Banks Must Unfreeze Accounts After Segregating Disputed Amounts into Fixed Deposits Absent Timely Investigative Action

The petitioner, Mrs. Kavita Patel, held a bank account (No. 40729114286) with the State Bank of India, Pithampur Branch, which was frozen by the bank following instructions from cyber-crime investigating agencies regarding alleged cyber fraud.

The petitioner sought a writ of Mandamus to unfreeze the account, asserting that she was not provided notice of any offence and that the authorities failed to comply with statutory mandates regarding asset seizure.

The court noted that the matter was squarely covered by the precedent established in Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100 of 2024).

1. Whether the respondent bank can indefinitely freeze the entire balance of an account based solely on police intimations without compliance with statutory seizure procedures.

2. Whether the petitioner is entitled to operate the account for amounts exceeding the specific disputed sum linked to the alleged fraud.

The court primarily applied Section 102 of the Code of Criminal Procedure (Cr.P.C.) [now relevant provisions of the Bharatiya Nagarik Suraksha Sanhita (BNSS)], which mandates that investigating agencies must inform the concerned Magistrate about the seizure of property.

The court also relied on the principle of parity and precedent established in Malcolm Murayis & Ors. Vs. State Bank of India and Others, which balances the investigative powers of cyber cells with the account holder's right to access undisputed funds.

The court observed a pattern where cyber-crime cells instruct banks to freeze accounts but fail to respond to judicial inquiries or follow the procedural rigors of Section 102 Cr.P.C.

Applying the Malcolm Murayis precedent mutatis mutandis, the court reasoned that while the disputed amount (specifically identified as ₹547/- in this case) should be secured to protect the integrity of the investigation, the freezing of the entire account is disproportionate.

The court determined that the police are expected to proceed in accordance with the law within a reasonable timeframe (three months) to justify the hold, failing which the petitioner recovers full access.

The bank was directed to keep only the disputed amount (₹547/-) in a fixed deposit, which may only be liquidated upon orders from a competent Judicial Magistrate within three months; if the police agency fails to proceed under the BNSS or relevant law within said period, the petitioner may withdraw the FD amount.

Crucially, the court ordered that all other funds in the account be defroze immediately for the petitioner's use.