Bank account freeze for suspected cyber fraud limited to disputed amount; balance unfreezing mandated upon creation of fixed deposit.

The petitioner, who operates a small kiosk shop, approached the High Court under Article 226 of the Constitution of India challenging the freezing of his savings bank account by Canara Bank.

The account was frozen on April 1, 2026, following instructions from law enforcement agencies regarding a suspicious transaction of ₹24,112 credited in March 2026.

The petitioner alleged that the total freeze caused severe financial distress, prevented the operation of his business, and resulted in other banking institutions blacklisting his credentials.

The petitioner sought a mandamus to unfreeze the account, arguing the case was identical to previous judicial interventions.

1. Whether the absolute freezing of a bank account by investigative agencies is sustainable when only a specific portion of the funds is allegedly linked to a cybercrime.

2. Whether the court should grant relief by allowing the operation of the account subject to securing the disputed amount in a fixed deposit.

The court primarily applied the precedent established in Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100 of 2024), which held that bank accounts should not remain fully frozen indefinitely if the disputed amount can be set aside.

The court also referenced Section 102 of the Code of Criminal Procedure (Cr.P.C.) and relevant provisions of the Bharatiya Nagarik Suraksha Sanhita (BNSS), which govern the power of police officers to seize property and the subsequent requirement to report such seizures to a Magistrate.

The Court observed that the petitioner was suffering disproportionate hardship because his entire account was inaccessible due to a relatively small disputed amount of ₹24,112.

Following the reasoning in Malcolm Murayis, the Court determined that the interests of justice and the needs of the investigating agencies could be balanced by "earmarking" the suspicious funds.

The Court noted that investigative agencies often fail to follow the procedural mandates of Section 102 Cr.P.C., such as notifying the Magistrate, and that a total freeze on a low-income individual's account constitutes an excessive restriction on their livelihood.

By applying the principle of mutatis mutandis, the Court found the petitioner entitled to the same relief granted in previous similar instances where accounts were frozen due to cybercrime flags.

Upon the creation of this FD, Canara Bank was ordered to immediately unfreeze the petitioner's savings account to allow normal transactions for the remaining balance.

The FD is to remain frozen and can only be liquidated upon orders from a competent Judicial Magistrate within three months; should the police agency fail to proceed according to law within that timeframe, the petitioner may move to withdraw the FD.