Rajasthan High Court lays down rules to prevent indiscriminate freezing of bank accounts

The Rajasthan High Court recently laid down a framework to prevent banks and investigating agencies from indiscriminately freezing entire bank accounts during cybercrime investigations. [Balaji Enterprises v. RBI].Justice Anand Sharma directed that where the amount linked to an alleged cyber fraud is identifiable, the ordinary course should be to place a lien or hold on that amount and allow the account holder to operate the remaining balance..The petitioners had challenged the freezing, debit-freezing or lien marking of their accounts following communications from various investigating agencies.In some cases, the transaction allegedly connected with cyber fraud involved amounts below ₹100, ₹1,000, ₹5,000 or ₹10,000. However, the entire bank accounts, which contained substantially larger amounts, had been frozen.The Court said that while the State has a duty to protect cyber fraud victims and prevent the dissipation of stolen funds, investigative powers are subject to constitutional standards of legality, reasonableness and proportionality.“The seriousness of cyber-crime cannot justify abandoning the safeguards which protect an innocent citizen against arbitrary State action,” the Court stated..The court laid down following broad guidelines for freezing bank accounts:No indefinite blanket freeze: A bank account cannot be subjected to an indefinite, complete debit freeze based merely on a vague, unverified or cryptic communication.Record the connection between the account and the offence: Before imposing or continuing any restraint, the investigating officer must identify and record material showing a prima facie connection between the account or transaction and the offence being investigated.Ordinarily limit the restraint to the disputed amount: If the disputed amount can be identified, only that amount should ordinarily be preserved through a lien or hold. The entire account may be frozen only when reasons exist for a wider restraint. The directions in Jinat Bano must be strictly followed.Give reasons for freezing the entire account: If a complete freeze is considered necessary because of the nature of the offence, repeated transactions, mule-account indicators, the account holder’s conscious involvement or difficulty in separating the proceeds, then specific reasons must be recorded and communicated to the bank.Report seizures to the magistrate: If the action amounts to seizure under Section 106 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), it must be reported immediately to the competent magistrate.Follow the attachment procedure: If the investigating agency seeks to attach property as proceeds of crime, it must follow Section 107 of the BNSS and approach the competent court or magistrate.Review continuing freezes periodically: A freeze cannot remain in force indefinitely merely because the investigation is pending. The investigating officer and supervisory officer must periodically review whether it remains necessary.Withdraw unnecessary restraints immediately: If the investigation shows that the account holder has no connection with the offence and the disputed amount need not be retained, the restraint must be lifted immediately.De-freeze accounts after the investigation ends: Instructions to lift the restraint must be issued without avoidable delay when the investigation concludes or a closure report is filed or the account holder is exonerated or the account or amount is no longer required.Give sufficient details to the bank: Communications directing a restraint should, as far as permissible, identify the case, account, transaction, amount involved and legal basis for the action.Banks cannot expand a limited request: A bank must not mechanically convert a request to hold a particular transaction amount into a blanket freeze unless the communication and accompanying material legally justify wider action.Distinguish banking restrictions from police restraints: Restrictions independently imposed under Know Your Customer, anti-money laundering, fraud-risk management or other regulatory requirements will continue to be governed by the applicable law and Reserve Bank of India directions. Banks must clearly distinguish these from restraints imposed at the request of police or cybercrime authorities.Follow the grievance mechanism: Banks and investigating agencies must strictly follow the grievance-redressal mechanism under Clause 10 of the January 2, 2026 Standard Operating Procedure. A grievance cannot be ignored merely because the cybercrime complaint originated in another State.Prefer electronic verification: Account holders’ grievances should ordinarily be verified electronically or through video conference wherever practicable. Personal appearance may be required only when genuinely necessary for the investigation and after reasons are recorded..The Court noted that a bank account is not merely a repository of money. It is the principal mechanism through which a person receives salary or business income and pays for food, education, healthcare, rent, taxes and utilities. For businesses, a complete freeze could prevent the payment of employees, statutory dues, suppliers and creditors and effectively paralyse operations, the Court added.It illustrated that if the suspected cyber fraud amount was ₹500 and the account held ₹5 lakh, the purpose of the investigation would ordinarily be served by preserving ₹500 instead of denying the account holder access to the remaining ₹4,99,500.However, the Court clarified that a blanket freeze could be justified in exceptional cases. These may include accounts deliberately operated as mule accounts, accounts showing repeated suspicious credits and onward transfers, cases involving conscious participation by the account holder or situations where the entire balance was reasonably suspected to be proceeds of crime..The Rajasthan Police, Cyber Crime Wing and RBI were directed to submit compliance reports to the High Court’s Registrar General within eight weeks..[Read Judgment]