Seller Can't Verify Credentials Of Purchasers Making Payments Through UPI: Andhra Pradesh HC Orders Defreezing Of Seller's Bank Account

The Andhra Pradesh High Court has held that without verifying the credentials of a person and without noticing his involvement in any criminal case registered, the authorities cannot freeze a bank account.

The Court directed the respondent Bank to forthwith defreeze the current account of a licensed wine trader, ruling that the arbitrary freezing of an entire bank account without notice, merely because a cyber-fraud accused transferred a petty amount via a digital UPI transaction, was unsustainable and ex-facie illegal.

The Bench of Justice Ravi Cheemalapati held, "...if any individual purchases goods and pays through UPI using the above said applications, the vendor cannot verify the credentials of such individual". The Court further held, "Without verifying the credentials of the petitioner and without noticing his involvement in any criminal case registered against the said individual, the authorities cannot freeze the petitioner’s account. The manner in which the petitioner account has been freezed is unsustainable and contrary to law. The petitioner has made out a case warranting interference and the freezing the petitioner’s account is illegal."

Advocate Chetan Ponnuru appeared for the Petitioner.

Brief Facts

The petitioner was a licensed wine trader operating a retail liquor outlet under the name and style of a proprietary concern. In the course of business, the petitioner maintained a current bank account with the respondent-Bank. The said bank account was abruptly frozen by the respondent-Bank without any prior notice, disclosure of reasons, or an opportunity of hearing.

Upon inquiry, the petitioner learned that the account was frozen pursuant to instructions issued by the respondent-Cyber Cell and the respondent-Police Station located in Patna District, Bihar, following a complaint lodged against a third-party individual. The petitioner was left unable to operate the bank account, wherein a substantial amount of business capital remained stuck, thereby completely paralyzing the petitioner's day-to-day trade activities.

Contentions of the Parties

The Petitioner contended that the action of the respondents was ex-facie illegal, arbitrary, and in gross violation of the principles of natural justice, as well as the fundamental rights guaranteed under Articles 14, 19(1)(g), and 21 of the Constitution of India. It was argued that an unknown customer had purchased goods from the petitioner’s retail outlet worth a petty sum and had cleared the bill via a Unified Payments Interface (UPI) transaction.

The Petitioner submitted that the said customer was allegedly involved in a cheating case under investigation by the Cyber Cell in Bihar, and merely because the tainted money touched the petitioner’s account, the entire account could not be frozen.

It was further urged that in modern-day digital commercial transactions, it was humanly impossible for a petty vendor to verify the character, credentials, or criminal antecedents of every customer before accepting digital payments, and if such freezing was allowed to continue, it would cause irreparable financial injury and hardship to innocent merchants.

Observations and Findings

The High Court observed that the petitioner was a legitimate trader who had merely accepted a digital payment through a UPI application towards the sale of goods in the ordinary course of business.

The Court took notice of the fact that digital payment modes were widely used across petty businesses, where vendors possessed no mechanism to verify the credentials or criminal involvement of their buyers.

The Court held that the respondent authorities could not have frozen the entire bank account of an innocent third-party merchant without ascertaining his complicity or direct involvement in the alleged crime.

The Court further noted that the manner in which the bank account was seized—without affording a prior notice or following the due process of law—was wholly unsustainable, contrary to the legal framework, and violative of the principles of natural justice.

"Upon noticing that the transaction had been done through the said individual’s account, the petitioner’s account has been freezed at the instance of the 4th respondent/Cyber Cell without notice and without following due process of law. No doubt, with regard to transactions in petty businesses, amounts are being transferred between vendors and vendees through PhonePe, and Google Pay, etc., by using UPI (Unified Payments Interface). As rightly contended by the learned counsel for the petitioner, if any individual purchases goods and pays through UPI using the above said applications, the vendor cannot verify the credentials of such individual", the Court observed.

Concluding that the petitioner had made out a clear case for interference, the High Court declared the freezing action illegal and directed the respondent Bank to forthwith defreeze the current account of the petitioner, while dismissing the petition against the local police station as not pressed.

Cause Title: Sri Sai Wines v. The Union of India and Ors. [Writ Petition No. 969/2026]

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