Bank account freezing has become a recurring operational and legal risk for companies and individuals alike, particularly in the context of cyber-fraud complaints, internal management disputes and unilateral action by banks. Recent decisions of various High Courts, read alongside the Ministry of Home Affairs’ Standard Operating Procedure (“MHA SOP”) indicate that courts are scrutinizing blanket freezes more closely and insisting on a clear statutory basis, proportionality and procedural fairness.

This alert analyses the principles emerging from recent judgments and the MHA SOP, focusing primarily on the freezing of company bank accounts, and separately addressing freezing of accounts in individual and non-company matters.

Procedure and Legal Basis for Freezing of Bank Accounts

Account freezes (other than on the directions of the Courts/Tribunals) primarily arise in scenarios such as: (i) police or investigative action in cyber-fraud matters, (ii) unilateral or quasi-unilateral bank action in response to internal-management disputes or third-party complaints, and (iii) bank action based on internal suspicion regarding unusual transactions. Courts treat these categories differently, but a common thread runs through them, i.e., a bank or agency must act within the four corners of law and cannot impose an unrestricted or indefinite freeze without jurisdictional basis.

Corporate Account Freezes: Key Judicial Principles

1. Cyber-fraud linked freezes must be proportionate and legally grounded

In Malabar Gold and Diamond Limited v. Union of India & Ors., the Delhi High Court vide its Order dated January 16, 2026, dealt with the freezing of a petitioner companies bank accounts after transactions with its customer against whom third-party complaints had been filed. The petitioners asserted that no complaint, FIR or proceeding had been registered against them and that no summons, notice or intimation had been served. The Court held that the mere fact that offences may have been committed by the customer of the petitioner company did not, by itself, constitute a lawful basis for unilaterally freezing the company’s accounts, and that the company was at least entitled to be informed of the reasons.

Relying on the distinction between Sections 106 and 107 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (“BNSS”), and on decisions such as Headstar Global Pvt. Ltd. v. State of Kerala and Kartik Yogeshwar Chatur v. Union of India, the Court reiterated that investigating agencies have no power to debit-freeze or attach bank accounts under Section 106 BNSS, and that such action must follow the Section 107 route before the competent Magistrate. The Court found blanket freezing disproportionate where the account holder was neither an accused nor a suspect, particularly because it paralyzed payroll, vendor payments and ordinary business operations.

2. A bank cannot freeze a company account on a private shareholder dispute

In Proview Constructions Limited v. Union of India & Ors., the Allahabad High Court addressed a situation where a private bank froze a company’s current account at the request of a shareholder-director’s spouse amid a matrimonial dispute. There was no order from any competent court, no instruction from the investigating officer and no statutory provision authorizing the bank to adjudicate such private claims. The Court held that, although a scheduled private bank may not be amenable to writ jurisdiction in every commercial dispute, the function of permitting a depositor to withdraw money from its current account – consistent with the bank’s statutory obligations to depositors and the public interest – falls within a public function for the purposes of writ relief. The bank’s action was quashed.

3. Internal management disputes do not justify freezing the company’s account

In Ravindra Pratap Singh & Anr. v. Reserve Bank of India & Ors., the Calcutta High Court (Division Bench) considered the freezing of a company account by the bank amid alleged management disputes and contradictory signatory instructions. The Court found that one of the communications relied upon was not from the account-holding company at all, but from its shareholder, and that the bank had strayed beyond its role as banker by entering into internal company affairs. It was held that the bank’s duty was to act on the instructions of the company itself, particularly after the Registrar of Companies had unmarked the “management dispute” status. The Court was also critical of the bank’s continued refusal to de-freeze despite subsequent supporting communications and indemnity offered by the relevant shareholder.

Freezing in Non-Company and Individual Account Disputes

1. Suspicion alone – temporary freeze permissible, but not indefinite

In Abdul Azeez v. Union of India & Ors., the Kerala High Court considered whether a bank could freeze accounts of individual customers based on suspicious, high-value transactions inconsistent with their profile in the absence of a requisition from law-enforcement agencies. The Court acknowledged that no requisition had been received for more than a year but also noted that the petitioners had not satisfactorily explained the transactions. The Court held that the RBI and/or prevention of money laundering framework did not specifically authorize indefinite debit-freezes on mere suspicion, but the obligation to take “appropriate action” permitted a temporary freeze for a reasonable period, which the Court in this case fixed at three months.

The Court laid down interim guidelines (till the time RBI came forth with relevant procedure) requiring same-day communication of the freeze to the account holder and to the cyber-crime authorities, consideration of the customer’s explanation within one week, and mandatory lifting of the freeze if no law-enforcement action is received within the prescribed period.

2. Proportionality – freeze must be limited to the disputed amount

In Sri Madhu v. IndusInd Bank Ltd., the Karnataka High Court considered a case where the petitioner’s account had been frozen pursuant to police communications covering only specified sums, but the bank had frozen the entire account on the apprehension of further requests. The Court rejected this approach, holding that the bank’s authority was circumscribed by the directions actually received from the investigating authorities and that the bank could not enlarge the scope of the freeze on its own. The freeze was restricted to the aggregate specified amount, with the account holder permitted to operate the balance. The Court characterized the bank’s role in implementing freezing directions as limited and ministerial, and not one of expanding restraints based on assumption or administrative convenience.

3. The MHA SOP — Emerging Operational Framework to National Cybercrime Reporting Portal and Citizen Financial Cybercrime Reporting and Management System (“NCRP/CFCFRMS”)

The MHA SOP is significant for banks, companies and individuals dealing with action originating from the NCRP)/CFCFRMS channel. It articulates principles of proportionality, transparency, fairness and protection of livelihood and privacy rights. For banks, the SOP distinguishes between three categories of action: (i) putting a reported amount on hold, (ii) suspending digital banking services, and (iii) seizing accounts or property, and contemplates grievance redressal through bank branches and designated police grievance officers within prescribed timelines. Affected account holders are given structured grievance routes for both holds and suspensions or seizures, including escalation to district and state grievance officers and, ultimately, the jurisdictional court.

Conclusion

Taken together, the attached authorities indicate that the law is moving away from exercise of broad, informal and indefinite account freezes. For corporate accounts, courts are alive to the severe commercial prejudice and inconvenience caused by blanket restrictions and require the banks and agencies to justify both the legal source and the scope of the freeze. For corporates, any freeze should be tested for jurisdiction, statutory basis, notice, proportionality, nexus with alleged wrongdoing and duration. Where these elements are absent, prompt legal challenge and structured engagement with the bank and investigating authorities are warranted. For individual accounts, temporary protective action may be tolerated in genuinely suspicious cases, but only subject to strict timelines, communication and proportionality.

Endnotes: 

^[1] W.P.(C) 4198/2025 & CM APPL. 19454/2025

² 106. Power of police officer to seize certain property.—(1) Any police officer may seize any property which may be alleged or suspected to have been stolen, or which may be found under circumstances which create suspicion of the commission of any offence.

(2) Such police officer, if subordinate to the officer in charge of a police station, shall forthwith report the seizure to that officer.

(3) Every police officer acting under sub-section (1) shall forthwith report the seizure to the Magistrate having jurisdiction and where the property seized is such that it cannot be conveniently transported to the Court, or where there is difficulty in securing proper accommodation for the custody of such property, or where the continued retention of the property in police custody may not be considered necessary for the purpose of investigation, he may give custody thereof to any person on his executing a bond undertaking to produce the property before the Court as and when required and to give effect to the further orders of the Court as to the disposal of the same:

Provided that where the property seized under sub-section (1) is subject to speedy and natural decay and if the person entitled to the possession of such property is unknown or absent and the value of such property is less than five hundred rupees, it may forthwith be sold by auction under the orders of the Superintendent of Police and the provisions of Sections 503 and 504 shall, as nearly as may be practicable, apply to the net proceeds of such sale.

³ 107. Attachment, forfeiture or restoration of property.—(1) Where a police officer making an investigation has reason to believe that any property is derived or obtained, directly or indirectly, as a result of a criminal activity or from the commission of any offence, he may, with the approval of the Superintendent of Police or Commissioner of Police, make an application to the Court or the Magistrate exercising jurisdiction to take cognizance of the offence or commit for trial or try the case, for the attachment of such property.

(2) If the Court or the Magistrate has reasons to believe, whether before or after taking evidence, that all or any of such properties are proceeds of crime, the Court or the Magistrate may issue a notice upon such person calling upon him to show cause within a period of fourteen days as to why an order of attachment shall not be made.

(3) Where the notice issued to any person under sub-section (2) specifies any property as being held by any other person on behalf of such person, a copy of the notice shall also be served upon such other person.

(4) The Court or the Magistrate may, after considering the explanation, if any, to the show-cause notice issued under sub-section (2) and the material fact available before such Court or Magistrate and after giving a reasonable opportunity of being heard to such person or persons, may pass an order of attachment, in respect of those properties which are found to be the proceeds of crime:

Provided that if such person does not appear before the Court or the Magistrate or represent his case before the Court or Magistrate within a period of fourteen days specified in the show-cause notice, the Court or the Magistrate may proceed to pass the ex parte order.

(5) Notwithstanding anything contained in sub-section (2), if the Court or the Magistrate is of the opinion that issuance of notice under the said sub-section would defeat the object of attachment or seizure, the Court or Magistrate may by an interim order passed ex parte direct attachment or seizure of such property, and such order shall remain in force till an order under sub-section (6) is passed.

(6) If the Court or the Magistrate finds the attached or seized properties to be the proceeds of crime, the Court or the Magistrate shall by order direct the District Magistrate to rateably distribute such proceeds of crime to the persons who are affected by such crime.

(7) On receipt of an order passed under sub-section (6), the District Magistrate shall, within a period of sixty days distribute the proceeds of crime either by himself or authorise any officer subordinate to him to effect such distribution.

(8) If there are no claimants to receive such proceeds or no claimant is ascertainable or there is any surplus after satisfying the claimants, such proceeds of crime shall stand forfeited to the Government.

⁴ 2025 SCC OnLine Ker 3546

⁵ 2025 SCC OnLine Bom 4778

⁶ 2025:AHC:20822-DB

⁷ 2026:CHC-AS:4-DB

⁸ 2026:CHC-AS:4-DB

⁹ NC: 2026:KHC:27735