Delhi High Court rules that freezing bank accounts implicated in an investigation but not at the centre of an alleged fraud violated holders’ rights and unreasonable actions would result in multiple customer grievances against banks and non-banking financial companies.
In , the court said bank accounts could only be frozen by a competent authority’s order and not as part of a police investigation and proceedings. Doing so, not only resulted in losses to consumers, but violated their fundamental rights.
Malabar Gold and Diamond (Malabar) filed a petition seeking the court to direct banks to unfreeze their accounts.
Malabar – which sells jewellery, watches, coins and gem stones – held accounts at State Bank of India and HSBC banks. The banks had frozen Malabar’s accounts following involvement in transactions with Dallas E-com Infotech (Dallas), which was facing pending criminal complaints.
In 2024, Malabar had sold Dallas gold items that included bars and coins. As part of the transactions, Malabar conducted required due diligence, including know-your-customer verifications. The sale was completed over multiple transactions totalling INR142.07 million (USD1.5 million).
After these transactions, criminal complaints were filed against Dallas for fraud and cheating. Malabar’s bank accounts were subsequently frozen by the banks after receiving a direction from the Indian Cyber Crime Coordination Centre, New Delhi.
Malabar argued that no case had been registered against them, nor were they at the centre of any investigation alleging involvement in criminal activity. Their accounts were frozen, without prior notice and no information was made available when they approached the banks.
In status reports filed by the authorities, an amount of INR13.65 million was disputed in Malabar’s accounts as proceeds of crime.
The court observed that “merely because certain offences may have been committed by the customer, cannot, by itself, constitute a lawful basis for a unilateral freezing or withholding of the petitioners’ bank accounts. The petitioners are, at the very least, entitled to be informed of the reasons for freezing their bank accounts, which they are otherwise legally entitled to operate”.
The court relied on noting that “freezing of bank accounts must be proportionate, reasoned, and supported by material indicating the account holder’s involvement in the alleged offence”. The court also relied on , which ruled that an “investigating agency has no power to attach or debit freeze an account”.
Relying on , the court reiterated that freezing bank accounts based on a small amount identified as proceeds of crime “is a disproportionate and arbitrary exercise of power”, especially when the account holder was neither the accused nor a suspect in an investigation.
The court directed that Malabar’s accounts be unfrozen and the petitioners fully co-operate with any investigation.
