India's top court says banks may owe scam victims their money back

India's Supreme Court said on Thursday that banks may have to repay people who lose money to digital fraud. The condition is that an investigation finds the bank failed in its duty to check customers and transactions properly. The court said compensation should cover at least the amount the victim lost.

What the court said

The bench was led by Chief Justice Surya Kant, with Justices Joymalya Bagchi and V Mohana. It was speaking about cases like digital arrest scams, where criminals pressure victims into sending money. The court said compensation should apply where bank lapses are found to have helped the fraud along.

It asked the Reserve Bank of India, the country's central bank, to explain what compensation system it is considering for victims of cyber-enabled financial fraud. It also said the framework must include proper safeguards.

What banks may be asked to do

The court listed steps it wants to see to catch and stop suspicious payments:

• Temporarily suspend transactions that break from an account holder's usual pattern.
• Automatically report suspicious activity.
• Check in person that a transaction is genuine.
• Alert nearby police stations about unusual transactions by customers who may be scam victims.

For everyday customers, this points toward more alerts and more holds on unusual payments.

The scale of the problem

Attorney General R Venkataramani told the court that reported digital arrest cases fell by around 50 percent from the previous year. He credited the court's involvement, work across government departments and public awareness campaigns.

The Chief Justice noted that losses still reached nearly Rs 800 crore this year. He named two areas that need more attention: bank accountability and mule accounts. Those are accounts used to receive and pass along money from cybercrime, which makes the money harder to trace.

What happens next

The court will look at the RBI's proposed Know Your Customer Amendment Directions, 2026. These are rules on how banks verify who their customers are. They are expected to be announced by November 30 and to take effect by December 31.

The court also told the RBI to submit a list of all authorized financial institutions before the next hearing. That would let it issue directions covering all of them without naming individual banks in the case.

Still unknown is how the compensation system will work, which institutions it will cover, and how a bank's failure will be judged. The court has not yet issued final directions.