SHIFTING THE BURDEN: THE LEGAL FEASIBILITY OF A SHARED INTER-BANK LIABILITY MODEL TO COMBAT UPI MULE ACCOUNTS IN INDIA

AUTHOR – SEJEL* & DR. VARUN SRIVASTAVA**

* LLM. (CORPORATE, BANKING & INSURANCE LAW), AMITY LAW SCHOOL NOIDA, AMITY UNIVERSITY UTTAR PRADESH

** ASSISTANT PROFESSOR AT AMITY LAW SCHOOL NOIDA, AMITY UNIVERSITY UTTAR PRADESH

BEST CITATION – SEJEL & DR. VARUN SRIVASTAVA, SHIFTING THE BURDEN: THE LEGAL FEASIBILITY OF A SHARED INTER-BANK LIABILITY MODEL TO COMBAT UPI MULE ACCOUNTS IN INDIA, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 6 (7) OF 2026, PG. 209-217, APIS – 3920 – 0001 & ISSN – 2583-2344.

ABSTRACT

The exponential growth of the Unified Payments Interface (UPI) ecosystem in India has democratised digital financial access, yet simultaneously created fertile ground for a sophisticated category of financial crime: the mule account network. These accounts, operated by witting or unwitting intermediaries, serve as conduits through which proceeds of fraud are laundered and dissipated across the banking system before victims can seek redress. The existing legal architecture in India  dispersed across the Payment and Settlement Systems Act 2007, the Prevention of Money Laundering Act 2002, the Indian Penal Code 1860 (now partially superseded by the Bharatiya Nyaya Sanhita 2023), and Reserve Bank of India circulars  allocates liability in a fragmented and victim-hostile manner. This paper proposes a novel conceptual framework: a Shared Inter-Bank Liability (SIBL) model, wherein financial institutions that onboard or maintain mule accounts bear proportionate civil liability toward defrauded UPI users, irrespective of which bank originated the payment. Drawing upon the doctrines of vicarious liability, contributory negligence, and the emerging international standards of payment fraud reimbursement, this paper analyses the feasibility of such a model within Indian constitutional, statutory, and regulatory law. It argues that SIBL is not only legally defensible but is arguably compelled by the constitutional guarantee of the right to life with dignity under Article 21 and the RBI’s mandate to ensure systemic integrity. The paper further examines how such a model could be operationalised through interbank settlement mechanisms, suggests legislative amendments, and confronts the principal objections from the banking sector.