In a significant judgment, the Madras High Court held that the police cannot freeze an entire bank account. Let’s explore the facts of the case, the arguments, and how you can legally challenge such actions. Learn your legal rights and the steps to protect your business from unjust account freezes.
Account freezing is becoming a common issue faced by individuals and businesses alike, often initiated by authorities based on instructions from law enforcement agencies or cybercrime portals. A sudden freeze on your bank account can disrupt your entire financial system, especially if you’re unaware of the reasons behind it.
What is Account Freezing?
Account freezing occurs when a bank, under instructions from law enforcement or regulatory bodies, restricts access to funds in your account. This is typically done during investigations related to financial crimes like money laundering, fraud, or cybercrimes.
While the law permits the freezing of accounts during investigations, it also requires that proper procedure be followed, including notifying the account holder and limiting the freeze to the amount under suspicion. Unfortunately, this is not always the case.
The Legal Grounds for Account Freezing in India
According to Section 102 of the Criminal Procedure Code (CrPC) and Section 106 of the Bharatiya Nyaya Sanhita (BNSS), investigation agencies are empowered to freeze bank accounts as part of ongoing investigations. However, these powers must be exercised responsibly. Courts across India have emphasized that:
- Partial Account Freezing: The freezing of accounts cannot be perpetual. Only the suspected amount should be frozen, not the entire account balance. Account holders must be informed about the reasons and extent of the freeze
- Legal Obligation to Inform: Section 102 of the Code of Criminal Procedure (Cr.P.C.), now replaced by Section 106 of Bharatiya Nagarik Suraksha Sanhita (BNSS), mandates that police must report the freezing of any account to the judicial magistrate. This step is often neglected, leading to account holders being left in the dark.
Despite these rulings, many account holders find their entire accounts frozen without adequate information or justification.
Police Cannot Freeze an Entire Bank Account – Madras HC
Recently, in the case of Mohammed Saifullah (W.P.No.25631 of 2024), the Madras High Court has ruled that police cannot freeze an entire bank account; only the specific amount linked to financial fraud can be frozen. Freezing the entire account would deprive the account holder of their right to livelihood.
Many citizens face the issue of having their bank accounts frozen based on instructions from local police or the National Cyber Crime Reporting Portal (NCCRP), which handles complaints related to various cyber crimes, including financial fraud. Often, account holders are unaware of the reasons behind the freezing of their accounts, and by the time they understand, significant harm has already been done, affecting their daily financial activities and business operations. This landmark judgement may assist victims affected by arbitrary account freezes.
“No doubt, the statutes empower the investigation agency to request the Bank to freeze the account pending investigation and intimate it forthwith to the jurisdiction Court, but whether the power is properly exercised or not is the moot question now looming large and in the several judgments of the Courts across the India, it had been categorically held that there cannot be freezing of account perpectually without intimating the account holders what for their account is freezed and what extent it has to be freezed,” the court observed.
The Court held that “Under the guise of investigation, order freezing the entire account without quantifying the amount and period cannot be passed Such order will be construed as violation of the fundamental rights of trade and business as well as violation of livelihood.”
Background of the Case : Frozen Accounts and Legal Action
In this case, Mohammed Saifullah’s account was frozen based on suspicions of cryptocurrency dealings under investigation by the Cyber Crime Bureau of Telangana. Despite having Rs.9,69,580/- in the account, only Rs.2,48,835/- was flagged as suspicious. However, the entire account was frozen, leaving the business paralyzed financially.
After more than a year without any notification from the authorities or the bank, the account holder approached the Court. The Court ruled that freezing the entire account was excessive and violated the fundamental rights of the account holder, such as the right to conduct business. It ordered the account to be defrozen, allowing the petitioner to continue operating it while maintaining a minimum balance to cover the suspected amount.
Case Summary
Facts:
- The petitioner’s bank account was frozen by the HDFC Bank based on instructions from the National Cyber Crime Reporting Portal and the Cyber Crime Bureau, Telangana, on suspicion that the petitioner was dealing with cryptocurrency.
- The petitioner had a balance of Rs.9,69,580/- in the account, while Rs.2,48,835/- was the suspected amount involved in the investigation.
- Despite more than a year having passed since the account was frozen, neither the Investigating Agency nor the Bank informed the petitioner of the reasons or duration of the freeze.
- The petitioner approached the Court seeking a writ of mandamus to defreeze his account.
Issues:
- Whether the freezing of the entire bank account without any notification or timeline was lawful.
- Whether the investigation agency and the bank followed proper procedure as per Section 102 of the CrPC (equivalent to Section 106 of the BNSS Act) while freezing the account.
- Whether freezing the entire account, instead of only the suspected amount, violated the petitioner’s fundamental rights, including the right to trade, business, and livelihood.
Arguments:
- Petitioner’s Argument:
- The petitioner argued that the freezing of the entire account, without informing him of the reason or duration, was causing significant financial damage and violated his fundamental rights to livelihood and business.
- The amount suspected to be involved in the crime was Rs.2,48,835/-, yet the entire balance of Rs.9,69,580/- was frozen without proper justification.
- Previous cases had established that freezing of bank accounts must be done with proper notification and within defined limits.
- Respondent’s Argument:
- The Bank argued that they acted on instructions from the Cyber Crime Bureau of Telangana, which led them to freeze the entire account as part of the investigation.
Court’s Decision:
- The Court found that freezing the entire account without specifying the amount and duration was excessive and violated the petitioner’s fundamental rights to business and livelihood.
- The Court directed the HDFC Bank to defreeze the petitioner’s account, allowing him to operate it with the condition that a minimum balance of Rs.2,50,000/- should be maintained to cover the suspected amount involved in the crime.
- The petitioner was permitted to operate the account freely, subject to this condition.
The Court ruled in favor of the petitioner, finding that freezing the entire account without justification was a violation of rights. It directed that the account be defrozen, allowing the petitioner to operate it with the condition of maintaining a minimum balance to cover the suspected amount under investigation.
Relief for Those Who are Wrongly Affected in Cyber Fraud Cases
In cyber fraud cases, beneficiaries’ accounts are usually frozen first. Account holders must then contact the bank to learn about the freeze. Banks often hesitate to share details, and after much effort, the holder may get the Investigating Officer’s (IO) contact for further action. This is a significant relief for many innocent individuals whose accounts were frozen due to minor unaccounted transactions, often taking months or even years to resolve. It’s a much-needed relief for those who are wrongly affected. Many citizens are suffering despite having no involvement in cyber fraud.
Conclusion
Account freezing can disrupt businesses and livelihoods, but understanding your legal rights can help you address the issue effectively. Whether you’re facing an account freeze or looking to protect your business from future risks, proactive legal action and compliance are key.
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