Police Requisitions Must Not Paralyse Banking Operations; Co-operative Banks Bound to Identify and Freeze Actual Fraud-Linked Accounts: Kerala High Court
Mirror account freeze must be restricted to disputed amount; detailed SOP under NCRP to govern cyber fraud lien, custody and restoration
Justice M.A. Abdul Hakhim, Kerala High Court
The Kerala High Court on blanket freezing of co-operative banks’ mirror accounts in cybercrime cases has held that police requisitions for lien or freeze cannot be allowed to paralyse the entire banking operations of a co-operative bank.
The Court clarified that while law enforcement agencies are empowered to act swiftly in financial cyber fraud cases, such action must be confined to the actual disputed amount, and co-operative banks are duty-bound to identify and freeze the specific customer accounts involved.
Therefore, recording the submission that the total amount covered under the requisitions was ₹8,59,996, the Court amongst other several directions, directed that the mirror account maintained with ICICI Bank shall remain operational, with lien restricted to ₹8,59,996.
Justice M.A. Abdul Hakhim “…the Co-operative Banks may lose huge amounts on account of the financial cybercrimes committed by their Account Holders, and it will be a threat to the very existence of the Co-operative Banks themselves. In order to facilitate the Co-operative Banks in identifying the accounts of their Account Holders involved in financial cybercrimes, the regular Banks where the Co-operative Banks maintain mirror accounts have to furnish all the details of the Requisitions, including the transaction IDs, to the Cooperative Banks. On getting those details, it is for the Co-Operative Banks to act swiftly and effect lien/hold/freeze for the amounts shown in the Requisitions in the respective accounts of its Account Holders, in order to prevent loss of the disputed amounts from the financial system”.
Advocate Ameen Hassan K appeared for the petitioner and O.M. Shalina, Deputy Solicitor General Of India appeared for the respondent.
In the matter, the petitioner, a M/s Kunnamangalam Co-operative Rural Bank, co-operative rural bank, submitted that like most co-operative banks in Kerala, it maintains a mirror account with a scheduled commercial bank to facilitate digital transactions such as RTGS, NEFT, IMPS and UPI for its customers.
In cases of cyber-enabled financial fraud, police authorities across various States issue requisitions to freeze the account through which the suspicious transaction passed. Since such transactions are routed through the mirror account, requisitions are often issued against the co-operative bank’s account maintained with the regular bank, rather than against the individual customer accounts actually involved in the alleged fraud.
The petitioner contended that this practice results in large sums being frozen in its mirror account, even though the bank itself is not accused of wrongdoing. In the present case, multiple cyber police authorities from different States had issued requisitions, leading to a lien on the petitioner’s account.
The Court observed that practically, law enforcement authorities receive only the mirror account details from the transaction trail and therefore issue requisitions against the co-operative bank’s account. However, the Court made it clear that:
-The freeze must correspond only to the disputed amount mentioned in the requisition.
-It is the responsibility of the co-operative bank to identify the concerned account holders involved in the flagged transactions.
-The co-operative bank must promptly effect corresponding lien or freeze in those specific accounts.
The Bench cautioned that indiscriminate or excessive freezing of mirror accounts could threaten the financial stability and very existence of co-operative banks, which play a vital role in local banking ecosystems.
The Court also took note of the Standard Operating Procedure (SOP) issued on 02-01-2026 by the Indian Cyber Crime Co-Ordination Centre under the Ministry of Home Affairs, governing actions under the National Cybercrime Reporting Portal (NCRP) and the Citizen Financial Cyber Fraud Reporting and Management System (CFCFRMS).
The SOP traces its origin to directions issued by the Supreme Court in Prajwala v. Union of India Writ Petition (Criminal) No. 3 of 2015 and lays down procedures for, putting transactions on hold, seizure and restoration of funds, interim custody of defrauded amounts, suspension of digital banking services, and grievance redressal mechanisms.
The Court noted that action relating to freezing or seizure must comply with Section 106 of the Bharatiya Nagarik Suraksha Sanhita and Section 12AA of the Prevention of Money Laundering Act, particularly in cases involving suspected money mule accounts.
Cause Title: M/S Kunnamangalam Co- Operative Rural Bank Ltd v. Inspector Of Police, Cyber Police Station South Region, Brihan & 22 Ors. [Neutral Citation: 2026:KER:15537]
Appearances:
Petitioner: Ameen Hassan K., Rebin Vincent Gralan, Advocates.
Respondent: O.M. Shalina, Deputy Solicitor General Of India, Lal K. Joseph, P. Narayanan, Spl. G.P. To DGP, P. Muraleedharan (Thuravoor), T.A. Luxy, Suresh Sukumar, Sanjay Sellen, Advocates.