Frozen Bank Accounts Must be Defreezed Subject to Retaining Disputed Amounts in Fixed Deposits.

The petitioner, a business entity named Cyber Solution, challenged the freezing of its current bank account (Account No. 178502000000778) by the respondent bank following instructions from cyber crime investigation agencies.

The petitioner contended that the account was frozen without prior notice or adherence to due process, hindering their business operations.

The case was brought before the High Court under Article 226 of the Constitution of India, seeking a writ to defreeze the account or, alternatively, to allow operations subject to the retention of the specific disputed amount involved in the alleged fraud.

1. Whether the respondent bank can indefinitely freeze the entire bank account of the petitioner based on a cyber-fraud investigation involving only a specific portion of the funds.

2. Whether the investigating agencies must comply with statutory procedures, such as Section 102 of the Cr.P.C. (now relevant provisions of BNSS), when seizing or freezing bank accounts.

The court primarily applied the legal principles established in Malcolm Murayis & Ors. Vs. State Bank of India and Others (W.P. No. 1100/2024), which mandates that bank accounts should not be fully frozen if the dispute pertains to a specific amount.

Section 102 of the Code of Criminal Procedure (Cr.P.C.)—now corresponding to the Bharatiya Nagarik Suraksha Sanhita (BNSS)—which requires investigating officers to report seizures to the concerned Magistrate.

The court also invoked the principle of proportionality under Article 226 of the Constitution, ensuring that investigative measures do not unnecessarily infringe upon the right to carry on business.

The Court observed that the petitioner’s case was "squarely covered" by the precedent in Malcolm Murayis, where it was held that investigative agencies often show a "poor functioning and irresponsible approach" by freezing accounts without following up or responding to legal queries.

The Court reasoned that while investigations into cyber fraud are necessary, freezing the entire account causes undue hardship.

By directing the bank to segregate the "disputed amount" into a Fixed Deposit (FD), the Court balanced the state's interest in securing potential proceeds of crime with the petitioner's right to utilize undisputed funds for business.

The Court emphasized that if the police fail to obtain orders from a competent Magistrate within three months, the petitioner gains the right to withdraw even the disputed amount.

The bank was ordered to keep only the specific "disputed amount" in a Fixed Deposit, which can only be liquidated via a Magistrate's order within three months; otherwise, the petitioner may withdraw it under intimation to the police.

The Court explicitly held that the remainder of the balance must be made available for the petitioner's use immediately.

The petition was disposed of with these directions.