Why are Indians continuing to fall prey to digital arrest scams, asks CJI Kant

The Supreme Court directed on Thursday that mechanisms to combat digital arrest frauds must include provisions for prosecuting bank officials who collude with fraudsters and require financial institutions to compensate victims when losses stem from institutional failures. A bench led by Chief Justice Surya Kant, joined by Justices Joymalya Bagchi and V Mohana, stated that banks must be held accountable for such incidents. The court emphasized that the Reserve Bank of India should move beyond issuing guidelines to enforcing strict liability on banking entities. The ruling came during hearings on a suo motu case regarding the surge in cyber crimes. Data presented to the court showed that 21,928 complaints involving over 647 crore rupees were registered on the National Cybercrime Reporting Portal in the first eight months of the year. This information was included in a status report filed by the Indian Cybercrime Coordination Centre and the Ministry of Home Affairs. The court noted that current RBI compensation rules for electronic banking fraud, effective in January, limit payouts to 25,000 rupees and only cover losses up to 50,000 rupees. Justice Kant expressed frustration over the persistence of these scams despite public awareness campaigns and media coverage. He questioned why citizens continued to fall victim to such tactics. The Chief Justice remarked that in a democratic country, one should recognize that an arrest via mobile phone is impossible and suggested hitting the device against a wall to end the call. An amicus curiae, Advocate NS Nappinai, informed the bench of a specific instance where a woman lost 2.5 crore rupees to a digital arrest scam. She explained that the fear of arrest drives compliance, noting that psychologists have described the pressure exerted on victims as a form of hypnosis. The bench criticized banks for lacking adequate safeguards to prevent suspicious transactions. Justice Kant argued that banks possess access to customer transaction histories and should be able to detect anomalies. He highlighted that while corporations handle large volumes of transactions, unusual withdrawals from accounts belonging to private individuals, especially senior citizens, should trigger immediate alerts. The court instructed that banks should withhold such transactions and contact the nearest police station to verify the identity and intent of the account holder. The Chief Justice stressed the need for preventive measures rather than relying solely on post-incident reports. He stated that reporting after money is lost serves only as a post-mortem analysis. The court asked whether existing regulations allowed banks to temporarily suspend unusual transactions pending verification. Attorney General R Venkataramani, representing the Central Government, responded that an inter-departmental committee and the I4C were examining all aspects of the issue. He noted that banks had improved their ability to flag suspicious transactions over the previous six months and that discussions with the RBI were underway to expedite rule-making. However, the Attorney General opposed the court's proposal for direct bank liability, arguing that the central bank should address this through its regulatory framework. The court observed that banks can recover their own losses using the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Insolvency and Bankruptcy Code. In contrast, customers lack similar remedies. The bench pointed out that billions of rupees are being looted from the economy without strong accountability clauses in regulations. The court referenced cases involving a builder-bank nexus where homebuyers were left without recourse despite RBI master circulars governing lending. It demanded that strict liability be imposed on banks and accountability fixed in cases of breach. The court is currently reviewing draft Know Your Customer guidelines being finalized by the RBI. These drafts consider the due diligence banks must perform, with notification expected by November 30. The bench stated it wished to examine the document before finalization and would pass further orders subsequently. Digital arrest scams typically involve criminals posing as law enforcement officers. They make video calls from locations resembling government offices, demanding money for case closure. Victims are often kept on video calls until their demands are met. Reports indicate that Chinese crime syndicates operate sophisticated scam centers in Southeast Asian countries, including Cambodia, Myanmar, and Laos. These facilities employ thousands of people, many from India, who were lured by fake job offers and coerced into targeting domestic victims.