The Supreme Court on Thursday said banks could be held liable for financial losses suffered by customers in cyber fraud cases, including digital arrest scams, if investigations establish that the institutions failed to follow proper due diligence.
The court emphasised that banks must safeguard customers’ money and said victims should receive compensation, at least up to the extent of their losses, if the bank’s negligence is established.
The observations come amid growing concerns over digital arrest fraud and other forms of cybercrime targeting people across the country. In August 2026, the apex court issued a series of directions to strengthen how cyber fraud cases are handled and improve coordination between financial institutions and investigating agencies.
As part of its directions, the Supreme Court asked the Reserve Bank of India (RBI) to formulate a standard operating procedure (SOP) for banks within four weeks. The guidelines are expected to address the functioning of mule accounts, money laundering and bank accounts allegedly used to facilitate cyber fraud.
The court also directed that a copy of the proposed SOP be circulated to the Registrars General of all High Courts to ensure wider implementation.
Another key measure concerns accounts suspected of being involved in cybercrime. The court said debit transactions from bank accounts linked to cyber fraud should be temporarily suspended to prevent further movement of funds and protect the money involved.
The directions underline the growing responsibility of financial institutions in tackling online financial crimes, particularly as fraudsters increasingly exploit banking channels to divert money obtained from unsuspecting victims.
