Banks must confine cyber-fraud freezes to disputed amounts and defreeze the remaining balance.

The petitioner invoked Article 226 of the Constitution challenging the debit freeze imposed on her SBI bank account bearing Account No. 20003176722 on the basis of an alleged suspicious/cyber-fraud transaction.

She sought retention of only the disputed amount in a fixed deposit or under separate lien, defreezing of the remaining balance, permission to operate the account, and compensation for financial loss and mental agony.

The Court noted that the petitioner’s case was squarely covered by Malcolm Murayis & Ors. v. State Bank of India & Ors., W.P. No. 1100 of 2024, decided on 26 April 2024.

In the present case, the disputed amount communicated by the crime agencies was Rs. 2,01,263.58.

Whether the bank could continue freezing the petitioner’s entire bank account when only a specified amount was allegedly connected with a cyber-fraud transaction.

Whether the disputed amount should be retained separately in a fixed deposit pending appropriate action by the investigating agency and orders of the competent Judicial Magistrate under the applicable law.

Whether the petitioner was entitled to operate the remaining undisputed balance in the account.

The Court exercised its jurisdiction under Article 226 of the Constitution to prevent arbitrary continuation of a debit freeze and to grant appropriate directions to the bank.

It applied the principle laid down in Malcolm Murayis & Ors. v. State Bank of India & Ors., under which only the amount specifically identified by cyber-crime agencies as disputed is to be retained in a fixed deposit, while the remaining balance is to be released for operation by the account holder.

The disputed amount may be liquidated only pursuant to orders of the competent Judicial Magistrate, and the investigating agency is expected to proceed in accordance with Section 102 of the Code of Criminal Procedure or the corresponding provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023, within the prescribed period.

The Court found the petitioner’s case materially identical to Malcolm Murayis, where a blanket freeze based solely on communications from cyber-crime authorities was addressed by segregating the allegedly tainted amount rather than immobilising the entire account.

Applying that precedent, the Court directed that Rs. 2,01,263.58 be kept in a fixed deposit and preserved until the competent Judicial Magistrate passed appropriate orders within three months.

Since only that amount was identified as disputed, the continued freezing of the rest of the account was unwarranted; accordingly, the remaining balance was directed to be defreezed.

SBI was directed to retain Rs. 2,01,263.58 in a fixed deposit, which could be liquidated only pursuant to an order of the competent Judicial Magistrate within three months.

If the police agency failed to take appropriate action within that period, the fixed-deposit amount could also be withdrawn by the petitioner under intimation to the agency.

The petitioner’s bank account was otherwise to be unfrozen, and the remaining balance, if any, was not to remain subject to the debit freeze.