Frozen Bank Accounts Must Be Unfrozen Provided Disputed Amounts Are Secured in Fixed Deposits Pending Investigation

The petitioner, a partnership firm represented by its partner Rizwan, filed a writ petition under Article 226 of the Constitution of India challenging the sudden freezing of its bank account (No. 200002937638 at Equitas Small Finance Bank) by respondent authorities.

The freeze was initiated based on intimations from cyber crime cells alleging involvement in cyber fraud.

The petitioner contended that they are engaged in lawful business, received no prior notice of any offence, and that the investigating agencies failed to comply with statutory mandates regarding the seizure of bank accounts.

1. Whether the respondent bank can be directed to unfreeze the petitioner’s account while ensuring the protection of disputed funds allegedly linked to cyber crime.

2. Whether the investigating agencies are required to follow the procedural mandates of Section 102 of the Cr.P.C. (now relevant provisions of BNSS) when freezing bank accounts.

legal principles established in Malcolm Murayis & Ors. v. State Bank of India and Others (W.P. No. 1100 of 2024), which provides a balanced mechanism for unfreezing accounts while securing disputed amounts in fixed deposits.

Section 102 of the Code of Criminal Procedure (Cr.P.C.)—and its successor provisions under the Bharatiya Nagarik Suraksha Sanhita (BNSS)—which governs the power of police officers to seize property and requires reporting such seizures to a Magistrate.

The Court observed that the case was squarely covered by the precedent in Malcolm Murayis, where it was noted that cyber crime cells often freeze accounts without providing notice to the account holders or responding to bank inquiries.

Following the mutatis mutandis application of that precedent, the Court reasoned that the petitioner should not be entirely deprived of account operations if they are carrying out lawful trade.

The Court determined that justice is served by segregating only the "disputed amount" into a fixed deposit, thereby allowing the petitioner to operate the remainder of the account while ensuring the suspect funds remain available for the investigation for a limited period of three months.

The bank was ordered to keep only the specific "disputed amount" (as identified by the crime agencies) in a fixed deposit, which can only be liquidated upon orders from a competent Judicial Magistrate. The Court held that the police agency must proceed under the relevant provisions of the BNSS within three months; if they fail to do so, the petitioner is entitled to withdraw the amount kept in the fixed deposit under intimation to the agency.