The Rajasthan High Court recently delivered a landmark ruling while deciding a writ petition in which the State Bank of India (SBI) had frozen the entire bank account of the petitioner. The petitioner challenged this drastic step, arguing that such a blanket freeze caused undue hardship and was disproportionate to any alleged wrongdoing.
The Court, presided over by Justice Nupur Bhati, held that once a complaint or investigation alleges an illegal or disputed transaction, the bank may not lawfully impose a freeze on the entire account. Rather, only the specific amount alleged to be involved in the disputed transaction should be frozen or lien-marked. The rest of the funds in the account must remain available to the account-holder for carrying out normal transactions and business operations.
In the judgment, the Court directed that if the bank did not have precise information about the disputed amount when it received the police request or letter, it must write to the concerned Investigating Officer or police to ascertain the exact figure to be placed under lien. The Investigating Officer is then required to respond with the exact amount within seven days. Following receipt of that information, the bank must freeze only that amount. If no reply arrives within the stipulated period, the bank must unfreeze the account and allow the account-holder access to the funds.
The Court’s decision builds on earlier rulings emphasising that arbitrary, mechanical freezing of bank accounts — especially in cases where the account-holder is not charged or even accused — imposes an undue burden on individuals and businesses. In past cases, the Court had quashed freezing orders where the investigating agencies failed to comply with mandatory procedural safeguards under the law (namely, under the relevant provisions that regulate seizure or freezing of property and bank accounts).
In another recent hearing, the Court had raised a larger issue: whether bank accounts could be seized or frozen merely on the basis of a communication from police or investigating agencies, without triggering formal statutory processes. The Court invited members of the Bar to submit inputs and called for caution by investigating authorities before sending freeze-letters to banks. Through these steps, the Court underscored that freezing a bank account should never be a blunt instrument used merely on suspicion or routine instructions — it must be guided by a clear, pointed allegation, evidence of specific transactions in dispute, and compliance with procedural safeguards.
This ruling thereby provides a more balanced and nuanced framework. It recognises that banks and investigating agencies do have the power to block or lien suspicious funds when a crime or fraud is alleged, but it also protects innocent account holders — individuals and businesses — from facing indefinite deprivation of their legitimate funds and operational paralysis due to full-account freezes.
The writ petition was accordingly disposed of, with the Court directing the bank to unfreeze the non-disputed portion of the account and to refrain from repeating the practice of full-account freezes without precise information about the transaction under enquiry.
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