Indian Court Limits Account Freezes in Crypto Fraud Probes

• An Indian High Court rules that investigation agencies cannot freeze an entire bank account during a probe.
• The court directed the police to freeze only the specific amount related to the crypto fraud.
• The petitioner granted access to his bank account on the condition he maintains a minimum balance of an approximate $2,990.

An Indian High Court has reined in on nonchalant account freezes declaring that investigative agencies cannot freeze entire bank accounts during crypto fraud investigations.

The court’s decision comes on the heels of a recent crypto-fraud case where a petitioner’s account was entirely frozen. Considering the inconveniences and hardships caused by such moves, the court mandated that investigative agencies can only freeze the specific amount linked to the fraud; not the entire account.

Mohammed Saifullah, an HDFC Bank account holder in Tiruvallur district, filed a petition after his account was frozen by the Telangana State Cyber Security Bureau (TSCSB). The freeze, related to a cryptocurrency fraud investigation, lasted over a year. While Saifullah was unaware of the reason, the bank’s counsel informed the court it stemmed from an investigation initiated in May 2023.

At the time, Saifullah’s account held around ₹9.69 lakh (approximately $11,680).

Read also: India’s Crypto Market to Expand: Two More Global Exchanges to Get Approval 

Court’s Stance on Account Freezes

Justice G. Jayachandran argued that freezing an entire account jeopardizes individuals’ livelihoods and financial stability. The judge added that account holders were left in the dark on the reasons for the account suspension. By the time they become aware, their daily financial activities and business operations may have already been significantly disrupted. He added:

“No doubt, the statutes empower the investigation agencies to request the bank concerned to freeze the accounts pending investigation and intimate it forthwith to the jurisdictional courts, but whether the power is properly exercised or not is the moot question now looming large.”

In the ruling favoring Saifullah, Justice Jayachandran ordered that he be granted access to his account, subject to the condition that he maintains a minimum balance of ₹2.48 lakh (approximately $2,990), which is the amount currently under investigation. The court further ruled against any future orders to freeze entire bank accounts for investigations.

The judge referenced Section 102 of the Criminal Procedure Code, and now Section 106 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), which require investigation agencies to notify in a timely manner the affected account holders and also report to courts on such freezes and closures. The judge noted that these provisions are often disregarded. Justice Jayachandran emphasized that the court frequently sees petitions to “defreeze” accounts due to agencies’ failure to communicate with the jurisdictional court.