Supreme Court Orders Banks to Compensate Digital Fraud Victims if Due Diligence Fails

The Supreme Court on 29 Oct 2026 ruled that banks must be held liable for losses suffered by victims of digital fraud when the fraud results from a failure of due diligence. Chief Justice Surya Kant, along with Justices Joymalya Bagchi and V Mohana, emphasized that banks have a duty to flag unusual transactions, suspend suspicious activity, and verify authenticity of transactions. The bench directed the RBI to submit a list of all authorised financial institutions and to issue guidelines that mandate compensation for victims and prosecution of banks that fail in their obligations. The court noted a 50 % decline in reported digital arrest cases compared with the previous year, attributing the drop to court intervention and public awareness, but warned that losses of nearly ₹800 cr still persist. The decision will shape future regulatory frameworks, including the RBI’s proposed KYC Amendment Directions, 2026.

Key Points

• Banks must compensate victims if fraud stems from their due‑diligence lapse.
• Mandatory preventive measures: flagging, suspending, reporting, and verification.
• RBI to list all authorised institutions and provide guidelines.
• 50 % decline in digital arrest cases, but ₹800 cr loss remains.
• Court will review RBI’s KYC amendment for victim compensation provisions.

Practical Implications

• Customers should monitor account activity and report anomalies.
• Banks will likely tighten monitoring systems and improve customer verification.
• Victims can seek compensation through the new guidelines.

How to Verify

• Check RBI’s published list of authorised institutions.
• Follow court‑issued directions once released.
• Report suspicious transactions to banks and local police.