Court Directs Banks and Investigating Agencies to Avoid Indefinite Full-Account Freezes; ₹500 Fraud Cannot Justify Blocking a ₹5-Lakh Account
Jaipur: The Rajasthan High Court has issued important guidelines on freezing bank accounts in cyber-fraud cases, holding that an entire bank account cannot be kept frozen indefinitely merely because of a suspicious transaction.
The Court said that where the disputed amount can be identified, generally only that amount should be placed under lien or hold, while the account holder should be allowed to operate the remaining legitimate balance.
Justice Anand Sharma issued detailed directions concerning bank account freezes, debit freezes and liens in cyber-fraud cases.
The Court stressed that while strict action against cybercrime is necessary, an innocent person or business cannot have its entire bank account blocked indefinitely without sufficient basis. The investigation must be balanced with the person’s financial rights.
₹500 Dispute Cannot Freeze ₹5 Lakh Account
The High Court highlighted the principle of proportionality through an example. If the alleged cyber-fraud involves ₹500 and the bank account contains ₹5 lakh, keeping ₹500 on hold may be sufficient for the investigation.
The remaining ₹4,99,500 should generally remain available to the account holder.
The Court distinguished between placing a hold on the disputed amount and completely freezing the bank account.
Investigation Must Have a Prima Facie Basis
The Court said investigating agencies can take immediate action to secure suspected fraudulent money, but such action cannot become an indefinite and disproportionate restriction without review.
Before freezing or continuing a freeze, the investigating officer should have material showing a prima facie connection between the account or transaction and the alleged offence.
Merely describing an account as a “suspicious transaction,” “mule account” or “cyber fraud” is not enough to keep the entire account inactive for a long period.
Entire Account Can Be Frozen in Exceptional Cases
The Court said a complete freeze may be justified in exceptional circumstances.
This could include cases where the account appears to be deliberately operated as a mule account, repeated suspicious transactions are taking place, funds are continuously being transferred, there is evidence of the account holder’s conscious involvement, or the disputed amount cannot be separately identified.
Even in such cases, specific reasons for completely freezing the account must be recorded and the restriction must be reviewed periodically.
Banks Cannot Act Mechanically on Freeze Requests
The High Court said that, where disclosure would not affect the investigation, a freezing or hold request should contain details such as the investigating officer’s name and designation, police station or agency, FIR/crime/NCRP/CFCFRMS reference, relevant legal provisions, account details, transaction details and disputed amount.
Banks should not automatically convert information about one suspicious transaction into an indefinite freeze of the entire account.
Restrictions Must Be Removed After Investigation
The Court said that if the investigation is completed, a closure report is filed, the account holder is cleared, or the investigating officer no longer requires the account or disputed amount, the restriction should be removed promptly.
The necessary information should be communicated to the bank so that the restriction can be lifted, subject to any separate lawful restriction.
Complaints Must Be Processed Within Seven Days
The High Court directed strict compliance with the January 2, 2026 SOP.
When an affected account holder submits a complaint, the bank must follow the prescribed procedure and forward it through CFCFRMS.
The SOP provides for the bank to forward the complaint within a maximum of seven calendar days.
The Court said account holders should not be forced to approach the bank, police and an investigating agency in another state on their own.
DGP and RBI Directed to Issue Guidelines
The High Court directed the Rajasthan DGP and Cyber Crime Wing officials to issue a detailed circular or standing order within four weeks of receiving the judgment.
The Court also directed the RBI to issue an appropriate circular or advisory to scheduled banks and other regulated banking institutions regarding cyber-fraud cases, account freezing, liens, holds and grievance redressal.
Guidelines to Apply to Similar Cases
The Court disposed of the petitions, including those filed by Shree Balaji Enterprises, and directed banks and investigating officers to review restrictions imposed on the concerned accounts.
Where the disputed amount is clearly identifiable and there is no strong reason to freeze the entire account, only the disputed amount should be kept on hold and the remaining legitimate funds should remain accessible.
The Court clarified that these directions will apply as general guidelines to similar cases across Rajasthan involving bank account freezes, debit freezes, liens, holds or seizure during cyber-financial crime investigations.
The Rajasthan DGP, Cyber Crime Wing and RBI have also been directed to submit compliance reports before the Registrar General within eight weeks.