The Rajasthan High Court has clarified that financial institutions cannot unilaterally freeze bank accounts based on vague allegations of cyber fraud. The judgment establishes that account freezes must be tied to specific, documented evidence communicated through proper legal channels, and that banks must follow procedural safeguards before restricting customer access to funds.
The Verdict
The petitioner won. The Rajasthan High Court directed the State Bank of India to unfreeze the petitioner’s bank account except for the specific amount allegedly received through illegal means. The court mandated that the bank must await precise communication from investigating authorities regarding the disputed sum and must unfreeze the entire account if no such communication is received within seven days. The court also barred future blanket freezes without concrete evidence.
Background & Facts
The petitioner, Bhavesh Lohar, is a resident of Udaipur who operates a small business. His savings account with State Bank of India, account number 00000061253154298, was frozen on January 7, 2026, following an alleged receipt of funds linked to a cyber fraud investigation. The bank did not provide the petitioner with any notice, explanation, or opportunity to be heard prior to the freeze. The freeze was based solely on a generic alert from a central monitoring system, without any specific details about the nature of the transaction, the identity of the alleged offender, or the amount involved.
The petitioner filed a writ petition under Article 226 of the Constitution seeking immediate unfreezing of his account, quashing the freeze order, and preventing future arbitrary freezes. He cited a prior decision by a coordinate bench of the same court in Sita Ram vs. Bank of Baroda, which had held that banks cannot impose account freezes without specific, verifiable evidence communicated through official channels.
The bank did not file any written response or appear before the court. The petitioner’s counsel relied on the precedent and argued that the freeze violated the petitioner’s fundamental right to carry on trade or business under Article 19(1)(g) and his right to property under Article 300A.
The Legal Issue
Can a bank freeze a customer’s account based solely on an automated alert or unsubstantiated suspicion of cyber fraud, without specific evidence communicated by investigating authorities? Does such a freeze violate constitutional rights to property and livelihood?
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that the bank’s action was arbitrary and violative of natural justice. He cited the principle that no person shall be deprived of property without due process of law. He relied on the coordinate bench’s decision in Sita Ram vs. Bank of Baroda, which held that banks must not act as investigative agencies and must wait for formal communication from law enforcement specifying the exact amount to be frozen. He further contended that blanket freezes cause irreparable harm to small business owners and violate the Reserve Bank of India’s guidelines on customer protection.
For the Respondent
The respondents did not file any written submission or appear before the court. No counter-arguments were presented.
The Court's Analysis
The court observed that while banks have a duty to assist in preventing financial crimes, they cannot assume the role of investigators or impose sanctions without legal basis. The freezing of an account is a severe measure that impacts the fundamental rights of account holders, particularly those dependent on daily transactions for livelihood.
"A bank cannot act as a proxy for law enforcement by freezing accounts on the basis of speculative or generic alerts. The right to access one’s own funds is not contingent upon unverified allegations."
The court distinguished between preventive measures and punitive actions. It held that mere receipt of funds into an account, without proof of the account holder’s knowledge or involvement in the underlying offence, cannot justify a freeze. The court emphasized that the burden of identifying the specific amount subject to dispute lies with the investigating agency, not the bank or the account holder.
The court further noted that the absence of any communication from the police or investigating officer rendered the freeze legally unsustainable. It rejected the notion that banks can rely on internal risk algorithms or automated flags to justify restrictions on constitutional rights.
The court also rejected the petitioner’s claim for 10% interest on the frozen amount, holding that interest is not a guaranteed remedy in such cases unless there is proven negligence or malafide conduct by the bank.
What This Means For Similar Cases
This judgment establishes a binding precedent for all banks operating in Rajasthan and sets a national standard for procedural fairness in account freezing. Practitioners representing customers facing arbitrary freezes can now cite this order to demand specific evidence from investigating agencies before any restriction is upheld. Banks must now adopt internal protocols requiring written communication from law enforcement specifying the exact amount to be frozen, with a copy to the account holder.
The ruling limits the scope of future freezes to only the disputed sum, not the entire account. This prevents disproportionate harm to legitimate users. It also imposes a seven-day deadline on investigating agencies to respond, creating accountability. If no response is received, the bank must unfreeze the account - this prevents indefinite holds based on bureaucratic inertia.
This decision does not prevent banks from cooperating with law enforcement. Rather, it mandates that cooperation must be structured, transparent, and rights-respecting. Future litigation challenging freezes will now be assessed against this procedural framework.
