Supreme Court asks RBI to require bank compensation when due-diligence failures enable digital-arrest fraud
The Court said proposed RBI rules should provide compensation at least equal to a customer’s loss where a financial institution’s failure of due diligence is established. The next hearing is listed for 30 November.
Deck: The Court said proposed RBI rules should provide compensation at least equal to a customer’s loss where a financial institution’s failure of due diligence is established. The next hearing is listed for 30 November.
The Supreme Court of India on Thursday, 29 October 2026, told the Reserve Bank of India that its proposed regulatory measures on digital-arrest and cyber fraud should require financial institutions to compensate victims where a failure of due diligence by the institution is found to have enabled the fraud.
A bench comprising Chief Justice of India Surya Kant and Justices Joymalya Bagchi and V. Mohana was hearing the suo motu matter titled In Re: Victims of Digital Arrest Related to Forged Documents. The Court said compensation under the proposed framework should not be less than the amount lost by the customer if the institution’s due-diligence failure is established.
The Court also discussed safeguards for unusual transactions, including temporary suspension, automated reporting and physical verification to establish whether a transaction is genuine. It asked the RBI to provide a list of authorised financial institutions. The proposed RBI (Know Your Customer) Amendment Directions, 2026, are expected to be notified by 30 November and operationalised by 31 December, according to reports of the hearing.
This is not yet a blanket compensation rule in force. The Court was discussing what the proposed RBI regulations must contain. Compensation would depend on a finding that the financial institution failed in its due-diligence responsibilities. The matter is listed for further hearing on 30 November 2026.
Key points
- Hearing date: 29 October 2026
- Bench: Chief Justice Surya Kant, Justice Joymalya Bagchi and Justice V. Mohana
- Case: Suo Motu Writ Petition (Criminal) No. 3/2025
- RBI proposal: KYC Amendment Directions expected by 30 November 2026; operationalisation proposed by 31 December
- Next hearing: 30 November 2026
Image disclosure: Contextual cybersecurity-themed photograph; it does not depict the Supreme Court hearing or any specific fraud investigation. Photo: FlyD / Unsplash.
Sources
- The Indian Express, 29 October 2026, 8:58 PM IST.
- Business Standard, 29 October 2026, 9:38 PM IST.
- Bar & Bench, 29 October 2026.
- LiveLaw, 30 October 2026.
