The Delhi High Court held that blanket and disproportionate freezing of bank accounts, especially where the account holder is neither an accused nor a suspect in any offence, is manifestly arbitrary and violates fundamental rights under Articles 19(1)(g) and 21 of the Constitution. The Court emphasized that the right to livelihood and the freedom to carry on trade and business are protected under these constitutional provisions, and that indiscriminate freezing of accounts without any finding of complicity disrupts daily business operations, causes commercial loss, and subjects innocent entities to punitive consequences. The matter was heard by Justice Purushaindra Kumar Kaurav, who addressed a petition filed by Malabar Gold and Diamond Limited challenging the Union Government’s directive to two banks to freeze certain sums standing to the credit of the company’s accounts.
The petition by Malabar Gold and Diamond Limited arose from transactions carried out by the company with a customer identified as Dallas E-com Infotech Pvt. Ltd., involving gold transactions of significant value. Subsequently, complaints were made by some individuals against Dallas E-com Infotech alleging fraud or cybercrime. The company itself, however, was not named as an accused or even a suspect in any complaint, and no first information report was shown to have been registered against it. Despite this absence of any formal allegation or complaint against Malabar Gold, enforcement or investigating agencies instructed the banks to put specific amounts in the company’s bank accounts on “hold” or freeze them, on the basis that those amounts were suspected proceeds of crime connected to the third party. By a certain date in the preceding year, approximately Rs. 80,10,857 in the company’s accounts had been frozen at the behest of authorities, even though the petitioners were not alleged to have engaged in any wrongdoing.
Malabar Gold contended that this freezing impaired its ability to use its own funds to meet routine business requirements, including paying salaries to employees and attending to day-to-day expenses essential for the smooth conduct of its operations. The company asserted that when enforcement agencies directed the banks to freeze the amounts, there had been no finding of complicity against it, and that the continued withholding of its funds prejudiced its business. The petition argued that such action by the authorities, without any complaint or investigation specifically targeting the company, was disproportionate and arbitrary, and that it infringed upon the company’s constitutional rights. The petition sought relief in the form of directions to defreeze the bank accounts and to uphold the principle that fundamental rights cannot be curtailed in the absence of evidence of complicity or procedural safeguards.
In his judgment, Justice Kaurav agreed with the petitioners’ contention that freezing the account in these circumstances was arbitrary. The Court observed that the authority to freeze or put on hold funds in a bank account is a significant intrusion into the rights of the account holder and cannot be exercised in a blanket or disproportionate manner against entities that have not been shown to be involved in any offence. The Court held that such measures, absent any demonstration of complicity or legal basis, violate the right to carry on business under Article 19(1)(g) and the right to life and personal liberty under Article 21, which protect economic rights and the ability of individuals and businesses to function without undue state interference.
With these observations, the High Court directed that the bank accounts of Malabar Gold and Diamond Limited which had been frozen or amounts withheld be defreezed forthwith. The Court underscored that intelligible differentia or reasonable nexus between the freezing action and the objective of investigation was absent in this case, given that the company was not an accused or even a suspect. The Court clarified that its decision should not be construed as restraining legitimate investigation or enforcement action; rather, it recognised that any enforcement or investigating agency remains at liberty to initiate or continue an investigation against the company in accordance with the provisions of law, indicating that appropriate procedures under the relevant statute, in this case the Bharatiya Nagarik Suraksha Sanhita (BNSS), must be followed if an investigation is to proceed.
The Court noted that the petitioners had undertaken to fully cooperate with any proper investigation if one were to be launched, reinforcing that the relief granted was without prejudice to lawful investigative processes. The judgment highlighted that actions taken by authorities must be measured, proportionate, and anchored in evidence linking the entity concerned to wrongdoing, and that fundamental rights cannot be curtailed merely on the basis of suspicion or incidental involvement of a third party. The Court’s order therefore reflected the principle that measures affecting fundamental rights must satisfy constitutional standards of reasonableness, non-arbitrariness, and procedural fairness, and must be supported by law and evidence demonstrating necessity and justification.
The case, captioned “Malabar Gold and Diamond Limited & Ors v Union of India & Ors,” illustrates the tension between investigative measures in the context of alleged cybercrime, fraud, or financial misconduct and the constitutional protections afforded to entities and individuals who are not shown to have engaged in illegal conduct. The High Court’s ruling underscored the importance of balancing the need for effective investigation and enforcement against the imperative to safeguard fundamental rights and prevent undue hardship to innocent parties. The directive to defreeze the accounts was accordingly based on the absence of any material linking the petitioners to the offences underlying the complaint against the third party and the resultant conclusion that the freezing of their accounts lacked a rational and lawful basis.
The Delhi High Court’s judgment therefore sets a precedent that indiscriminate freezing of bank accounts of non-accused entities violates constitutional guarantees and must be avoided unless there is clear evidence of complicity and adherence to legal procedures governing investigation and enforcement. The ruling reinforces that fundamental rights under Articles 19(1)(g) and 21 of the Constitution are engaged in matters affecting economic freedom and the continuity of business operations, and that state action, particularly in the realm of financial regulation and cybercrime enforcement, must be consistent with constitutional safeguards and must not impose undue burdens on innocent account holders.
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