MP High Court Issues Guidelines Against Mechanical Freezing Of Entire Bank Accounts In Cyber Fraud Cases, Cites Right To Trade & Property

The Madhya Pradesh High Court has clarified that freezing of entire bank accounts containing ₹2.5 crores of legitimate funds over a suspected amount of ₹980 requires serious scrutiny and must pass the test of proportionality. [2026 LiveLaw (MP) 299]The bench of Justice Himanshu Joshi noted that a balance ought to be maintained between a citizen's right to carry on business under Articles 21 and 300A of the Constitution and the statutory powers of investigation. "The various High Courts have repeatedly held that while police authorities possess the power to prohibit operation of bank accounts during investigation, such power is required to be exercised reasonably, proportionately and only to the extent necessary for securing the suspected proceeds of crime. Freezing of an entire account containing legitimate funds merely because a negligible amount is suspected requires careful scrutiny and must satisfy the test of proportionality". The business account of the petitioner, who is engaged in the sale of liquor and holds the license for operating seven composite liquor shops, was frozen by the Bank. Per the petitioner, this account was abruptly frozen by the Bank in April, 2026 without assigning any reason or issuing prior notice. Subsequently, the petitioner has submitted a representation on July 17, 2026 seeking information regarding the bank's action. The petitioner was informed that the account had been stopped pursuant to a notice of April 10, 2026 issued by the Station House Officer under Section 106 BNSS, which allows seizure of property suspected to be stolen or found suspicious during an investigation. Thereafter, the petitioner submitted a representation on July 18, 2026 seeking release of the account on the grounds that only ₹980 has been flagged as allegedly suspicious, whereas the account balance exceeds ₹2.5 crores, which is required for operating all seven liquor shops. The petitioner argued that despite his making a representation to the Station House Officer, no decision was taken and that his account continued to be frozen. Therefore, the petitioner approached the High Court seeking directions against the Station House Officer to retain lien on the disputed amount but to allow the remaining funds to operate. The counsel for the petitioner argued that due to the freezing of the account, the petitioner's business activities have come to a standstill, causing grave financial hardship. Further, the petitioner might get exposed to the risk of default in statutory obligations as the payments of licence fees and remittances to the Excise Department occured from the said bank account. The counsel for the petitioner further argued that there is a settled position that the entire bank account should not be frozen where the allegedly suspicious amount is specifically identifiable. The counsel for the State argued that the impugned action was taken pursuant to information related to suspected cyber fraud, which was reported to the State of Himachal Pradesh. The counsel argued that the mere fact that a meagre amount of ₹980 is suspected, by itself, cannot be a ground for de-freezing of the bank account. The court noted that the Ministry of Home Affairs had issued a Standard Operating Procedure on April 10, 2026, which prescribed a strict procedure, along with specific timelines and responsibility of all agencies involved. The court noted that, "Numerous account holders across the country face freezing of entire bank accounts even where the allegedly suspicious amount constitutes only a small fraction of the balance. Simultaneously, law enforcement agencies are duty bound to preserve proceeds of cyber crime and ensure effective investigation. Therefore, a balance has to be maintained between the constitutional right of a citizen to carry on business under Article 19(1)(g), the right to property under Article 300-A, and the statutory powers of investigation". Thus, the bench noted that under the said SOP of April 2026, the Bank is the first point of contact and primary facilitator for an account holder. Therefore, the bank shall not evade responsibility by directing the aggrieved customer to the investigating agency, but rather should provide the account holder with complete information regarding the available grievance redressal mechanism and shall assist in initiating the grievance process in accordance with the SOP.Emphasizing that banks are an integral part of the cyber crime frameworks, the bench held that they "are required to discharge their obligations responsibly and ensure that grievances are processed through the prescribed mechanism before directing the account holder to seek judicial intervention". Thus, the bench issued the following guidelines to govern such cases (paragraph 15 of the order):Freezing of the entire bank account should be done only in exceptional cases, and investigating agencies should ordinarily place a lien only on the disputed amount. The Magistrate should be informed of the ...

MP High Court Issues Guidelines Against Mechanical Freezing Of Entire Bank Accounts In Cyber Fraud Cases, Cites Right To Trade & Property

Jayanti Pahwa

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Jayanti Pahwa

MP High Court Issues Guidelines Against Mechanical Freezing Of Entire Bank Accounts In Cyber Fraud Cases, Cites Right To Trade & Property

Jayanti Pahwa

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Jayanti Pahwa

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