Banks must segregate disputed cyber-fraud amounts in fixed deposits and defreeze the undisputed balance.

The petitioner’s bank account maintained with HDFC Bank, Branch Manasa, District Neemuch, was frozen pursuant to communications from crime/cyber-crime agencies allegedly linking certain transactions to cyber fraud.

The petitioner sought quashing of the freeze, release of the clearance balance, permission to operate the undisputed balance, and disclosure of the complaint, FIR, or investigation forming the basis of the action.

The petitioner relied upon Malcolm Murayis & Others v. State Bank of India & Others, W.P. No. 1100 of 2024, decided on 26 April 2024, in which the High Court directed that the disputed amount be kept in fixed deposits and that the remaining balance be made available to the account holders.

In the present case, the amount reported as disputed was Rs. 8,041.50.

Whether the petitioner’s bank account could continue to remain wholly frozen when only Rs. 8,041.50 was allegedly connected with the cyber-crime investigation.

Whether the disputed amount should be preserved in a fixed deposit pending appropriate orders by the competent Judicial Magistrate under the applicable law.

Whether the undisputed balance in the petitioner’s account should be released and the account unfrozen, subject to preservation of the disputed amount.

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

It applied the principle laid down in Malcolm Murayis & Others v. State Bank of India & Others, W.P. No. 1100 of 2024, decided on 26 April 2024, that where an account contains both disputed and undisputed funds, the disputed amount may be secured in a fixed deposit and the remaining balance should not ordinarily continue to be frozen.

The precedent further required the investigating agency to proceed in accordance with Section 102 of the CrPC, or the corresponding applicable provisions of the BNSS or other enabling law, and obtain appropriate orders from the competent Judicial Magistrate within the prescribed period.

The Court applied that precedent mutatis mutandis to the present case.

The Court found the present case to be squarely covered by Malcolm Murayis.

Since the crime agencies had identified only Rs. 8,041.50 as the disputed amount, a complete freeze of the petitioner’s account was disproportionate.

Following the earlier ruling, the Court directed that the identified disputed sum be placed in a fixed deposit, to be liquidated only upon orders of the competent Judicial Magistrate within three months.

The balance, not shown to be connected with the alleged offence, was not required to remain frozen and was therefore directed to be released.

The Court also required the police agency to proceed in accordance with the applicable statutory procedure.

HDFC Bank was directed to keep Rs. 8,041.50 in a fixed deposit, permitting its liquidation only pursuant to an order of the competent Judicial Magistrate within three months; failing such an order, the petitioner could withdraw the amount after intimating the police agency.

The petitioner’s bank account was directed to be unfrozen, and the remaining undisputed balance, if any, was ordered to be released for operation by the petitioner.