Digital Arrest Scams: Why SC Wants Banks to Compensate Victims

The court described digital arrests as among the biggest financial frauds affecting the Indian economy, involving thousands of crores of rupees. It also questioned the role of banks in allowing unusually large transactions from individual accounts, particularly those belonging to senior citizens, without adequate scrutiny.

Victims across India are believed to have collectively lost more than Rs 3,000 crore to digital arrest scams, which had first prompted the Supreme Court to take suo motu cognizance of the issue in October 2025.

Importantly, the Supreme Court has proposed that banks be made liable to compensate victims of digital arrest scams, at least to the extent of the money lost, in cases where financial institutions failed to exercise adequate due diligence to prevent fraudulent transactions.

“The problem is bank officials are involved in it… There is soft pedalling by the RBI. Unfortunate. Because RBI is consulting the banks when we are asking for action against the banks,” the CJI said.

What are digital arrests?

A digital arrest is a form of cyber fraud in which criminals impersonate police officers, officials of central investigative agencies such as the CBI or Enforcement Directorate, or even judges, to convince victims that they are implicated in serious criminal cases.

The scam typically begins with a phone or video call, during which the fraudster alleges that the victim’s Aadhaar details, bank accounts or mobile number have been linked to offences such as money laundering, drug trafficking or other illegal activities.

Victims are then instructed to remain on video calls, sometimes for hours or even days, under the pretext that they are under investigation and must not communicate with anyone else.

Fraudsters may use fabricated arrest warrants, forged court orders, fake police station backgrounds and official-looking identification documents to make their threats appear credible. Eventually, victims are asked to transfer money into designated accounts for purported verification or to avoid arrest.

To be clear, there is no legal provision for a digital arrest in India. No law enforcement agency can arrest somebody over a video call or demand that money be transferred to avoid prosecution.

How widespread are digital arrests in India?

The scale of digital arrest frauds has grown dramatically over the past few years, although the latest government figures also indicate a decline in reported incidents from their peak in 2024.

According to figures submitted before the Supreme Court by the Indian Cybercrime Coordination Centre (I4C), digital arrest complaints increased from 39,925 in 2022 to 1,23,672 in 2024. Reported financial losses reached approximately Rs 1,935 crore in 2024.

In 2025, complaints declined to 58,239, with reported losses of approximately Rs 1,211 crore. Between January and August 2026, 21,928 complaints were recorded, involving losses exceeding Rs 647 crore. However, official figures, as per industry executives, may not effectively capture the problem, given that many such instances go unreported.

The Supreme Court had taken suo motu cognizance of the issue in October 2025 after a senior citizen couple from Haryana complained that fraudsters impersonating investigative agencies had cheated them of more than Rs 1 crore using forged court documents.

The continuing cases have also raised concerns about organised criminal networks, including those operating from overseas, and the use of intermediary or “mule” bank accounts to receive and rapidly transfer stolen money.

What are the RBI and banks doing to prevent such frauds?

Though the Supreme Court criticised the RBI for “soft pedalling” on the issue, the central bank is working on revised Know Your Customer (KYC) regulations that would require banks to identify and temporarily block suspicious transactions inconsistent with a customer’s usual banking behaviour.

Under draft directions issued in September, banks would be able to place temporary debit holds on suspicious funds, rather than freeze entire accounts, particularly where money mule activity is suspected. The draft also provides for verification and safeguards against indefinite freezing.

The RBI is also exploring the possibility of introducing a ‘kill switch’ mechanism that would allow users at the receiving end of a potential digital scam to immediately stop all financial transactions from their accounts.

A kill switch facility is a mechanism that allows a system, device, account, or service to be shut down, disabled or blocked immediately in an emergency or under specific conditions.

The proposal for a kill switch, which is being examined by the government and the RBI, envisages, among other possibilities, an emergency button integrated into payment applications of lenders that could instantly freeze all banking operations when a user suspects they are being targeted by fraudsters.