Rajasthan High Court’s Landmark Decision on Freezing Bank Accounts
In a significant ruling, the Rajasthan High Court has introduced a comprehensive framework aimed at preventing banks and investigating agencies from arbitrarily freezing entire bank accounts during cybercrime investigations. This decision, pronounced by Justice Anand Sharma, comes in light of cases where accounts were fully frozen over minor disputed amounts.
The case of Balaji Enterprises v. RBI highlighted instances where transactions allegedly linked to cyber fraud were as low as ₹100, yet entire accounts with significantly larger balances were immobilized. Justice Sharma emphasized that while protecting cyber fraud victims is crucial, investigative actions must align with constitutional principles of legality, reasonableness, and proportionality.
Guidelines Issued by the Court
The court laid down several guidelines to ensure that account freezes are conducted lawfully and fairly:
- No indefinite blanket freeze: Bank accounts cannot be indefinitely frozen based on vague or unverified communications.
- Record the connection: Investigating officers must identify and document a prima facie connection between the account or transaction and the alleged offense.
- Limit restraint to disputed amounts: If identifiable, only the disputed amount should be held. A full account freeze is permissible only with justified reasons.
- Provide reasons for complete freeze: If necessary due to the nature of the offense or transaction patterns, specific reasons must be recorded and communicated.
- Report seizures: Any action resembling a seizure under Section 106 of the Bharatiya Nagarik Suraksha Sanhita (BNSS) must be promptly reported to a magistrate.
- Adhere to attachment procedures: Agencies must follow Section 107 of the BNSS for property attachment as proceeds of crime.
- Review freezes periodically: Continuous freezes must be reviewed regularly to assess their necessity.
- Lift unnecessary restraints: If investigations exonerate the account holder, restraints must be lifted immediately.
- De-freeze post-investigation: Restraints should be removed once investigations conclude or closure reports are filed.
- Detail communication to banks: Restraint directives should clearly specify the case, account, transaction, involved amount, and legal basis.
- Banks must not expand requests: Banks should not extend a limited hold request to a blanket freeze without proper justification.
- Distinguish between restrictions: Banks should differentiate between regulatory restrictions and those requested by police or cybercrime authorities.
- Grievance mechanism: Banks and agencies must follow the grievance-redressal mechanism outlined in the January 2, 2026 Standard Operating Procedure, regardless of the complaint’s origin.
- Prefer electronic verification: Grievances should be verified electronically or via video conference, limiting personal appearances to necessary cases.
Justice Sharma noted that bank accounts serve as critical financial instruments for individuals and businesses. A full freeze could hinder personal financial management and business operations, such as paying employees or creditors. The Court illustrated that if a suspected fraud involved ₹500 from an account holding ₹5 lakh, holding only the ₹500 would suffice.
However, the Court acknowledged scenarios where a blanket freeze might be warranted, such as mule accounts, repeated suspicious transactions, or when the entire balance is suspected as proceeds of crime.
The Rajasthan Police, Cyber Crime Wing, and the Reserve Bank of India have been directed to submit compliance reports within eight weeks to the High Court’s Registrar General.
