Banks Must Compensate Digital Arrest Victims if Due Diligence Fails: Supreme Court
The bench said the RBI framework should make banks compensate victims when fraud succeeds because institutions failed to flag suspicious transfers.
- On Thursday, the Supreme Court ruled that banks must indemnify victims of 'digital arrest' scams if losses result from a failure of due diligence. Financial institutions must compensate customers for amounts lost through institutional negligence.
- Despite a 50 percent reduction in overall cyber crimes, Chief Justice Surya Kant noted that victims lost approximately Rs 800 crore this year. The court expressed concern over sophisticated scams where fraudsters pose as authorities.
- The Court cited a recent case where a woman lost Rs 2.5 crore, urging banks to use AI and transaction history to flag suspicious transfers. WhatsApp reported taking action against 9,400 accounts to prevent fraudulent activity.
- Reserve Bank of India officials must finalize regulatory frameworks by November 30, mandating that banks implement liability clauses for non-compliance. These measures ensure financial institutions act as a 'protective umbrella' for vulnerable account holders.
- Law enforcement agencies across states and Union territories must submit reports on digital arrest investigations to an inter-departmental committee. The bench emphasized that institutions must move beyond general advisories to establish clear obligations for preventing cyber-enabled financial crimes.
29 Articles
29 Articles
SC calls for mandatory compensation to digital fraud victims in case of banks' due diligence
The Bench stressed that the proposed regulatory framework must provide for suitable compensation to victims where financial institutions are found to have failed in their due diligence obligations
Banks must compensate digital fraud victims for loss if due-diligence failure established: SC
New Delhi, Oct 29: The Supreme Court on Thursday said banks must be made accountable to indemnify losses suffered by digital fraud victims, who should receive compensation of at least the amount lost if an investigation establishes that the offence resulted from a failure of due diligence by the financial institutions. Observing that despite the fact that cyber crimes fell by 50 per cent, yet victims lost Rs 800 crore so far this year, a bench c…
The Supreme Court stated that if digital fraud occurs due to negligence on the part of a bank, the victim should be compensated for the losses incurred. The court emphasized the need to prevent unusual transactions, identify suspicious transactions, and hold banks accountable.
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