Banks must unfreeze accounts except for disputed amounts, which should be held in fixed deposits.

The petitioner, Irfan, approached the High Court under Article 226 of the Constitution of India seeking a direction to Axis Bank (Respondent Nos. 1 and 2) to remove a debit freeze/hold placed on his bank account

The freeze was initiated following intimations from cyber crime cells alleging that certain amounts credited to the account were linked to cyber fraud

The petitioner contended that he had received no prior notice from the police, was conducting lawful business, and that investigating agencies failed to comply with statutory mandates regarding the seizure of property

1. Whether the bank is required to unfreeze the petitioner's account and the "disputed amount" if the investigating agencies fail to proceed in accordance with the law within a specified timeframe

2. Whether the bank is permitted to freeze the entire balance of an account when only a specific portion is allegedly linked to a cyber crime

The court primarily applied the principles governing the seizure of bank accounts under Section 102 of the Code of Criminal Procedure (Cr.P.C.) now superseded/supplemented by the relevant provisions of the Bharatiya Nagarik Suraksha Sanhita (BNSS)

The court further relied on the precedent established in Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100 of 2024), which held that cyber crime cells must act with responsibility and follow due process when requesting account freezes

The court found that the petitioner’s case was "squarely covered" by the decision in Malcolm Murayis

In that precedent, the court noted that cyber crime cells often exhibit an "irresponsible approach" by freezing accounts via email without responding to subsequent inquiries or following the mandate of Section 102 Cr.P.C. regarding reporting seizures to a Magistrate

Applying this logic mutatis mutandis to the present case, the court reasoned that while the "disputed amount" (the portion linked to alleged fraud) should be secured in a fixed deposit to protect the integrity of the investigation, the bank cannot freeze the "rest of the amount" lying in the account

The court emphasized that the police must proceed under the BNSS or relevant law within three months, or the petitioner gains the right to withdraw the disputed funds

The "disputed amount" identified by the crime agencies must be kept in a fixed deposit (FD) which can only be liquidated upon orders from a competent Judicial Magistrate within three months; if the police agency fails to proceed in accordance with the law (BNSS) within that period, the petitioner may withdraw the FD amount under intimation to the agency

Crucially, the court ordered that any amount in the account exceeding the disputed sum must be defreezed immediately. The petition was disposed of with these directions