'Banks, telecom providers accountable where loss stems from negligence': MHA panel on 'digital arrest' to SC

Representative image

• Govt forms panel to tackle digital arrest scams as per Supreme Court order
• Committee to review laws, enforcement gaps, and victim compensation mechanisms
• RBI urges banks to use AI tools; 23 banks have implemented MuleHunter.AI system

Did our AI summary help?

Following directions issued by the Supreme Court in a suo motu case concerning so-called 'digital arrest' scams, the Union government has set up a high-level inter-departmental committee to take stock of the problem and recommend systemic fixes.

The Ministry of Home Affairs (MHA) informed the Court that the committee has been tasked with examining the issue comprehensively, including operational challenges, regulatory gaps, and victim relief mechanisms.

The committee is chaired by the Special Secretary (Internal Security), MHA, and includes senior officials at the Joint Secretary level or above from multiple ministries and agencies, including the Ministry of Electronics and Information Technology, Department of Telecommunications, Ministry of External Affairs, Department of Financial Services, Ministry of Law & Justice, Ministry of Consumer Affairs, the Reserve Bank of India, Central Bureau of Investigation, National Investigation Agency, Delhi Police, and the Indian Cyber Crime Coordination Centre (I4C).

The Chief Executive Officer of I4C serves as the Member-Secretary, while additional experts may be invited as required. Attorney General R Venkataramani is also attending the meetings.

Mandate and scope of the Committee

According to the MHA, the committee is meeting every two weeks and has been asked to focus on four broad areas. These include assessing real-time difficulties faced by enforcement agencies, reviewing the amicus curiae’s suggestions alongside the Supreme Court’s directions, mapping relevant laws and rules along with their implementation gaps, and proposing corrective steps and further inputs for judicial consideration.

The Union has sought at least a month’s time from the Court to allow the panel to deliberate further. The matter is scheduled to be taken up next on January 20.

MHA submits status report before SC

In a status report placed before the Supreme Court, the MHA disclosed that the committee’s first meeting was held on December 29.

During this meeting, the CBI suggested introducing a monetary threshold to determine jurisdiction. Cases above the threshold could be handled by the CBI, while those below it would be dealt with by State or Union Territory police, with necessary support from the MHA.

The RBI informed the committee that it has already issued an advisory to banks encouraging the use of AI-based tools to detect fraud.

It also stated that it is in the advanced stages of finalising a standard operating procedure (SOP) for freezing bank accounts linked to suspicious transactions.

Regulatory gaps and telecom concerns

The Ministry of Electronics and Information Technology (Meity) highlighted the need to activate and strengthen the adjudication mechanism under Section 46 of the Information Technology Act, 2000. This mechanism, the ministry noted, remains underutilised despite its relevance to cyber-related violations.

Separately, the Department of Telecommunications told the committee that draft rules under the Telecommunications Act, 2023 have been prepared and are currently undergoing stakeholder consultations. Once notified, these rules are expected to address issues such as negligent SIM card issuance and the problem of multiple SIMs being issued to a single individual.

Faster response and victim-centric measures

The I4C briefed the committee on efforts to shorten response times and improve coordination with banks and law enforcement agencies to enable quicker freezing of criminal proceeds. It stated that SOPs covering immediate freezing, de-freezing, recovery, and restoration of funds to victims are under final consideration by the competent authority.

Plans to revamp the National Cybercrime Reporting Portal and the 1930 helpline are also being actively examined.

Victim compensation emerged as a key theme during discussions. The committee considered the amicus curiae’s proposals and agreed that “where loss to victims is attributable to negligence, deficiency of service or fraud on the part of banks, Telecom Service Providers or other regulated entities, accountability of such entities must be ensured”.

It further observed that victims should not suffer due to systemic failures or regulatory non-compliance, and that compensation mechanisms must function independently of other legal remedies. The chair subsequently directed the RBI, DoT, and MeitY to review existing systems and suggest improvements.

23 banks implementing RBI's MuleHunter.AI

Meanwhile, an RTI response accessed by MediaNama revealed that, as of December 10, 2025, 23 banks had implemented the RBI’s MuleHunter.AI system. However, the central bank said it could not disclose how many mule accounts were identified or acted upon, citing fiduciary obligations and potential harm to competitive interests under the Right to Information Act (RTI) Act, 2005.

The RBI also stated that it does not hold information on formal coordination between banks and law enforcement agencies such as the I4C specifically for MuleHunter.AI, nor details of internal advisories issued to banks or payment aggregators regarding the tool.

Supreme Court's suo moto hearing and amicus suggestions

The suo motu proceedings are being heard by a bench led by Chief Justice of India Surya Kant and Justice Joymalya Bagchi.

Senior Advocate NS Nappinai, appearing as amicus curiae, suggested introducing a victim compensation framework modelled on the UK’s system for authorised push payment scams, which mandates reimbursement through banking channels.

The CJI noted the importance of automated alert systems to warn banks when fraudulent transactions occur. Attorney General Venkataramani informed the Court that the CBI had shared inputs and proposed inter-departmental consultations to examine the amicus’ recommendations. Recording these submissions, the bench observed, “We have no reason to doubt that all stakeholders will, under the guidance of the AG, shall take appropriate decisions at their end and apprise this Court. The recommendations by the Amicus may also be considered by the concerned quarters.”

The Court has clarified that its immediate focus remains on digital arrest scams, with the possibility of examining other forms of cybercrime at a later stage, depending on their impact and urgency.

Telecom liability and evolving legal standards

Commenting on the broader regulatory landscape, Rishi Agrawal, CEO and co-founder of TeamLease RegTech, told Moneycontrol that there is currently no specific statutory provision that obliges telecom companies to compensate victims of digital arrest scams. He added, however, that “emerging recommendations under key laws propose accountability for negligence”.

According to Agrawal, the Telecommunications Act, 2023 provides the primary framework. Draft rules under the Act, now at the consultation stage, address misuse of SIM cards and the facilitation of fraud. The law empowers the DoT to regulate such conduct, including imposing penalties for unauthorised access or SIM-related breaches, and targets telecom-enabled scams like digital arrests. He also pointed to the Telecom Commercial Communications Customer Preference Regulations, 2018, as amended in 2024, which impose obligations around fraud reporting and message traceability, supported by advisories under Section 11 for cyber-scam prevention.

Supreme Court oversight through the MHA-led committee, he said, is pushing the debate on liability forward. The panel’s approach mirrors bank-liability principles under RBI guidelines, with a view to holding telecom operators accountable where losses stem from negligence. While there are no finalised Digital Arrest Victim Compensation Rules yet, Agrawal observed that provisions in the Bharatiya Nyaya Sanhita, 2023 barring virtual arrests strengthen fraud claims, even as enforcement under newer data-protection and cyber laws continues to evolve.