A bank cannot debit-freeze an account merely for breaching its internally fixed transaction threshold.

The petitioner maintained a current account with UCO Bank.

After the petitioner received ₹3.71 crore from a business counterparty and sought to transfer funds, the Bank restricted the account, citing pending KYC formalities and a threshold limit.

The Bank stated that the petitioner’s threshold was ₹5 lakh and that account transactions had reached approximately ₹8.5 crore

In an earlier writ petition, the Court directed the petitioner to provide supporting and KYC documents and the Bank to reconsider the threshold and unfreeze the account if the documents were in order

The petitioner later completed e-KYC and provided documents, but did not respond to further Bank queries seeking GST turnover, invoices and transaction-wise reconciliation, citing commercial confidentiality

The petitioner then challenged the Bank’s circular and sought removal of the debit freeze

1. Whether UCO Bank could impose a debit freeze merely because transactions exceeded an internally fixed threshold, relying on the RBI KYC Directions or its own circular

2. Whether the Bank’s freeze, imposed without prior notice or hearing, was consistent with the principles of natural justice

3. Whether the petitioner was entitled to removal of the debit freeze and restoration of operation of its account

Clause 17.3 of the RBI (Commercial Banks—Know Your Customer) Directions, 2025 requires a bank to follow Customer Due Diligence (CDD) before undertaking a transaction or commencing an account-based relationship; the Court construed it as not authorising a general freeze of an already activated account

Clauses 52–54 require reporting of relevant information and suspicious transactions to FIU-IND; Clause 54 expressly provides that an account must not be restricted merely because an STR has been filed

The Court held that the Bank’s circular could not provide a basis for a debit freeze contrary to the RBI Directions

It also applied the principles of natural justice, noting that a bank-imposed freeze has serious consequences and cannot be imposed arbitrarily without due process

The Court distinguished Abdul Azeez v. Union of India, 2025 SCC OnLine Ker 12455, because Clause 54’s scope had not been considered there

The Court referred to its reasoning in Global Enterprises v. Union of India & Ors., W.P.(C) 1955/2026

The Court found that Clause 17.3 concerned CDD requirements and did not empower the Bank to freeze an account that had already been opened and activated after CDD was completed

Nor did the reporting obligations in Clauses 52–54 confer a power to restrict account operations; in particular, Clause 54 barred restrictions merely on the basis of an STR

The Bank’s own circular could not override those regulatory provisions

The freeze had been imposed on the stated ground of exceeding the threshold and without prior notice or intimation, making the action inconsistent with natural justice

The Bank’s subsequent reliance on an AML flag did not justify the earlier freeze, which had already been in place on a different ground

The Court also rejected the proposition that the Bank could require the petitioner to satisfy its suspicions by disclosing confidential business transactions

It directed UCO Bank to make current account No. 01530210003671 operational and remove the debit freeze forthwith.

The petition was allowed and disposed of