Banks must unfreeze accounts while securing disputed cyber-fraud amounts in fixed deposits pending Magistrate’s orders.

The petitioner, M/s Shree Balaji Trading, through its proprietor Pawan Ratnawat, maintained Account No. 39985077338 with the State Bank of India, Fazalpura, Ujjain Branch.

The account had been frozen pursuant to information or directions received from crime/cyber-crime agencies concerning an amount allegedly connected with cyber fraud.

The petitioner filed a petition under Article 226 of the Constitution seeking defreezing of the account.

The Court found that the matter was covered by its earlier decision in Malcolm Murayis & Others v. State Bank of India and Others, W.P. No. 1100 of 2024, decided on 26 April 2024.

In the present case, the disputed amount communicated by the crime agencies was Rs. 27,400.

Whether the petitioner’s bank account, frozen pursuant to information or directions from cyber-crime or police agencies, should be unfrozen in the absence of further lawful proceedings within the prescribed period?

Whether the disputed amount of Rs. 27,400 should be segregated and secured in a fixed deposit pending orders of the competent Judicial Magistrate?

Whether the remaining balance in the petitioner’s account, not connected with the alleged cyber fraud, should continue to remain frozen?

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

The Court relied on the principle laid down in Malcolm Murayis & Others v. State Bank of India and Others, W.P. No. 1100 of 2024, that an account should not remain wholly frozen merely on the basis of cyber-crime communications where the disputed amount can be separately secured.

The Court further relied on the statutory requirement that the investigating agency proceed before the competent Judicial Magistrate in accordance with Section 102 of the Code of Criminal Procedure, or the corresponding applicable provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023.

The Court held that the facts of the present petition were materially identical to those in Malcolm Murayis and therefore applied that decision mutatis mutandis.

It balanced the investigative interest in preserving the alleged proceeds of cyber fraud against the petitioner’s right to operate its bank account.

Accordingly, instead of permitting the entire account to remain frozen, the Court directed that only the identified amount of Rs. 27,400 be placed in a fixed deposit.

Such amount could be liquidated only after appropriate orders were passed by the competent Judicial Magistrate within three months, during which period the police agency was expected to proceed in accordance with the BNSS or other applicable law.

Since the alleged tainted amount could be separately protected, there was no justification for continuing the freeze over the rest of the account.

The State Bank of India was directed to unfreeze the petitioner’s bank account, while retaining Rs. 27,400 in a fixed deposit.

The fixed deposit could be liquidated only pursuant to orders of the competent Judicial Magistrate within three months.

If the police agency failed to obtain such orders within that period, the amount could also be withdrawn by the petitioner under intimation to the concerned police agency.

The remaining amount, if any, in the account was directed to be defreezed.