The Madhya Pradesh High Court has established a critical safeguard against arbitrary freezing of bank accounts in cyber crime investigations, holding that financial restrictions must be proportionate and subject to judicial oversight. This ruling reinforces the constitutional right to livelihood under Article 21 and curbs unchecked executive action by investigative agencies.
Background & Facts
The Dispute
The petitioner, Mohd. Aijaz, faced the complete freezing of his bank account (A/c No. 50200106344357) containing Rs. 1,49,066, following an unverified alert from a cyber crime cell alleging involvement in fraudulent transactions. The petitioner, engaged in lawful crypto trading, had not received any notice, show-cause, or formal complaint from any investigating agency. The freeze was imposed solely on the basis of an email directive from a police cyber cell to HDFC Bank, without any magistrate’s order or compliance with statutory procedures.
Procedural History
The case followed a well-trodden path seen in similar petitions:
- The petitioner’s account was frozen without prior notice or opportunity to be heard
- No formal complaint or FIR was produced to the petitioner or the bank
- The bank acted solely on the cyber cell’s directive, claiming it was bound by law enforcement instructions
- The petitioner filed a writ petition under Article 226 seeking unfreezing of the account and disclosure of the legal basis for the freeze
Relief Sought
The petitioner sought:
- Immediate unfreezing of his bank account
- Restriction of the freeze to only the disputed amount
- Disclosure of the complaint, order, or legal authority justifying the freeze
The Legal Issue
The central question was whether banks can freeze an entire account based solely on an unverified cyber crime alert, without compliance with Section 102 of the Code of Criminal Procedure, and whether such action violates the right to livelihood under Article 21 of the Constitution.
Arguments Presented
For the Petitioner
The petitioner relied on the court’s own precedent in Malcolm Murayis v. State Bank of India, arguing that:
- No notice or opportunity of hearing was granted
- No magistrate’s order under Section 102 CrPC was obtained
- The entire account was frozen despite only a portion being allegedly linked to fraud
- The action was disproportionate and violated natural justice
For the Respondent
The Reserve Bank of India and HDFC Bank contended that:
- They were merely complying with directives issued by law enforcement agencies
- They had no independent authority to question or verify the legitimacy of cyber cell alerts
- Non-compliance could expose them to liability under anti-money laundering norms
The Court's Analysis
The Court examined the precedent set in Malcolm Murayis and found it directly applicable. It emphasized that Section 102 CrPC mandates that any seizure of property by police must be reported to a Magistrate without delay. The Court noted that cyber crime cells had repeatedly failed to comply with this requirement, acting as de facto adjudicators without judicial oversight.
"The cyber crime cells, while empowered to investigate, are not empowered to adjudicate. Their directives, however urgent, cannot override the procedural safeguards enshrined in the CrPC."
The Court rejected the banks’ argument that they were bound to comply unconditionally. It held that financial institutions have a duty to act reasonably and must not become instruments of arbitrary state action. The Court further observed that freezing an entire account, when only a portion is allegedly tainted, violates the principle of proportionality.
The Court also highlighted the systemic failure of cyber crime units across states to respond to court notices, indicating a pattern of negligence and disregard for judicial authority.
The Verdict
The petitioner succeeded. The Court held that entire account freezes based on unverified cyber alerts violate Article 21 and directed that only the disputed amount be placed in a fixed deposit, subject to judicial review by a Magistrate within three months. The account was ordered to be unfrozen immediately.
What This Means For Similar Cases
Account Freezes Must Be Proportionate
- Practitioners must challenge blanket freezes of entire accounts where only a portion is allegedly linked to crime
- Banks must be urged to segregate disputed amounts into fixed deposits, not freeze entire balances
- The burden shifts to investigating agencies to justify the necessity and scope of the freeze
Section 102 CrPC Is Non-Negotiable
- Any seizure of bank funds by police must be reported to a Magistrate within 24 hours
- Failure to do so renders the freeze illegal, regardless of the nature of the allegation
- Petitioners can now invoke Malcolm Murayis and this judgment to seek immediate relief in writ petitions
Banks Cannot Be Passive Conduits
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Financial institutions must verify the legal basis of freeze orders before acting
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Blind compliance with police directives exposes banks to liability for violating fundamental rights
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Banks should maintain internal protocols requiring production of magistrate’s order before implementing freezes
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If no magistrate’s order is produced within three months, the frozen amount must be released
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Petitioners may now claim damages for wrongful freeze if agencies fail to act within the stipulated period
