Archana vs. The State Of Madhya Pradesh

Held

The Court held that freezing of a bank account is an extraordinary measure and should not be resorted to mechanically. It emphasized the need to distinguish between alleged proceeds of crime and legitimate funds, imposing only necessary restraints. The Court observed that the alleged suspicious transaction was only Rs. 980/-, the account balance exceeded Rs. 2.51 crore, the account is the petitioner's primary business account, and a representation had already been submitted. Accordingly, Respondent No. 3 was directed to examine the petitioner's representation strictly in accordance with the Standard Operating Procedure (SOP) dated 10.04.2026 and the Court's guidelines. If preservation of only the disputed amount is sufficient for investigation, directions shall be issued to release the remaining balance, retaining a lien over the disputed amount. If the entire account is to remain frozen, a reasoned order must be passed. The writ petition was disposed of with these directions, and the guidelines were to be followed by all concerned authorities.

Facts

The petitioner, a licensed liquor contractor, challenged the freezing of its current bank account by Respondent No. 2 Bank based on a notice under Section 106 of the Bharatiya Nagarik Suraksha Sanhita, 2023, issued by Respondent No. 3. The petitioner argued that the disputed transaction was only Rs. 980/-, while the account held over Rs. 2.51 crore. The account is crucial for the petitioner's business operations, including depositing license fees and making payments to the Excise Department. The freezing of the entire account has halted business activities. The petitioner had submitted a representation to Respondent No. 3 requesting the release of the account, with a lien only on the disputed amount, but no decision was taken.

Key Issues

1. Whether the freezing of the entire bank account, containing substantial legitimate funds, is arbitrary, illegal, and disproportionate when the allegedly suspicious transaction is of a meager amount (Rs. 980/-), thereby violating the principles governing the exercise of such power and Articles 14, 19(1)(g), and 300-A of the Constitution of India? Petitioner's arguments: The action is arbitrary and illegal as the entire account was frozen without notice or hearing. Freezing the entire account instead of placing a lien only on the disputed amount is disproportionate and violates settled legal principles. Reliance was placed on decisions in Malabar Gold and Diamond Limited, Khalsa Medical Store, and this Court's own judgments in Sajida Bi cases. Revenue/State's arguments: The impugned action was taken due to information about suspected cyber fraud. The mere fact that the suspicious transaction is of a small amount cannot be a ground for de-freezing the account, given the rise in cyber fraud and the need for prompt measures to preserve proceeds of crime.