Banks must freeze only disputed cyber-fraud amounts and defreeze the remaining account balance.

The petitioner challenged the debit freeze imposed on HDFC Bank Account No. 50100252413982 following information from cyber-crime authorities regarding an allegedly suspicious transaction.

She sought permission to operate the undisputed balance, retention of only the disputed amount in a fixed deposit or under lien, removal of the debit freeze, and compensation for alleged financial loss and hardship.

The Court found that the matter was squarely covered by Malcolm Murayis & Ors. v. State Bank of India & Others, W.P. No. 1100 of 2024, decided on 26 April 2024.

In Malcolm Murayis, the Court had directed the bank to place the disputed amount in fixed deposits pending appropriate orders by the competent Judicial Magistrate and had permitted operation of the remaining account balance.

Applying that precedent, the Court identified the disputed amount in the petitioner’s account as Rs. 2,01,236.58.

1. Whether the bank could continue to impose a debit freeze over the petitioner’s entire bank account when only a specified amount was allegedly connected with a cyber-crime transaction.

2. Whether the disputed amount should instead be secured in a fixed deposit pending orders of the competent Judicial Magistrate under the applicable criminal-procedure law.

3. Whether the petitioner was entitled to operate and transact with the undisputed balance in the account.

The Court exercised its jurisdiction under Article 226 of the Constitution of India to examine the legality and proportionality of the account freeze.

It applied the principle laid down in Malcolm Murayis & Ors. v. State Bank of India & Others, namely that where a bank account contains a specifically identified amount allegedly linked to cyber fraud, the disputed amount may be secured in a fixed deposit, while the remaining lawful balance should not remain frozen.

The Court further relied on the requirement that the investigating agency proceed in accordance with Section 102 of the Code of Criminal Procedure, or the corresponding applicable provisions of the Bharatiya Nagarik Suraksha Sanhita, and obtain appropriate orders from the competent Judicial Magistrate.

The Court held that the petitioner’s case was materially indistinguishable from Malcolm Murayis and therefore applied that decision mutatis mutandis.

Since the cyber-crime authorities had identified the allegedly disputed amount as Rs. 2,01,236.58, securing that amount in a fixed deposit adequately protected the investigative and prospective restitution interests without justifying a freeze of the entire account.

The Court accordingly treated the continued freezing of the undisputed balance as unnecessary and directed that the remaining amount be released for the petitioner’s use.

The fixed deposit was to remain subject to orders of the competent Judicial Magistrate, thereby preserving the authority of the criminal investigation while preventing disproportionate interference with the petitioner’s banking operations.

HDFC Bank was directed to place Rs. 2,01,236.58 in a fixed deposit, which could be liquidated only pursuant to orders of the competent Judicial Magistrate within three months.

If the police agency failed to proceed in accordance with law within that period, the amount could also be permitted to be withdrawn by the petitioner after intimating the police agency.

The petitioner’s bank account was ordered to be unfrozen, and any remaining balance was declared not liable to be frozen.