State Financial Enterprise Transferring Funds From Borrower's Frozen Bank Account Without Authority Violates Article 300A: Kerala High Court

Justice V.G. Arun granted the interim stay in a petition filed by persons whose bank accounts had been frozen following recovery proceedings initiated by KSFE under the Kerala Revenue Recovery Act, 1968.

The petitioners, who had availed loans from KSFE, challenged the freezing of their bank accounts by the Special Deputy Tahsildar (Revenue Recovery), who issued orders under Sections 19 and 80 of the Act directing the Manager of the bank in which the petitioners are maintaining their accounts to freeze their accounts and transfer the balance to the Tahsildar's account.

The petitioners argued that the loan was already secured by a mortgage on landed property, and the Tahsildar was not empowered under the Revenue Recovery Act to freeze the borrower's account. They further contended that the Act did not authorize transfer of funds from private bank accounts to third-party or government accounts.

The court held that while KSFE and Revenue Authorities do have the power to attach or freeze bank accounts under Section 19, which deals with the attachment of debts and other intangible movable property, there is no statutory authority permitting the transfer of such funds from the borrower's bank account to that of the Recovery Officer.

“In the absence of such power, the direction militates against Article 300A of the Constitution of India, which protects a person from being deprived of his property except by authority of law.” the bench noted.

The Court opined that the freezing of bank accounts is a draconian measure entailing serious consequences but upheld the power of the authorized officer to attach accounts in appropriate cases.

“No doubt, as contended by the learned counsel for the petitioners, freezing of bank account is a draconian measure entailing serious consequences. Even if so, power being vested with the authorized officer to resort to such measure, this Court will not be justified in interfering with the direction.” the Court noted.

The Court thus stayed the operation of the order to the extent it directed the transfer of funds from the petitioners' accounts to the Revenue Recovery Officer's account. However, it did not interfere with the freezing of the accounts.

Case Title: Sameer Khan and Ors v Special Deputy Tahsildar (RR) and Ors.

Case No: WP(C) 39775/ 2025

Counsel for Petitioners: Nikhil Sankar, D S Jayachandran

Counsel for Respondents: Salil Narayanan K A