Supreme Court seeks compensation for fraud victims if banks fail checks

A woman allegedly lost ₹2.5 crore after fraudsters used a fake arrest threat to pressure her into transferring money. On Thursday, the Supreme Court questioned why banks let suspicious payments go through. It pressed for victims to recover at least their losses when a bank’s failure to check properly helped enable fraud. The court is examining rules meant to prevent scams, not just respond after the money is gone. ^1,2

The rules now being prepared by the Reserve Bank of India, the country’s central bank, would cover banks and other financial firms. The Supreme Court said they should require compensation when an investigation finds a bank failed in its duty to protect a customer. It also called for banks to pause transfers that sharply differ from a customer’s usual activity, report suspicious payments automatically and check transactions when needed. The attorney general asked for more time to prepare the rules, and the court agreed. ^2,3

That pause could matter because digital arrest scammers pose as police, government officials or judges, then frighten people into sending money. The court noted that reported cases had fallen by about 50% from last year, according to the attorney general. But losses were still nearly ₹800 crore this year. Banks hold customers’ account and transaction records, the judges said, so they should be able to spot unusual activity and act before funds move. The proposed compensation is not yet a general guarantee for every fraud victim. ^1,2,9

The court’s next step is to review the RBI’s proposed KYC Amendment Directions, 2026. The attorney general must file the draft by November 30, and the court wants the rules in place by the end of the year. The RBI must also provide a list of authorised financial firms, so the eventual rules can cover the firms handling customers’ money. ^1,2