The Madras High Court has reaffirmed that financial restrictions imposed during criminal investigations must be strictly proportionate to the alleged offence. In a significant ruling, the Court struck down the blanket freezing of a small business owner’s entire bank account for an alleged cybercrime involving a mere Rs.10,000, emphasizing that such measures cannot override the right to livelihood under Article 21.
Background & Facts
The Dispute
The petitioner, M/s Success Signs, is a small business engaged in manufacturing acrylic sign boards for over 16 years. Its bank account with Bank of Baroda was completely frozen following an FIR registered by the Ghaziabad Cyber Crime Police Station under the Information Technology Act. The FIR, numbered 0314 of 2024, pertained to an alleged digital transaction irregularity involving Rs.10,000.
Procedural History
- The Ghaziabad Cyber Crime Police issued a directive to the Bank of Baroda to place a lien of Rs.10,000 on the petitioner’s account.
- Instead of complying with the limited directive, the bank froze the entire account, rendering the petitioner unable to pay employees, suppliers, or meet operational expenses.
- The petitioner filed a writ petition under Article 226 of the Constitution seeking relief.
- The first respondent, the police station, did not appear despite service of notice.
- The second respondent, the bank, appeared through counsel and confirmed receipt of the lien order.
Relief Sought
The petitioner sought immediate unfreezing of the account, with the condition that a lien of Rs.10,000 be maintained as directed, and that a minimum balance of Rs.50,000 be preserved to ensure business continuity.
The Legal Issue
The central question was whether the complete freezing of a business bank account is lawful under Article 226 when the alleged offence involves a minimal sum and a limited lien has been specifically directed by investigating authorities.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that the blanket freeze violated the principle of proportionality and the right to carry on trade or business under Article 19(1)(g), read with Article 21. Reliance was placed on K.S. Puttaswamy v. Union of India to assert that state action must be the least restrictive means to achieve a legitimate aim. The petitioner offered to maintain a Rs.50,000 minimum balance and consented to the Rs.10,000 lien, demonstrating willingness to cooperate.
For the Respondent
The Bank of Baroda’s counsel conceded that the police directive was for a lien of Rs.10,000 only and admitted that the full freeze was an overreach. No substantive legal defense was advanced by the police, who did not appear.
The Court's Analysis
The Court examined the nature of the alleged offence, the scale of the financial restriction, and the impact on the petitioner’s livelihood. It observed that the freezing of an entire business account is an extreme measure that must be justified by compelling necessity, not routine procedure. The Court noted that the police had not sought a broader freeze, nor had they demonstrated any risk of asset dissipation beyond the Rs.10,000 in question.
"The action of the bank in freezing the entire account, contrary to the specific direction of the police to maintain a lien of Rs.10,000 only, is disproportionate and violates the petitioner’s fundamental right to carry on business."
The Court emphasized that proportionality is not merely a constitutional value but a mandatory requirement in investigative actions affecting economic rights. It rejected the notion that cybercrime investigations justify indiscriminate financial restrictions. The Court also highlighted that the petitioner’s willingness to maintain a minimum balance and accept the lien demonstrated good faith and negated any claim of flight risk or asset concealment.
The Verdict
The petitioner succeeded. The Court held that complete freezing of a bank account is impermissible when a limited lien has been specifically directed, and that proportionality must govern investigative financial restrictions. The Court directed the bank to immediately unfreeze the account, subject to a lien of Rs.10,000 and a minimum balance of Rs.50,000.
What This Means For Similar Cases
Account Freezes Must Be Narrowly Tailored
- Practitioners must challenge blanket freezes in cybercrime or economic offence cases where the alleged amount is minimal.
- Banks acting on police directives must verify the exact scope of the order before implementing freezes.
- A mere FIR does not justify total account suspension; the principle of least restrictive means applies.
Proportionality Is a Justiciable Standard in Financial Investigations
- Courts will scrutinize whether the financial restriction matches the gravity of the alleged offence.
- Petitioners can invoke K.S. Puttaswamy and Arnesh Kumar v. State of Bihar to argue that disproportionate measures violate Article 21.
- Offering to maintain a minimum balance or consent to a lien strengthens the petitioner’s position.
Banks Bear Responsibility for Overreach
- Financial institutions cannot blindly comply with police directives that exceed their scope.
- Banks may be held liable for damages if they freeze accounts beyond the legally authorized limit.
- Legal counsel should demand written confirmation of the exact amount and nature of the restriction before any action is taken.
