Supreme Court Condemns Digital Arrests as "Dacoity," Demands Urgent Action from RBI and Banks
In a scathing observation, the Supreme Court of India has expressed deep concern over the rampant rise of digital arrests, with estimated losses surpassing a staggering Rs 54,000 crore. Presiding over a three-judge bench, Chief Justice of India Surya Kant questioned the inaction of authorities and labeled the situation as outright "robbery, dacoity." The court has directed immediate measures to combat this growing financial menace.
Court Questions RBI and Banks' Role in Fraud Prevention
The bench, which also included Justices Joymalya Bagchi and N V Anjaria, highlighted reports indicating that over Rs 54,000 crore of hard-earned money has been siphoned off from victims through digital arrest schemes. Chief Justice Kant pointedly asked why stringent actions have not been taken despite widespread public awareness. He criticized the Reserve Bank of India (RBI) and other financial institutions for their lax approach, emphasizing that banks are becoming a "huge liability on the public" due to indiscriminate lending practices.
The court stated, "If RBI does not take any stern, coercive decision even at this stage when the information in public domain suggests that definitely more than Rs 25,000 crore has been siphoned off... One of the figures sent to me talks of 54,000-plus crore of hardened money of the victims taken away." This underscores the severity of the crisis and the urgent need for intervention.
Directives for AI Implementation and SOP Adoption
To address the issue, the Supreme Court has called for the deployment of advanced Artificial Intelligence (AI) tools by banks to flag suspicious transactions in real-time. It noted that while the RBI has developed tools like Mule Hunter, implemented by 86 banks, more robust mechanisms are required. The court emphasized that AI should include velocity checks to detect unnaturally high transfers from accounts with nominal activity, allowing transactions to be paused at either the issuer or receiving bank's end.
Attorney General R Venkataramani informed the court that the RBI has formulated a Standard Operating Procedure (SOP) dated January 2, 2026, for handling digital arrest cases. Taking note, the court directed the Union Ministry of Home Affairs to formally adopt and implement this SOP nationwide to enhance inter-agency coordination and locate defrauded parties. It also mandated that related rules be notified within three weeks.
Additional Measures and Criticisms
The Supreme Court further instructed the RBI, MHA, and other relevant bodies to consider suspending suspicious transactions under the Prevention of Money Laundering Act (PMLA). It urged authorities to jointly develop a framework for victim compensation in digital arrest cases. The court has posted the matter for a hearing after two weeks, seeking a fresh status report on the progress made.
Amicus Curiae Senior Advocate N S Nappinai highlighted that the RBI imposes only nominal penalties on banks violating its circulars, which are not commensurate with the losses incurred. Justice Bagchi added that banks, driven by profit motives, often become platforms for the seamless transmission of stolen proceeds, either innocently or connivingly.
Chief Justice Kant reiterated, "We hope that they will not invite a direction from us... If RBI can introduce some robust mechanism." This serves as a clear warning to financial institutions to proactively address the issue or face judicial intervention.
Broader Implications and Future Steps
The Supreme Court's strong stance reflects a growing judicial concern over cybersecurity and financial fraud in the digital age. By pushing for AI-driven solutions and stricter regulations, the court aims to protect citizens from sophisticated scams that exploit technological vulnerabilities. The directives underscore the need for a collaborative effort between regulatory bodies, banks, and law enforcement to curb digital arrests and ensure accountability.
As the case progresses, all eyes will be on the RBI and banks to implement the court's recommendations effectively, potentially setting a precedent for handling similar frauds globally. The outcome could reshape India's approach to digital financial security and victim redressal in the years to come.
