THE SUPREME COURT on Monday heard the suo motu case on digital arrest scams. The Court sharply questioned banks over their failure to flag suspicious transactions and pressed the Reserve Bank of India (RBI) on regulatory oversight, even as it issued binding directions to the Ministry of Home Affairs (MHA) to implement the Standard Operating Procedure (SOP) drafted by the RBI.
Highlighting the gravity of the crisis, the Chief Justice noted that more than ₹52,000 crore had been siphoned off through such frauds from April 2021 to November 2025. “This is robbery and dacoity,” he said.
The observations were made while hearing a suo motu case on digital arrest scams before a three-judge Bench comprising Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice N. V. Anjaria.
Banks in “business mode”, courts turning into “recovery agents”
Questioning banks’ internal safeguards, the Chief Justice remarked, “A pensioner who usually withdraws ₹15,000–₹20,000 suddenly sees withdrawals of ₹50 lakh, ₹70 lakh, even ₹1 crore. Why did your AI-operated banking tools not alert him that this was a suspicious transaction?” Attorney General R. Venkataramani, appearing for the Union government and the RBI, assured the Court that the regulator would address the concerns flagged by the Bench.
Justice Bagchi observed that banks continue to present profit reports but fail to demonstrate meaningful compliance. “These business entities only show profit reports, not compliance reports,” he said.
The Chief Justice went further, stating that banks were increasingly shifting their risks onto the public. “Banks are becoming a liability on the public. Courts are becoming their recovery agents. Loans are granted recklessly, and then institutions like the NCLAT are invoked only to recover money for them,” he remarked.
MHA status report and RBI’s SOP
The Court took note of a status report filed by the Ministry of Home Affairs on January 12. It also took note of the SOP drafted by the RBI laying down preventive and responsive measures for banks to curb cyber fraud.
The Bench directed the MHA to formally adopt and implement the SOP nationwide and to issue a uniform framework for inter-agency coordination, aimed at ensuring the swift freezing and restoration of defrauded funds wherever possible.
DoT and MeitY given firm timelines
The Court issued strict timelines to other ministries as well. The Department of Telecommunications was directed to notify the draft Telecommunication (User Identification) Rules, 2025 within three weeks. The Ministry of Electronics and Information Technology was instructed to operationalise a dedicated complaints portal under Section 43 of the Information Technology Act, 2000 within four weeks.
Amicus flags systemic regulatory failures
Senior Advocate N. S. Nappinai, appearing as amicus curiae, submitted that the problem was systemic. She pointed out that the RBI had either failed to impose penalties on errant banks or had imposed only minimal sanctions, even when banks violated their own guidelines.
She further argued that banks must mandatorily deploy AI-based systems to detect unusual transactions, noting that such tools are inherently capable of flagging anomalous account activity. The amicus also informed the Court that RBI reports had recorded instances of negligence by certain banks.
Reiterating the need for urgency, the Chief Justice observed that suspicious transactions must be immediately reported to cyber fraud police. The Attorney General responded that the proposed SOP addresses this requirement.
Draft MoU for inter-agency coordination
The Court also took note of the Union government’s submission that an inter-departmental committee has been constituted to examine the growing number of digital arrest frauds.
To strengthen coordination, the Bench directed that a draft Memorandum of Understanding (MoU) be prepared within four weeks to enable structured information-sharing between enforcement agencies, banks, telecom authorities and intermediaries. The proposed mechanism is intended to facilitate faster detection, freezing of suspicious transactions and identification of victims through a single platform.
The matter will be taken up again after four weeks.
