Frozen Without Warning: How Account Freezing Has Become India's Silent Financial Punishment

Bank account freezing has become a “new normal” used by investigative authorities in recent years. Despite being permitted by law under several regulations, the growing practice of freezing bank accounts has raised serious questions regarding procedural and fundamental rights. What appears to be a routine investigation phase often leads to immediate 'financial asphyxiation' for an individual or organization.

The Legal Basis: A Broad and Blunt Instrument

Section 102 of the Code of Criminal Procedure (CrPC), which served as the foundation for account freezing in India has been replaced by Section 106 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023. This clause gives the investigative agencies the authority to seize 'any property'—including bank accounts—that they believe may be connected to any illegal or suspicous activity. Statutes like the Income Tax Act, the Unlawful Activities Prevention Act, the Prevention of Money Laundering Act (PMLA), and FEMA have expanded this power over time, enabling different agencies to freeze bank accounts while they carry out investigations.

Yet, the absence of uniform safeguards or binding procedural standards means that this power is often exercised arbitrarily, with consequences that are frequently disproportionate to the alleged offence. What should be a narrowly tailored investigative measure has, in practice, become a blunt instrument—one that punishes first and asks questions later. The statutory language is broad, leaving it open to wide interpretation — and abuse.

Due Process? Often Missing in Action

One of the most troubling aspects of account freezing is the absence of due process. In most cases, the account holder is not given prior notice, nor is there an opportunity to be heard before the freezing order is issued as laid down by Hon'ble Supreme Court of India in the case of Teesta Atul Seetalvad vs State of Gujarat wherein it was held that prior notice is not required to be given to the owner of the bank account before freezing of the account, the investigative agency is only required to give prior notice to the concerned magistrate. Although courts and investigative organizations frequently use the possibility of money being transferred or concealed as justification, this justification is insufficient to overcome the constitutional demands of natural justice and fairness.

Recently, the Delhi High Court in the case of Neelkanth Pharma Logistics Pvt. Ltd. v. Union Of India & Anr 2025 LiveLaw (Del) 236., the court dealing with a petition filed by a logistics company, whose bank account having a withdrawable balance of over ₹93 crore was frozen over an innocuous entry of Rs. 200/- expressed concern with investigating agencies freezing the bank accounts of innocent traders while probing cybercrimes. It observed that , “In such types of cyber-crimes, if any fraudster cheats a complainant and with the help of cheated money, when such fraudster buys something using such money, the police, chasing such money-trail, directs freezing the bank accounts of all concerned and in the process, many innocent recipients have to bear the brunt, for no fault of theirs.”

In another case of Pawan Kumar rai vs Union of India (W.P.(C) 15066/2024 &CM APPL. 63159/2024), where bank account of a “small-scale vendor” was freezed for alleged cyber fraud of Rs. 105/- , the Delhi High Court observed that the freezing of the bank account violates the vendor's right to earn and live with dignity, as guaranteed under Article 21 of the Constitution.

The court also observed that “Indubitably, passing of an order of freezing the entire bank account of the petitioner has a serious and adverse implication and invades and encroaches upon his invaluable right to earn and live with dignity. The impugned action, in essence, amounts to a violation of fundamental right of the petitioner, as it directly undermines his right to livelihood, which is integral part of the Right to Life guaranteed under Article 21 of the Constitution,"

The Rajasthan High Court in Kailash Kanwar Rathore & Ors. v State of Rajasthan 2025 LiveLaw (Raj) 218, 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 freezing of a bank account is not a minor inconvenience — it is a complete blockade of a person's or a company's economic activity. Salaries cannot be paid, EMIs bounce, legal obligations go unmet, and daily life is disrupted. And yet, the process lacks even the minimum procedural safeguards one might expect in a democratic setup.

Constitutional Concerns: Reversal of the doctorine of “Presumption of Innocence”

The right to property, though no longer a fundamental right, is still a constitutional right under Article 300A. Article 21 of the Constitution secures the right to life and personal liberty—rights that our courts have long recognised as extending to livelihood and human dignity. Freezing a bank account without prior notice, without disclosing the grounds, and without any immediate remedy does more than mere inconvenience to a person; it strikes at the core of these constitutional guarantees. It essentially reverse the fundamental principle that someone is presumed innocent until proven guilty, putting the person in the position of being punished before being heard.

The Chilling Effect: Unaccountable Power

In several instances which I have seen in my practice, accounts have remained frozen for months — even years — without the filing of a charge sheet or without any conclusion to the investigation. Even more troubling is how the lack of safeguards has turned account freezing into a breeding ground for collusion between investigating officers and a section of the legal fraternity.

For those whose accounts are suddenly blocked, the experience is nothing short of a nightmare—they cannot pay bills, meet daily needs, or run their businesses. Many people are forced to pay exorbitant amount of fees to legal practitioners in this situation simply to know the reason behind the freezing of their accounts.

A process that was meant to protect the law has, in far too many cases, turned into a tool for harassment and extortion. The financial damage caused during this time is often irreversible, and yet, there is little recourse.

Towards a Balanced Framework

It is not the case that account freezing should be prohibited altogether. When used properly, it is a legitimate investigative tool. But like all such tools, it must be exercised responsibly, transparently, and with oversight.

What is desperately needed is:

• A formalized process that requires notice in advance, unless there are truly extraordinary circumstances.

• The explicit legal right to file an appeal or request a review from an impartial body.

• Judicial oversight in case there is undue delay in completion of investigation, to prevent abuse of the process of law.

By demanding rigorous adherence to these principles of natural justice, the judiciary in particular needs to regain its position as the supreme guardian of rights. Silence or excessive deference in the face of abuse only encourages more abuse.

Redefining Equilibrium

The freezing of bank accounts involves a careful balancing act between state authority and individual liberty. No state authority should be able to seize an individual's property or means of subsistence in a constitutional democracy unless a fair, reasonable, and just process has been followed. In practice, though, this constitutional test is usually not met by this arbitrary practice.

The time has come for civil society, the legislature, and the judiciary to unite in calling for greater transparency, accountability, and meaningful protections. Anything less runs the risk of normalizing a system in which coercion is passed off as standard practice. The law was never meant to serve as an instrument of oppression disguised as investigation. If justice is to retain its meaning, the balance must be restored — swiftly and decisively.

The author is an Advocate at Delhi High Court. Views are personal.