Bank Cannot Freeze Entire Account When Investigating Agencies Seek Freezing Only to the Extent of Specified Amounts

The Petitioner maintains a bank account with Respondent No. 1 (IndusInd Bank).

Following communications from investigating agencies—Respondent No. 2 (Cyber Crime Police, Gujarat) requesting a freeze of ₹15,000 and the Barrackpore Police Station requesting a freeze of ₹10,000—the Bank proceeded to freeze the Petitioner's entire account.

The Petitioner sought a Writ of Mandamus to allow account operations for all amounts exceeding the aggregate lien of ₹25,000.

The Bank justified the total freeze citing the apprehension of future additional freezing directions from other agencies.

1. Whether a banking institution can freeze an entire account when instructions from investigating authorities specify only a particular amount.

2. Whether administrative convenience or the apprehension of future investigative requests provides a valid legal basis for a bank to exceed the scope of a freeze order.

The court applied the principle of proportionality under Articles 226 and 227 of the Constitution of India, emphasizing that any restriction on a bank account must not exceed the limits prescribed by the competent authority.

It defined the bank's role as a "custodian" performing a "limited and ministerial function," rather than an investigative or adjudicatory body.

The court further relied on the contractual and fiduciary nature of the banker-customer relationship, where the holder retains ownership of funds subject only to lawful, specific statutory restrictions.

The Court reasoned that a bank's authority to freeze an account is not independent but derivative; it is strictly circumscribed by the terms of the directions received from investigating agencies.

In this case, the cumulative freeze requested was only for ₹25,000.

The Court rejected Respondent No. 1's argument regarding "future apprehensions," holding that speculative contingencies cannot substitute for a lawful mandate.

Furthermore, the court observed that freezing an entire account for a partial claim is disproportionate as it severely impacts the petitioner’s ability to meet daily expenses and statutory liabilities.

The court concluded that unless a direction expressly mandates a total freeze, banks must only earmark the specified amount and permit the operation of the remaining balance.

The Writ Petition was allowed, and Respondent No. 1 was directed to restrict the debit freeze to an aggregate sum of ₹25,000 only. The Bank was ordered to permit the Petitioner to operate the account for the balance amount within four days. The Court also issued a general directive to banking institutions to ensure that any freezing action remains proportionate and strictly confined to the scope of directions received to avoid unnecessary hardship to account holders.