Rajasthan High Court stops blanket bank account freezes in cyber fraud cases

The order added, “While effective measures against cyber fraud are essential, protection of bona fide account holders from arbitrary or disproportionate restrictions is equally necessary. A fair, transparent and time-bound mechanism for freezing and defreezing accounts would, therefore, not only safeguard legitimate property rights but also reinforce citizens’ faith in digital transactions and the formal banking system.”

Justice Anand Sharma said no bank account shall be subjected to an indefinite blanket debit freeze merely based on a vague, unverified or cryptic communication.

Small amount, big financial freeze 

The petitions were filed by individuals and businesses whose bank accounts had been fully frozen, debit-frozen or subjected to a lien pursuant to information allegedly received from investigating agencies regarding one or more transactions suspected to have a connection with cyber financial fraud. In some matters, the disputed transaction is of a very small amount, sometimes less than Rs 100, Rs 1,000, Rs 5,000 or Rs 10,000, whereas the entire bank account containing substantially larger amounts has been rendered inoperative. 

In some cases, the account holders asserted that they are neither accused nor suspects and there is no material demonstrating their conscious involvement in the alleged cyber fraud. In some matters, investigation has already culminated in a clean chit, closure report or other order exonerating the account holder, yet the bank account continues to remain frozen. 

Another recurring grievance is that, despite there being no FIR or complaint against the concerned account holder on the National Cybercrime Reporting Portal (NCRP) or any other official platform, the bank account has been frozen solely based on a communication or letter purportedly issued by an Investigating Officer.

Freeze the money, not the account 

The petitioners argued that freezing an entire bank account is arbitrary and disproportionate when only a specific transaction is suspected to be linked to cyber fraud. They said that, even assuming a particular credit is suspected of representing proceeds of cyber fraud, the restraint ought ordinarily to be confined to the identifiable disputed amount.

They also relied on the January 2, Central Government SOP, which provides a mechanism for grievance redressal and removal of holds/lien and, therefore, the investigating agencies and banks are required to act in accordance with the said mechanism within the prescribed time. It was submitted that failure to act upon the grievance mechanism cannot result in an indefinite deprivation of the account holder’s property and livelihood.

The State and investigating agencies submitted that cyber financial crimes are fundamentally different from ordinary offences because the money is transferred rapidly through several layers and may disappear from the financial system before the investigation can trace it. 

The counsel submitted that if the entire account is allowed to remain operational during investigation, there is a real possibility of misuse or withdrawal of the suspected amount. It was accordingly urged that this Court should not interfere with legitimate investigative measures merely because the account holder claims financial hardship. 

It was submitted that where an account exhibits unusual transaction patterns or deficiencies in KYC/source-of funds or income documentation, appropriate restrictions may be imposed by the bank independently of any criminal investigation. The banks, however, have no objection to operating the accounts in accordance with lawful and reasoned directions issued by the competent authority.

No FIR, no endless freeze

The court held that the absence of an FIR against a person does not by itself render every preliminary investigating measure illegal, and said that, nevertheless, an unverified or vague communication cannot be the sole basis for indefinitely freezing a citizen’s entire bank account. 

The court said a freeze shall not continue indefinitely merely because investigation is pending. The necessity of continuing the restraint shall be periodically reviewed by the Investigating Officer and supervisory officer. It said that the bank shall not mechanically transform a transaction-specific request for holding a particular amount into a blanket freeze of the entire account, unless the communication and the material disclosed therein lawfully justify such wider action.

It also ordered the Rajasthan Police and RBI to strengthen monitoring, training and review mechanisms for account freezes, while clarifying that the directions do not prevent genuine investigations or lawful banking restrictions.