Bank accounts frozen for alleged cyber fraud must be unfrozen, except for disputed amounts held in fixed deposits.

The petitioner, Vaibhav Khandelwal, filed a writ petition under Article 226 of the Constitution of India seeking a direction to ICICI Bank to unfreeze his bank account (No. 024101539204).

The account had been placed under a lien/hold following intimations from cyber crime agencies regarding alleged involvement in cyber fraud.

The petitioner contended that he had received no prior notice from the police and that he was lawfully engaged in business.

He further asserted that his case was squarely covered by the precedent Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100 of 2024).

1. Whether the respondent bank can indefinitely freeze the petitioner's entire bank account based on instructions from investigating agencies without following the procedure under Section 102 of the Cr.P.C. (now BNSS).

2. Whether the petitioner is entitled to the unfreezing of his account subject to securing the disputed amount in a fixed deposit.

The Court primarily applied the principles governing the seizure of property by police officers under Section 102 of the Code of Criminal Procedure, 1973 (now corresponding to the relevant provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023), which requires investigating agencies to report seizures to the concerned Magistrate.

It relied on the judicial precedent Malcolm Murayis & Ors. Vs. State Bank of India and Others, which established that while disputed amounts linked to crime may be secured, the entire account should not remain frozen indefinitely if agencies fail to respond or follow statutory procedures.

The Court observed that investigating agencies often instruct banks to freeze accounts but subsequently fail to respond to judicial notices or emails, reflecting a "poor functioning and irresponsible approach".

Following the reasoning in Malcolm Murayis, the Court determined that the petitioner’s right to operate his account must be balanced against the need to secure allegedly fraudulent funds.

Since the petitioner claimed his business was lawful and the agencies had not strictly complied with the requirement to inform the Magistrate of the seizure, the Court found it fit to allow the operation of the account while isolating only the disputed amount.

The Bank was ordered to keep the specific "disputed amount" (as informed by the crime agencies) in a fixed deposit; this deposit is to remain liquidated only upon orders from a competent Judicial Magistrate within three months; should the police agency fail to proceed in accordance with the BNSS or relevant law within that period, the petitioner is permitted to withdraw the FD amount under intimation to the agency.