The Delhi High Court has expressed serious concerns over investigating agencies freezing bank accounts indiscriminately while probing cybercrimes. The Court emphasized the need for a more compassionate approach, particularly when innocent traders and small vendors suffer due to such actions.
Court’s Observation on Arbitrary Freezing of Accounts
Justice Manoj Jain pointed out that in cyber fraud cases, money often moves through multiple accounts before reaching its final destination. However, during investigations, authorities tend to freeze all connected accounts, causing undue hardship to those who may have no involvement in the fraud.
"In such types of cyber-crimes, if any fraudster cheats a complainant and with the help of cheated money buys something using such money, the police, chasing such money-trail, directs freezing the bank accounts of all concerned. In the process, many innocent recipients have to bear the brunt, for no fault of theirs." — Delhi High Court
Case of Neelkanth Pharma Logistics Pvt. Ltd.
The issue came to light when Neelkanth Pharma Logistics Pvt. Ltd. filed a petition after its bank account, holding over ₹93 crore, was frozen due to a mere ₹200 transaction flagged as suspicious. Although the account was later de-freezed with a lien marked on the disputed amount, the Court used the case to highlight the larger issue of blanket account freezing.
Impact on Small Businesses and Vendors
This isn’t the first time the Court has intervened in such cases. In a previous case, Pawan Kumar Rai vs. Union of India, the Court ruled in favor of a small vendor selling chhole-bhature whose account was frozen over an alleged fraud of just ₹105.
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"Freezing the entire account without justification can wreak havoc on the financial stability of innocent account holders. For small-time vendors, such actions can disrupt their very survival." — Delhi High Court
Similarly, in Dr. Sajir Vs. Reserve Bank of India (2023), the Kerala High Court directed banks to limit freezing orders only to the disputed amount rather than the entire account.
"The aim should be to balance the rights of a complainant in any criminal investigation with the rights of an innocent and unwary account holder, who faces unwarranted hardship due to blanket freezing of accounts." — Kerala High Court
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The Delhi High Court emphasized that investigating agencies should adopt alternative measures instead of immediately freezing entire bank accounts:
- Marking a lien on the disputed amount: Whenever possible, agencies should place a lien on only the suspected fraudulent amount rather than freezing the entire account.
- Providing Justification: Before freezing an account, agencies must provide a valid reason to prevent unnecessary financial distress.
- Developing Standard Operating Procedures (SOPs): The Court urged the Union Ministry of Home Affairs to consult stakeholders and establish clear guidelines to ensure fair handling of such cases.
- Periodic Review of Freezing Orders: The Court suggested that frozen accounts should be reviewed periodically to avoid prolonged financial hardships for innocent individuals.
Given the increasing number of such cases, the Court recommended that the Ministry of Home Affairs take proactive steps to establish a uniform national policy.
"The Ministry of Home Affairs should collaborate with all stakeholders, including state governments, to frame standard guidelines that prevent innocent account holders from unnecessary distress." — Delhi High Court
Appearance: Mr. Preetam Singh, Advocate for Petitioner; Mr. Premtosh K. Mishra, CGSC for UOI with Mr. Manish Vashist, Ms. Ms. Sanya Kalsi, Advocates and Gokul Sharma, G.P. Ms. Ritika Sisodiya, Advocate for respondent No.2/HDFC. Mr. Ramesh Babu with Ms. Tanya Choudhary and Mr. Rohan Srivastava, Advocates for RBI.
Case title: Neelkanth Pharma Logistics Pvt. Ltd. v. Union Of India & Anr.
Case no.: W.P.(C) 17905/2024
