SC asks RBI to frame uniform protocol for banks dealing with cyber fraud

The apex court also directed the Centre and states to strengthen measures against digital arrest scams and asked authorities to improve victim compensation and fund recovery

The Supreme Court on Tuesday directed the Reserve Bank of India (RBI) to put in place a standard operating procedure (SOP) for banks to deal with cyberfraud cases, including ‘digital arrests’, and mule accounts within four weeks. 

The SOP will cover temporary hold on debit from suspected accounts, a grievance redressal mechanism, a system for restoring defrauded money, and measures to create public awareness of these facilities. 

While hearing suo motu proceedings on cyber frauds involving ‘digital arrests’, a Bench led by Chief Justice of India Justice Surya Kant, along with Justice Joymalya Bagchi and Justice V Mohana, directed the Centre, states and other authorities to strengthen measures against the rise in such scams. 

 

While acknowledging the encouraging results yielded by steps taken so far, the court stated that the existing system required wider implementation, quicker action, and sustained monitoring. 

The court gave directions to establish an interdepartmental committee to examine a framework for victim compensation and shared liability. It will also issue advisories to governments and departments for large-scale public awareness campaigns to prevent digital arrest scams, to use grievance and money restoration mechanisms, and to implement the Centre’s SOP for the custody and restoration of defrauded funds. The committee will also coordinate with banks to improve fraud prevention, facilitate recovery of stolen money and support investigations. 

Referring to a status report filed by the Indian Cyber Crime Coordination Centre (I4C), the three-judge Bench recorded that ₹18.05 crore had been restored to victims in 36,290 cases through the participation of 57 banks as well as states and Union territories. 

The top court also took note of the Central Bureau of Investigation’s progress in probing organised cyberfraud networks.

 

The agency has registered cases of digital arrest, traced victims through transactions routed via 67 first-layer bank accounts and conducted searches at 93 locations across 16 states. 

The court also recorded that an inter-departmental committee had asked the CBI to examine whether the monetary threshold for taking over cyberfraud investigations should be lowered, and whether multiple cases involving the same organised network could be clubbed to meet the existing threshold. 

It further directed that the Registrars General of all high courts should inform courts and adjudicating authorities handling bank account freezing matters about the grievance mechanism, so that affected persons may first seek relief through that process. 

Further, all states and Union territories should operationalise the State Cyber Crime Coordination Centres within four weeks, and implement the e-Zero FIR system in consultation with the I4C, with assistance from the Ministry of Home Affairs. 

Authorities have also been asked to ensure the prompt disposal of cases involving frozen bank accounts arising from cyberfraud. 

Recognising the need for greater protection for victims, the SC asked the committee to examine the feasibility of introducing a shared liability regime and a compensation framework for victims of digital arrest scams. 

In addition, Legal Services Committees across the country have been directed to organise awareness programmes on cyberfraud prevention, cybersecurity and remedies to recover defrauded amounts. 

Separately, the Ministry of Electronics and Information Technology, the Department of Telecommunications and the I4C have been asked to study the feasibility of introducing time-based curbs on telecom services for audio and video calls as a safeguard against cyberfraud. They have been directed to place a note before the court on the proposal, its utility and possible alternatives. The matter will be taken up again in September.

 

According to a senior banker at state-owned bank, banks are using multiple methods to detect and prevent mule accounts, including screening mobile numbers linked to cybercrime complaints, monitoring transaction patterns, and deploying AI-based fraud detection tools.

 

Banks are strengthening controls through real-time transaction monitoring, callback verification for high-value transfers, OTP-based authentication, and improved Know-your-customer (KYC) processes. However, a major challenge is the growing practice of individuals renting out their bank accounts or sharing credentials for small payments, which allows fraudsters to route illegal funds through these accounts, the banker said.

 

Such accountholders may face serious legal consequences, as mule accounts are often linked to cyberfraud, money laundering, and other criminal activities, the banker said, adding that the sector is investing in advanced technology, including artificial intelligence (AI), machine learning, fraud risk management tools, and customer profiling systems.

 

The RBI and the Department of Financial Services are also working on initiatives to create a shared customer risk database across banks to identify repeat offenders. While the problem remains significant, banks and law enforcement agencies are coordinating to reduce mule account-related fraud.

 

Call for RBI action

• SOP will cover temporary hold on debit from mule accounts, a grievance redressal mechanism, restoration of defrauded money, and measures to create public awareness 
• SC asks states, UTs to operationalise the State Cyber Crime Coordination Centres in four weeks
• Directs feasibility study for introducing time-based curbs on telecom services for audio and video calls to prevent cyberfraud