Supreme Court orders banks to compensate digital fraud victims
What's the story
The Supreme Court on Thursday said banks must pay for the losses suffered by victims of digital fraud if an investigation establishes that the offense resulted from a failure of due diligence by the financial institutions. "We are proposing to direct that wherever such fraud takes place, bank will compensate victim and suffer prosecution," Chief Justice Surya Kant said while hearing a suo motu case on digital arrest scams. "The amount will remain intact....That is the only way," he remarked.
Victim awareness
Victims' mental state
During the hearing, CJI Kant also questioned how educated citizens still fall for such frauds after senior advocate NS Nappinai, the amicus curiae in the case, informed about a recent incident where a woman lost ₹2.5 crore to such a scam.
He expressed shock that despite public awareness campaigns, news reports, and court orders, people continue to fall prey to such scams.
CJI
'Hit mobile on the wall and arrest goes away'
"What we are shocked about - why are people not realizing? What is wrong with victims? Are they not normal persons? This is everywhere in the media," CJI Kant observed.
He continued, "What kind of person you are in a democratic country if you think you are getting arrested on mobile? Hit the mobile on the wall and the arrest goes."
Bank responsibility
Banks, agencies criticized for not having safeguards in place
The CJI then turned to banks and other agencies for not having enough safeguards in place.
He wondered why protective mechanisms aren't activated when suspicious transactions or messages asking for money show up.
Appearing for the Reserve Bank of India (RBI), Attorney General R Venkataramani told the court that banks are now better at flagging suspicious transactions compared to six months ago and that meetings were held with the RBI to push rule-making.
Compensation proposal
Banks should compensate victims, face prosecution if negligent: CJI Kant
The CJI suggested that banks should compensate victims and face prosecution if digital arrest fraud happens due to their negligence, adding that the problem was compounded by the alleged involvement of bank officials.
"The problem is, bank officials are involved. Even when we are asking to take steps, RBI is consulting the banks!" he said.
He asked why banks couldn't categorize accounts into appropriate categories to identify suspicious transactions since they possessed the complete transaction history of individual account holders.
Regulatory review
'Why banks should not be held accountable for the losses'
The CJI asked why banks should not be held accountable for the losses suffered by victims, particularly when they are able to negotiate one-time settlement arrangements worth crores of rupees in loan recovery matters.
The bench called for mandatory safeguards against suspicious transactions.
"...temporary suspension of an unusual transaction inconsistent with an account's past track record, automated reporting and physical verification to ascertain the genuineness of the transaction, must be mandatory for every financial institution," they said.
SC
Next hearing on November 30
The Supreme Court further said that it would examine the RBI's proposed anti-cyber fraud regulations before they are notified.
It sought the draft regulations and a list of authorized financial institutions by the next hearing.
"The regulation must include a liability clause. Otherwise, we will enforce it through a judicial order," the CJI said.
The next hearing has been scheduled for November 30.