‘Statutory power must be exercised in a manner that is fair, proportionate, and not excessive.’
‘The authority must demonstrate a rational nexus between the property frozen and the alleged offence.’

Kindly note that this illustration generated using ChatGPT has only been posted for representational purposes.

The Orissa high court has called for a uniform national policy on freezing bank accounts during criminal investigations, observing that indiscriminate blocking of entire accounts is causing serious hardship to individuals and businesses dependent on such transaction accounts.

The high court directed the ministry of home affairs to examine the issue and frame a comprehensive national policy and standard operating procedure (SOP) governing the freezing of bank accounts by investigating agencies.

The order came while adjudicating a petition filed by M/s Sairam Bharat Gas, a liquefied petroleum gas (LPG) distributor operating in Odisha’s Gajapati district, which challenged the freezing of its current account by the State Bank of India’s Paralakhemundi branch during a criminal investigation.

The account was frozen following a direction from the cybercrime police station in Thiruvananthapuram in connection with a cyberfraud probe.

A single-judge Bench of Justice Sanjeeb Kumar Panigrahi observed that the growing tendency of law enforcement agencies to freeze entire bank accounts during investigations, often without prior notice, has resulted in severe operational difficulties for businesses and financial distress for account holders.

The petitioner told the court that its account had been frozen without prior intimation, effectively halting its business operations.

The LPG distributor, which relies on the account for routine transactions such as payments to suppliers, employee salaries and statutory dues, argued that while investigating agencies may secure suspected amounts linked to alleged offences, freezing the entire account irrespective of the amount under investigation was arbitrary and disproportionate, as it paralysed operations and disrupted LPG distribution.

Taking note of this, the high court emphasised that investigative powers must be exercised in a balanced and proportionate manner, ensuring that legitimate business activities are not unnecessarily disrupted.

During the hearing, the court examined the scope of the police’s power to freeze accounts under Section 106 of the Bharatiya Nagarik Suraksha Sanhita.

While acknowledging that such power exists for investigative purposes, the court said it must be exercised proportionately and with due regard to constitutional rights.

‘The mere act of freezing an account during investigation cannot be said to be illegal per se. However, statutory power must be exercised in a manner that is fair, proportionate, and not excessive. The authority must demonstrate a rational nexus between the property frozen and the alleged offence,’ the court observed.

Freeze Only Suspect Amount, Not Entire Account

Justice Panigrahi noted that the objectives of an investigation can be achieved by freezing only the suspected amount rather than blocking the entire account.

In several cases across the country, bank accounts are completely frozen even when only a small portion of the funds may be under suspicion.

Such actions, the judgment observed, often paralyse businesses, affect employees, disrupt supply chains, and lead to avoidable economic hardship.

The court accordingly directed the cybercrime police station in Thiruvananthapuram to quantify and communicate the alleged tainted amount within two weeks, after which the bank would mark a lien on that amount.

The remaining balance in the account must be allowed to be operated by the petitioner for lawful business purposes, it ordered.

Highlighting the absence of a uniform framework, the high court observed that different investigating agencies follow varying practices when issuing directions to banks under criminal law provisions.

This lack of consistency has led to arbitrary actions and legal uncertainty.

To address the issue, the court asked the home ministry to formulate a uniform national policy and SOP that clearly lay down the circumstances, procedures, and safeguards governing the freezing of bank accounts during investigations.

Disposing of the petition, it also suggested that the Centre consult all stakeholders, including states and Union Territories, before framing the policy and guidelines.

Feature Presentation: Aslam Hunani/Rediff