Banks must defreeze undisputed funds while disputed cyber-fraud amounts remain in FDs pending Magistrate’s orders.

The petitioner approached the Madhya Pradesh High Court under Article 226 of the Constitution challenging the freeze/hold imposed on his Axis Bank account, Account No. 924020029761064, and seeking removal of restrictions allegedly placed on his PAN and banking operations.

The petitioner contended that the account had been frozen without lawful authority or a judicial order. The Court found that the matter was squarely covered by its earlier decision in Malcolm Murayis & Ors. v. State Bank of India & Ors., W.P. No. 1100 of 2024, decided on 26 April 2024.

In Malcolm Murayis, the Court had dealt with bank-account freezes effected on the instructions of cyber-crime police authorities in connection with alleged cyber fraud and had directed that the disputed amounts be placed in fixed deposits pending orders of the competent Magistrate.

1. Whether the petitioner’s bank account, frozen pursuant to information or instructions allegedly received from cyber-crime authorities, could continue to remain entirely frozen without further lawful proceedings before the competent Judicial Magistrate?

2. Whether the disputed amount alleged to be connected with cyber crime should be segregated and retained in a fixed deposit, while permitting the petitioner to operate the remainder of the account?

3. Whether the petitioner was entitled to relief concerning the alleged restrictions on his PAN and banking operations?

The Court applied Article 226 of the Constitution, under which the High Court may issue appropriate directions to prevent unlawful or arbitrary interference with property and banking rights.

It relied on the principle underlying Section 102 of the Code of Criminal Procedure, 1973, and the corresponding relevant provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023, that seizure or freezing of property during investigation must be undertaken in accordance with law and brought before the competent Magistrate.

The Court followed Malcolm Murayis & Ors. v. State Bank of India & Ors., W.P. No. 1100 of 2024, decided on 26 April 2024, which held that only the disputed amount communicated by cyber-crime agencies should be secured in a fixed deposit, subject to orders of the competent Judicial Magistrate within the prescribed period, rather than continuing an indefinite blanket freeze.

The precedent was applied mutatis mutandis to the present case.

The Court considered the petitioner’s case to be materially identical to Malcolm Murayis, where bank accounts had been frozen on police instructions relating to alleged cyber fraud but the investigating agencies had not promptly taken the necessary steps before the Magistrate.

Applying that precedent, the Court balanced the investigative interest in preserving allegedly tainted funds against the petitioner’s right to access undisputed funds.

It therefore directed that only the amount claimed by the cyber-crime or police agencies as disputed be placed in fixed deposits, to be liquidated only upon orders of the competent Judicial Magistrate within three months.

If the police agency failed to proceed in accordance with the applicable provisions of the BNSS or other law, the amount could thereafter be released to the petitioner under intimation to that agency.

The Court further held that the remaining balance in the account was not required to remain frozen.

Axis Bank was directed to unfreeze the petitioner’s bank account, while placing only the disputed amount claimed by the police or cyber-crime agencies in a fixed deposit.

That fixed deposit could be liquidated only pursuant to an order of the competent Judicial Magistrate within three months; failing lawful proceedings within that period, the petitioner could seek withdrawal of the amount under intimation to the concerned police agency.

All other funds in the account were to be defreezed.

The judgment did not issue a separate operative direction granting the requested relief concerning removal of PAN restrictions.