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Digital arrest victims in India face mounting financial distress as banks pursue repayment of loans allegedly taken under coercion.
The issue has gained attention following a Karnataka High Court ruling involving a Bengaluru woman who claimed she was forced to borrow ₹50 lakh during a digital arrest scam. The court declined to quash criminal proceedings initiated by ICICI Bank over a dishonoured repayment instruction, highlighting the legal and financial difficulties faced by victims whose borrowed money is transferred to fraudsters.
How Did a ₹50 Lakh Loan Lead to Criminal Proceedings?
The 32-year-old woman alleged that on September 17, 2024, she received a call from someone impersonating a FedEx employee, claiming her Aadhaar number was connected to a drug case. She was subsequently connected to individuals posing as Mumbai police personnel and an RBI official, who allegedly threatened her with arrest.
The fraudsters reportedly instructed her to obtain an instant personal loan of ₹50 lakh. After the amount was credited to her account within 15 minutes, she allegedly added three beneficiaries and transferred the money, believing she would receive a certificate clearing her name.
She approached police on September 21, 2024, and complained to the RBI ombudsman. However, in May 2025, ICICI Bank initiated criminal proceedings after a repayment instruction for ₹52.41 lakh was dishonoured because of insufficient funds.
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What Did the Karnataka High Court Decide?
In an order dated October 16, Justice M Nagaprasanna dismissed the woman’s petition seeking to quash the proceedings. The court observed that her allegations involved disputed questions of fact requiring examination through evidence. It noted that one-time passwords had been sent to her registered mobile number and that transactions were authenticated using her credentials.
The bank argued that the woman had voluntarily completed the digital loan process and that it had no knowledge of the alleged coercion. Importantly, the court did not determine whether she had been coerced or decide her liability to repay the loan. It held that these questions could not be resolved at the stage of quashing criminal proceedings.
How Are Fraudsters Exploiting Borrowers?
Cybercrime officers say fraudsters increasingly assess victims’ financial circumstances before demanding money. Information about existing loans, gold holdings, credit scores and transactions may help criminals estimate how much a person can raise. Victims are then threatened with fabricated criminal allegations and instructed to borrow money, sell assets or liquidate investments.
According to figures submitted to the Supreme Court by the Indian Cyber Crime Coordination Centre, digital arrest complaints increased from 39,925 in 2022 to 1,25,672 in 2024, when reported losses reached approximately ₹1,935 crore.
In 2025, authorities recorded 58,239 complaints involving around ₹1,211 crore. Between January and August 2026, another 21,928 complaints were registered, with losses exceeding ₹647 crore. In another case, a Kerala businessman alleged that fraudsters posing as finance company representatives obtained his banking information and caused approximately ₹40 lakh to be transferred from his account.
What Action Are Banks and Regulators Considering?
Cybercrime officers have called for stronger verification before banks approve loans, particularly when transactions differ from customers’ normal financial behaviour. They recommend independent checks, direct communication with borrowers and additional scrutiny of suspicious applications rather than relying solely on credit scores, repayment histories and digital signatures.
The Supreme Court has also examined banks’ responsibilities. On October 29, a Bench led by Chief Justice Surya Kant proposed that banks could be directed to compensate digital arrest victims where losses resulted from failures in due diligence. The court also indicated that bank officials could face prosecution if found to have colluded with fraudsters.
Meanwhile, the RBI is working on revised Know Your Customer directions aimed at identifying suspicious transactions and temporarily restricting funds. Proposals include temporary debit holds on suspected mule-account funds and a mechanism allowing customers to stop transactions when they suspect fraud.
These developments place greater emphasis on preventing fraudulent borrowing and transfers while distinguishing transactions authorised under coercion from those carried out through stolen credentials.
