Mirza & Associates, Advocates & Attorneys

Authored by Mirza Aslam Beg [Senior Partner] & Karan Kumar Agrawal, Mirza & Associates, Advocates & Attorneys

Introduction

Banks and cybercrime cells increasingly freeze or “debit-freeze” entire business accounts upon receipt of even minor cyberfraud complaints. Often there is no FIR or formal charge against the account-holder, yet police instructions cause banks to halt all transactions. A ₹1,000 or ₹10,000 suspicious transaction can leave a company unable to pay salaries, suppliers or taxes. This use of Section 106 of the BNSS [1]to seize “any property”, which includes bank deposits. It has drawn sharp judicial scrutiny. Courts emphasize that freezing an account must be strictly tied to specific proceeds of an alleged crime and done with due process. Several High Courts have now stepped in to protect innocents: directing outright unfreezing or partial release of funds, imposing timelines on investigations, and requiring only the disputed amount (not the entire balance) be held.

Legal Framework: When and How Accounts May Be Frozen

Section 106 BNSS allows any police officer to seize property alleged or suspected to be stolen or to be connected to an offence. However, recent case law clarifies that Section 106 does not by itself authorize freezing a bank account; that power is reserved for attachment orders under Section 107 BNSS[1], which require approval by a Magistrate. In other words, police may seize specific money as evidence, but “attaching” or freezing an account’s balance as alleged “proceeds of crime” can only be done with a judicial order under Section 107. Delhi courts now take this very seriously: “Section 106 of the BNSS empowers police only to seize property for evidentiary purposes and does not confer any authority to attach or debit-freeze bank accounts,” and attachment can only follow a magistrate’s sanction.

Despite these rules, in practice many police units send blanket instructions to banks to freeze all accounts “involved” in a suspected cyber-fraud, without specifying amounts or notifying magistrates. Investigating agencies may interpret Section 106 as a free pass to lock any bank account that happened to receive some tainted money. The result has been “prolonged financial hardship” for innocent companies. Numerous High Courts have found this alarming and emphasised that freezing a whole account on mere suspicion – especially when the account holder is not even accused of a crime – violates fundamental rights to life, liberty and livelihood. Even as police investigate, courts insist they must identify the specific amount in question and can at most order a lien (hold) on that sum, not lock down all funds.

Judicial Interventions: Reliefs Granted to Affected Companies

High Courts across India have begun granting relief in writ petitions under Art.226[1] by companies whose accounts were seized on cyberfraud complaints. The relief usually consists of ordering the banks to lift the freeze or reduce it to only a limited lien, while simultaneously directing police to follow proper procedure. Key examples include:

In Malabar Gold & Diamond Ltd. v. Union of India[2] (WP(C) 4198/2025, Jan. 16, 2026). The Delhi High Court ordered the immediate defreezing of the petitioner’s bank accounts, holding that freezing the entire account without any evidence of the company’s involvement in the alleged cyber fraud was arbitrary and disproportionate. The Court emphasized that investigating agencies must follow due process before restricting a bona fide company’s banking operations.

In Allahabad High Court – Khalsa Medical Store (Yashwant Singh) v. RBI[3] (WRIC No. 12211/2025, Jan. 19, 2026). The Allahabad High Court quashed a police notice that had resulted in the complete freezing of the petitioner’s bank account despite no FIR or allegations against the business. The Court held that blanket account freezes without specifying the disputed amount or following the statutory procedure are illegal. It further clarified that investigating agencies must identify the amount linked to the alleged crime and comply with due process before directing banks to freeze accounts.

In Madhya Pradesh High Court – Dekain Perfect Tech Ksolution Pvt. Ltd. v. IDFC First Bank[4] (WP 18579/2026, June 22, 2026). The Madhya Pradesh High Court held that freezing an entire bank account was disproportionate where only a specific amount was suspected to be linked to cyber fraud. It directed the bank to release the remaining funds for the company’s business operations while keeping only the disputed amount in a fixed deposit until further orders. The judgment emphasized balancing the interests of investigation with the rights of bona fide businesses.

In Madhya Pradesh High Court – Archana v. State of Madhya Pradesh[5] (WP 29117/2026, July 27, 2026). In this case, the petitioner’s bank account containing approximately ₹2.51 crore was frozen because of a single suspicious transaction of only ₹980. Holding the action to be grossly disproportionate, the Madhya Pradesh High Court observed that freezing an entire bank account should be an exceptional measure and not a routine investigative practice. The Court framed detailed guidelines requiring investigating agencies to identify and freeze only the disputed amount, promptly inform the account holder, and follow prescribed timelines and due process. The judgment reinforces that the legitimate business activities of an account holder should not be paralysed merely because a small amount is under investigation.

Types of Relief and Court Orders

The recent judicial trend reflects a balanced approach that protects both the interests of investigation and the rights of bona fide businesses. Where the freezing order is found to be arbitrary or unsupported by evidence, courts have directed the immediate de-freezing of bank accounts. In cases involving only a specific disputed amount, courts have ordered that only the suspected funds remain frozen while the remaining balance is released for business operations. courts have also permitted limited interim withdrawals or directed the disputed amount to be placed in fixed deposits, ensuring that investigations continue without disrupting legitimate commercial activities. Additionally, courts have emphasized strict compliance with statutory procedures, imposed timelines on investigating agencies, and directed authorities to adopt transparent and uniform practices. Collectively, these decisions establish that blanket freezing of entire bank accounts should be an exceptional measure, with relief tailored to the facts of each case and guided by the principles of proportionality and due process.

Court Reasoning and Key Principles

A review of recent judgments reveals a consistent judicial approach towards bank account freezing in cyber fraud cases. Courts have repeatedly emphasized the principle of proportionality, holding that only the amount suspected to be linked with the alleged offence should be frozen, rather than the entire account. They have also stressed the need for judicial oversight, observing that investigating agencies must comply with statutory safeguards and promptly place freezing orders before the jurisdictional Magistrate.

Another recurring principle is the protection of procedural fairness. Courts have directed that account holders should be informed of the freezing action and given an opportunity to seek appropriate relief. At the same time, they have recognised that arbitrary freezing of business accounts can seriously affect the constitutional rights to carry on trade under Article 19(1)(g)[1] and the right to livelihood under Article 21[2] of the Constitution. Consequently, blanket freezes without evidence of the account holder’s involvement have been consistently disapproved.

Finally, several High Courts have called for uniform Standard Operating Procedures (SOPs) to regulate bank account freezing and ensure consistency across investigating agencies. The judgments collectively make it clear that police powers are not unfettered and must be exercised strictly within the statutory framework, balancing the interests of criminal investigation with the rights of legitimate businesses.

Available Remedies to Companies

Companies whose bank accounts are arbitrarily frozen have effective legal remedies. The primary remedy is to file a writ petition under Article 226 of the Constitution before the jurisdictional High Court, seeking the quashing of the freezing order and immediate de-freezing of the bank account. Recent decisions such as Malabar Gold, Khalsa Medical Store, Dekain Trading, and Archana Singh demonstrate that High Courts have readily exercised their writ jurisdiction to protect businesses where no material connects them to the alleged cyber fraud.

Apart from judicial remedies, companies may also pursue administrative remedies by raising grievances with the concerned bank or through the Reserve Bank of India’s grievance redressal mechanism where the bank has acted without proper legal authority. Although such mechanisms do not replace judicial intervention, they can provide an additional avenue for seeking prompt relief and ensuring compliance with banking regulations.

CONCLUSION

The cumulative effect of these court rulings is to balance law enforcement objectives with commercial freedoms. On one hand, courts acknowledge that cyber investigations can involve tracing money trails through many accounts. But they uniformly demand that this tracing be done in stages – by seizing only evidence under Sec.106 of BNSS, and reserving large-scale attachments for properly sanctioned Sec.107

BNSS orders. High Courts have repeatedly warned that “mere suspicion without supporting material” cannot justify indefinite freezes. Investigators must periodically review whether continued freezing remains proportionate.

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