Rajasthan High Court: In a common judgment disposing of several writ petitions, where the common issue raised was freezing, debit freezing, lien marking, holding and seizure of bank accounts in cyber fraud investigations, a Single Judge Bench of Anand Sharma, J., directed the respondents to review the restraints imposed upon the petitioner’s bank accounts such as freezing of account, debit freeze, transaction-specific hold or lien, seizure of property, attachment of proceeds of crime and independent banking restrictions, in the light of directions and guidelines given by the Court. The Court held that the terms such as suspicious transactions, mule account, Layer-1 account or cyber fraud transaction may justify investigation but cannot constitute adequate reasons for indefinitely immobilising the entire bank account.
Background
Several writ petitions were heard analogously and decided by this common judgment. The petitioners being individuals, proprietorship concerns, partnership firms, companies and other account holders, whose bank accounts were either completely frozen, debit-frozen or subjected to a lien by investigating agencies in connection with cyber financial frauds, sought defreezing of their bank accounts and removal of lien markings. Considering the large number of similar matters and the recurring nature of the issue, the Court laid down general directions and safeguards so that the legitimate interests of investigation and recovery of cyber-fraud proceeds are protected without subjecting innocent citizens, firms, companies and other account holders to arbitrary or disproportionate financial restrictions.
In some cases, the disputed transaction was found to be as low as ₹100. Petitioners were neither accused, nor suspects and there was no material demonstrating their conscious involvement in the alleged cyber fraud; and in some cases, the account holder was exonerated after investigation but the accounts still remain frozen.
Another issue raised was that the bank accounts were frozen merely on the basis of a communication by investigating officer (IO), without FIR or complaint against the account holder on National Cybercrime Reporting Portal (NCRP), without specifying the FIR, nature of offence, disputed transaction, amount allegedly involved or the statutory provision under which the restraint had been imposed. Additionally, there were cases where banks independently placed restrictions on account of suspected mule-account activity, unusual transactions or deficiencies in Know Your Customer (KYC).
The Ministry of Home Affairs, Government of India, issued a comprehensive Standard Operating Procedure (SOP) for NCRP and Citizen Financial Cyber Fraud Reporting and Management System (CFCFRMS), through Indian Cybercrime Coordination Centre (I4C), to deal with putting amounts on hold, suspension of digital banking services, seizure of accounts, restoration of money and grievance redressal. The Grievance Redressal Module and Money Restoration Module were made functional from April 2026.
Analysis
The Court opined that the State has the duty to protect victims of cyber fraud, prevent dispersion of the proceeds of crime and ensure that unlawfully diverted funds remain traceable and recoverable. CFCFRMS was established to enable immediate action, which saved substantial amounts, but the exercise of legitimate investigative power does not mean that its exercise is immune from constitutional scrutiny. Every exercise of statutory power by a public authority is subject to the requirements of legality, rationality, reasonableness, non-arbitrariness and proportionality. The seriousness of cybercrime cannot justify abandoning the safeguards which protect an innocent citizen against arbitrary State action.
The Court observed that a bank account is “property” used for salary or business receipts, pays for food, education, medical needs, rent, taxes and utilities, discharges contractual obligations and carries on trade or profession. Complete freezing of the account may prevent payment of employees, statutory dues, suppliers and creditors and may effectively paralyse the business.
With respect to Sections 106 and 107, Nagarik Suraksha Sanhita, 2023 (BNSS), which empower a police officer to seize property, and make attachment, forfeiture or restoration of property derived or obtained as a result of criminal activity respectively, the Court stated that distinction between seizure for purposes of investigation and attachment for securing proceeds of crime is material. The former is an investigative measure accompanied by the statutory obligation of reporting to the Magistrate, whereas the latter involves judicial supervision and the safeguards expressly incorporated in Section 107. The investigating agency cannot be permitted to achieve a result which amounts to indefinite attachment of the property of a citizen without following the procedure prescribed by law, by merely labelling its communication as a “freeze”, “debit freeze”, “lien” or “seizure”.
The Court opined that the investigative agency must certainly be permitted to secure the suspected amount but the protection of the victim cannot automatically translate into punishment of an account holder who has not yet been found guilty, particularly where the latter’s account contains funds having no demonstrated connection with the alleged offence.
The Court observed that the existence of the CFCFRMS mechanism cannot be treated as an alternative to constitutional fairness, rather, it is a mechanism intended to operationalise fairness and accountability within the investigation process. Failure of an officer or bank to act within the prescribed framework cannot become a justification for continuing an indefinite freeze. The Court declined to accept the broad proposition that every freeze is illegal merely because the account holder is not named as an accused in the FIR. Cyber financial frauds necessarily involve layers of transactions and an innocent intermediary account may sometimes receive proceeds without the account holder’s knowledge.
The Court held that the absence of an FIR against a particular person cannot by itself preclude legitimate preliminary verification or urgent preservation of a suspected amount. The decisive consideration must be whether there exists objective material demonstrating a reasonable and proximate nexus between the account/transaction and the alleged offence and whether the extent and duration of restraint are reasonably necessary.
Therefore, the Court propounded 4 conditions while exercising power —
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there must be lawful authority for the restraint;
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there must be tangible material disclosing a prima facie nexus between the particular account or transaction and the offence under investigation;
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the investigating officer must identify, as far as reasonably practicable, the transaction and amount requiring protection; and
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the restraint must be proportionate to the investigative necessity and cannot continue mechanically after the necessity ceases to exist.
The Court further observed that the terms such as “suspicious transaction”, “mule account”, “Layer-1 account” or “cyber fraud transaction” may justify investigation but cannot constitute adequate reasons for indefinitely immobilising the entire bank account. Regarding the cases where the disputed amount is very less but the entire account has been frozen and where the amount has not been crystallised, an investigating officer cannot indefinitely communicate to a bank that the “account is under investigation” causing a complete freeze, and for immediate preservation, applicable statutory provisions shall be referred to and judicial orders shall be sought. If the disputed amount is identifiable with no material directing wider complicity, first course should be to place a lien or hold upon the amount rather than debit-freeze the entire account.
Blanket Freeze exceptions
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Where the account itself appears to be a deliberately operated mule account,
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where there are repeated suspicious credits and onward transfers;
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where the account holder is a named accused or there is material showing conscious participation;
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where the entire balance is reasonably suspected to constitute proceeds of crime;
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where multiple linked transactions make segregation presently impracticable;
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or where partial operation of the account would demonstrably defeat the investigation, with reasons recorded in writing and periodic review.
Thus, the Court directed that every communication issued by police/investigating agency to a bank for freezing, debit-freezing, lien marking, holding or seizure of a bank account shall indicate —
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name and designation of the investigating officer;
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the police station/agency and contact particulars;
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FIR/crime/NCRP/CFCFRMS reference number, wherever available;
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the legal provision under which action is taken;
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the account number and bank details;
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the transaction ID/UTR/date of the transaction, wherever available;
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the disputed amount or the basis for concluding that the entire account requires restraint;
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whether the communication is intended as a hold/lien on a specified amount, suspension of digital banking facilities, seizure of the account or a request for judicial attachment.
In case of suspected transactions, banks should seek clarification from the requisitioning authority and in case of seizure of property by police, the IO shall report the seizure or obtain the order from the competent magistrate.
Exonerated Persons
Regarding the persons who have been exonerated, discharged, or in whose cases investigation has culminated without finding their involvement, the Court stated that once the investigating agency has no further requirement to preserve the amount or account, there is no justification for continuing the restraint and the IO shall forthwith communicate the decision to the bank and update the relevant CFCFRMS/NCRP record, wherever applicable.
The Court opined that in cases where bank itself has noticed unusual transactions, failure to comply with KYC requirements, suspicious identity, unexplained source of funds or characteristics suggesting use of the account as a mule account, bank are not disabled from taking action independently required under the applicable RBI directions, KYC norms, anti-money laundering framework or other law.
The Court further held that in cases with no FIR, NCRP or CFCRMS complaint against the account holder, absence of FIR will not render every preliminary investigative measure illegal, but an unverified or vague communication cannot be the sole basis of indefinitely freezing an account.
Decision
The Court directed that the grievances of the bank account holders shall be resolved as per Clause 10 SOP, issued on 2 January 2026 by Ministry of Home Affairs, and the respondents shall follow the procedures and time limits prescribed under SOP.
The Court held that these recurring cases need institutional directions to ensure that effective investigation and protection of innocent citizens operate simultaneously, by distinguishing between a genuine mule account and an innocent account.
The Court propounded principles to govern freezing, lien, hold, or seizure of bank accounts in cyber financial crime investigations within Rajasthan.
Summary of Directions —
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No bank account shall be subjected to an indefinite blanket debit freeze merely on the basis of a vague, unverified or cryptic communication.
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Before imposing or continuing a restraint, the investigating officer shall ascertain and record the material showing a prima facie nexus between the particular account/transaction and the offence under investigation.
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The disputed amount shall be held by lien/hold, instead of freezing the entire account with reasons for wider restraint. Directions given in Jinat Bano v. State Bank of India1, shall be followed strictly.
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Where entire account needs to be frozen, specific reasons for wider restraint shall be recorded in case diary and communicated to the bank.
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Seizure under Section 106 BNSS must be reported forthwith to the competent Magistrate; attachment of property as proceeds of crime under Section 107 BNSS requires a formal application (with the approval of the Superintendent/Commissioner of Police) before the competent Court/Magistrate, who must ordinarily give notice and a hearing before ordering attachment.
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No indefinite freezes due to pending investigation and periodic review by IO.
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If investigation reveals no connection with the offence and the disputed amount is not required to be retained, the restraint shall be withdrawn forthwith.
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A closure report to be filed upon conclusion of investigation, with instructions for defreezing without delay.
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Sufficient particulars to identify the case, account, transaction, amount involved and legal grounds of action to be communicated to bank.
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Independent banking restrictions arising from “Know Your Customer” (KYC), “Anti Money Laundering” (AML), “Fraud-Risk Management” or other regulatory obligations shall remain governed by the applicable law and RBI directions.
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Account holder’s grievances to be addressed through electronic means/video conferencing, personal appearance not mandatory.
Thus, the Court directed to examine each account in the light of the above directions. The police authorities were directed to incorporate these principles/directions in a general circular or standing order to comply with statutory provisions and SOP.
The Court further directed that IOs shall be trained regarding distinction in a suspected transaction, a transaction-specific hold/lien, seizure of property, attachment of proceeds of crime and independent banking restrictions, along with RBI being directed to train officials of the banking institutions, particularly dealing with cybercrime.
The Court clarified that these directions were not intended to interfere with a bona fide investigation or to require disclosure of sensitive information which would prejudice the investigation, but to ensure that the extraordinary financial consequences of freezing a citizen’s bank account are imposed on the basis of objective material, under lawful authority, for a legitimate investigative purpose and only to the extent reasonably necessary.
Therefore, the respondents were directed to review the restraints imposed upon petitioner’s bank accounts as per the directions given by the Court. The Court held that while effective measures against cyber fraud are essential, protection of bona fide account holders from arbitrary or disproportionate restrictions is equally necessary. A fair, transparent and time-bound mechanism for freezing and defreezing accounts would, therefore, not only safeguard legitimate property rights but also reinforce citizens’ faith in digital transactions and the formal banking system.
[Shree Balaji Enterprises v. RBI, civil writ petition no. 2679 of 2026, decided on 20-8-2026]
Judgment Authored By: Justice Anand Sharma
Advocates who appeared in this case:
For Petitioners: Ankur Jain, Siddhant Gaur, Ankur Singh Tomar, Ruchika Sharma, Hemant Singh, Nachiket Singh, Abhishek Sharma, Tushar Panwar, Mukul Rao, Ankit Vishnoi, Yogesh Kumar Kairwal, Suresh Verma, Abhay Singh Rathore, Adarsh Singhal, Varuni Agarwal, Ritesh Singh Shekhawat, Neetika Kalakar, Saurabh Dubey, Varun Sharma, Abhilash Sharma, Naveen Kumar Khaparwal, Shivam Sharma, Jyoti Sharma, Mayank Choudhary, Abhishek Singh Shekhawat, Avinash Fenin, Kamlesh Kaswan, Kamlesh Kumar, Jai Singh Rathore, Garima Yadav, Anita Goyal, Vishvendra Sharma, Navin Kumar Yadav, Pawan Kumar Verma, Khizer Iqbal Khan, Swaraj Panwar, Deepak Kumar Meena, Palak Rohila, Sunil Kumar Singodiya, Mukesh Dudi, Koslesh Kumar Bairwa, Sunil Kumar Jangid, Avinash Dhanju, Vishwas Sharma, Saurabh Tiwari, Kuldeep Devra, N.K. Tiwari, Shalu, Sanjay Khedar, Anand Godara, Tej Pratap Singh, Aman Lodha, Harsh Lodha, Aditya Sharma, Pranav Pareek, Rahul Agarwal, Prithvi Singh, Sabir Ali, Pawan Kumar Verma, Aayush Goyal, Sahaj Veer Baweja, Mohit Khandelwal, Deependra Yadav, Prashant Pareek, Happy Sharma, Aveesh Mourya, Anil Sonkariya, Shashank Bhansali, Yatin Kumar, Rajveer Singh Mahala, Sourabh Agarwal, Hassimuddin, Avinash Gautam, Bhanu Pratap Singh, Anjum Khan, Mohit Bishnoi, Tarun Kumar, Anil Sankhala, Bantoo Mali, Mahendra Kumar Meena, Bhanu Pratap Singh Bhati, Ravindra Saini, Rahul Gupta, Ajay Khedar, L.M. Kapoor, Nishant Sharma, Keerti, Amit Puri, Ketan Dhabhai, A.R. Meena, Atul Sharma, Dharmendra Fageriya, Hemraj Bairwa, D.S. Bagadia, Avi Airun
For Respondents: Devakriti Vashishtha, Sunita Meena, Bhuwnesh Sharma, Munendra Singh Fouzdar, Somitra Chaturvedi, Tanuj Gupta, Laxmi Kant Sharma, Shivani Paliwal, Ram Naresh Vijay, Sanjog Gupta, Dikshant Jain, Naman Yadav, Shashank Jain, Vikas Jain, Ganesh Sharma, Rakshit Jain, Abhishek Bhandari, Ashish Sharma, Akshay Khandelwal, Saransh Ghiya, Shashi Bhusan Gupta, Vikas Samodia, Nidhi Samodia, Suruchi Kasliwal, Vibhanshu Sharma, Varun Sharma, Anita Agarwal, Abhishek Pareek, Pragya Singh, Jitendra Mishra, Alok Mathur, Aniroodh Mathur, Jhabar Mal Swami, Hitesh Kumar, Vineet Sharma, Javed Choudhary, Mahipal Singh Shekhawat