The Madhya Pradesh High Court has established a critical safeguard against arbitrary executive action by holding that banks cannot freeze accounts based solely on unverified police directives. This judgment reinforces the principle that even in cybercrime investigations, constitutional protections against deprivation of property without due process remain inviolable.
Background & Facts
The Dispute
The petitioner, Mahashakti Medical Agencies, operates a legitimate medical supply business. Its current account with IDFC First Bank was frozen without prior notice, based on an email directive from a cyber crime unit alleging that funds deposited into the account were linked to fraudulent transactions. The petitioner had no knowledge of the allegations, had not been questioned, and was not named in any FIR.
Procedural History
The case was filed as a writ petition under Article 226 of the Constitution:
- The petitioner sought immediate unfreezing of its account
- The bank claimed it acted only on instructions from cyber crime authorities
- No notice was issued to the petitioner under Section 102 of the CrPC
- No application was made before a Judicial Magistrate for seizure of funds
Relief Sought
The petitioner sought:
- Immediate de-freezing of its bank account
- Declaration that the freezing was illegal and arbitrary
- Direction to the bank and police to refrain from coercive action without due process
The Legal Issue
The central question was whether Section 102 of the Code of Criminal Procedure permits police to direct banks to freeze accounts without obtaining prior judicial authorization from a Magistrate, and whether such action violates the right to carry on trade or business under Article 19(1)(g).
Arguments Presented
For the Petitioner
The petitioner relied on Malcolm Murayis & Ors. v. State Bank of India, where this Court held that freezing of bank accounts based solely on cyber crime unit directives, without compliance with Section 102 CrPC, is unconstitutional. Counsel argued that the petitioner was not the accused, but merely a victim of money laundering through its account. The bank’s action, taken without notice or opportunity of hearing, violated natural justice and procedural due process.
For the Respondent
The bank contended that it was bound by the instructions of law enforcement agencies and had no discretion to question the validity of cyber crime unit directives. It submitted that freezing accounts was a standard practice to prevent dissipation of proceeds of crime and that it acted in good faith.
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 is stolen or may be used as evidence of an offence. Crucially, the section mandates that the officer must record the reasons for seizure in writing and inform the Magistrate without delay.
"The power to seize property under Section 102 CrPC is not a carte blanche to direct banks to freeze accounts on mere suspicion. The officer must apply to the Magistrate, who alone can authorize such an intrusion into fundamental rights."
The Court noted that the cyber crime unit had not filed any application before a Magistrate, nor had the petitioner been given any opportunity to be heard. The bank’s compliance with an extrajudicial directive, without independent verification, rendered the action arbitrary. The Court distinguished this from cases where a court order or warrant exists, emphasizing that Section 102 CrPC is not a mere procedural formality but a constitutional safeguard.
The Court also referenced its own precedent in Malcolm Murayis, which had already laid down that freezing accounts without judicial oversight violates Article 21. The Court held that the bank’s role is not to act as an enforcement arm of the police but to comply with lawful orders only.
The Verdict
The petitioner succeeded. The Court held that Section 102 CrPC requires judicial authorization before any account freeze, and that banks cannot act on unverified police directives. The account was ordered to be unfrozen, with the disputed amount to be placed in a fixed deposit, accessible only upon a Magistrate’s order within three months.
What This Means For Similar Cases
Judicial Authorization Is Non-Negotiable
- Practitioners must challenge any bank freeze initiated solely on police email directives
- No account freeze is valid unless a Magistrate has recorded reasons under Section 102 CrPC
- Banks must refuse to act on directives lacking judicial sanction
Burden of Proof Shifts to Investigating Agencies
- Police must now demonstrate to a Magistrate why freezing is necessary
- Mere suspicion or association with a fraudster is insufficient
- Petitioners can seek immediate relief under Article 226 if due process is bypassed
Banks Must Exercise Independent Judgment
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Banks cannot claim immunity by saying they "followed instructions"
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They are obligated to verify whether the directive complies with Section 102 CrPC
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Failure to do so may expose them to liability for wrongful deprivation
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If no Magistrate’s order is produced within three months, the account holder may withdraw the frozen amount with intimation to police
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This judgment applies equally to all financial institutions, including fintech platforms and digital wallets
