Lucknow: In a significant ruling with wide implications for banks, payment service operators and investigating agencies, the Lucknow Bench of the Allahabad High Court has held that banks cannot freeze customer accounts merely on the basis of police requests without following due legal process. The court warned that any lender or financial intermediary acting without statutory authority would expose itself to civil and criminal consequences for financial loss and reputational damage caused to account holders.
Case Arises From Cyber Fraud Investigation
The judgment was delivered by a division bench comprising Justice Shekhar B. Saraf and Justice Manjeev Shukla while allowing a writ petition filed by Yashwant Singh, proprietor of Khalsa Medical Store. The case arose from the freezing of the petitioner’s Axis Bank account following a notice issued by the Rachakonda Police Commissionerate in Hyderabad in connection with a cyber fraud FIR registered there.
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Bank Acted Without Seizure Order or FIR Details
According to the petitioner, the police notice alleged that funds obtained through cyber fraud had been transferred into his account. Acting solely on the notice, the bank imposed a debit freeze on the account in November 2025, effectively paralysing the business operations of the medical store. During the hearing, the bank’s counsel conceded that while a debit freeze notice had been received, no formal seizure order, FIR copy, or details of any specific amount to be frozen had ever been provided by the investigating officer.
Court Rejects Broad Interpretation of BNSS Powers
The High Court found this approach legally untenable. It observed that Section 106 of the Bharatiya Nagarik Suraksha Sanhita (BNSS) cannot be interpreted in a manner that grants police officers blanket powers to interfere in financial transactions or seize property merely on suspicion. Any such action, the court held, must be supported by concrete material and proper legal authorisation.
The bench underlined that freezing an entire bank account without specifying the alleged proceeds of crime amounts to disproportionate interference with an individual’s right to trade and livelihood. In the absence of a seizure order or identification of a specific sum linked to the alleged offence, the continuation of the freeze was held to be illegal.
Limited Freezes Permitted Only With Strict Safeguards
At the same time, the court acknowledged that in certain circumstances, temporary restraint on bank accounts may be necessary to prevent dissipation of crime proceeds. However, even in such cases, strict procedural safeguards must be followed. The investigating officer, the court said, is under a mandatory obligation to provide the bank with a valid seizure order, the relevant case number, and clear particulars of the amount on which a lien is proposed, within three to four days of initiating such action.
Binding Guidelines Issued to Prevent Misuse
To prevent recurring misuse of police notices and arbitrary account freezes, the High Court issued a detailed set of binding guidelines. It clarified that notices under Section 106 BNSS may direct marking of lien only on a specific amount allegedly transferred to or from the accused’s account. Police authorities, the court ruled, cannot in any situation request banks or payment service providers to block, suspend or freeze entire financial accounts.
Judicial Oversight Made Mandatory
The bench further directed that any communication sent to a bank or financial intermediary for blocking, restraining or marking a lien on an account must simultaneously be forwarded to the jurisdictional judicial magistrate within 24 hours. This requirement, the court said, ensures judicial oversight and guards against abuse of investigative powers.
Banks Warned of Civil and Criminal Liability
Importantly, the court cautioned banks and payment service operators that compliance with unlawful police requests would not shield them from liability. If an account is frozen without adherence to statutory procedure, the concerned institution would be answerable for the financial losses suffered by the customer, as well as damage to reputation and business continuity.
Relief Granted in Petitioner’s Case
Applying these principles to the case at hand, the High Court held that since no specific amount had been identified, no seizure order was issued, and no FIR copy was supplied despite repeated requests, the petitioner’s account could not be kept under freeze. The court ordered appropriate relief, reinforcing that financial liberty cannot be curtailed through informal or opaque processes.
The ruling is expected to serve as a critical precedent amid rising cyber fraud investigations, balancing the need for effective law enforcement with constitutional safeguards for banking customers.
