The Rajasthan High Court has established a procedural safeguard for businesses whose bank accounts are frozen during cybercrime investigations. The court held that financial institutions must not unilaterally freeze accounts based on vague allegations but must act only upon specific, timely communication from investigating authorities. This ruling reinforces the principle that economic rights under Article 21 cannot be suspended without due process.
The Verdict
The petitioner, Vibenova Club Private Limited, prevailed. The High Court directed that the bank may retain only the specifically identified disputed amount in lien, while allowing all other transactions to proceed. Crucially, the court mandated that the investigating agency must communicate the exact amount to be frozen within seven days of the bank’s request; failure to do so requires immediate unfreezing. This creates a binding timeline to prevent indefinite account freezes without judicial or procedural oversight.
Background & Facts
The petitioner, a private club operating in Jodhpur, had its corporate bank account frozen by City Union Bank upon receiving a directive from the Cyber Crime Cell in Surat, Gujarat. The freeze was initiated following an alleged cyber fraud involving unauthorized fund transfers into the petitioner’s account. The petitioner was not given prior notice, nor was any specific amount identified as illicit. The account freeze severely disrupted the club’s daily operations, including payroll and vendor payments.
The petitioner filed a writ petition under Article 226 of the Constitution, challenging the arbitrary freezing of its account. It relied on a prior coordinate bench decision in Sita Ram vs. Bank of Baroda, which had held that banks must permit transactions on non-disputed balances. The petitioner sought both the unfreezing of its account and a binding directive to prevent future freezes without notice and specificity.
The respondents, including the State of Rajasthan, the National Cyber Crime Reporting Portal, and the bank, did not file written submissions. The court proceeded on the basis of the petitioner’s arguments and the precedent cited.
The Legal Issue
The central legal question was whether a bank may freeze a corporate account based on a general cybercrime alert without a specific identification of the disputed amount, and whether such action violates the right to carry on business under Article 19(1)(g) and the right to life and livelihood under Article 21.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that blanket account freezes without prior notice or quantification of the alleged illicit amount violate principles of natural justice and proportionality. He cited the coordinate bench’s decision in Sita Ram vs. Bank of Baroda, which held that banks must permit transactions on non-disputed balances. He emphasized that the freezing of accounts without specificity causes irreparable harm to legitimate business operations and that the burden to identify the disputed sum lies with the investigating agency, not the account holder.
For the Respondent
No submissions were filed by any of the respondents. The court proceeded on the basis of the petitioner’s arguments and the existing precedent.
The Court's Analysis
The court acknowledged the legitimate need for law enforcement to investigate cybercrime and prevent proceeds of crime from being dissipated. However, it emphasized that such powers cannot be exercised in a manner that disregards the fundamental rights of innocent parties. The court held that the bank, as a neutral intermediary, cannot act as an enforcement arm without clear, specific, and time-bound instructions.
"The bank cannot be expected to act as a judge of the allegations or to freeze entire accounts on speculative inputs. The investigating agency must specify the exact amount alleged to be proceeds of crime, and must do so within a reasonable time frame."
The court distinguished between freezing the entire account and placing a lien only on the disputed sum. It held that the latter is permissible, but only if the amount is clearly identified. The court further held that the bank’s duty to cooperate with law enforcement does not absolve it of the obligation to protect its customer’s rights. The seven-day window for the investigating agency to respond was imposed as a reasonable balance between investigative needs and economic rights.
The court also noted that the absence of any response from the investigating agency within seven days must be treated as a de facto withdrawal of the freeze request, thereby obligating the bank to restore full access to the account.
What This Means For Similar Cases
This judgment establishes a binding procedural framework for banks and investigating agencies across Rajasthan and sets a persuasive precedent nationally. Practitioners representing businesses facing account freezes must now insist on the identification of the exact disputed amount and demand compliance with the seven-day timeline. Failure by police to respond within this period provides a clear ground for immediate application to unfreeze accounts.
The ruling also empowers banks to proactively seek clarification from investigating agencies rather than acting on vague directives. This reduces the risk of liability for banks that freeze accounts without specificity. Future litigation challenging account freezes will now be assessed against this standard: specificity of amount, timeliness of communication, and preservation of non-disputed balances.
The judgment does not prevent freezing of accounts in genuine cybercrime cases but ensures such actions are targeted, time-bound, and proportionate. It reinforces that economic due process is non-negotiable under Article 21.
