The Supreme Court on Thursday urged the Reserve Bank of India (RBI) to introduce regulations holding banks and financial institutions accountable when inadequate safeguards contribute to customer losses from digital arrest scams and cyber fraud.
A bench headed by Chief Justice of India Surya Kant, alongside Justices Joymalya Bagchi and V Mohana, was hearing suo motu proceedings arising from an elderly couple allegedly losing ₹1.05 crore to fraudsters using forged judicial orders.
As per a report by Business Standard, the bench said the RBI's proposed framework should require financial institutions to compensate customers when failures in due diligence contribute to fraudulent transactions.
Such compensation should cover at least the amount lost, the court observed. Justice Kant emphasised that accountability should extend beyond individual bank employees to the institutions themselves.
Justice Bagchi questioned why banks should avoid liability when weaknesses in their systems enabled fraud. The Chief Justice said financial institutions must protect customers by identifying transactions that differ significantly from their usual banking behaviour.
He cited unusually large withdrawals from pensioners' accounts as transactions warranting immediate scrutiny. The court suggested mandatory safeguards, including temporary suspension of suspicious transfers, automated alerts and physical verification.
It also sought information on fraudulent transactions prevented by banks and those detected after funds were transferred.
Appearing for the RBI, Attorney General R Venkataramani said bank employees had helped prevent fraud and complaints had declined by approximately 50%.
He sought additional time for technical integration, indicating that notifications could be issued by Nov 30 and the framework implemented by Dec 31.
The bench directed attention towards the draft regulations and requested a list of authorised financial institutions.
It warned that the framework must contain provisions establishing institutional liability, failing which judicial intervention could follow.
The court stressed the need for stronger preventive mechanisms and effective compensation provisions to protect banking customers.
