Kerala High Court Revises Its Guidelines On Freezing Bank Accounts Suspected Of Money Mule Activity

The Kerala High Court on 14 July held that banks can freeze accounts suspected to be “money mule” accounts based on their own assessment of suspicious activity, even without a requisition from a law enforcement agency, as they are best placed to identify such accounts. Therefore, courts must give due weight to their assessment.

Justice M.A. Abdul Hakhim revised the guidelines governing the freezing of suspected money mule accounts while disposing of a petition filed by Ajith P.R. seeking a direction to unfreeze his bank account maintained with Federal Bank. He held:

“The Banks are the best persons to identify the mule accounts. When the Banks report to this Court that the subject account is a mule account, this Court has to give due weight to the same.”

Ajith approached the High Court seeking directions to unfreeze his bank account. Federal Bank contended that it had frozen the account after suspecting that it was being used as a money mule account.

The Court noted that in Abdul Azeez v. Union of India, it had held that banks could freeze accounts based on their own suspicion even in the absence of a requisition from a law enforcement agency and had accordingly framed guidelines.

However, it observed that banks were often required to lift such freezes after three months if the police failed to respond within the prescribed period. It noted that suspected money mule account holders were able to resume operations due to the failure of police authorities to act within the stipulated time, leading to misuse of the earlier framework.

Referring to its recent decision in Sinana Farvin v. Kerala Gramin Bank, the Bench observed that “cybercrimes” fall within the definition of “organised crime” under Section 111 of the Bharatiya Nyaya Sanhita, 2023 (which deals with organised crime). It observed that the earlier guidelines were being misused and revised the framework governing the freezing of suspected money mule accounts.

Under the revised guidelines, a bank may impose a debit freeze upon suspecting that an account is being used for suspicious transactions. The bank must promptly intimate the account holder through SMS or email and communicate the reasons for freezing through a registered post within three working days.

The account holder may submit an explanation within one month of receiving the communication. If the bank is satisfied with the explanation, it must unfreeze the account. Otherwise, the bank must lodge a written complaint before the jurisdictional Station House Officer (SHO).

The SHO shall immediately register a First Information Report (FIR), including for offences under Section 111 of the Bharatiya Nyaya Sanhita, 2023, and investigate the matter. The bank shall thereafter act in accordance with the police's directions regarding operation of the account.

Accordingly, the High Court disposed of the petition by directing Federal Bank to communicate the reasons for freezing the account to Ajith P.R. within one week and to proceed in accordance with the revised guidelines.

For Petitioner: Advocate Beena V

For Respondents: Advocates V Geetha Potti (CGC), OM Shalina (DSGI), Mohan Jacob George (SC) and Sujan K.A (GP)