The freezing of bank accounts has become increasingly common in investigations involving cyber fraud, financial crimes, money laundering and digital transactions. While investigating agencies have powers to restrict the operation of bank accounts connected with suspected offences, courts have repeatedly emphasised that such powers must be exercised within the framework of law.
With the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) now replacing the Code of Criminal Procedure, the corresponding provision is Section 106 BNSS, which broadly carries forward the seizure power previously contained in Section 102 CrPC.
State of Maharashtra v. Tapas D. Neogy
The foundational Supreme Court judgment on account freezing is State of Maharashtra v. Tapas D. Neogy, (1999) 7 SCC 685.
The Supreme Court held that a bank account constitutes “property” for the purposes of Section 102 CrPC. Consequently, an investigating officer can seize or prohibit operation of a bank account where there is a direct link between the account and the commission of an offence.
This decision established that police powers of seizure are not limited to physical property and can extend to financial accounts.
Teesta Atul Setalvad v. State of Gujarat
The Supreme Court reaffirmed the principles in Tapas D. Neogy in Teesta Atul Setalvad v. State of Gujarat, (2018) 2 SCC 372.
The Court recognised that a bank account can be seized or its operation prohibited where the investigating officer has material creating suspicion regarding its connection with the offence under investigation. Importantly, the Court also observed that Section 102 does not require prior notice to the account holder before the account is seized or frozen, since advance notice could potentially frustrate an investigation.
Shento Varghese v. Julfikar Husen
In Shento Varghese v. Julfikar Husen, (2024) 7 SCC 23, the Supreme Court considered the consequences of failing to report a seizure to the jurisdictional Magistrate “forthwith”, as required under Section 102(3) CrPC.
The Court held that delayed reporting does not automatically invalidate the seizure. The requirement to report serves an important procedural purpose, particularly in relation to the Magistrate’s control over the seized property, but delay does not by itself make the seizure void.
This distinction is particularly important in cybercrime investigations, where accounts may be frozen quickly to prevent further movement of suspected proceeds.
Recent Approach: Proportional Freezing
Recent High Court decisions demonstrate an increasing focus on preventing unnecessarily broad or indefinite account freezes.
In Sreeja Vikraman v. The Manager, South Indian Bank, the Kerala High Court directed that the freeze should be confined to the amount specified in the police requisition, allowing the account holder to operate the account beyond that amount. The Court also required the police to clarify whether the freeze needed to continue and directed compliance with the applicable reporting procedure.
Similarly, in Kamlesh Kumar v. State of Rajasthan, the Rajasthan High Court directed that the disputed amount allegedly transferred illegally into the account remain frozen while permitting the petitioners to transact with the remaining balance.
Other recent decisions have also emphasised that where the prescribed statutory procedure is not followed, an indefinite freeze may not be sustainable.
What Does This Mean for Account Holders?
These cases establish that account freezing is legally permissible, but it is not an unlimited power. An account holder whose bank account has been frozen may seek clarification regarding the basis and extent of the freeze and can approach the appropriate court where the action appears disproportionate, procedurally defective or unjustifiably prolonged.
At the same time, where an account has a genuine connection with suspected criminal proceeds, courts may allow the freeze to continue while the investigation is underway.
Conclusion
Indian case law strikes a balance between effective criminal investigation and protection against arbitrary deprivation of property. Tapas D. Neogy established the power to freeze bank accounts; Teesta Setalvad reaffirmed its application and clarified that prior notice is not necessarily required; and Shento Varghese clarified the consequences of delayed reporting.
Recent High Court decisions further indicate that targeted freezing of the disputed amount, rather than blanket freezing of an entire account, may be appropriate in suitable cases.
For individuals and businesses affected by an account freeze, understanding the statutory basis, the amount involved, the investigation and the procedural steps taken by the authorities is therefore essential when determining the appropriate legal remedy.
