Digital arrest scam: SC urges banks to create system to flag suspicious transactions

New Delhi: In the backdrop of a CBI investigation into digital arrest scams across the country, the Supreme Court on Monday stated that banks must develop effective mechanisms to alert customers and prevent large-scale transactions carried out under deception.

The Court noted that when a person who normally withdraws amounts such as ₹10,000 or ₹20,000 suddenly transfers ₹25 lakh or ₹50 lakh, banks should immediately issue alerts.

A bench comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi, and Justice NV Anjaria was hearing a suo motu case concerning digital arrest scams.

During the proceedings, Attorney General R Venkataramani informed the Court that the Reserve Bank of India has prepared a Standard Operating Procedure (SOP) to handle such cases. The SOP includes provisions for placing temporary debit restrictions to curb cyber fraud. The Court directed the Ministry of Home Affairs to formally adopt and implement the SOP nationwide.

Senior Advocate NS Nappinai, serving as amicus curiae, submitted that banks should issue alerts for suspicious transactions and use AI-based tools for detection. She added that RBI circulars would be ineffective without strict enforcement and penalties.

The bench stressed that banks must take a proactive role in preventing cyber fraud. The CJI remarked,

"If there is a business entity with crores of transactions, it may not raise suspicions. But there is a pensioner, who withdraws 15,000-20,000, suddenly from his account, 50 lakh, 70 lakh, 1 crore is being withdrawn, why your AI operated tools in the bank did not deem it fit to alarm him, that this transaction is suspicious?"

The Attorney General responded that RBI would address the issue.

"We hope you don't invite our directions. If RBI can introduce some mechanism...,” CJI said.

He added that defining suspicious transactions is a key concern for banks.

"The problem is banks are more into business mode, and naturally so, and in doing that, what they are becoming, either innocently or connivingly, platforms through which there is a swift and seamless transmission of stolen proceeds of crime," observed Justice Bagchi.

He also referred to the MHA report, which noted that over ₹52,000 crore was misappropriated between April 2021 and November 2025 through cyber fraud.

CJI Kant remarked that this amount exceeds the budgets of several States. Justice Bagchi suggested that RBI should introduce a rating system to reward better compliance in reporting.

The CJI further commented,

"In the over-anxiety of making profits, banks must realise they are trustees of public money. People have deposited because they trust the banks. These banks are becoming huge liability to the public. The Courts are becoming their recovery agents. They grant loans recklessly and then you have NCLAT, only to recover money for them!"

Nappinai argued that negligent banks should be held liable and recommended empowering the RBI Ombudsman to hear complaints from fraud victims.

Following the Supreme Court’s directions in the suo motu case on digital arrest scams, the Ministry of Home Affairs has set up a high-level inter-departmental committee to examine all aspects of the issue.

The committee is chaired by the Special Secretary (Internal Security), MHA, and includes senior officials from MeitY, DoT, MEA, Department of Financial Services, Ministry of Law and Justice, Ministry of Consumer Affairs, RBI, CBI, NIA, Delhi Police, and the Indian Cyber Crime Coordination Centre (I4C).

According to an earlier status report filed by the MHA, the committee held its first meeting on December 29. During the meeting, the CBI proposed setting a monetary threshold, with high-value cases handled by the CBI and smaller cases by State and UT agencies with MHA support.

The RBI has informed the Court that it has issued advisories on using AI-based tools for fraud detection and is in the advanced stages of finalising an SOP for freezing accounts involved in suspicious transactions.

(With Live Law inputs)