Banks must defreeze undisputed account funds while retaining disputed cyber-fraud amounts in fixed deposits pending Magistrate’s orders.

The petitioner filed a petition under Article 226 of the Constitution seeking directions to HDFC Bank to defreeze bank account No. 50100734417618.

The account had been frozen pursuant to information or directions allegedly received from cyber-crime authorities in connection with suspected cyber transactions.

The petitioner relied on the Madhya Pradesh High Court’s earlier decision in Malcolm Murayis & Ors. v. State Bank of India & Ors., W.P. No. 1100 of 2024, decided on 26 April 2024, concerning the freezing of bank accounts on the instructions of cyber-crime agencies.

The Court held that the earlier decision applied to the present case mutatis mutandis.

1. Whether the petitioner’s bank account, frozen pursuant to information supplied by cyber-crime authorities, should be defrozen under Article 226 of the Constitution?

2. Whether the amount identified by the cyber-crime agencies as disputed should be segregated and retained in a fixed deposit pending orders of the competent Judicial Magistrate, while the remaining balance is released to the petitioner?

The Court exercised its jurisdiction under Article 226 of the Constitution of India to regulate the continued freezing of the petitioner’s bank account.

It relied on the principle laid down in Malcolm Murayis & Ors. v. State Bank of India & Ors., under which the bank may retain the disputed amount in a fixed deposit, but the amount may be liquidated only pursuant to orders of the competent Judicial Magistrate within the prescribed period; the investigating agency must proceed in accordance with Section 102 of the Code of Criminal Procedure, 1973, or the corresponding provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS).

The Court further applied the principle that amounts not connected with the alleged cyber fraud should not remain frozen merely because the account contains a disputed sum.

The Court found that the petitioner’s case was squarely covered by Malcolm Murayis, which dealt with bank accounts frozen on the instructions of cyber-crime police authorities.

Applying that precedent, the Court balanced the interests of the investigation with the petitioner’s right to operate the account: the amount specifically identified by the cyber-crime agencies was to be protected through a fixed deposit, while the investigating agency was required to obtain appropriate orders from the competent Judicial Magistrate within three months under the applicable criminal-procedure law.

Since there was no justification for freezing the entire account, the Court directed that the remaining amount be released and the account be defrozen.

HDFC Bank was directed to defreeze the petitioner’s bank account.

The disputed amount, as informed by the cyber-crime authorities, was to be kept in a fixed deposit and could be liquidated only pursuant to orders of the competent Judicial Magistrate within three months.

If the investigating agency failed to proceed in accordance with law within that period, the fixed-deposit amount could also be withdrawn by the petitioner after intimation to the police agency.

Any remaining amount in the account was not required to remain frozen and was directed to be released to the petitioner.