MP High Court Frames Guidelines To Stop Banks From Freezing Entire Accounts Over Minor Cyber Fraud Amounts

The Madhya Pradesh High Court has stepped in to fix a problem quietly wrecking small businesses across the country: banks freezing entire accounts over cyber fraud complaints, even when the disputed amount is a tiny fraction of the balance. In a significant order, Justice Himanshu Joshi has laid down detailed guidelines to ensure investigating agencies and banks freeze only what is necessary, not an account holder's entire life savings or working capital.

The case arose from a writ petition filed by Archana, a liquor contractor running seven composite shops in Narmadapuram, whose current account holding over Rs. 2.51 crore was frozen following a cyber fraud notice under Section 106 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (corresponding to Section 102 of CrPC). The actual disputed transaction flagged in the notice was worth just Rs. 980. Despite a representation seeking release of the account, with an offer to let the disputed sum remain under lien, the authorities sat on it, leaving the petitioner's business "brought to a standstill" and exposed to "the risk of default in complying with statutory and contractual obligations."

Appearing for the petitioner, Advocate Aishwarya Sahu argued that freezing the entire account was arbitrary and disproportionate, especially since no notice or hearing preceded the action, and that it violated Articles 14, 19(1)(g) and 300-A of the Constitution. Additional Advocate General Nilesh Yadav, along with Government Advocate Priyanka Mishra, countered that a meagre disputed amount could not by itself justify de-freezing, given the rising menace of cyber fraud and the need to preserve proceeds of crime.

While hearing the matter, the Court noticed a Standard Operating Procedure dated April 10, 2026, issued by the Union Ministry of Home Affairs to govern grievance redressal for accounts frozen through the National Cyber Crime Reporting Portal and the Cyber Fraud Complaint and Financial Fraud Risk Management System. Observing that "numerous account holders across the country face freezing of entire bank accounts even where the allegedly suspicious amount constitutes only a small fraction of the balance," the Court held that a balance must be struck between the right to carry on business, the right to property, and the state's power of investigation.

The judgment holds that freezing an entire account "shall be resorted to only in exceptional circumstances" where a lien on the disputed sum alone would not protect the investigation, and even then, the investigating officer must record reasons in writing. Wherever the tainted amount is identifiable, only that sum should be placed under lien or debit freeze, while the rest of the account continues to function normally.

To operationalise this, the Court framed twenty-three detailed guidelines covering the entire lifecycle of a frozen account from the bank's duty to promptly inform the customer and assist with the grievance process, to strict timelines requiring the bank to upload a grievance within seven days, the investigating officer to decide it within fifteen days, and any release order to be implemented "preferably within forty-eight hours." Crucially, the Court clarified that if a grievance remains unresolved for ninety days with no valid objection from the investigating agency, the bank must release the hold, after giving fifteen days' prior notice to the agency concerned.

The Court also cautioned that "mere suspicion without supporting material shall not justify indefinite continuation of freezing," and that officers must periodically review whether continued freezing remains proportionate. A writ petition seeking de-freezing, it noted, would ordinarily lie only after the ninety-day SOP timeline expires, though the Court retains discretion to intervene earlier in exceptional cases.

Disposing of the petition, the Court directed respondent authorities to examine Archana's representation strictly as per the SOP and the guidelines framed, and to pass a reasoned order if freezing of the entire account is to continue. The State has also been directed to circulate the order to all banks, police stations, cyber crime cells and investigating agencies to ensure uniform compliance until formal statutory rules are put in place.

Case Title: Archana vs. The State of Madhya Pradesh and Others

Date of Order: July 27, 2026

Bench: Justice Himanshu Joshi