Supreme Court Proposes Relief for Digital Arrest Victims

Source: The Hindu 

Introduction 

The Supreme Court has asked the Reserve Bank of India (RBI) to require financial institutions to fully indemnify victims of digital arrest scams where the crime happened because of a lack of institutional diligence. Chief Justice of India Surya Kant expressed frustration at fraudsters draining crores from the economy every year. The Court said it would examine the RBI's proposed regulations to curb cyberfraud, and directed the States to give details of FIRs registered in digital arrest cases. 

What is a Digital Arrest Scam? 

• In a digital arrest scam, fraudsters pose as officials of law enforcement or government agencies, usually over phone or video calls. 
• They falsely accuse victims of a crime, keep them under a so-called "arrest" through constant digital surveillance, and pressure them into transferring money. 
• No law in India provides for arresting a person over a phone or video call. 

What were the Supreme Court's Observations? 

On the scale of the fraud: 

• Over ₹800 crore had fallen into the hands of fraudsters impersonating law enforcement agents in a year. 
• The CJI called digital arrest the "biggest financial fraud in the history of this country". Around ₹3,000 crore had been lost to it the previous year. 

On the gullibility of victims: 

• The CJI pointed out that warnings against such scams had been splashed across all media, besides repeated orders of the Supreme Court. 
• He questioned why people allow themselves to be victimised instead of alerting the nearest police officer. He stressed that no one can be arrested over a mobile phone call. 

On banks and the RBI: 

• The Court noted that bank employees were involved in the problem. 
• The CJI asked whether the RBI was "soft-pedalling" on bringing in regulatory measures. 

Submissions of the Amicus Curiae: 

• Amicus curiae N.S. Nappinai submitted that even educated people were falling into the trap, and that, according to psychologists, victims may have undergone some form of hypnosis. 

What Measures has the Supreme Court Proposed? 

• Indemnification: Financial institutions should fully indemnify victims where the fraud happened because of a lack of institutional diligence. 
• Review of RBI regulations: The Court will examine the proposed Reserve Bank of India (Know Your Customer) Amendment Directions, 2026, which are meant to curb cyberfraud. 
• Suspension of suspicious transactions: Financial institutions must have systems to temporarily suspend transactions that deviate sharply from an account's usual transaction history. 
• Alerts to police: Automated alerts about such transactions must be sent to the police. These should be followed by physical verification and a check on whether the transactions are genuine. 
• Directions to States: The States must provide information on FIRs registered in digital arrest cases and on the status of investigation and prosecution. The case will be heard again before November 30. 

What was the Stand of the Union and the RBI? 

• Attorney-General R. Venkataramani appeared for the Union and the RBI. He cautioned against haste, saying counter-measures need ongoing, exhaustive consultations with stakeholders and cannot be brought in with "a wave of the magic wand". 
• He said the proposed KYC Amendment Directions would be notified by November 30 and put into operation by December 31. 
• He reported that digital arrest instances had fallen by 50% compared with the previous year. Money had been restored in over 11 lakh cases, over seven lakh restoration requests had been received, and orders had been passed in over 5.5 lakh cases. 
• He said the RBI was "not sleeping over it". The CJI replied that despite these efforts, the net loss to the economy was still over ₹800 crore. 

What is the Role of Intermediaries such as WhatsApp? 

• The CJI noted that digital arrests were carried out by misusing WhatsApp. 
• The Attorney-General said intermediaries' responsibilities would form part of instructions to be issued by the Ministry of Electronics and Information Technology and the Department of Telecommunications. 
• Senior advocate Kapil Sibal, appearing for WhatsApp, said the platform had already banned 9,400 suspicious accounts on its own. He added that it is developing software to detect accounts impersonating officials and government agencies. 
• The Court allowed WhatsApp to intervene in the case and submit a response. 

Conclusion 

The Supreme Court's intervention shows how seriously it views digital arrest scams as a threat to victims and to the economy. By seeking full indemnification and safeguards such as suspending suspicious transactions and alerting the police, the Court has shifted part of the responsibility for preventing such frauds onto financial institutions. With the RBI's new directions due by the end of the year and obligations for intermediaries in the pipeline, the case will test how well regulators, banks and platforms can work together against this cybercrime.