Banks Can't Freeze Entire Account Anticipating Future Directions From Probe Agencies: Karnataka High Court
The Karnataka High Court has held that a bank cannot freeze an "entire bank account" merely on the apprehension that directions for freezing additional amounts may be received from the investigating agencies in the future.“A possibility or apprehension of a future event cannot be equated with a lawful order. The powers exercised by a bank must be traceable to an existing direction or...
The Karnataka High Court has held that a bank cannot freeze an "entire bank account" merely on the apprehension that directions for freezing additional amounts may be received from the investigating agencies in the future.
“A possibility or apprehension of a future event cannot be equated with a lawful order. The powers exercised by a bank must be traceable to an existing direction or statutory authority and not to speculative contingencies which may or may not arise in future. If such a course of action were to be accepted, it would permit banks to freeze entire accounts whenever a limited freezing request is received, merely on the assumption that further requests may follow. Such an approach would not only be contrary to law but would also result in disproportionate hardship to account holders”, the single judge bench of Justice Suraj Govindaraj underscored.
The court also observed that a bank acts merely as a custodian of the account and its authority is limited to the implementation of the lawful directions received from the investigating authority. Freezing of accounts is not an independent power of the bank, the court opined.
“…Administrative convenience or anticipatory action cannot substitute a valid legal mandate. If and when additional directions are received from competent authorities, respondent No.1[Bank] would undoubtedly be required to act in accordance therewith. However, until such directions are received, respondent No.1 is bound to confine its action strictly to the extent authorised by the communications already in its possession”, the court noted in the order while clarifying that mere apprehension about future directions cannot form the legal basis for freezing funds beyond the amount covered by the current directions.
The High Court has also issued a general direction to banks for ensuring that the act of freezing accounts stands the test of proportionality.
“…whenever a freezing direction specifies a particular amount, the bank concerned ought ordinarily to earmark or place a lien upon funds to the extent of the amount specified and permit operation of the remaining balance in the account, unless the direction itself requires complete freezing of the account or there exists any statutory mandate to the contrary. Any other approach would amount to the bank expanding the scope of the freezing direction, which is impermissible…”, the court remarked.
The petitioner, a resident of Bengaluru, was maintaining a bank account with IndusInd Bank. After the latter received instructions from two investigating agencies, the entire bank account of the petitioner was frozen. The Cyber Crime Police from Gujarat had disputed a transaction to the tune of Rs 15000/- whereas the Barrackpore Police in West Bengal required the bank to freeze an amount of Rs 10000/-. However, instead of freezing Rs 25000/- in the account, the bank prevented the petitioner from withdrawing any funds including salary credits made to the said account.
Before the High Court, IndusInd contended that since it received multiple instructions to freeze, it was reasonable to apprehend that many more directions would be issued regarding the amounts in the petitioner's account. The freezing of the entire bank account was a 'precautionary measure' in that direction, the bank argued.
However, disagreeing with the arguments levelled by the Bank's counsel, the court noted as below that the banks perform a purely ministerial or administrative function in the freezing of account:
“…The bank is neither the investigating authority nor the adjudicatory authority. Its obligation is confined to faithfully implementing the directions lawfully issued by the competent authority….the bank cannot assume unto itself powers which have not been conferred upon it by law, nor can it enlarge the scope of the directions received on the basis of its own assumptions, apprehensions or administrative considerations…”
The Court further noted that the relationship between a bank and its customer is founded upon contract and confidence. Amounts lying in a customer's account remain the property of the account holder, subject only to lawful restrictions imposed by competent authorities.
If deprived of such amounts in its entirety, disproportionate to the amount in dispute, the account holder would face serious civil and financial consequences, the court further opined.
“..Any restriction imposed on the operation of a bank account must therefore be proportionate to the purpose sought to be achieved and must not exceed the limits prescribed by the competent authority issuing the direction… The implementation of a freezing direction must therefore satisfy the requirement of proportionality. The extent of the restriction imposed must correspond to the extent of the direction received”, the Court said.
Accordingly, the court directed the bank to restrict the account debit freeze to Rs 25000/- as directed by investigating authorities initially, and implement the said order within 4 day The bank should be permitting the petitioner to operate the account in respect of the balance amount lying to its credit.
However, the court clarified that If the bank receives any further communication or direction requiring freezing for any specified amount, it shall be at liberty to act upon such direction strictly in line with the amount so mandated by the respective investigating agency.
The petitioner was represented by Adv. Navyashree H.L. and Adv. Yashaswi Prasad K. Respondent No.1 bank was represented by Adv. B.M. Kushalappa.
Case Title: Sri. Madhu v. The IndusInd Bank Ltd. & Anr.
Case No: Writ Petition No.38362 of 2025