FREEZING OF BANK ACCOUNTS – A LEGAL PERSPECTIVE  

LEGAL PROVISIONS

The source of power to freeze the account is rooted in Section 106 of BNSS (formerly Section 102 CrPC) and Section 17 of The Prevention of Money-Laundering Act, 2002 (PMLA) primarily. Section 106 of BNSS provides discretionary powers to police officers to seize any property which is alleged to be or suspected to have been stolen or which is found in any circumstances which creates suspicion of commission of any offence. Further it is provided that the police officer has a mandatory duty to report the seizure to the magistrate. Whereas, Section 17 of PMLA grants the power of search and seizure to ED Officers.

A critical legal question arose as to whether the authority of police officer under Section 102 CrPC (Now section 106 BNSS) includes the power to issue prohibitory order on the bank account of accused. This question was addressed by the Supreme Court in State of Maharashtra v. Tapas D. Neogy [(1999) 7 SCC 685]), wherein the court held that the bank account classifies as “property” under section 102 CrPC. 

The introduction of BNSS added a critical change by inserting a new provision altogether i.e. Section 107 BNSS which deals with the attachment, forfeiture and restoration of proceeds of crime. The provision states that where a police officer has reason to believe that a property is derived or obtained as a result of criminal activity, he may apply to the magistrate or court of concerned jurisdiction for the attachment of the property i.e. a police officer cannot directly order the freeze of a bank account without a magistrate’s order. This has been affirmed in the recent cases of Headstar Global (P) Ltd. v. State of Kerala [2025 SCC OnLine Ker 3546] and Malabar Gold and Diamond Ltd. v. Union of India [W.P.(C) 4198/2025, Jan 2026].  

CONDITIONS FOR A LAWFUL FREEZE

The four essential conditions for a lawful freeze of bank account are –

1.      The property must be movable. (The bank account falls under actionable claim and is therefore a moveable property.)

2.      There must be a nexus between the account and the alleged criminal activity.

3.      The standard must be of reasonable belief and not of mere suspicion.

4.      The freeze must be notified to the magistrate forthwith.

Recently, a new condition of proportionality has emerged and the courts have repeatedly laid down that where only a specific sum is alleged to be the proceeds of crime, only that sum shall be placed in lien or freeze, instead of freezing of the whole account. (Neelkanth Pharma Logistics Pvt. Ltd. vs. Union of India & Ors. (2025: DHC: 1214))

THE UNFAIR SIDE OF FREEZING OF BANK ACCOUNTS

This mechanism poses a critical threat for those who are not involved in the actual crime but get linked to the suspicious proceeds in daily transactions. You can be a business who received a payment from a client who turned out to be associated with a financial crime or you could be crypto trader who traded with somebody who was party to a scam. This results in freezing of such accounts which were not of the accused or any person related with the crime which shows both the unfair and inconvenient side of justice. 

The Supreme Court in Teesta Atul Setalvad v. State of Gujarat [(2018) 2 SCC 372] has clarified that any account creating suspicion can be frozen and it needs not to be of the accused. However, a strict threshold of “strong suspicion” is required in such cases. The courts have set various standards of freezing the account in cases like these.

REMEDIES

Essentially, the aggrieved bank account holder has four avenues, which are as follows – 

1.     Filing a written application to investigating officer requesting to use discretion to either de-freeze the account or to lien only on the specific suspicious amount, supported by documentary evidence proving the source of amount.

2.     Filing an application before the magistrate under Section 505 BNSS requesting to de freeze the account or convert the blanket freeze into lien on disputed amount, on execution of a bond.

3.     Where the freeze appears to be unlawful and illegal, a writ petition under Article 226 can be filed in High Court citing the violation of fundamental rights under Article 14, 19(1)(g), and 21.

4.     The last alternative is specifically for the cases under PMLA where the provisional attachment order can be appealed before an adjudicating authority under Section 8 of the Act.

THE WAY FORWARD

In this era of digitalisation and paperless economy, the online financial transactions have become a routine. Consequently, the cybercrimes and financial frauds have increased in great numbers. The advent of BNSS has materially strengthened the position of aggrieved individuals and now provides expanded protection for the innocent parties. However, there is a need for a comprehensive SOP dealing with the effective mechanism for freezing and defreezing of bank accounts in cyber-crime investigations. The recent judicial determinations and SOPs have paved a way for stricter standards for the freezing of accounts which are to be necessarily followed by the investigating authorities and any order inconsistent with such standards will be deemed to be illegal. Such rulings provide a basis for a standardised process in such matters and make obtaining remedies efficient for the affected individuals.

The key rule is simple. If your bank account has been frozen arbitrarily, it’s not a long legal battle. Be aware of your rights, gather the relevant documents and act quickly. 

Written By- Abha Gupta