The Rajasthan High Court has directed police authorities and banking institutions to refrain from executing blanket freezes on bank accounts during cyber-fraud investigations, ruling that operational restraints must be confined strictly to the specific funds under dispute.
In an order issued on August 20, Justice Anand Sharma held that when a cybercrime complaint involves a clearly identifiable transaction, financial institutions must limit restrictions solely to that disputed sum while allowing account holders to freely operate the remaining balance. The court observed that while law enforcement agencies have an essential duty to trace stolen money and protect victims of digital fraud, safeguarding legitimate account holders against arbitrary restrictions is equally critical to maintaining public confidence in the financial system.
Mandatory Limit On Account Restraints
Addressing procedural safeguards, the court clarified that pending criminal probes do not justify keeping account freezes in place indefinitely. Investigating officers and their supervisory authorities are now required to conduct periodic reviews to evaluate whether continuing an account restraint remains necessary.
Furthermore, the court ruled that banks must not automatically convert transaction-specific freeze requests into total account blocks unless wider restrictions are explicitly justified by law and supported by underlying material. While noting that preliminary investigative measures are not rendered illegal simply because a formal First Information Report (FIR) has not been registered, the court emphasized that vague or unverified communications cannot serve as the sole ground for restricting access to a citizen’s entire account.
Grievances Of Account Holders
The ruling follows a series of petitions filed by individuals and commercial enterprises whose bank accounts were completely frozen, debit-frozen, or subjected to liens following communications sent by investigating agencies to banks.
Petitioners pointed out that in several instances, entire accounts containing substantial balances were rendered unusable over minor disputed sums, some involving less than Rs 100, Rs 1,000, Rs 5,000, or Rs 10,000. Several account holders asserted that they had no conscious involvement in any fraudulent activity, while others noted that their accounts remained blocked even after probes concluded with closure reports or formal exonerations. Petitioners also cited instances where accounts were frozen based strictly on letters from investigating officers without any corresponding complaints or FIRs logged on the National Cybercrime Reporting Portal (NCRP).
The petitions highlighted a Central Government Standard Operating Procedure (SOP) issued on January 2, which establishes a time-bound framework for grievance redressal and the removal of account holds, arguing that law enforcement delays should not result in the indefinite loss of property or livelihood.
Investigative Arguments And Regulatory Directives
State representatives and law enforcement agencies defended the broader restrictions, arguing that cyber financial crimes involve rapid, multi-layered fund transfers that risk disappearing permanently if accounts remain active during investigations. Financial institutions informed the court that they had no objection to operating accounts under lawful directions, adding that banks also retain independent authority to restrict accounts showing unusual transaction patterns or incomplete documentation regarding source of funds and KYC requirements.
To ensure long-term compliance, the High Court directed the Rajasthan Police and the Reserve Bank of India (RBI) to enhance their monitoring, training, and review procedures regarding account freezes. The court clarified that its directives do not impede genuine criminal investigations or lawful banking regulatory actions.
