After The Money Is Gone: Bank Liability And The Allocation Of Cyber-Fraud Losses In India - Rethinking Fraudulently Induced Payments, Mule Accounts And Victim Restitution
Dr. Cumaran Nadaradjan, B.A. LL.B., LL.M., Ph.D. (Law) Advocate, Bar Council of Delhi, Delhi, India
ABSTRACT
India’s digital-payment architecture has made transfers faster, cheaper and more accessible, but the same speed and finality have intensified a difficult consumer-protection problem: who should bear the loss when a customer technically authorises a payment only because a fraudster has manipulated, impersonated, threatened or deceived the customer? Existing Reserve Bank of India rules provide an important liability framework for unauthorised electronic transactions, yet fraudulently induced payments do not fit comfortably within a model built around the binary distinction between authorised and unauthorised transactions. At the same time, beneficiary accounts and money-mule networks frequently determine whether stolen funds can be dissipated before intervention is possible. The Supreme Court’s continuing proceedings concerning victims of “digital arrest” scams have brought these problems into sharper focus, including the need to consider shared liability, victim compensation, mule-account controls and expedited restoration of recovered funds.
This article argues that loss allocation should not turn exclusively on whether the victim physically initiated or authenticated the transfer. It proposes a prevention-and-control approach that examines which participant was best positioned to identify and interrupt the fraud at each stage of the payment chain. The article develops a five-stage framework—Prevent, Intervene, Trace, Allocate and Restore—for allocating responsibility among customers, originating banks, beneficiary banks and other regulated participants. It contends that a calibrated shared-liability regime, supported by rebuttable presumptions and rapid restitution procedures, would better align incentives, consumer protection and payment-system integrity without converting banks into insurers against every act of deception.
Keywords: Cyber Fraud; Bank Liability; Digital Payments; Mule Accounts; Victim Restitution; Authorised Payment Fraud; Reserve Bank of India.
