The Karnataka High Court has ruled that a bank has no authority to expand the freezing of funds in an account beyond the limits stipulated in official directions. In a recent order, Justice Suraj Govindaraj stated that whenever a freezing direction specifies a particular amount, the bank must permit the operation of the remaining balance in the account, unless the direction itself requires a complete freeze.
Background of the Case
The observation came while allowing a petition filed by Bengaluru resident Madhu, a private sector employee. He challenged the action of IndusInd Bank's Kothanur branch, which froze his entire bank account based on two communications: one from the cybercrime police of Mehsana, Gujarat, for Rs 15,000, and another from Barrackpore police station in West Bengal for Rs 10,000. According to the petitioner, these communications instructed the bank to freeze only Rs 25,000.
Bank's Defense Rejected
The bank defended its action by stating that it froze the entire account due to the possibility of further such directions. However, Justice Suraj Govindaraj noted that the authority exercised by the bank is not an independent power. The bank acts merely as a custodian of the account and is required to implement directions lawfully issued by competent investigating authorities. Its authority is therefore circumscribed by the terms of the directions received.
Court's Observations
The judge elaborated: “A bank, while acting upon a communication issued by an investigating agency, performs a limited and ministerial function. The bank is neither the investigating authority nor the adjudicatory authority. Its obligation is confined to faithfully implementing the directions lawfully issued by the competent authority. In the process of implementing such directions, the bank cannot assume unto itself powers that have not been conferred upon it by law, nor can it enlarge the scope of the directions received on the basis of its own assumptions, apprehensions or administrative considerations.”
The court further emphasized that amounts lying in a customer's account remain the property of the account holder, subject only to restrictions imposed by authorities. Any restriction on the operation of a bank account has serious civil consequences. Freezing an account may affect the account holder's ability to meet day-to-day expenses, honor contractual obligations, conduct business transactions, discharge statutory liabilities, and otherwise access funds lawfully belonging to him.
Bank's Apprehension Not Valid
The apprehension expressed by the bank that additional freezing directions may be received in the future cannot furnish a legal basis for freezing funds beyond the amount covered by the existing directions. Justice Govindaraj directed the bank to keep the freeze to Rs 25,000 in the petitioner's account. However, liberty is reserved to the bank to further freeze the account if any communication is received from a competent authority requesting such action.
