In a significant reaffirmation of procedural safeguards and economic liberty, the Delhi High Court has ruled that police authorities cannot freeze or debit-freeze bank accounts without prior judicial sanction, except in strict compliance with the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS). The judgment underscores that administrative convenience or investigative suspicion cannot override statutory mandates or constitutional protections.
The ruling, delivered by Justice Purushaindra Kumar Kaurav in Malabar Gold and Diamond Limited & Ors. v. Union of India & Ors. (2026), arises from the growing trend of banks freezing accounts merely based on police communications, often without notice, reasons, or judicial oversight. The Court held such actions to be legally impermissible, arbitrary, and violative of fundamental rights.
Factual Background of the Case
Malabar Gold and Diamond Limited, a reputed business entity engaged in the lawful trade of gold and precious stones, entered into commercial transactions with a third-party customer after conducting full KYC compliance. Between August 2024 and March 2025, transactions amounting to approximately ₹14.2 crore were conducted through regular banking channels.
Subsequently, complaints were lodged against the customer by third parties alleging cyber fraud. Crucially, no FIR, complaint, or investigation was ever initiated against Malabar Gold or its directors. Despite this, various banks froze multiple accounts of the petitioners solely based on communications received from police authorities of different States and Union Territories.
The freezing was done without notice, without recording reasons, and without any judicial order, effectively paralysing the company’s business operations, salary payments, and contractual obligations.
Statutory Framework: Sections 106 and 107 BNSS Explained
Section 106 BNSS: Power of Seizure
Section 106 empowers a police officer to seize property suspected to be stolen or connected with an offence, primarily for evidentiary purposes. However, such a seizure must be reported to the jurisdictional Magistrate, and it is intended to preserve evidence during investigation.
Importantly, the Court clarified that Section 106 does not confer power to attach or freeze bank accounts, as attachment affects proprietary and livelihood rights rather than merely preserving evidence.
Section 107 BNSS: Attachment of Proceeds of Crime
Section 107, on the other hand, deals with attachment, forfeiture, and restoration of property derived from criminal activity. Under this provision:
- The police must apply to a Magistrate for attachment.
- The Magistrate must issue notice and grant an opportunity of hearing.
- Interim ex parte attachment is permitted only when notice would defeat the object.
Thus, judicial oversight is the statutory cornerstone of any attachment or freezing of property, including bank accounts.
Judicial Reasoning: Freezing Without Court Orders Is Illegal
The Delhi High Court categorically held that freezing or debit-freezing bank accounts without following Section 107 BNSS is illegal. The Court observed that merely because money passed through an account linked to an alleged offender, the account holder cannot be punished by executive fiat.
The Court emphasised that:
- No material was produced showing the complicity of the petitioners.
- No summons, notice, or FIR existed against them.
- Freezing was based purely on inter-departmental communications.
Such action, the Court held, lacks legal authority and violates due process.
Reliance on Precedents from Other High Courts
1) Headstar Global Pvt. Ltd. v. State of Kerala (2025)
The Delhi High Court relied heavily on the Kerala High Court’s interpretation of Sections 106 and 107 BNSS, which clearly distinguished between seizure and attachment. The Kerala High Court held that bank account freezing aimed at securing proceeds of crime must follow Section 107 and cannot be done under Section 106.
The Supreme Court declined to interfere with this ruling, lending it authoritative value.
2) Kartik Yogeshwar Chatur v. Union of India (2025)
The Bombay High Court echoed similar views, holding that investigating agencies have no power to debit-freeze bank accounts under Section 106 BNSS. Any such action can be taken only in accordance with Section 107 of the BNSS upon orders of the competent Magistrate.
3) Neelkanth Pharma Logistics v. Union of India (2025)
The Court held that freezing an entire bank account solely because a small, identifiable sum alleged to be the proceeds of cyber fraud was credited to it amounts to a disproportionate and arbitrary exercise of power, particularly where the account holder is neither an accused nor a suspect in the investigation.
It further noted that such indiscriminate freezing, carried out without assigning or communicating reasons, causes serious civil and financial repercussions, including disruption of business activities, dishonour of cheques, and severe hardship, thereby directly affecting the right to livelihood.
Constitutional Dimensions: Articles 19(1)(g) and 21
The Court held that indiscriminate freezing of bank accounts directly infringes:
- Article 19(1)(g) – Freedom to carry on trade or business.
- Article 21 – Right to livelihood and dignity.
When accounts are frozen without adjudication, businesses are effectively punished without trial. Salaries go unpaid, contracts are breached, and reputations suffer irreparable harm. Such consequences, the Court observed, cannot be imposed on innocent entities merely because of investigative suspicion.
Final Directions Issued by the Court
The Delhi High Court directed:
- Immediate defreezing of all bank accounts of the petitioners.
- Liberty to investigating agencies to proceed strictly in accordance with BNSS if material emerges.
- Fresh freezing permissible only upon judicial sanction.
These directions restore the balance between investigation and individual rights.
Cyber Fraud Investigations and Banking Practices
The judgment also critically examined the practice of banks freezing accounts based on cybercrime alerts. While acknowledging the need to combat financial fraud, the Court clarified that investigation efficiency cannot trump legality.
Banks may place disputed amounts under lien, but debit-freezing entire accounts without judicial sanction is impermissible. The Court urged authorities to adopt proportionate measures rather than blanket restrictions.
Conclusion
The Delhi High Court’s judgment in Malabar Gold and Diamond Limited is a landmark reaffirmation of procedural justice in the digital age. By holding that police cannot freeze bank accounts without judicial sanction, the Court has protected constitutional freedoms, clarified statutory boundaries under the BNSS, and prevented the normalisation of executive overreach.
Even amid expanding cybercrime and financial surveillance, the ruling underscores that liberty, livelihood, and legality remain non-negotiable.
Important Link
Law Library: Notes and Study Material for LLB, LLM, Judiciary, and Entrance Exams