Bank Accounts Must Be Unfrozen Upon Segregating Disputed Amounts Into Fixed Deposits Pending Criminal Investigation

The petitioner, Sharif Ahmed, filed a writ petition under Article 226 of the Constitution of India challenging the "arbitrary and illegal" freeze placed on his bank account (State Bank of India, A/c No. 38230659991).

The account was placed on hold/freeze by the respondent bank following intimations from cyber cell police authorities regarding alleged involvement in cyber fraud.

The petitioner contended that no prior notice was served by the police, he was lawfully engaged in business, and the investigating agencies failed to comply with statutory procedures regarding the seizure of bank accounts.

1. Whether the unilateral freezing of a bank account by investigative agencies without following the mandatory procedural safeguards is legally sustainable.

2. Whether the disputed amount can be secured in a manner that allows the account holder to operate the remainder of the account pending investigation.

Section 102 of the Code of Criminal Procedure (Cr.P.C.) (now mirrored in the Bharatiya Nagarik Suraksha Sanhita (BNSS)), which requires police to report seizures to the concerned Magistrate.

The Court further relied on its own precedent in Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100/2024), which established that while disputed funds related to cybercrime may be secured, the total freezing of an account without active participation or response from the investigating agencies warrants judicial intervention.

The Court observed that the case was squarely covered by the Malcolm Murayis precedent, where it was noted that cyber crime cells often request banks to freeze accounts but fail to respond to court notices or follow through with legal proceedings.

The Court found that a total freeze on the account is disproportionate if the investigating agencies do not comply with the requirement of informing a Magistrate or proceeding in accordance with law.

By applying the mutatis mutandis principle, the Court reasoned that the petitioner’s right to operate his account should be balanced against the need to secure the allegedly fraudulent amount by converting only the disputed portion into a fixed deposit.

The bank was ordered to keep only the disputed "hold" amount in a Fixed Deposit (FD), which shall not be liquidated for three months. If the police/investigative agency fails to obtain a specific order from a competent Judicial Magistrate within these three months—proceeding under the relevant provisions of the BNSS or Cr.P.C.—the petitioner shall be entitled to withdraw the FD amount under intimation to the agency.