Bank Can’t Be Used As Substitute For Statutory Judicial Process: Rajasthan High Court Bars Indefinite Freezing Of Bank Accounts In Cyber Fraud Investigations
The Court laid down 14-point framework requiring restraint to be confined to the disputed amount, not the entire account, and directed RBI to mandate staff training on freeze/lien distinctions.
Justice Anand Sharma, Rajasthan High Court
The Rajasthan High Court has held that investigating agencies cannot achieve, merely by labelling a communication to a bank as a "freeze," "debit freeze," "lien," or "seizure," what in substance amounts to an indefinite attachment of a citizen's property without following the procedure prescribed by law, and that a bank cannot be used as a substitute for the statutory judicial process. Disposing of a large batch of writ petitions challenging the freezing of bank accounts in connection with alleged cyber financial frauds, the Court laid down a detailed 14-point framework governing when and how such restraints may be imposed.
The Court held that wherever the amount in dispute is identifiable and there is no material showing wider complicity of the account holder, the default course must be to place a lien or hold only on that disputed amount, rather than debit-freezing the account in its entirety, and directed the Reserve Bank of India to issue a circular requiring periodic training of bank officials on the distinction between a transaction-specific hold, a statutory seizure, an attachment of proceeds of crime, and independent KYC/AML-driven restrictions.
To govern freezing/lien/hold/seizure of bank accounts in cyber financial crime investigations within the State of Rajasthan, the Court ruled that: (A) blanket freezes on vague communications are banned, (B) IOs must record a clear link between the account and crime, and (C) only the disputed amount should be placed on hold (Jinat Bano rules) unless (D) complex factors like mule accounts justify a full freeze. Investigating agencies must (E) & (F) comply with BNSS Sections 106 and 107 for Magistrate reporting and asset attachment, while (G), (H) & (I) periodic reviews must ensure freezes are lifted promptly if the holder is uninvolved or the case closes. Furthermore, (J) & (K) precise case details must be provided so banks do not auto-convert specific holds into full freezes, (L) banks must separate police orders from internal KYC/AML actions, and (M) & (N) inter-state grievances under the Jan 2, 2026 SOP must be resolved primarily via video conferencing without forcing personal appearances.
A Bench of Justice Anand Sharma observed, “…The Investigating Agency cannot be permitted to achieve, by merely labelling its communication as a ‘freeze’, ‘debit freeze’, ‘lien’ or ‘seizure’, a result which in substance amounts to indefinite attachment of the property of a citizen without following the procedure prescribed by law”.
“The requirement of reporting under Section 106(3) of the BNSS is mandatory. Therefore, where the police action constitutes seizure of property under Section 106 of the BNSS, the Investigating Officer shall forthwith report the seizure to the competent Magistrate. A bank cannot be used as a substitute for the statutory judicial process. Where the restraint is in substance an attachment of property as proceeds of crime, the Investigating Officer shall invoke Section 107 of the BNSS and obtain the appropriate order of the competent Court/Magistrate in accordance with law”, the Bench further noted.
Advocate Ankur Jain appeared for the petitioner while Sunita Meena, AGC, Bhuwnesh Sharma, AAG and Somitra Chaturvedi, Deputy. GC appeared for the respondent.
The petitioners, a mix of individuals, proprietorships, partnerships, and companies, complained that their accounts, sometimes holding substantially larger sums, had been rendered wholly inoperative over disputed transactions as small as Rs. 100 to Rs. 10,000, in some cases without any FIR or complaint on the National Cybercrime Reporting Portal, without particulars of the amount or provision invoked, and in some instances even after investigations had concluded with a clean chit.
The State and investigating agencies defended the practice as a necessary investigative measure given the rapid, layered movement of cyber-fraud proceeds, while the banks submitted that they acted on agency instructions as well as their own independent KYC and anti-money-laundering obligations, which needed to be distinguished from police-directed freezes.
Examining Sections 106 and 107 BNSS the Court distinguished investigative seizure, which carries a mandatory obligation to report forthwith to the jurisdictional Magistrate, from attachment of proceeds of crime, which requires a judicial application, ordinarily with notice and hearing, before the competent court. It held that an indefinite freeze effected through a bare communication to a bank, without invoking either safeguard, could not be sustained.
Drawing on the Delhi High Court's reasoning in Neelkanth Pharma Logistics and its own earlier ruling in Jinat Bano v. State Bank of India Another S. B. Civil Writ Petition No. 5036/2026, the Court applied the doctrine of proportionality to hold that a blanket freeze is justified only in defined exceptional circumstances, such as deliberately operated mule accounts, repeated suspicious transfers, or demonstrated conscious participation, and even then, reasons must be recorded and periodically reviewed.
“…The distinction between seizure for purposes of investigation and attachment for securing proceeds of crime is therefore material. The former is an investigative measure accompanied by the statutory obligation of reporting to the Magistrate; the latter involves judicial supervision and the safeguards expressly incorporated in Section 107 of the BNSS”, it noted.
Cause Title: Shree Balaji Enterprises v. Reserve Bank Of India & Ors. (Neutral Citation: 2026:RJ-JP:33344)
Appearances:
Petitioner: Ankur Jain, Sidhant Gaur, Ankur Singh Tomar, Ruchika Sharma, Hemant Singh Advocate, Nachiket Singh, Abhishek Sharma, Tushar Panwar, Mukul Rao, Ankit Vishnoi and other Advocates.
Respondent: Devakriti Vashishtha, Sunita Meena, AGC, Bhuwnesh Sharma, AAG, Advocate Munendra Singh Fouzdar, Somitra Chaturvedi, Dy. GC and other Advocates.