The Madhya Pradesh High Court has delivered a landmark judgment addressing the arbitrary freezing of bank accounts under Section 106 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS). The Court emphasized the principle of proportionality, directing authorities to freeze only disputed amounts rather than entire accounts, unless exceptional circumstances justify broader restraint.
Background & Facts
The Dispute
The petitioner, Archana, a licensed liquor contractor operating seven composite liquor shops in District Narmadapuram (Hoshangabad), Madhya Pradesh, challenged the freezing of her current account (No. 40884671496) maintained with respondent No.2 Bank. The account, containing a balance of Rs. 2,51,72,192.57, was frozen pursuant to a notice dated 10.04.2026 issued by respondent No.3 under Section 106 of BNSS, 2023, based on a suspected cyber fraud transaction of merely Rs. 980.
Key Facts
The petitioner’s business relies on the current account for all transactions, including licence fee payments and remittances to the Excise Department.
On an unspecified date in April 2026, the Bank abruptly stopped account operations without prior notice or reason.
The petitioner submitted an application dated 17.07.2026 seeking clarification, to which the Bank responded by citing the 10.04.2026 notice from respondent No.3.
A representation dated 18.07.2026 was submitted to respondent No.3, requesting the release of the account while retaining a lien only on the disputed Rs. 980. No decision was taken on this representation.
The freezing of the account brought business operations to a standstill, risking defaults in statutory and contractual obligations.
Procedural History
10.04.2026: Notice issued by respondent No.3 under Section 106 BNSS to freeze the account.
April 2026: Bank froze the account without notice.
17.07.2026: Petitioner’s application to the Bank seeking reasons for the freeze.
18.07.2026: Petitioner’s representation to respondent No.3 for partial release.
23.07.2026: Matter reserved for judgment.
27.07.2026: Judgment pronounced by the Madhya Pradesh High Court.
Relief Sought
The petitioner sought directions to respondent Nos.2 and 3 to:
De-freeze the current account immediately.
Retain a lien, if necessary, only over the disputed amount of Rs. 980.
Permit operation of the remaining balance in the account.
The Legal Issue
The central question was whether the freezing of an entire bank account under Section 106 of BNSS, 2023 is legally tenable when the disputed transaction constitutes a negligible fraction of the total balance, and whether such action violates the principles of proportionality and constitutional rights under Articles 14, 19(1)(g), and 300-A of the Constitution of India.
Arguments Presented
For the Petitioner
Learned counsel for the petitioner, Shri Aishwarya Sahu, submitted that:
The freezing of the account was arbitrary, illegal, and violated principles of natural justice, as no notice or opportunity of hearing was provided.
The action was disproportionate, as the entire account (Rs. 2,51,72,192.57) was frozen for a disputed amount of Rs. 980.
The petitioner’s business, which relies on the account for statutory compliance, was severely prejudiced.
The settled legal position mandates that only the disputed amount should be secured, not the entire account, unless exceptional circumstances exist.
The action violated Articles 14, 19(1)(g), and 300-A of the Constitution.
Reliance was placed on Malabar Gold and Diamond Limited and Others v. Union of India and Others (2026 SCC OnLine Del 297), Khalsa Medical Store v. Reserve Bank of India (Writ (C) No.12211/2025), and decisions of the Madhya Pradesh High Court in Sajida Bi and Ors. v. State of M.P. and Ors. (W.P. No.314/2025 and W.P. No.31428/2025).
For the Respondent
Learned Additional Advocate General, Shri Nilesh Yadav, appearing for respondent No.1 (State of Madhya Pradesh), submitted that:
The impugned action was taken pursuant to a suspected cyber fraud reported to respondent No.3 (Himachal Pradesh authorities).
The rise in cyber fraud necessitates prompt and effective measures to preserve proceeds of crime.
The meager amount of Rs. 980 cannot, by itself, justify de-freezing the account, as the investigation’s integrity must be preserved.
The Court's Analysis
The Court observed that the issue of freezing entire bank accounts for negligible disputed amounts is a recurring problem, affecting numerous account holders nationwide. Balancing the constitutional rights of citizens (Articles 19(1)(g) and 300-A) with the statutory powers of investigation is critical.
The Court relied on the Standard Operating Procedure (SOP) dated 10.04.2026, issued by the Ministry of Home Affairs, which prescribes a structured grievance redressal mechanism for bank accounts frozen through the NCRP-CFCFRMS framework. The SOP mandates timelines and responsibilities for Banks, Investigating Officers, and Grievance Redressal Authorities.
"Freezing of an entire account containing legitimate funds merely because a negligible amount is suspected requires careful scrutiny and must satisfy the test of proportionality."
The Court emphasized that:
Investigating agencies must exercise powers under Section 106 BNSS reasonably and proportionally.
Freezing of entire accounts should be resorted to only in exceptional circumstances, with written reasons.
Banks must act as the first point of contact for grievance redressal and cannot evade responsibility by directing account holders to other authorities.
The SOP’s timelines (7 days for Banks to upload grievances, 15 days for Investigating Officers to decide, and automatic escalation thereafter) must be strictly adhered to.
The Court framed 23 guidelines to govern the freezing of bank accounts in cyber crime cases, including:
Identifying and securing only the disputed amount, unless exceptional circumstances exist.
Informing the account holder of the freezing, the authority responsible, and the grievance mechanism.
Conducting Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) promptly.
Deciding grievances within 15 days, with automatic escalation for delays.
Releasing the hold on accounts if grievances remain unresolved for 90 days, unless a lawful direction or court order exists.
The Verdict
The Court disposed of the writ petition with the following directions:
Respondent No.3 (Investigating Agency) shall examine the petitioner’s representation dated 18.07.2026 strictly in accordance with the SOP dated 10.04.2026 and the guidelines framed by the Court.
If the Investigating Officer finds that preserving only the disputed amount of Rs. 980 is sufficient, directions shall be issued to respondent No.2 (Bank) to release the remaining balance while retaining a lien over the disputed amount.
If the Investigating Officer proposes to continue freezing the entire account, a reasoned order must be passed justifying the necessity.
Respondent No.1 (State of Madhya Pradesh) shall circulate the Court’s order to all Banks, Police Stations, Cyber Crime Police Stations, and investigating agencies within the State for strict compliance.
What This Means For Similar Cases
Proportionality Is Non-Negotiable
Investigating agencies must now justify freezing entire bank accounts under Section 106 BNSS by demonstrating that less restrictive measures (e.g., lien on disputed amounts) are inadequate. Courts will scrutinize such actions for compliance with the doctrine of proportionality.
Practitioners should argue for partial freezes where the disputed amount is identifiable and negligible compared to the total balance.
Banks must proactively facilitate grievance redressal and cannot defer responsibility to investigating agencies.
Strict Adherence to SOP Timelines
The SOP dated 10.04.2026 is now judicially reinforced, with strict timelines for grievance resolution:
Banks must upload grievances within 7 days.
Investigating Officers must decide within 15 days, with automatic escalation for delays.
Accounts must be released if grievances remain unresolved for 90 days, unless a court order or lawful direction exists.
Lawyers should monitor compliance with these timelines and challenge delays in grievance redressal.
Judicial Oversight and Accountability
The Court’s guidelines introduce judicial oversight by requiring Investigating Officers to:
Record reasons for freezing entire accounts.
Inform Magistrates forthwith of any freezing action.
Periodically review the necessity of continuing freezes.
Practitioners can leverage these requirements to challenge arbitrary or prolonged freezes in writ petitions or applications before Magistrates.
