The Madhya Pradesh High Court has established a critical safeguard against arbitrary freezing of bank accounts by directing that no financial hold can be imposed without judicial authorization under Section 102 of the Code of Criminal Procedure. This ruling reinforces the constitutional right to access banking services and curbs executive overreach by investigative agencies acting on unverified cyber crime allegations.
Background & Facts
The Dispute
The petitioner, Soumya Sharma, is engaged in lawful trading of cryptocurrency and virtual assets. Her bank account with Punjab National Bank was frozen without prior notice, based solely on an email directive from a cyber crime cell alleging that funds in her account were linked to cyber fraud. She had not been named as an accused, questioned, or served with any notice of investigation.
Procedural History
- The petitioner filed a writ petition under Article 226 of the Constitution seeking removal of the account freeze.
- The bank claimed it acted only on instructions from cyber crime units and had no independent discretion.
- The Court referred to its earlier decision in Malcolm Murayis & Ors. v. State Bank of India and Others (W.P. No. 1100 of 2024), which addressed identical facts.
- In Malcolm Murayis, the Court had granted interim relief permitting monthly withdrawals of Rs. 50,000 while directing banks to freeze only the disputed amount in fixed deposits.
Relief Sought
The petitioner sought immediate unfreezing of her bank account and a direction to the bank to permit normal operations, subject to safeguarding the disputed amount pending judicial determination.
The Legal Issue
The central question was whether Section 102 of the Code of Criminal Procedure permits police cyber cells to direct banks to freeze accounts without obtaining a magistrate’s order, and whether such action violates the right to access financial services under Article 21.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that the cyber crime cell’s directive constituted a seizure of property under Section 102 CrPC, which mandates that such seizure must be reported to a Magistrate without delay. No such report was filed. The petitioner was never given an opportunity to be heard, violating natural justice. The bank’s compliance with an unverified administrative directive amounted to abdication of its fiduciary duty.
For the Respondent
The bank contended that it was bound by the instructions of law enforcement agencies under the Information Technology Act and internal compliance protocols. It claimed no independent authority to question the legitimacy of cyber cell directives and acted in good faith to avoid regulatory penalties.
The Court's Analysis
The Court examined the statutory framework under Section 102 CrPC, which permits a police officer to seize property only if he has reason to believe it may be required as evidence, and crucially, requires him to report such seizure to a Magistrate without delay. The Court held that cyber crime cells, though empowered under IT Act provisions, are not exempt from this procedural mandate.
"The mere transmission of an email by a cyber cell to a bank, without any accompanying magistrate’s order or even a formal report under Section 102, cannot constitute lawful seizure of funds."
The Court emphasized that Section 102 CrPC is not a mere formality but a constitutional safeguard against arbitrary state action. The failure of cyber crime units to respond to the Court’s earlier notices in Malcolm Murayis demonstrated systemic disregard for judicial oversight. The Court rejected the bank’s defense of mere compliance, noting that financial institutions have a duty to uphold the rule of law and cannot act as mere instruments of unchecked executive power.
The Court also recognized the legitimate interest of law enforcement in preserving evidence but held that this must be balanced with the fundamental rights of innocent account holders. The solution was not to permit unfettered access to funds, but to place the disputed amount in fixed deposits under judicial supervision.
The Verdict
The petitioner succeeded. The Court held that Section 102 CrPC requires judicial authorization for any seizure of bank funds, even in cyber crime cases. The bank was directed to unfreeze the petitioner’s account and place the disputed amount in fixed deposits, to be released only upon a magistrate’s order within three months, or otherwise returned to the petitioner.
What This Means For Similar Cases
Judicial Authorization Is Mandatory for Account Freezes
- Practitioners must challenge any bank freeze based solely on police cyber cell notices as violative of Section 102 CrPC
- File writ petitions under Article 226 immediately upon account freeze, citing Malcolm Murayis and this judgment
- Demand production of the magistrate’s order under Section 102 - if none exists, the freeze is illegal
Banks Cannot Hide Behind Compliance
- Financial institutions are not absolved of liability by claiming they followed police instructions
- Banks must independently verify the legal basis of freeze requests and refuse unlawful directives
- Failure to do so may expose banks to liability for wrongful deprivation of property
Fixed Deposits as Interim Safeguard
- Courts will now routinely direct disputed amounts to be held in fixed deposits, not full account freezes
- Petitioners may seek monthly withdrawal limits (e.g., Rs. 50,000) pending adjudication
- This balances investigative needs with the right to livelihood and financial access
