Cyber-crime cases can't trigger full bank account freezes, rules HC

Court says banks cannot block entire balances, even during cyber-crime probes

Rakesh Gupta, a 34-year-old Jaipur trader, got a shocker recently when he found his bank account frozen after a cyber-fraud FIR, despite having no role in the crime. He could not pay his suppliers, salaries to his workers, or even his son’s school fees for weeks. The police email to his bank had simply said “freeze the account”. The bank responded by blocking the entire balance.

 

A recent ruling of the Rajasthan High Court says this practice is unlawful.

 

The court held that banks can freeze only the disputed amount, not the entire account, and must keep the remaining balance fully operable. The court also directed banks to seek clarification from police within a reasonable time, seven days in that case, if the amount is not specified.

 

 

Why banks often freeze entire accounts

Experts say blanket freezes are common, particularly in cyber-fraud and early-stage cheating investigations.

 

“Banks often freeze entire accounts in cyber-crime or cheating FIR cases when they receive generic ‘freeze the account’ requests from police,” said Shivam Kunal, senior associate at B Shanker Advocates. He said that over-freezing also occurs during AML or KYC alerts, where systems place a full debit freeze rather than ring-fencing the disputed credit.

 

Raheel Patel, partner at Gandhi Law Associates, added that Section 94 and 97 of BNS are often vague. “Banks, out of institutional caution, restrict the entire account instead of securing only the identifiable disputed amount,” he said.

 

Cyber-crime trails worsen the problem.

Samayra Adlakha, advocate at the Delhi High Court, cited the Neelkanth Pharma Logistics case where the Delhi High Court flagged that agencies routinely freeze accounts of innocent intermediaries while following the flow of fraudulent funds.

 

What customers should do immediately

Experts emphasise swift, documented action:

 

• Request written reasons, the legal basis for the freeze, and a copy of the police direction.

 

• Ask the bank to restrict only the disputed amount, citing the Rajasthan High Court ruling.

 

• Approach the investigating officer to determine the exact quantum and seek a “no-objection” for partial operations.

 

• Escalate to the nodal officer or the RBI Ombudsman if the bank does not act, said Yatharth Rohila, partner at Aeddhaas Legal LLP.

 

• File a writ petition if the freeze cripples essential operations.

 

What banks are required to do under RBI rules

 

Banks must follow proportionate and transparent processes.

 

“RBI requires banks to authenticate every enforcement request, limit the restraint strictly to the identified disputed funds, and maintain an audit trail,” said Patel.

 

Rohila added that banks must disclose reasons for freezing, share police directions when asked, and allow full operation of the undisputed balance.

 

As Adlakha explained, the RBI’s KYC and customer-service circulars require banks to freeze accounts when directed by law-enforcement agencies, but the restraint must not exceed what the order requires.

 

Experts say, if implemented rigorously, the Rajasthan High Court’s ruling could significantly reduce the financial hardship caused by blanket account freezes, ensuring that customers retain access to their lawful money even during an investigation.