The Punjab and Haryana High Court has clarified that financial institutions cannot freeze bank accounts based solely on suspicion of illicit activity without a formal criminal complaint or judicial order. This ruling reinforces the principle that procedural safeguards under the Bharatiya Nagarik Suraksha Sanhita must be strictly followed before depriving individuals of access to their funds.
Background & Facts
The Dispute
The petitioners, two individuals engaged in cryptocurrency trading, held a joint current account with respondent No.1, AU Small Finance Bank. Their account was frozen by the bank following complaints received from respondent No.2, without any prior notice, inquiry, or formal legal order. The petitioners asserted that their cryptocurrency trading activities are legal and regulated by the Government of India, and that no criminal proceedings had been initiated against them.
Key Facts
- The petitioners’ account was frozen on an unspecified date prior to the filing of the petition, based on internal bank assessment of transaction patterns
- A sum of ₹90,000/- was flagged by the bank as "doubted/suspicious" but no specific transaction or source was identified
- No First Information Report (FIR) has been registered against the petitioners by any law enforcement agency
- No complaint has been filed before any magistrate under Section 107 of the Bharatiya Nagarik Suraksha Sanhita (BNSS)
- The petitioners submitted multiple requests to the bank for unfreezing the account, all of which were ignored
- The bank admitted that no civil or criminal proceedings are pending against the petitioners in relation to the ₹90,000/-
Procedural History
- The petition was filed on an unspecified date in 2026 before the High Court of Punjab and Haryana at Chandigarh
- The petitioners invoked Articles 226 and 227 of the Constitution of India seeking writ relief
- The matter was listed for hearing on 02.04.2026
- The court noted that a similar issue had been addressed in Labpreet Kaur v. Union of India and others (CWP No.31234 of 2024), decided on 24.02.2026, wherein the same court had directed unfreezing of accounts under analogous circumstances
The Parties' Positions
Petitioners: Argued that freezing of the account without an FIR or order under Section 107 of BNSS violates their fundamental right to carry on any occupation under Article 19(1)(g) and right to property under Article 300A. They emphasized that the bank acted mechanically, without verifying the nature of transactions or providing any opportunity of hearing.
Respondent Bank (No.1): Conceded that no proceedings are pending against the petitioners and that the bank has no objection to the account being unfrozen, provided the disputed ₹90,000/- remains frozen pending further investigation.
Respondent No.2 (Complainant): Did not appear or file any written submission.
Respondent No.4 (Union of India): Through the Additional Solicitor General, did not oppose the petition and acknowledged the need for procedural compliance.
Relief Sought
The petitioners sought immediate direction to the bank to de-freeze their joint current account and restore full debit operations. They also requested a declaration that the freezing of accounts without an FIR or BNSS order is illegal.
The Legal Issue
Can a bank legally freeze a customer’s account based solely on internal suspicion of suspicious transactions, in the absence of an FIR or a Magistrate’s order under Section 107 of the Bharatiya Nagarik Suraksha Sanhita?
Arguments Presented
For the Petitioner
The petitioners’ counsel relied on the principle that financial liberty is a facet of personal liberty under Article 21 and that arbitrary freezing of accounts without due process violates constitutional guarantees. They cited Labpreet Kaur v. Union of India as binding precedent where the same court had held that banks cannot act as quasi-judicial authorities to determine criminality. They emphasized that Section 107 of BNSS requires a Magistrate’s order for attachment of property, and that banks have no statutory authority to unilaterally freeze accounts.
For the Respondent
The bank’s counsel conceded that no legal basis existed for the freeze in the absence of an FIR or BNSS order. They acknowledged that the bank’s internal risk assessment protocols cannot substitute judicial or statutory procedures. They supported the petitioners’ request for unfreezing, subject to the condition that the disputed ₹90,000/- remain frozen pending further investigation.
The Court's Analysis
The Court examined the absence of any statutory or judicial authority underpinning the bank’s action. It noted that while banks are empowered to monitor transactions for anti-money laundering purposes under the Prevention of Money Laundering Act, 2002, such monitoring does not confer upon them the power to unilaterally freeze accounts without due process.
"No FIR has been registered against the petitioner. No order of attachment under Section 107 of BNSS has been passed by the Magistrate. The respondent has frozen account whereas a sum of ₹90,000/- has been marked suspicious. Claim of the petitioner is genuine and deserves to be allowed."
The Court distinguished between suspicion and proof, holding that suspicion alone, however reasonable, cannot justify the deprivation of a fundamental right to access one’s own funds. It emphasized that the bank’s role is not to adjudicate criminal liability but to comply with legal procedures. The Court also noted that the bank’s own concession undermined its justification for the freeze.
The Court further clarified that while the petitioners’ activities may be subject to future scrutiny, the current freeze lacks legal foundation and must be lifted immediately.
The Verdict
The petition succeeded. The Court directed AU Small Finance Bank to de-freeze the petitioners’ joint current account within seven days from the date of judgment. The disputed sum of ₹90,000/- shall remain frozen and shall not be utilized by the petitioners. The Court explicitly stated that this order does not condone any unlawful activity by the petitioners and preserves the right of authorities to initiate proceedings if evidence emerges. No costs were awarded.
What This Means For Similar Cases
Bank Freezes Require Judicial or Statutory Basis
- Practitioners must challenge any bank freeze lacking an FIR, BNSS order, or court direction as violative of Article 21 and Article 300A
- Banks cannot rely on internal risk flags or third-party complaints to justify account freezes
- Customers may seek immediate writ relief under Article 226 where freezing is arbitrary and unexplained
Suspicion ≠ Legal Ground for Deprivation
- Financial institutions must distinguish between compliance monitoring and punitive action
- The burden of establishing legal grounds for freezing lies entirely with the bank or complainant
- Merely marking a transaction as "suspicious" without evidence or investigation is legally insufficient
Crypto-Related Accounts Are Not Per Se Risky
- The judgment affirms that legal cryptocurrency trading, even if high-volume, does not justify automatic suspicion
- Banks must apply uniform standards to all customers, regardless of the nature of their business
- Regulatory clarity from the Government of India on crypto trading reinforces the legitimacy of such transactions in the absence of criminal allegations
