Bank Accounts Cannot Be Indefinitely Frozen; Disputed Amounts Must Be Segregated While Allowing Account Operation

The petitioner, a business firm, filed a writ petition under Article 226 of the Constitution of India challenging the "freeze/hold" placed on its bank account (No. 923020070115392) maintained with Axis Bank.

The petitioner alleged the freeze was imposed without lawful authority or notice.

The petitioner contended that the matter was squarely covered by a previous High Court decision in Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100 of 2024), where accounts were similarly frozen on the instructions of cyber crime cells without following due process.

1. Whether the bank account of the petitioner could remain frozen indefinitely without adherence to statutory procedural safeguards.

2. Whether the directions issued in the precedent Malcolm Murayis regarding the treatment of disputed funds should be applied to the present case.

The court primarily relied on the principles governing the seizure of property by police under Section 102 of the Code of Criminal Procedure (Cr.P.C.), now mirrored in the relevant provisions of the Bharatiya Nagarik Suraksha Sanhita (BNSS).

The rule establishes that investigating agencies must inform the competent Magistrate regarding seizures and must proceed in accordance with law rather than keeping accounts frozen indefinitely without following procedural mandates.

The court observed that the petitioner’s situation was identical to the Malcolm Murayis case, where banks froze accounts solely based on intimations from cyber cells alleging involvement in fraud, often without the account holder receiving prior notice.

The court adopted the reasoning that while disputed amounts (linked to alleged crimes) must be protected, the entire account should not be rendered unusable indefinitely due to the "irresponsible approach" of cyber crime cells failing to respond to inquiries or comply with statutory reporting requirements to the Magistrate.

Consequently, the court determined that the law requires a balance: the disputed amount is to be secured in a fixed deposit while the rest of the account is unfrozen.

The Bank was ordered to keep the specific "disputed amount" (as identified by crime agencies) in a fixed deposit (FD), which is only to be liquidated upon orders from a competent Judicial Magistrate within three months; if the police agency fails to proceed under the BNSS or relevant law within that period, the petitioner may withdraw the FD amount after intimation to the agency.

The petition was disposed of with these directions.