Banks cannot unilaterally freeze customer accounts absent statutory authority or competent-authority directions.

The petitioners maintained current accounts with the respondent Bank of Baroda, Bara Tooti, Sadar Bazar, New Delhi, for business operations, including payment of salaries, vendors, drivers and other expenses.

The petitioners discovered on 13 November 2025 that their accounts had been frozen without prior notice or disclosed reasons.

The Bank stated that the accounts had a transaction threshold of approximately ₹10–20 lakhs, whereas transactions of approximately ₹20 crores had been conducted, and relied on Section 12AA of the Prevention of Money Laundering Act, 2002 (PMLA), and KYC-related requirements.

The petitioners challenged the freezing under Article 226 of the Constitution and sought de-freezing of their accounts and permission to operate them normally.

The Bank’s counter-affidavit was taken on record; it was undisputed that there was no FIR, criminal proceeding or complaint pending against the petitioners.

Whether a bank, acting on suspicion or transaction-volume discrepancies, has unilateral statutory authority to freeze a customer’s bank account in the absence of an order or action by a competent authority under law.

Whether Section 12AA of the PMLA authorises a reporting entity to indefinitely freeze or entirely restrict operation of a customer’s account, rather than merely prevent a specified transaction and undertake enhanced due diligence.

Whether RBI’s KYC Master Directions permit indefinite or blanket freezing of an account merely because the volume of transactions exceeds the prescribed threshold.

The Court held that a bank is ordinarily a custodian of its customer’s funds and not an investigating agency; absent statutory authority, it cannot unilaterally freeze a customer’s account.

Section 12AA of the PMLA requires reporting entities to verify identity, examine records and obtain additional information for enhanced due diligence, but does not confer adjudicatory or investigative power to impose an indefinite account freeze.

The power to provisionally attach property or direct freezing of accounts under the PMLA lies with the competent statutory authorities and must be exercised according to the prescribed procedure, including the statutory “information” and “reasons to believe” requirements under Section 17, as explained in M/s S.A. Enterprises v. RBI, Writ-C No. 1866 of 2026.

RBI’s KYC Directions may require customer due diligence, additional information, transaction monitoring and reporting to the FIU-IND, but do not authorise an indefinite blanket freeze solely due to high transaction volume.

The Court further relied on Malabar Gold and Diamond Ltd. v. Union of India, W.P.(C) 4198/2025, for the principle that disproportionate debit-freezing of an account of a non-accused or non-suspect person may violate Articles 19(1)(g) and 21 of the Constitution.

The Bank’s stated concern was the disparity between the account’s indicated threshold and the value of transactions, but it did not identify a specific transaction that was being prohibited under Section 12AA, establish non-compliance with the statutory conditions, or point to any FIR, criminal proceeding or complaint against the petitioners.

The Court therefore treated the Bank’s action as an impermissible assumption of investigative and adjudicatory powers.

Applying Section 12AA, the Court distinguished the limited power to refuse a specified transaction and conduct enhanced due diligence from the much broader act of freezing the entire account.

It also held that KYC and suspicious-transaction reporting obligations could not justify paralysis of legitimate business operations through an indefinite freeze.

Such action was found disproportionate and arbitrary because it impaired the petitioners’ ability to conduct ordinary commercial activities without any finding of complicity.

Both writ petitions were allowed, and the Bank was directed to de-freeze the petitioners’ accounts within 48 hours from the date of uploading of the order.