy is over ₹800 crore,” the chief justice observed. In the previous year, around ₹3,000 crore was lost due to digital arrests.

The CJI said the digital arrest was committed by misusing the instant messaging platform WhatsApp. Mr. Venkataramani said the duties of intermediaries will be part of the guidelines issued by the Ministry of Electronics and Information Technology and the Ministry of Telecommunication.

Senior Advocate Kapil Sibal, appearing for WhatsApp, verbally stated that the platform itself has already banned 9,400 suspicious accounts. He said efforts are underway to develop software to identify accounts impersonating law enforcement officials and government agencies, profile photo leaks, etc. The court allowed WhatsApp to intervene in the case and send a response.

Published – 29 Oct 2026 18:25 IST