The Chhattisgarh High Court has clarified that banks cannot unilaterally freeze a customer’s account based on suspicion alone, particularly when the account holder has no involvement in the suspicious transaction and has cooperated with authorities. The Court emphasized that procedural fairness and the presumption of innocence must govern banking practices, even in the context of emerging cyber fraud.
The Verdict
The petitioner won. The Chhattisgarh High Court held that banks cannot freeze a customer’s account without issuing a formal order, even when suspicious credits are detected. The Court directed the bank to immediately permit the petitioner to operate his account, while allowing it to retain only the disputed amount of Rs. 10,110 if found to be illicit under applicable law. The judgment underscores that mere suspicion, without formal adjudication or notice, cannot justify deprivation of banking rights.
Background & Facts
The petitioner, a small-scale transportation business owner, held a savings account with the Central Bank of India in Ambikapur. On 28 February 2025, three suspicious online transactions totaling Rs. 10,110 were credited to his account without his knowledge or consent. He had no control over these transactions and was not involved in any fraudulent activity.
On 26 October 2025, the petitioner registered a Non-Cognizable Report (NCR) under Section 174 of the Bhartiya Nagrik Suraksha Sanhita, 2023, with the local police station to document the incident. Despite this, the bank unilaterally restricted all debit operations from his account without issuing any written order, notice, or explanation. The petitioner was unable to access his own funds for daily business operations.
He filed a writ petition under Article 226 of the Constitution seeking directions to de-freeze his account and to compel the bank to permit normal operations. The petition also sought withdrawal of the bank’s communication to freeze the entire account, urging instead that only the disputed sum be held pending investigation.
The bank’s counsel initially claimed no formal order had been passed to freeze the account, but admitted the restriction was in place. The counsel later undertook to allow the petitioner to operate his account, subject to retention of the suspicious amount if proven illicit.
The Legal Issue
Can a bank legally suspend debit operations on a customer’s account based solely on suspicion of fraudulent credit, without issuing a formal order or providing an opportunity to be heard?
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that the bank’s action violated the petitioner’s fundamental right to carry on any occupation under Article 19(1)(g) and his right to property under Article 300A. She contended that the absence of any criminal intent on the petitioner’s part, coupled with his proactive reporting of the incident to police, rendered the freeze arbitrary and disproportionate. She cited RBI’s Master Direction on Customer Service and the principle of natural justice, emphasizing that no customer should be penalized for acts beyond their control.
For the Respondent
The bank’s counsel conceded that no formal order had been issued to freeze the account but defended the restriction as a precautionary measure under internal risk protocols. He argued that banks are obligated to prevent illicit funds from circulating and that temporary holds are standard practice pending investigation. He maintained that the petitioner’s access would be restored once the suspicious amount was verified, and that no legal violation occurred due to the absence of a written order.
The Court's Analysis
The Court rejected the bank’s justification for a de facto freeze without formal procedure. It observed that the practice of suspending accounts based on suspicion alone, without notice or adjudication, amounts to a violation of procedural fairness. The Court noted that the petitioner had acted responsibly by reporting the incident to police, thereby demonstrating his innocence and cooperation.
"In the absence of criminal intent, customers ought not to be prevented from operating their accounts. Indeed if any criminal intent is found after due enquiry, the concerned Bank must pass a formal order prior to freezing the customer's account, as practice of freezing the account or preventing to make any transaction will ultimately harass the customers without any fault on their part."
The Court emphasized that the burden of establishing criminality lies with the investigating agency, not the account holder. The bank’s internal policies cannot override constitutional protections or statutory obligations under the Banking Regulation Act and RBI guidelines. The Court held that retention of the disputed amount is permissible only after due process, not through unilateral administrative action.
The Court further noted that the amount involved - Rs. 10,110 - was relatively small and did not justify the severe disruption to the petitioner’s livelihood. The absence of a formal order rendered the restriction legally indefensible.
What This Means For Similar Cases
This judgment establishes a clear precedent: banks in India cannot suspend or freeze customer accounts without issuing a formal, reasoned order. The decision reinforces that suspicion alone is insufficient to justify deprivation of banking rights. Practitioners representing customers in similar cases may now invoke this ruling to challenge arbitrary freezes, especially where the account holder has no criminal record or involvement.
The ruling also imposes a duty on banks to distinguish between the account holder and the source of funds. While banks may retain suspicious credits pending investigation, they must do so through documented procedures, with notice to the customer and an opportunity to respond. This judgment will likely prompt RBI to issue updated guidelines on account freezing protocols, aligning them with constitutional norms.
Future litigation may see increased reliance on Article 19(1)(g) and Article 300A in disputes involving financial access. Banks must now ensure that any restriction on account operations is preceded by a written order, citing specific legal or regulatory grounds, and must provide a mechanism for redressal.
