MP High Court Curbs Banks Freezing Entire Accounts Over Minor Cyber Fraud

• The Madhya Pradesh High Court has clarified that banks can only freeze entire accounts in exceptional circumstances.
• Banks must provide a written explanation for freezing accounts.
• The court has framed 23 guidelines to ensure investigating agencies and banks freeze only what is necessary, not an account holder's entire life savings or working capital.

Freezing an entire account shall be resorted to only in exceptional circumstances where a lien on the disputed sum alone would not protect the investigation.

The Madhya Pradesh High Court has stepped in to address a pressing issue affecting small businesses across India: banks freezing entire accounts over cyber fraud complaints, even when the disputed amount is a tiny fraction of the balance. This practice has been quietly wreaking havoc on entrepreneurs' livelihoods, leaving them unable to operate their businesses or meet statutory and contractual obligations. The court's intervention comes in response to a writ petition filed by Archana, a liquor contractor who saw her current account frozen despite having over Rs. 2.51 crore in it, with the disputed amount being just Rs. 980.

In its judgment, the court recognized that there must be a balance struck between the right to carry on business, the right to property, and the state's power of investigation. The court held that freezing an entire account should only be resorted to in exceptional circumstances where a lien on the disputed sum alone would not protect the investigation. This means that banks can no longer freeze accounts without providing a written explanation for doing so.

To operationalize this new approach, the court framed 23 detailed guidelines covering the entire lifecycle of a frozen account. These guidelines include strict timelines for banks to inform customers and assist with grievance processes, as well as requirements for investigating officers to record reasons in writing for freezing accounts. Crucially, if a grievance remains unresolved for 90 days with no valid objection from the investigating agency, the bank must release the hold after giving 15 days' prior notice.

Lawyers and compliance officers should note that the MP High Court has clarified that banks can only freeze entire accounts in exceptional circumstances, and must provide a written explanation. They should also be aware of the strict timelines set by the court for resolving grievances and releasing holds on frozen accounts.

Source: Original reporting via [Source]