The Karnataka High Court has ruled that banks cannot freeze an entire bank account when investigating agencies have sought to block only a specific amount, observing that financial institutions must strictly follow the scope of official directions.
The ruling came while hearing a petition filed by Bengaluru resident Madhu, a private sector employee, who challenged the freezing of his entire bank account by the Kothanur branch of IndusInd Bank over requests involving just ₹25,000.
Freeze requests covered only ₹25,000
According to court records, the bank had received two separate communications from investigating agencies. One request from cybercrime police in Mehsana, Gujarat, sought the freezing of ₹15,000, while another from Barrackpore Police Station in West Bengal sought a freeze on ₹10,000.
Together, the directions covered ₹25,000. However, Madhu argued that the bank went beyond these instructions and blocked access to his entire account.
The bank defended its action by stating that it feared additional freeze requests could be received in the future and therefore chose to freeze the account completely.
Court rejects bank’s argument
Justice Suraj Govindaraj rejected the bank’s reasoning, stating that banks do not have the authority to expand the scope of directions issued by investigating agencies.
The court observed that a bank’s role is limited to implementing instructions received from competent authorities and that it cannot impose broader restrictions based on assumptions or apprehensions about future developments.
The judge noted that if authorities direct a freeze on a specified amount, banks cannot independently decide to block funds beyond that amount.
Funds remain property of account holder
The court also emphasised that money deposited in a bank account continues to belong to the account holder, subject only to lawful restrictions imposed by competent authorities.
Justice Govindaraj observed that freezing an entire account could seriously affect an individual’s ability to meet daily expenses, conduct business transactions and access legitimately owned funds.
The High Court ultimately directed the bank to restrict the freeze to ₹25,000, while clarifying that it could act on any future directions issued by investigating agencies.
The ruling is expected to provide greater clarity on the limits of bank powers when implementing account freeze orders linked to criminal investigation