A three-judge Supreme Court bench instructed the central bank to present a formal compensation system for victims suffering from bank lapses during cybercrimes. To strengthen institutional safeguards, the court recommended measures such as freezing anomalous transactions, automated reporting, physical verifications, and notifying local police about suspicious activity. The judiciary will also review the central bank's upcoming KYC Amendment Directions, 2026, which are scheduled to be notified by November 30 and implemented by December 31.
Key points
Banks must compensate digital fraud victims for lost amounts whenever institutional due d…: Banks must compensate digital fraud victims for lost amounts whenever institutional due diligence failures contribute to the scam.
Regulators are pushing financial entities to halt atypical customer transactions and prom…: Regulators are pushing financial entities to halt atypical customer transactions and promptly alert local law enforcement to suspicious activity.
Supreme Court oversight is specifically targeting the eradication of mule accounts utiliz…: Supreme Court oversight is specifically targeting the eradication of mule accounts utilized by cybercriminals to launder stolen money.
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A bench comprising Chief Justice Surya Kant and Justices Joymalya Bagchi and V Mohana said compensation should cover at least the amount lost by victims in cases such as digital arrest scams, where lapses by banks are found to have contributed to the fraud.
The court said it would examine the Reserve Bank of India's proposed Know Your Customer (KYC) Amendment Directions, 2026, which are expected to be notified by November 30 and implemented by December 31. It asked the central bank to spell out the compensation mechanism being considered for victims of cyber-enabled financial fraud.
The bench emphasised that the proposed framework must include appropriate safeguards and provide for compensation when financial institutions fail to discharge their due diligence responsibilities.
It also called for preventive measures to detect and disrupt suspicious transactions, including temporarily suspending transactions that deviate from an account holder's usual pattern, automatically reporting suspicious activity and conducting physical verification to establish the genuineness of transactions.
The court also highlighted the need for banks to alert nearby police stations about unusual transactions involving customers who may have…
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