Unwarranted Freezing Of Bank Accounts A Growing Concern Implicating Financial Hardships On Businesses And Individuals: Rajasthan HC

Rajasthan High Court highlighted the growing concern of Indian businesses and corporate entities owing to unwarranted freezing of bank accounts by the investigating authorities in a mechanical manner implicating significant financial hardships on the concerned parties.

The bench of Justice Manoj Kumar Garg opined that such actions were frequently predicated merely on allegations or suspicion of tainted funds being credited into the accounts of innocent business entities or individuals that severely impaired operational functioning of the business.

The Court was hearing a challenge against the dismissal of the applications and subsequently the revision petition filed by the petitioners against freezing of their bank accounts.

The petitioners were family members, wife and two sons, of the main accused charged with embezzlement. During investigation against him, the police froze the bank accounts of the petitioners as well. Against this, application was filed which was dismissed, followed by a revision petition which was also dismissed.

It was the case of the petitioners that the primacy allegation of embezzlement pertained exclusively to the main accused whose account was already frozen. The petitioners were not alleged to have committed any crime, and despite there being no nexus between them and the crime, the investigating agency indiscriminately froze their accounts.

It was argued that it amounted to unjust deprivation of the right to carry on lawful business activities. Furthermore, it was submitted that the act was illegal for non-fulfilment of the mandatory requirement under Section 102(3), CrPC.

Section 102(3), CrPC mandates that after seizing a property, a police officer must report the seizure to the Magistrate.

After hearing the contentions, the Court observed that,

“The unwarranted freezing of bank accounts by investigating authorities in a mechanical manner has emerged as a growing concern confronting Indian businesses and corporate entities. Such actions are frequently predicated solely on mere allegations or suspicions that tainted funds have been credited into the accounts of innocent parties, be they business entities or individuals, without the necessity of the accused being formally charged or even named in the First Information Report (FIR)… This practice can severely impair the operational functioning of a business and inflict significant financial hardships upon the concerned parties, often plunging them into dire straits.”

The Court further highlighted that the most frequently violated condition under Section 102, CrPC pertained to the requirement of informing the Magistrate about the seizure. Underscoring the precedents on the subject, it was reiterated that the requirement of such reporting was mandatory, failing which the freezing of the bank account was vitiated.

It was stated that while delay in such reporting might only be an irregularity, total failure to do so negatively impacted the validity of the seizure.

“In such circumstances, account holders like the petitioners, most of whom are not even made accused in the crimes registered, cannot be made to wait indefinitely hoping that the police may act in tune with Section 102 and report the seizure as mandated under Subsection (3) at some point of time.”

In this background, it was opined that since in the present case, the information regarding the freezing of the bank accounts of the petitioners was not given to the Magistrate till date, the act was held to be legally unsustainable.

Accordingly, the petition was allowed, and it was directed to de-freeze the accounts of the petitioners.

Title: Smt. Kailash Kanwar Rathore & Ors. v State of Rajasthan

Citation: 2025 LiveLaw (Raj) 218

Counsel for petitioners: Mr. Divik Mathur, Mr. Pravin Kumar Choudhary

Counsel for respondents: Mr. Deepak Choudhary, AAG, Mr. Kuldeep Kumpawat, AAAG, Mr. Laxman Ram Bishnoi

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