SC asks banks to act in 'digital arrest' scams: ‘In over-anxiety of making profits, realise you are trustees of public money’

Supreme Court

• Supreme Court urges banks to strengthen safeguards against digital arrest scams
• Over Rs 52,000 crore lost to online frauds between April 2021 and November 2025
• RBI's SOP for banks includes debit freezes; MHA urged for nationwide implementation

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The Supreme Court on Monday pressed banks to strengthen safeguards against so-called “digital arrest” scams, cautioning that financial institutions cannot remain passive conduits for large, suspicious transfers.

Hearing a suo motu matter titled In Re: Victims of Digital Arrest Related to Forged Documents, SMW (Crl.) 3/20, a bench led by Chief Justice of India (CJI) Surya Kant, along with Justice Joymalya Bagchi and Justice NV Anjaria, underscored the duty of banks to proactively detect and prevent cyber-enabled fraud.

Referring to figures placed on record, Justice Bagchi pointed out that more than Rs 52,000 crore had been siphoned off between April 2021 and November 2025 through online frauds.

CJI Kant observed that this sum exceeds the annual budgets of several States.

The Attorney General for India, R Venkataramani, informed the bench that the Reserve Bank of India has prepared a Standard Operating Procedure (SOP) for banks. The proposed framework provides, among other measures, for temporary debit freezes to curb fraudulent withdrawals.

The Court asked the Ministry of Home Affairs to formally adopt the SOP and circulate directions to ensure uniform implementation nationwide.

Senior Advocate NS Nappinai, assisting the Court as amicus curiae, argued that banks must be directed to notify customers of doubtful transactions, suggesting AI-driven systems for this purpose. She maintained that an RBI circular alone would be ineffective without enforcement through penalties and also proposed that the RBI Ombudsman be empowered to entertain complaints from victims against banks that fail in their duty.

The bench repeatedly stressed that the core issue lies in identifying what qualifies as a suspicious transaction.

CJI Kant remarked, “If there is a business entity with crores of transactions, it may not raise suspicions. But there is a pensioner, who withdraws 15,000-20,000, suddenly from his account, 50 lakh, 70 lakh, 1 crore is being withdrawn, why your AI operated tools in the bank did not deem it fit to alarm him, that this transaction is suspicious?” He added, “We hope you don't invite our directions. If RBI can introduce some mechanism...”

Justice Bagchi noted, “The problem is banks are more into business mode, and naturally so, and in doing that, what they are becoming, either innocently or connivingly, platforms through which there is a swift and seamless transmission of stolen proceeds of crime.”

Expressing concern over institutional responsibility, the CJI said, “In the over-anxiety of making profits, banks must realise they are trustees of public money. People have deposited because they trust the banks. These banks are becoming huge liability to the public. The Courts are becoming their recovery agents. They grant loans recklessly and then you have NCLAT, only to recover money for them.”

Following earlier directions, the MHA has constituted a high-level inter-departmental panel under the Special Secretary (Internal Security) to examine all aspects of digital arrests.

Its members include senior officials from MeitY, DoT, MEA, the Department of Financial Services, the Ministry of Law & Justice, the Ministry of Consumer Affairs, RBI, CBI, NIA, Delhi Police and I4C.

A prior status report noted that the committee first met on December 29, when the CBI proposed fixing a monetary threshold to determine which cases it would handle and which would remain with State or UT agencies.