The Kerala High Court has recently highlighted the challenges faced by co-operative banks when their mirror accounts, held with commercial banks, are frozen during cyber fraud investigations involving certain customers. The case in question, Thalakkad Service Co-operative Bank Ltd v. Union of India & others, was presided over by Justice MA Abdul Hakhim.
The Thalakkad Service Co-operative Bank Ltd submitted a plea pointing out that its mirror account with ICICI Bank was repeatedly subjected to freeze and lien orders due to some account holders being allegedly involved in financial fraud. Mirror, or pool accounts, are settlement accounts that co-operative banks maintain with scheduled commercial banks to facilitate online transactions such as NEFT, RTGS, IMPS, and UPI.
Justice MA Abdul Hakhim noted that freezing a mirror account due to suspected fraud by a few customers can severely disrupt the online banking services of the entire co-operative bank. These accounts serve as a common gateway for all digital transactions of the bank’s customers. When investigating agencies freeze or place a lien on a bank’s mirror account due to suspicions against individual account holders, the bank suffers financial losses, and its services are interrupted.
The Court observed that delays in identifying the true offenders often allow them to withdraw fraudulent proceeds before action can be taken, leaving the bank to bear the financial burden. “The Petitioner (co-op bank) is losing large amounts on account of this and is unable to proceed against the offending account holders, as, by the time they are identified with the details provided by the Respondent No.4, they might have withdrawn the disputed amounts from their account,” the Court remarked.
The petition was filed in response to the repeated freezing of the co-operative bank’s mirror account. The bank referenced a police complaint accusing four individuals of opening accounts solely to facilitate financial cyber fraud. Out of the ₹32.45 lakh involved in fraudulent transactions through the mirror account, ₹11.57 lakh was traced to accounts managed by these four individuals. Despite the complaint, the bank alleged that no police action had been taken.
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Recognizing the bank’s grievances and noting that the allegations reflected cognizable offences under Section 111 (organized crime) of the Bharatiya Nyaya Sanhita, 2023 (BNS), the Court directed the Tirur Police to register an FIR against the four alleged mule account holders and conduct an investigation. Earlier, on June 1, the Court issued an interim order preventing ICICI Bank from transferring any funds from the petitioner’s mirror account without prior notice to the bank. During the recent hearing, the Court extended this interim order by two months and scheduled the next hearing for August 18.
Advocates Manas P Hameed, Ipsita Ojal, and Laya Simon represented the co-operative bank, while Additional Solicitor General P Sreekumar appeared for the Union of India. Standing counsel Lal K Joseph represented ICICI Bank.
