Bank Accounts Can Only Be Frozen to the Extent of Disputed Amounts Linked to Alleged Fraud

The petitioner, Dashrath Atut, filed a writ petition under Article 226 of the Constitution of India challenging a "temp hold/freeze" placed on his savings account (No. 929010065137426) at Axis Bank, Indore.

The account was frozen due to an alleged involvement in cyber fraud involving a disputed amount of Rs. 1,985.55/-.

The petitioner sought a mandamus to unfreeze the account, arguing that the bank should only lien the disputed amount while allowing him to operate the remaining balance and access digital banking services.

1. Whether the respondent bank can freeze the entirety of a petitioner's bank account when only a specific portion of the funds is allegedly linked to a cyber crime.

2. Whether the freezing of bank accounts by police authorities without following the procedural mandates of the law (specifically regarding notification to Magistrates) is sustainable.

The court primarily applied the principles regarding the seizure of property under Section 102 of the Code of Criminal Procedure (Cr.P.C.) (now corresponding to relevant provisions of the Bharatiya Nagarik Suraksha Sanhita/BNSS).

It relied on the precedent set by the High Court of Madhya Pradesh in Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100 of 2024), which established that only the disputed amount linked to a crime should be secured, rather than freezing the entire account, to balance investigative requirements with the account holder's rights.

The court found that the petitioner’s case was "squarely covered" by the decision in Malcolm Murayis.

In that precedent, the court observed that cyber crime cells often request banks to freeze accounts via email but fail to respond to judicial inquiries or comply with statutory requirements to inform the concerned Magistrate about the seizure.

The court reasoned that since only a specific amount (Rs. 1,985.55/-) was disputed, freezing the entire account and all digital services was disproportionate.

By directing the bank to convert only the disputed amount into a fixed deposit, the court ensured that the interests of the investigating agencies were protected while allowing the petitioner to exercise his right to operate his remaining funds.

It directed Respondent No. 2 (Axis Bank) to unfreeze the petitioner’s bank account and digital services.

The bank was ordered to keep the disputed amount of Rs. 1,985.55/- in a fixed deposit, which may only be liquidated upon orders from a competent Judicial Magistrate within three months.

If the police agency fails to proceed in accordance with the law (BNSS) within that period, the petitioner may withdraw the FD amount under intimation to the agency.

The petition was disposed of with the order that the remaining balance be defreezed immediately.