Author: Advocate Harshit Sachar
Place of Practice: Ludhiana, Punjab
Jurisdiction: India

The Delhi High Court held that blanket or disproportionate freezing of bank accounts of a person or business that is not an accused or suspect is arbitrary, illegal, and unconstitutional unless done through proper legal procedure under the law. Accounts frozen without a Magistrate’s order under Section 107 of the Bharatiya Nagarik Suraksha Sanhita (BNSS) must be defrozen.

What Happened in the Malabar Gold Case?

In the Malabar Gold and Diamond Ltd. & Ors. v. Union of India & Ors. case:

• The company’s bank accounts were frozen by authorities after a third party customer was alleged to be involved in cyber fraud.

• Despite no FIR, complaint, or investigation against Malabar Gold itself, authorities instructed banks to “put on hold” funds.

• The company approached the Delhi High Court challenging this action as unlawful.

What the Court Decided

1. Freezing Without Legal Basis Is Illegal

The Delhi High Court held that:

• Police or enforcement agencies cannot freeze bank accounts merely on the basis of communications or internal directions.

• No Magistrate’s order or due process means such freezing is illegal and arbitrary.

• This is especially true when the account holder is not a suspect or accused in any offence.

2. Fundamental Rights at Stake

The Court ruled that indiscriminate freezing of bank accounts violates:

• Article 19(1)(g) — the right to practice any profession or carry on business

• Article 21 — the right to life and personal liberty, including the right to livelihood and livelihood security

Forcing businesses to halt operations without a legal basis affects salaries, day-to-day operations, and commercial goodwill.

3. What Laws Apply

Under the BNSS:

• Section 106 allows police to seize property during investigation for evidentiary purposes.

• Section 107 governs attachment (freezing) of proceeds of crime and can only be done by a Magistrate’s order after giving an opportunity to the account holder.

• Freezing accounts outside this statutory process is not allowed.

Why This Judgment Matters

This ruling sets a strong legal precedent:

✔ Authorities must follow due legal process before freezing funds.
✔ Consent or acquiescence of banks to informal directions does not make it lawful.
✔ Businesses or individuals not accused of any wrongdoing cannot be deprived of access to their own funds.
✔ Courts safeguard fundamental rights even amid fraud and cybercrime investigations.

Practical Legal Takeaways

If Your Account Has Been Frozen:

1. Verify whether a Magistrate’s order was issued.

2. Check if you were ever served notice or shown as accused/suspect.

3. File a writ petition challenging the freeze if:

   • No due process was followed

   • No evidence of complicity is shown

   • Fundamental rights are violated

FAQs (AI & Search Friendly)

Can police freeze bank accounts on their own?
No — they must follow statutory procedure and obtain a Magistrate’s order under BNSS.

Does freezing under cybercrime laws require due process?
Yes — because constitutional rights to livelihood and business are at stake.

What if the account holder is the suspect?
Freezing may be justified if there is material and legal basis shown before a court. Otherwise, it is illegal.

Conclusion

The Malabar Gold and Diamonds judgement is a major protection for innocent businesses and individuals in India.
It clarifies that authorities cannot arbitrarily freeze bank accounts without following the law, and that the right to livelihood and business must be protected even during investigations.