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

The petitioner, Priyanshu Suryavanshi, filed a writ petition under Article 226 of the Constitution of India challenging the freezing of his savings account (No. 3047300904) with Kotak Mahindra Bank (Respondent No. 3).

The account was frozen following intimations from cyber cell police authorities regarding suspected involvement in cyber fraud.

The petitioner contended that no prior notice was served and that he was lawfully conducting business.

He sought the restoration of the account and a declaration that the respondents' actions were illegal and violative of fundamental rights.

1. Whether the freezing of the petitioner's bank account by investigating agencies without following the mandatory procedural requirements of the law is sustainable.

2. Whether the court should direct the partial unfreezing of the account while securing the allegedly fraudulent amount in a fixed deposit.

Section 102 of the Code of Criminal Procedure (Cr.P.C.), which empowers police officers to seize property suspected to be stolen or linked to an offense, subject to informing the concerned Magistrate.

Relevant provisions of the Bharatiya Nagarik Suraksha Sanhita (BNSS), now corresponding to Section 102 Cr.P.C.

The precedent established in Malcolm Murayis & Ors. v. State Bank of India and Others (W.P. No. 1100 of 2024), which held that in cases of crypto-trading related freezes, the disputed amount should be isolated in a fixed deposit to allow the account holder to operate the remainder of the account.

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

In that precedent, the court noted that cyber crime cells often act irresponsibly by directing banks to freeze accounts via email without responding to subsequent legal inquiries or strictly complying with the reporting requirements to the Magistrate under Section 102 Cr.P.C.

The court reasoned that complete freezing of an account causes undue hardship to legitimate business activities.

Consequently, the court determined that the "disputed amount" (the specific sum identified as linked to the alleged fraud) should be secured in a fixed deposit (FD), while the rest of the account should be unblocked to balance state interests with the petitioner's rights.

The respondents/Bank were ordered to keep only the specifically disputed amount in a fixed deposit, which shall only be liquidated upon orders from a competent Judicial Magistrate.

The police agencies were directed to proceed in accordance with the BNSS or relevant laws within three months, failing which the petitioner would be entitled to withdraw the amount kept in the FD under intimation to the agency.

The petition was disposed of with these directions.