Bank Accounts Cannot Be Indefinitely Frozen; Disputed Cyber-Fraud Amounts Must Be Segregated into Fixed Deposits

The petitioner filed a writ petition under Article 226 of the Constitution of India seeking a direction to the respondent bank to remove a "hold" or "freeze" placed on his bank account.

The account had been frozen following intimations from cyber cell police stations regarding alleged involvement in cyber fraud.

The petitioner contended he was never served notice of any investigation and that at least a portion of his funds was legitimate business income.

The court noted that the police agencies frequently fail to respond to judicial inquiries or bank communications regarding such freezes.

1. Whether the respondent bank can be directed to unfreeze a bank account when only a specific portion of the funds is allegedly linked to cybercrime.

2. Whether the investigating agencies complied with the procedural requirements of Section 102 of the Cr.P.C. (now relevant provisions of BNSS) regarding the seizure of bank accounts.

The court primarily applied the principles governing the seizure of property under Section 102 of the Code of Criminal Procedure, 1973 (Cr.P.C.), and its successor provisions under the Bharatiya Nagarik Suraksha Sanhita (BNSS), which require police officers to report seizures to the concerned Magistrate.

The court relied on the precedent set by the Indore Bench of the Madhya Pradesh High Court in Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100 of 2024), which established that freezing an entire account for a disputed transaction is disproportionate and that disputed amounts should be secured in fixed deposits while allowing the account holder to operate the remainder.

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

It observed that while banks act on police instructions to freeze accounts for cybercrime investigations, the "poor functioning and irresponsible approach" of cyber crime cells—specifically failing to respond to notices or follow legal procedures under Section 102 Cr.P.C.—prejudices the account holder.

The court reasoned that justice is served by isolating only the specific disputed amount (identified as ₹3,000 in this case) rather than paralyzing the entire account. This allows the police a window of three months to seek appropriate orders from a Judicial Magistrate while protecting the petitioner's right to access undisputed funds.

The holding specifies that the disputed amount of ₹3,000 shall be kept in a fixed deposit (FD), which can 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 or Cr.P.C.) within said three months, the petitioner is entitled to withdraw the FD amount under intimation to the agency.