Banks must unfreeze accounts except for disputed amounts, which may be placed in fixed deposits.

The petitioner, Kailash Kumar, filed a writ petition under Article 226 of the Constitution of India seeking a direction to Kotak Mahindra Bank (Respondent No. 1) to unfreeze his bank account (No. 6262232329).

The account had been frozen following intimations from cyber cell police authorities regarding alleged involvement in cyber fraud.

The petitioner contended that his case was identical to a previous decision by the same High Court involving the freezing of accounts related to cryptocurrency trading without prior notice or compliance with statutory procedures by investigating agencies.

1. Whether the bank is entitled to indefinitely freeze the petitioner’s account based solely on instructions from investigating agencies without the agency taking further legal steps under the criminal procedure.

2. Whether the petitioner is entitled to operate his account while ensuring the disputed amount related to the alleged fraud remains secured.

The Court primarily applied the principles governing the seizure of property under Section 102 of the Cr.P.C. (now reflected in the relevant provisions of the Bharatiya Nagarik Suraksha Sanhita/BNSS), which requires investigating officers to report seizures to the Magistrate.

It relied upon the precedent established in Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100 of 2024), which held that while banks must comply with police instructions, the accounts cannot remain frozen indefinitely if the agency fails to act in accordance with law.

The Court noted that the petitioner’s situation was squarely covered by the Malcolm Murayis precedent.

In that case, the Court found that many cyber crime cells acted irresponsibly by freezing accounts via email but failing to respond to subsequent legal inquiries or comply with the mandatory reporting requirements to a Magistrate under Section 102 Cr.P.C.

Applying this reasoning mutatis mutandis, the Court determined that the petitioner’s right to operate his account must be balanced against the need to preserve the "disputed amount." By directing the bank to convert Only the disputed portion into a fixed deposit, the Court ensured the funds remained available for the investigation while allowing the petitioner to access the remainder of his account.

The bank was ordered to keep only the specific "disputed amount" (as informed by the crime agencies) in a fixed deposit. This deposit is to remain liquidated/held until an order is passed by a competent Judicial Magistrate; however, if the police agency fails to proceed in accordance with the BNSS or relevant law within three months, the petitioner shall be allowed to withdraw the FD amount under intimation to the agency.