Banks must release debit-frozen accounts after five months absent a competent authority’s order.

The petitioners—wife and children of late Shri Rajesh Kumar Singh Tomar, a former State Bank of India employee—sought removal of the debit freeze/hold on their bank accounts identified by CIF Nos. 80412831953, 86342976824, 85386419270 and 85909814279.

The accounts had been frozen following an Economic Offences Wing (“EOW”) investigation arising from Complaint No. 23/2017 concerning alleged issuance of false loan-sanction letters and embezzlement of approximately ₹112.70 lakh by late Shri Tomar.

Although the EOW subsequently closed the preliminary complaint following the death of the principal accused, the Bank continued the debit freeze, contending that closure was not on merits and that the suspected proceeds remained in different accounts.

The EOW communicated that, in view of closure of Complaint No. 23/2017, the accounts could be released from seizure/freeze.

Whether the Bank could continue the debit freeze on the petitioners’ accounts merely on the basis of its own suspicion regarding the source of funds after the EOW complaint had been closed.

Whether the Bank was required to release the accounts in the absence of a continuing order from a competent investigating authority, Magistrate or court under law.

Whether, in the peculiar circumstances, the Bank could retain the debit freeze for a limited period to approach the competent authorities for further investigation or orders.

The Court applied the principles governing seizure/freezing of bank accounts under Section 102 of the Code of Criminal Procedure, 1973, as discussed in Malcolm Murayis & Others v. State Bank of India & Others, namely that investigative authorities must act in accordance with law and place the seizure before the competent Magistrate.

A bank cannot independently impose or perpetuate a debit freeze merely to investigate the source of funds or secure suspected proceeds.

The Court further held that a bank suspecting fraud must report the matter to the competent investigating agency or authority, rather than assume investigative powers itself.

Under Malcolm Murayis, disputed amounts may be segregated in fixed deposits and dealt with pursuant to an order of the competent Magistrate or authority.

The Court accepted that the Bank had a legitimate basis to raise concerns because its internal enquiry indicated that suspected embezzled funds had entered the petitioners’ accounts.

However, the EOW had closed Complaint No. 23/2017 and had expressly communicated that the accounts could be released.

Even assuming that the closure resulted from the death of the principal accused and did not conclusively determine the ownership of the funds, the Bank could not itself continue the freeze indefinitely or demand an explanation from the account holders as an investigating authority.

Applying Malcolm Murayis, the Court held that any further action had to be taken by the Bank before the competent authorities under law.

It therefore balanced the Bank’s concern regarding possible proceeds of crime against the petitioners’ right to operate their accounts by permitting a temporary continuation of the freeze for five months, during which the Bank could seek appropriate investigative or judicial orders.

During that period, the Bank was permitted to place its grievance before the EOW or any other competent authority for investigation.

If a competent court or authority passed an order concerning the accounts, the freeze could continue in accordance with that order; otherwise, the Bank was required to release the accounts upon expiry of five months.

Continuation beyond five months was expressly conditioned on a valid order of the competent court or authority.