The Madhya Pradesh High Court has delivered a significant ruling affirming that the freezing of bank accounts based solely on unverified cyber cell notices violates fundamental rights and cannot substitute judicial oversight. This judgment reinforces the principle that financial liberty under Article 21 cannot be curtailed by administrative directives alone, setting a clear boundary for investigative agencies and financial institutions.
Background & Facts
The Dispute
The petitioner, Arpit Thakur, is engaged in lawful trading of cryptocurrency and virtual currencies. His bank account with Kotal Mahindra Bank was frozen without prior notice, based solely on an intimation received from a cyber crime cell alleging that funds in his account were linked to cyber fraud. The petitioner had not been named as an accused, nor had he received any summons, notice, or charge sheet from any investigating agency.
Procedural History
- The petitioner filed a writ petition under Article 226 of the Constitution seeking unfreezing of his account.
- He relied on the precedent set in Malcolm Murayis & Ors. v. State Bank of India and Others (W.P. No. 1100 of 2024), where the same High Court had addressed identical grievances.
- The bank claimed it acted only on instructions from cyber crime units and had no independent discretion.
- The cyber crime agencies failed to respond to court-mandated notices, revealing systemic negligence.
Relief Sought
The petitioner sought:
- Immediate unfreezing of his bank account
- Declaration that the freeze was illegal and violative of Article 21
- Compensation for financial hardship, mental agony, and business losses
- Direction to the bank to hold disputed funds in fixed deposits pending judicial determination
The Legal Issue
The central question was whether a bank can freeze a customer’s account solely on the basis of an unverified notice from a cyber crime cell, without compliance with Section 102 of the Code of Criminal Procedure or prior judicial authorization under Article 21.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that:
- The freeze was arbitrary and violated the right to carry on any trade or business under Article 19(1)(g) and the right to life and personal liberty under Article 21.
- No notice or opportunity of hearing was granted, violating principles of natural justice.
- The cyber crime cell had not complied with Section 102 CrPC, which mandates that seizure of property must be reported to a Magistrate and cannot be done ex parte.
- The precedent in Malcolm Murayis directly applied, where the same court had held that mere suspicion or administrative direction is insufficient to justify account freeze.
For the Respondent
The bank contended that:
- It was bound by the instructions issued by the cyber crime cells under the Information Technology Act and internal compliance policies.
- It had no authority to question or verify the legality of the freeze orders issued by law enforcement agencies.
- It acted in good faith and in accordance with regulatory obligations to prevent money laundering.
The Court's Analysis
The Court examined the precedent in Malcolm Murayis and found it directly applicable. It emphasized that Section 102 CrPC is not a mere procedural formality but a constitutional safeguard against arbitrary state action. The Court noted that cyber crime cells, while empowered to investigate, are not judicial authorities and cannot unilaterally deprive citizens of access to their funds.
"The freezing of bank accounts on the basis of an unverified intimation from a cyber cell, without any order from a Magistrate under Section 102 CrPC, amounts to a violation of the fundamental right to carry on business and the right to life under Article 21."
The Court further observed that the failure of multiple cyber crime units to respond to court notices demonstrated a pattern of institutional negligence. It rejected the bank’s argument that it was merely a passive agent, holding that financial institutions have a duty to ensure compliance with constitutional norms before acting on executive directives.
The Court also rejected the notion that holding funds in fixed deposits was a sufficient remedy. Instead, it mandated that such funds be held in fixed deposits only until a competent Magistrate passes an order within three months, failing which the petitioner must be allowed to withdraw the amount with intimation to the investigating agency.
The Verdict
The petitioner succeeded. The Court held that bank accounts cannot be frozen solely on the basis of cyber cell notices without compliance with Section 102 CrPC and judicial oversight. The account was ordered to be unfrozen, and the disputed amount was directed to be held in fixed deposits, subject to release upon Magisterial order within three months.
What This Means For Similar Cases
Account Freezes Require Judicial Authorization
- Practitioners must now challenge any account freeze based solely on police or cyber cell notices as violative of Section 102 CrPC and Article 21.
- Banks cannot claim immunity by citing instructions from investigating agencies; they remain liable for constitutional violations.
Fixed Deposits Are Not a Substitute for Due Process
- Holding funds in fixed deposits is permissible only as a temporary measure pending Magisterial review.
- If no order is passed within three months, the account holder has an absolute right to withdraw the amount.
Cyber Crime Investigations Must Follow Procedural Norms
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Investigating agencies must file formal applications before Magistrates under Section 102 CrPC before directing banks to freeze accounts.
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Failure to do so renders the freeze illegal and actionable in writ proceedings.
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Always demand production of the Magistrate’s order authorizing seizure
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File writ petitions immediately upon account freeze without notice
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Cite Malcolm Murayis and this judgment to establish binding precedent in MP and other High Courts
