India's Supreme Court seeks compensation rule for victims of bank-linked digital fraud

India's Supreme Court said on October 29 that it would examine proposed Reserve Bank of India (RBI) digital-fraud rules before they are notified, and called for compensation when a financial institution's failed due diligence contributes to a customer's loss. The proposed rules could change how banks respond to suspicious transfers and who bears the cost when safeguards fail.

The court said the rules should require financial institutions to compensate victims by at least the amount they lost where fraud is found to have resulted from the institution's failure of due diligence, Bar and Bench reported. That condition matters: the court was addressing losses linked to a failure by a financial institution, rather than announcing compensation for every victim of digital fraud.

Safeguards the court wants in RBI rules

Chief Justice Surya Kant asked why an unusually large transfer from a pensioner's savings should not prompt intervention. He said banks should act as a ‘protective umbrella’ for customers vulnerable to digital-arrest scams. The bench also included Justices Joymalya Bagchi and V Mohana.

The proceedings began after a senior citizen couple complained that impersonators using forged judicial orders had taken ₹1.05 crore, Bar and Bench reported. The case has become a vehicle for examining how financial institutions should detect and respond to transfers associated with such scams.

Proposed RBI timetable and next hearing

Attorney General R Venkataramani, appearing for the RBI, sought time for technical integration and proposed notifying the regulations by November 30 and putting them into operation by December 31, Bar and Bench reported. Those dates were his proposed timetable; the final text of the rules had not been notified.

The court sought the draft regulations and directed the RBI to provide a list of authorised financial institutions by the next hearing, scheduled for November 30. It also directed state police to report on digital-arrest cases and measures to prevent them, according to Bar and Bench.

Venkataramani told the court that complaints had fallen by about 50% after its intervention and that banks were flagging suspicious transactions, PTI reported. The figure was his assessment; the reports did not provide underlying data to establish the scale of the decline independently.