The Fundamental Rights against Arbitrary Account Freezing.

Hon'ble Delhi High court, In case of Malabar Gold and Diamond Limited vs Union of India, Held that freezing of the bank accounts of the petitioners who ran a legitimate business and had made appropriate bank transactions. Malabar Gold had sold gold to a customer of about 14.20 crores rupees and the customer was later accused of committing fraud. Although the petitioners followed the rigid KYC standards and did not have an FIR or criminal case against them, the agencies involved in the investigation instructed banks to freeze large amounts of money without determining their culpability.

The important Highlights of the Judgement are as follows:

Statutory Limitation: The Court declared that an investigating organization has no authority to put a freeze on bank accounts under Section 106 of the BNS that only permits property to be seized as an evidentiary measure.

Mandatory Magistrate Approval: Freezing or attaching bank accounts as proceeds of crime has to adhere firmly to Section 107 of the BNS and has to be ordered by a certain competent Magistrate.

Constitutional Violation: Blanket and indiscriminate freezing of accounts of non-complicit entities is obviously arbitrary and contravenes the fundamental rights under Articles 19(1)(g) and 21, the right to livelihood and to trade.

Proportionality: The Court stressed that the freeze should be proportional; freezing a whole account due to the little amount of a disputed issue that can be easily identified is an unreasonable measure of power.

The Court noted that this amounted to stagnating the daily operation of the petitioners and they could not afford to pay their employees their salaries and fulfil their business commitments. According to Hon'ble High court, innocent account holders should not be punished losslessly as they had money that was temporarily transited through their accounts, which is the proceeds of crime. The implication was that the petitioners have their accounts immediately defreezed, with agencies still being allowed to continue as per the law in the event that any particular evidence of complicity is discovered.

Malabar Gold v. Union of India