Illegal Freezing of Bank Account

A suspicious transaction appearing in a bank account can trigger an investigation. But does that automatically justify freezing the entire account?

A recent matter before the Punjab and Haryana High Court at Chandigarh dealt with this very issue after a savings bank account was frozen following a credit entry of ₹58,587 that had been marked suspicious.

The account holder approached the High Court under Article 226 of the Constitution of India seeking de-freezing of the account. His case was that the bank account had been frozen without prior notice and that he was neither named in any FIR nor involved in the alleged financial fraud.

The dispute was not about whether the suspicious ₹58,587 could be examined. The larger question was whether the entire bank account could remain frozen when the account holder himself was not shown to be involved in any offence.

What Was the Legal Issue?

During the proceedings, it was brought to the Court’s notice that there was no FIR registered against the account holder.

It was also recorded that no order of attachment under Section 107 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) had been passed by a Magistrate in relation to the account.

The bank stated that it had acted on directions received from law enforcement authorities. However, it also acknowledged that it had not received any attachment order from a Magistrate.

Only ₹58,587 had been identified as the suspicious amount.

Section 106 and Section 107 BNSS

The order also considered the distinction between Sections 106 and 107 of the BNSS in the context of freezing or attaching a bank account.

The Court referred to the decision of the Kerala High Court in Headstar Global Pvt. Ltd. v. State of Kerala, where it was held that freezing of bank accounts must be proportionate, supported by reasons, and based on material connecting the account holder with the alleged offence.

The Punjab and Haryana High Court also referred to Kartik Yogeshwar Chatur v. Union of India, where the Bombay High Court had held that an investigating agency cannot debit-freeze or attach a bank account under Section 106 BNSS and that attachment has to follow the procedure under Section 107 BNSS through an order of the competent Magistrate.

Another judgment referred to was Neelkanth Pharma Logistics (P) Ltd. v. Union of India, in which the Delhi High Court dealt with blanket freezing of an entire account merely because a small identifiable amount suspected to be connected with cyber fraud had passed through it.

These judgments became relevant because the dispute before the Punjab and Haryana High Court involved a similar question of proportionality.

What Did the High Court Decide?

After examining the record and hearing the parties, the High Court noted three important facts:

There was no FIR registered against the account holder.

There was no attachment order passed by a Magistrate under Section 107 BNSS.

The amount actually marked suspicious was ₹58,587.

On these facts, the Court found the claim for de-freezing to be justified and directed the bank to de-freeze the account within one week.

However, the Court did not permit the disputed ₹58,587 to be used. That amount was directed to remain frozen.

The account holder was also required to submit updated KYC documents for enhanced due diligence.

Why This Order Matters

This order is useful because it distinguishes between investigating a suspicious transaction and freezing an entire bank account.

A disputed transaction may certainly require investigation. But where only a particular amount is under suspicion, a blanket freeze on the entire account can have much wider consequences.

A frozen account may affect salary credits, business payments, cheque clearances, standing instructions and access to money that has no connection with the transaction under investigation.

The order also shows why the procedure under the BNSS matters. Where no FIR exists against the account holder and there is no attachment order under Section 107 BNSS, the legality and proportionality of freezing the whole account may come under judicial scrutiny.

For individuals and businesses in Chandigarh, Zirakpur, Mohali, Panchkula, Ambala and other parts of Punjab and Haryana facing bank account freezes linked to cyber fraud or suspicious transactions, the facts surrounding the freeze become important. The amount under dispute, existence of an FIR, role of the account holder and whether the statutory procedure has been followed can all affect the available legal remedy.