Banks Directed to Unfreeze Accounts While Placing Disputed Cyber-Fraud Amounts in Fixed Deposits

The petitioners, engaged in the trading of crypto and virtual currencies, found their bank accounts at Kotak Mahindra Bank, State Bank of India, and ICICI Bank frozen without prior notice.

These freezes were initiated based on emails from various state cyber cells (respondents 3-9) alleging that the accounts were linked to cyber fraud.

The petitioners contended they were lawful traders and that any fraudulent funds were likely transacted by third parties without their knowledge.

Despite a court-ordered interim measure allowing monthly withdrawals of ₹50,000 and subsequent notifications sent by the banks to the investigating agencies, most cyber cells (except Bangalore) failed to respond or show cause for the continued freeze.

1. Whether the prolonged freezing of the petitioners' entire bank accounts by cyber cells without compliance with statutory procedural safeguards is legally sustainable.

2. Whether the court should permit the operation of the accounts while securing only the disputed "tainted" amounts.

Section 102 of the Code of Criminal Procedure (Cr.P.C.), which governs the power of police officers to seize property suspected to be stolen or linked to an offence.

Investigating agencies are required to report such seizures to the concerned Magistrate to ensure judicial oversight.

The principle of proportionality in administrative and criminal actions, emphasizing that investigating agencies must act with responsibility and responsiveness when depriving a citizen of the use of their property.

The court observed a "poor functioning and irresponsible approach" by the respondent cyber crime cells, noting that while they were quick to freeze accounts via email, they failed to respond to court-related communications or justify the continued freeze.

The court found that the petitioners' right to operate their accounts was being indefinitely stalled without the agencies following the mandatory requirements of Section 102 Cr.P.C., such as informing the Magistrate.

Distinguishing between the total account balance and the specific "disputed amounts" allegedly linked to fraud, the court reasoned that the interest of justice would be served by securing the specific tainted sums while allowing the petitioners to access the remainder of their legitimate funds.

These deposits are to remain frozen and can only be liquidated upon orders from a competent Judicial Magistrate; cybercrime police are directed to proceed in accordance with Section 102 Cr.P.C. within three months, failing which the petitioners can withdraw the amounts.