Recovery of Money in Digital Arrest Scams: India’s Evolving Legal Framework

Abstract

Digital arrest scams have emerged as a serious form of cyber fraud in India, in which fraudsters impersonate law-enforcement authorities and coerce victims into transferring money through fear, deception and intimidation.¹ While considerable attention has been directed towards prevention and prosecution, a crucial question remains: can victims recover the money they have lost?

This article examines the legal and institutional mechanisms available for tracing, freezing and seeking restoration of funds lost through digital arrest scams. It analyses the Bharatiya Nyaya Sanhita, 2023, the Bharatiya Nagarik Suraksha Sanhita, 2023, the Information Technology Act, 2000, the National Cyber Crime Reporting Portal and helpline 1930.² It further examines recent judicial developments, particularly the Supreme Court’s continuing suo motu proceedings concerning digital arrest scams and decisions addressing the freezing of bank accounts containing suspected proceeds of cyber fraud.³

The article argues that Indian law provides meaningful mechanisms for recovery, but recovery remains neither automatic nor guaranteed. Its effectiveness depends upon prompt reporting, successful tracing of funds, lawful preservation of proceeds and an efficient mechanism for judicially supervised restoration. The emerging framework must therefore balance victim recovery with procedural safeguards for innocent account holders.

Keywords: Digital Arrest, Cyber Fraud, Recovery of Money, Cybercrime, BNSS, BNS, Victim Compensation

Introduction

Imagine receiving a video call from a person claiming to be a police officer and being told that a bank account is allegedly connected with a serious criminal offence. Official-looking documents are displayed, arrest is threatened, and money is demanded for “verification”. This is the modus operandi of a digital arrest scam, where technology is used to manufacture the appearance of lawful authority and induce financial transfers through fear.⁴

Identifying the offence and prosecuting perpetrators addresses only part of the legal challenge. The more immediate concern for a victim is whether the money transferred as a result of such coercion can be recovered.⁵ This question becomes increasingly complex when fraudulent proceeds are rapidly transferred through multiple accounts. Accounts controlled by fraudsters but nominally held by others—known as “mule accounts”—and subsequent layering across different jurisdictions create additional obstacles to tracing and recovery.⁶

Indian law provides several mechanisms capable of interrupting this process. Criminal provisions under the Bharatiya Nyaya Sanhita, 2023 (“BNS”) and Information Technology Act, 2000 (“IT Act”) address the underlying conduct, while Section 107 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (“BNSS”) provides a statutory framework for attachment and forfeiture of proceeds of crime.⁷ The National Cyber Crime Reporting Portal and helpline 1930 further facilitate immediate reporting and efforts to trace and secure fraudulent funds.⁸

This article examines whether and to what extent victims of digital arrest scams can recover their money. It analyses the statutory framework, recent judicial developments and practical obstacles to recovery. It argues that recovery may be legally possible, but remains dependent upon timely reporting, traceability of funds, lawful freezing or attachment and effective restoration mechanisms.

Legal Framework Governing Digital Arrest Scams and Recovery of Funds

1. Criminal Liability of Fraudsters

Digital arrest is not, by itself, a separately defined offence under Indian criminal law. Rather, the conduct constituting such scams may attract multiple offences depending upon the factual circumstances. This approach allows prosecutors to tailor charges to specific facts rather than relying on a single statutory category.

Cheating Under Section 318 BNS: In a typical digital arrest scam, fraudsters make false representations about criminal investigations or official proceedings and thereby induce victims to deliver property. Section 318 of the BNS addresses cheating, and where cheating dishonestly induces delivery of property, Section 318(4) provides for imprisonment extending to seven years and fine.¹⁰

Personation of Public Servant Under Section 204 BNS: Where an offender falsely represents himself as a police officer, CBI officer or other public servant, Section 204 BNS, concerning personation of a public servant, may also apply. The provision applies where a person pretends to hold a particular office as a public servant or falsely personates a person holding such office and, in that assumed character, does or attempts to do an act under the colour of that office.¹¹

Extortion and Intimidation: The coercive dimension of digital arrest scams may additionally attract Section 308 BNS concerning extortion, where fear of injury is intentionally created to dishonestly induce delivery of property. Section 351 BNS concerning criminal intimidation may also apply where threats are used to cause alarm or compel a victim to perform an act which the victim is not legally bound to perform.¹²

Cyber-Enabled Cheating Under Section 66D IT Act: The IT Act supplements these provisions. Section 66D specifically penalises cheating by personation through a communication device or computer resource and is therefore directly relevant to impersonation carried out through digital communications.¹³

The significance of this framework is that prosecution can proceed without recognising “digital arrest” as a standalone offence. The underlying conduct can be addressed through existing provisions dealing with cheating, personation, extortion, intimidation and computer-enabled personation.

2. Recovery and Restoration Under the BNSS

Criminal prosecution does not, however, answer the victim’s principal financial concern: what happens to the money? Addressing this question requires engagement with civil recovery mechanisms distinct from criminal proceedings against perpetrators.

Under Section 107(6) of the BNSS, where the Court or Magistrate finds attached or seized property to constitute proceeds of crime, it shall direct the District Magistrate to rateably distribute those proceeds to persons affected by the crime. Section 107(7) requires such distribution within sixty days of receipt of the order passed under Section 107(6).¹⁴

The provision is particularly significant because it expressly contemplates restoration to affected persons. Once the Court or Magistrate finds attached or seized property to constitute proceeds of crime, the District Magistrate must rateably distribute those proceeds. This distribution is to be made within sixty days of receipt of the order.

Section 111(c) BNSS further defines “proceeds of crime” to include property derived or obtained directly or indirectly because of criminal activity, including crime involving currency transfers. Section 111(e) further defines “tracing” in relation to determining the nature, source, disposition, movement, title or ownership of property.¹⁵

This framework is important because recovery is not dependent exclusively upon locating the offender. Where proceeds can be identified and lawfully secured, the statutory framework contemplates their eventual distribution to affected persons. Nevertheless, attachment is not synonymous with immediate reimbursement. The property must be identified and established to constitute proceeds of crime before restoration can take place through the statutory process. Recovery therefore remains conditional upon successful tracing and lawful restoration.¹⁶

3. Immediate Reporting and the Role of Helpline 1930

The recovery process frequently begins before judicial proceedings concerning restoration arise. The National Cyber Crime Reporting Portal and helpline 1930 provide mechanisms for reporting financial cyber fraud and facilitating immediate response to such incidents.

The practical significance of immediate reporting lies in the speed with which authorities and financial institutions can attempt to trace and restrain fraudulently transferred funds. The longer fraudulent proceeds remain outside effective control, the greater the possibility that they will be divided among several accounts or moved beyond the reach of immediate recovery mechanisms.

The recovery process may broadly be understood as follows: immediate reporting, identification of the recipient account, preservation or freezing of funds, tracing through subsequent accounts, investigation, judicial determination, and restoration where legally permissible.

Judicial Developments and Case Law Analysis

1. The Supreme Court’s Suo Motu Intervention

The Supreme Court’s continuing intervention represents a significant recent institutional development concerning digital arrest scams.

In Re: Victims of Digital Arrest Related to Forged Documents, Suo Motu Writ Petition (Criminal) No. 3 of 2025, the Court took cognisance of the issue upon receiving a complaint from a senior citizen couple reported being defrauded of their life savings through a digital arrest scam. The proceedings subsequently expanded as other victims came forward, multiple FIRs were registered across States, and various central and state authorities were involved.¹⁷

On 1 December 2025, the Court directed that the CBI would be the primary agency for investigating reported cases of digital arrest scams. The court also issued directions concerning mule bank accounts, cooperation by intermediaries, preservation of relevant data, tele-service-provider compliance and international cooperation. Of particular significance to financial recovery was the Court’s direction that where an amount lying in a bank account was prima facie traceable to digital arrest or other reported cybercrime, the CBI and State police authorities could take steps to freeze the account, including in circumstances where an FIR had not yet been registered.

The significance of the intervention therefore lies not merely in strengthening investigation but also in connecting investigation with preservation of the victim’s financial interest. The objective is to secure traceable proceeds before they are moved through successive transactions.

2. The August 2026 Development: Towards Restoration

The Supreme Court’s intervention has subsequently moved beyond investigation towards a more explicit framework for financial recovery and restoration.

On 4 August 2026, the Court issued thirteen interim directions concerning digital arrest scams. It directed the RBI to prepare and circulate, within four weeks, a Standard Operating Procedure concerning mule and cyber-fraud accounts. States, Union Territories and law-enforcement agencies were directed to expeditiously adopt the grievance-redressal and money-restoration modules under the Ministry of Home Affairs’ SOP dated 2 January 2026.

The Court further directed that future status reports contain State-wise and bank-wise information concerning grievances, restoration orders and amounts actually restored. It also directed remaining States to operationalise State Cyber Crime Coordination Centres and take steps towards adoption of the e-Zero FIR mechanism in consultation with the Indian Cyber Crime Coordination Centre (I4C).

Significantly, the Inter-Departmental Committee was directed to examine proposals concerning shared liability—the division of loss responsibility between financial institutions and victims—alongside victim compensation. This examination was to run parallel to technological measures aimed at prevention, investigation and recovery.

This development is central to the question examined in this article. The judicial response appears to be gradually moving from a predominantly investigative model towards a broader framework encompassing investigation, preservation, grievance redressal and restoration. However, these proceedings remain ongoing and the directions issued therein are interim in nature. They should not be understood as creating an unconditional guarantee that every victim will receive complete reimbursement.

3. Freezing an Account Is Not Confiscating Its Entire Balance

Recovery mechanisms must also protect persons whose accounts receive disputed funds without their involvement in the underlying fraud.

In Jaspreet Singh v Union of India,¹⁸ decided on 5 July 2024, the Punjab and Haryana High Court considered the freezing of a bank account in circumstances involving disputed transactions. The Court permitted the disputed amount to remain under lien while allowing access to the remaining balance.

The principle was subsequently applied in Rahul v Union of India,¹⁹ decided on 5 March 2026. The petitioner’s account was linked to a disputed transaction of ₹25,000, but there was no allegation that the petitioner himself was involved in the fraud. The Court held that the entire account could not be blocked merely because of the disputed transaction and directed defreezing subject to a lien over ₹25,000.

Similarly, in Randhir Kumar v RBI,²⁰ decided on 9 March 2026, the Punjab and Haryana High Court directed the defreezing of the petitioner’s accounts while retaining liens over the disputed amounts.

These decisions establish an important proportionality principle: the objective of preserving suspected proceeds of cybercrime should not automatically result in deprivation of an innocent account holder’s entire legitimate balance where the account holder is not alleged to be involved in the underlying fraud.

4. Procedural Safeguards in Account Freezing

The question of lawful authority to freeze bank accounts has also generated significant judicial discussion.

In Kartik Yogeshwar Chatur v Union of India,²¹ the Bombay High Court held that an investigating agency could not debit-freeze or attach a bank account merely by invoking Section 106 of the BNSS. The Court distinguished Section 106, which concerns seizure, from Section 107, which provides the statutory mechanism for attachment of proceeds of crime.

The decision has subsequently been relied upon by the Punjab and Haryana High Court in cases concerning cyber-fraud related account freezes. In Rahul v Union of India, for example, the Court relied upon Kartik Yogeshwar Chatur while considering the applicability of the statutory mechanism under Section 107 of the BNSS.

This procedural safeguard is important because effective cyber-fraud recovery cannot depend upon indiscriminate account freezing. Preservation of suspected proceeds must operate within a lawful statutory framework that protects legitimate property interests.

Critical Evaluation: Is the Existing Framework Sufficient?

The existing legal framework provides meaningful avenues for recovery. However, its effectiveness remains heavily dependent upon speed, traceability and institutional coordination. Three principal requirements emerge from an analysis of the statutory framework and recent case law.

The difficulty is illustrated by the case of Naresh Malhotra,²² a 78-year-old retired banker who reportedly lost ₹22.92 crore in a prolonged digital arrest scam. The funds were transferred through numerous transactions involving multiple beneficiary accounts, making subsequent tracing substantially more difficult. This case exposes the central weakness of the present system: although the law provides mechanisms for recovery, their effectiveness is substantially reduced where funds become untraceable or have moved beyond effective legal control.

At the same time, the case demonstrates that institutional intervention can result in tangible recovery. In April 2026, the RBI Ombudsman directed five beneficiary banks to pay portions of the relevant amounts to Malhotra, reportedly ranging between 5 and 7.5 per cent of the deposited sums. The decision was linked to deficiencies concerning the beneficiary accounts and Know Your Customer (KYC) procedures.

This development should not, however, be interpreted as establishing automatic bank liability for every digital-fraud loss. Rather, it demonstrates that the conduct of financial institutions may become relevant where deficiencies in account-opening or monitoring procedures contribute to the movement of fraudulent proceeds.

The Authorized Transaction Problem

A further difficulty arises from the distinction between authorised and unauthorised transactions. The RBI’s framework on customer liability for unauthorised electronic banking transactions provides protection in specified circumstances, with the extent of customer liability depending, among other factors, on the circumstances of the transaction and the time taken by the customer to report it.²³

Digital arrest scams create a more complicated situation because victims frequently initiate the transfer themselves. The payment may therefore appear technically authorised from a banking perspective, even though the victim’s apparent consent was obtained through deception, intimidation or psychological coercion. This distinction exposes a conceptual limitation in traditional banking frameworks. A transaction initiated by a victim under a fraudulent threat cannot necessarily be equated with an ordinary informed and voluntary payment. The legal analysis should therefore extend beyond whether the victim technically authorised the transaction and examine the circumstances in which that authorisation was obtained.

Emerging Requirements for an Effective Recovery Framework

The Supreme Court’s 2026 directions are significant in this context. Its direction to examine shared liability and victim compensation, together with grievance-redressal and money-restoration mechanisms, highlights the need for greater coordination between police, banking and judicial processes in addressing financial recovery.

Nevertheless, victim protection must not result in disproportionate restrictions upon innocent third parties. Automatically freezing every account through which a disputed amount passes may merely transfer the harm from the original victim to another person who is not involved in the fraud. The approach reflected in Jaspreet Singh, Rahul and Randhir Kumar—preserving the disputed amount through a lien while permitting access to the undisputed balance—offers a more proportionate approach to account freezing.

The emerging recovery framework should therefore satisfy three requirements:

1. Speed: Traceable funds must be identified and restrained before they are layered through multiple accounts.
2. Procedural Safeguards: Account-freezing mechanisms must preserve suspected proceeds without unnecessarily depriving innocent account holders not involved in the underlying fraud of their legitimate funds.
3. Effective Restoration: Freezing is only an intermediate protective measure. Once funds are established as proceeds of crime and become legally recoverable, a clear and efficient mechanism should facilitate their return to persons affected by the fraud.

The Supreme Court’s continuing proceedings indicate movement towards such a framework. However, the present position remains one of legal possibility rather than guaranteed reimbursement.

The answer to the central question is therefore qualified: victims of digital arrest scams may be able to recover their money, but recovery is neither automatic nor guaranteed. The prospects are strongest where the fraud is reported immediately, the funds remain traceable, the relevant accounts are lawfully restrained, and the statutory and judicial mechanisms for restoration are effectively invoked.

Conclusion

Digital arrest scams reveal a significant gap between the criminality of cyber fraud and the practical recovery of the victim’s money. Indian law nevertheless provides an evolving framework to address that gap. The BNS and Information Technology Act establish criminal liability for conduct involving cheating, personation, extortion, intimidation and computer-enabled personation, while Section 107 of the BNSS provides a statutory mechanism for attachment and restoration of proceeds of crime. Immediate reporting through the National Cyber Crime Reporting Portal and helpline 1930 remains critical to preserving traceable funds.

The judicial developments examined above demonstrate that recovery is possible, but neither automatic nor universally guaranteed. The Supreme Court’s continuing intervention has increasingly connected investigation with preservation, grievance redressal and restoration. At the same time, decisions concerning account holders not involved in the underlying fraud demonstrate that recovery mechanisms must operate proportionately and with adequate procedural safeguards.

The emerging framework should therefore prioritise three reforms: rapid financial intervention, uniform and judicially supervised procedures for account restrictions, and efficient restoration of recovered funds. The proposed examination of shared liability and victim compensation should be developed into a clear and predictable framework.

Ultimately, cybercrime justice should not end with the identification or prosecution of the fraudster. The recovery of the victim’s money must become an integral measure of the effectiveness of India’s response to digital arrest scams.

Bibliography

A. CASES

In Re: Victims of Digital Arrest Related to Forged Documents, Suo Motu Writ Petition (Criminal) No 3 of 2025 (Supreme Court of India).

Jaspreet Singh v Union of India, CWP No 3464 of 2024 (Punjab and Haryana High Court, 5 July 2024).

Kartik Yogeshwar Chatur v Union of India, 2025 SCC OnLine Bom 4778 (Bombay High Court).

Rahul v Union of India, CWP No 36490 of 2025 (Punjab and Haryana High Court, 5 March 2026).

Randhir Kumar v RBI, CWP No 29979 of 2024 (Punjab and Haryana High Court, 9 March 2026).

B. LEGISLATION

Bharatiya Nagarik Suraksha Sanhita 2023.

Bharatiya Nyaya Sanhita 2023.

Information Technology Act 2000.

C. GOVERNMENT AND INSTITUTIONAL MATERIALS

Indian Cyber Crime Coordination Centre, ‘”Digital Arrest” Scam’ (Advisory TAU/ADV/003, 6 March 2025).

Ministry of Home Affairs. ‘Citizen Financial Cyber Fraud Reporting and Management System’ (Lok Sabha Unstarred Question No 131, 12 December 2023).

Ministry of Home Affairs. ‘L.S.US.Q.NO. 5124’ (24 March 2026).

Ministry of Home Affairs. ‘L.S.US.Q.NO. 1988’ (11 March 2025).

Reserve Bank of India, ‘Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Banking Transactions’ (6 July 2017).

D. OTHER SOURCES

Ritu Sarin, ‘Delhi’s biggest “digital arrest” fraud: Rs 22.92 crore stolen, split in 7 layers via 4,236 transactions’ The Indian Express (23 September 2025).