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Supreme Court: Banks Must Indemnify Digital Fraud Victims
29 Oct
Summary
- Banks must compensate fraud victims fully if due diligence fails.
- SC urges banks to use AI for flagging suspicious transactions.
- RBI framework to enforce compensation and institutional accountability.
The Supreme Court has mandated that banks must fully compensate victims of digital fraud where institutional negligence is established. This directive, aimed at strengthening response to cyber-enabled financial crimes, mandates that financial institutions provide compensation equivalent to the losses incurred by customers due to a failure in due diligence.
The court stressed the need for enforceable provisions in the proposed Reserve Bank of India (RBI) framework, moving beyond general advisories. Banks are urged to utilize transaction histories and artificial intelligence to flag suspicious transfers and prevent money from leaving accounts, thereby enhancing preventive intervention and institutional accountability.
Financial institutions are encouraged to classify accounts and employ AI to detect deviations indicating fraud or coercion. The Supreme Court also directed states and Union territories to report FIRs related to digital arrest scams and provide suggestions for prevention and prosecution. WhatsApp has stated it is implementing preventive measures against suspicious accounts.
