The Calcutta High Court held that a bank cannot partially freeze a customer's account on mere suspicion of money mule activity without collecting evidence, issuing notice, or affording a hearing. The Court directed immediate defreezing of the account with a lien on the disputed Rs. 10 lakh, and mandated a decision after hearing both parties within six weeks.
Background & Facts
The Dispute
The petitioner, Sanjiv Kumar Dalmia, sole proprietor of "Sanjeev Vyapaar", maintained Current Account No. 43061577012 with the State Bank of India, Chetla Branch, Kolkata. On 19 March 2026, the account was partially frozen by the bank's Proactive Risk Management Cell, Patna (Respondent No. 2), on suspicion of a mule transaction. The petitioner challenged this unilateral action through a writ petition seeking removal of the debit freeze and restoration of normal account operations.
Key Facts
- The petitioner operated as a sole proprietor under the firm name "Sanjeev Vyapaar"
- Current Account No. 43061577012 was maintained at SBI Chetla Branch, Kolkata
- On 19 March 2026, the account was partially frozen without prior notice to the petitioner
- The freeze was initiated by the Proactive Risk Management Cell, Patna, based on suspected mule transaction
- Bank officials conducted physical verification of the petitioner's office premises on 27 March 2026, examining PAN Card, Aadhaar Card, Trade License, GST Registration Certificate, and other documents
- On 6 April 2026, bank officials inspected the petitioner's godown
- On 8 April 2026, the bank informed the petitioner that the partial freeze was due to suspected mule transaction flagged by the PRM Cell
- By email dated 23 April 2026, the bank raised queries about diversification of business activities from scrap trading to other categories
- The petitioner submitted a reply explaining the reasons for diversification
- On 24 April 2026, the petitioner sent a legal notice demanding account restoration or disclosure of reasons
- The bank replied but did not disclose the specific reason for the partial freeze
- Udbhav Dalmia, Managing Director of Ninja Ferro Tec Private Limited, claimed on 19 March 2026 that Rs. 10,00,000 was erroneously transferred from account no. 44689234494 to the petitioner's account and requested reversal
- As on 19 March 2026, the total balance in the petitioner's account was Rs. 10,01,509.14, including the disputed Rs. 10,00,000
- The bank relied on RBI Master Direction DBR.AML.BC.No.81/14.01.001/2015-16 dated 25 February 2016, specifically Clause 59 on Operation of Bank Accounts & Money Mules
- The bank conducted Enhanced Due Diligence and found "EDD Negative and business transaction not fund in line"
- A Suspicious Transaction Report (STR) was uploaded by the concerned branch on 24 April 2026
- The bank found the petitioner dealing mainly in scrap/rubbish materials, while the trade license for 2025-2026 was for cotton fabric, and another license was for iron and steel
Procedural History
- 19.03.2026: Account partially frozen by PRM Cell, Patna
- 27.03.2026: Physical verification of office premises by bank officials
- 06.04.2026: Inspection of petitioner's godown by bank officials
- 08.04.2026: Bank informed petitioner of partial freeze due to suspected mule transaction
- 23.04.2026: Bank emailed queries on business diversification
- 24.04.2026: Petitioner sent legal notice; bank uploaded STR
- 24.04.2026: Bank replied to legal notice without disclosing freeze reason
- 12.08.2026: Hearing concluded before Calcutta High Court
- 10.09.2026: Judgment delivered and uploaded
Relief Sought
The petitioner sought a direction to respondents to remove the partial restriction/debit freeze on Current Account No. 43061577012 and allow normal operation of the account.
The Legal Issue
The central question was whether a bank can partially freeze a customer's account on mere suspicion of money mule activity under RBI Master Direction Clause 59, without collecting evidence of fraudulent transactions, issuing prior notice, or affording the account holder an opportunity of hearing.
Arguments Presented
For the Petitioner
The petitioner contended that the partial freeze was arbitrary and violated principles of natural justice. No notice was served before freezing the account, and the physical verification was conducted post-freeze without any prior intimation. The bank failed to produce any report from investigating agencies or its own findings establishing fraudulent transactions in the account. The mere discrepancy between trade license categories and actual business operations did not constitute evidence of money mule activity. The petitioner emphasized that the bank did not even file a Suspicious Transaction Report initially, and the STR was uploaded only after the legal notice.
For the Respondent
The State Bank of India submitted that the Centralized Cyber Cell flagged the account as a suspected mule account via email dated 19 March 2026. The PRM Cell directed marking the account as partly frozen. Physical verification revealed the business nature (scrap/rubbish) differed from the trade license (cotton fabric, iron and steel). Enhanced Due Diligence showed "EDD Negative and business transaction not fund in line." The bank argued statutory restrictions prevented disclosure of complaint details. Additionally, Udbhav Dalmia of Ninja Ferro Tec Private Limited claimed Rs. 10,00,000 was erroneously transferred on 19 March 2026, and the account balance was Rs. 10,01,509.14 at the time of freeze. The bank relied on RBI Master Direction Clause 59, which mandates diligence measures to identify money mule accounts and take appropriate action including reporting to FIU-IND.
The Court's Analysis
The Court examined Clause 59 of the RBI Master Direction dated 25 February 2016, which requires banks to undertake diligence measures and meticulous monitoring to identify money mule accounts and take appropriate action, including reporting suspicious transactions to FIU-IND. The provision also deems non-compliance if an established money mule account has no STR filed.
"The bank in the present case has not submitted any Suspicious Transaction Report. Even though the said provision enables the bank to take appropriate action, including suspicious transactions to FIU-IND but it does not specifically authorize freezing of accounts."
The Court found that the bank froze the account on 19 March 2026 before any verification, without serving notice on the petitioner. The physical verification on 27 March and 6 April 2026 occurred post-freeze. The bank's finding that the business differed from the trade license did not establish fraudulent or illegal transactions in the account. No report from the bank or investigating agency indicated any fraud transaction.
"This Court did not find that the bank has collected any evidence to establish that the petitioner has used the said account as Mule Moneys. Even after receipt of the request of Ninja Ferro Tec Private Limited, the bank has not made any enquiry whether actual the said amount has come in the account of the petitioner of its business transaction or inadvertently it is transferred in the account of the petitioner."
The Court noted the bank failed to inquire with the petitioner about the disputed Rs. 10,00,000 transfer from Ninja Ferro Tec Private Limited. Since March 2026, the account remained partly frozen without evidence collection. The Court concluded there was no justification for the partial freeze on mere allegation of mule money.
The Verdict
The petitioner succeeded. The Court disposed of WPA No. 13210 of 2026, directing the bank to immediately defreeze the account and allow the petitioner to operate it, keeping the disputed amount of Rs. 10,00,000 in lien. The bank was directed to take an appropriate decision on the disputed amount after giving an opportunity of hearing to both the petitioner and Ninja Ferro Tec Private Limited within six weeks from receipt of the order.
What This Means For Similar Cases
Freezing Requires Evidence, Not Mere Suspicion
Banks cannot invoke RBI Master Direction Clause 59 to freeze accounts on bare suspicion of money mule activity without collecting concrete evidence of fraudulent transactions. The provision mandates diligence and reporting to FIU-IND but does not expressly authorize account freezing. Practitioners should challenge freezes unsupported by STR filings or investigative findings.
Natural Justice Prevails Over Administrative Convenience
- Prior notice and opportunity of hearing are mandatory before restricting account operations
- Post-freeze verification cannot cure the absence of pre-freeze due process
- Discrepancy between trade license and actual business, without more, does not establish money mule activity
- Banks must inquire with the account holder regarding disputed transactions before taking coercive action
Lien as a Proportionate Remedy
Where a specific disputed amount is identified, courts may direct defreezing with a lien on that amount rather than upholding a blanket freeze. This balances the bank's interest in securing disputed funds with the account holder's right to operate their account. The six-week deadline for a hearing and decision provides a clear timeline for resolution.
