Police Can't Debit-Freeze Accounts Without Magistrate's Order: Delhi High Court Grants Relief To Malabar Gold

The Delhi High Court has directed the immediate defreezing of bank accounts of Malabar Gold and Diamond Limited, noting that the respondents were unable to demonstrate any complicity of the company in an alleged cyber fraud.

Justice Purushaindra Kumar Kaurav observed that the continued freezing and withholding of the company's accounts, without following the procedure prescribed in law, could not be justified.

The court, relying on an earlier order of the court, observed that freezing bank accounts has serious civil and financial consequences and cannot be resorted to in a blanket manner, particularly where the account holder is neither an accused nor even a suspect.

“Any blanket or disproportionate freezing of bank accounts, particularly where the account holder is neither an accused nor even a suspect in the offence under investigation, is manifestly arbitrary and in the teeth of the fundamental rights under Article 19(1)(g) and 21 and of the Constitution of India, which encompass the right to livelihood and freedom to carry on trade and business.”

The matter related to transactions between Malabar Gold and Diamond Limited and one of its customers, Dallas E-com Infotech Private Limited. Between August 2024 and March 2025, the company carried out multiple transactions with the customer after undertaking due diligence, complying with all Know Your Customer norms, and routing payments through regular banking channels.

The total value of these transactions was approximately Rs 14.20 crore. Subsequently, certain complaints were lodged against the customer by third parties. No FIR, complaint, or proceeding was ever registered against Malabar Gold or its directors.

Despite this, communications issued by police and cybercrime authorities to the banks resulted in amounts standing to the credit of the company being put on hold. By the end of March 2025, an aggregate amount of Rs 80,10,857 across accounts maintained with two banks had been frozen.

The company told the court that the freezing was carried out without any notice or reasons being communicated and had disrupted its day-to-day business, including payment of salaries and routine operational expenses.

When the matter was considered by the court, the authorities were unable to place on record any material indicating the company's involvement in the alleged offences. Even after specific directions, no further supporting material or updated status report was produced. The court noted that, as of the date of the hearing, there was no complaint against the petitioners and no material to show their complicity.

The court, after examining the scheme of the Bharatiya Nagarik Suraksha Sanhita, 2023, observed that Section 106 empowers the police to seize property only for evidentiary purposes.

Attachment or freezing of property alleged to be proceeds of crime can be undertaken only under Section 107 and strictly upon orders of a competent magistrate.

In the absence of any material showing complicity, the court found no justification for the petitioners to continue to suffer on account of an indefinite and unreasoned freezing of their bank accounts.

It directed the concerned authority to forthwith instruct the banks to defreeze the petitioners' accounts while clarifying that investigating agencies remain at liberty to proceed strictly in accordance with law if any material indicating complicity is found in future.