Know Your Rights: Banks Can’t Freeze Your Entire Account

Know how Indian law protects you: banks cannot freeze your entire account; only the money under dispute can be held.

Introduction

Banks, police, and regulators have increasingly used the freezing of bank accounts as a tool in cases involving suspected fraud, money laundering, or financial disputes. But Indian courts have made clear that, without lawful support, the freezing of an entire account is unconstitutional and a violation of due process.

Recent decisions, such as Mohammed Saifullah vs Reserve Bank of India (2024) and Prateek Kumar vs AU Small Finance Bank Ltd. (2025), have clarified that only the disputed or alleged amount can be frozen, not the rest of the account.

Core Legal Principle

Authorities cannot freeze an entire bank account just because part of its funds are under investigation. Only the specific amount in question can be restricted, and that too, following due legal process.
This rule arises from constitutional guarantees, procedural safeguards, and established judicial interpretation.

Constitutional and Legal Foundations

Indian courts recognize that freezing a full bank account without proper cause violates key fundamental rights, namely:

Article 19(1)(g) – Right to trade and profession
Article 21 – Right to livelihood and dignity
Article 300A – Right to property

A bank account is vital for daily life and business operations. Arbitrary restrictions on access to one’s funds amount to unconstitutional deprivation of property.

Due Process Is Mandatory

Judicial review insists that freezing powers be used strictly in accordance with the law. Authorities must:

Inform the account holder of the freeze
Specify the statutory provision relied upon
Identify the exact disputed amount
Indicate the duration or review timeline
Record reasons in writing

In Mohammed Saifullah vs RBI (2024), the Madras High Court held that freezing orders without transparency, justification, or defined timelines cannot stand in law.

Limitation to the Disputed Amount Only

Courts consistently reject the freezing of entire accounts when only a portion of the funds is allegedly linked to wrongdoing.
In Prateek Kumar vs. AU Small Finance Bank Ltd. (2025), the Rajasthan High Court ruled:

Only the amount under suspicion may be blocked
The remaining balance must remain usable
Total suspension of account operations is disproportionate and unlawful

This ensures a balance between investigative needs and the individual’s rights.

Bank Balance as “Property” Under Criminal Law

Courts affirm that money in a bank account constitutes “property” under Section 102 of the Criminal Procedure Code (CrPC).
However:

Restrictions must be specific, not general
There must be a clear nexus between the alleged offence and the amount restrained
Arbitrary or excessive freezing is impermissible

While targeted restraint is allowed, blanket freezing exceeds lawful authority.

Violation of Natural Justice

Freezing an entire account without notice or explanation breaches:

The principle of audi alteram partem (right to be heard)
The rule of fairness and proportionality

Courts have repeatedly directed authorities to:

Identify the disputed sum precisely
Immediately defreeze the remaining funds
Avoid punitive measures before adjudication

Exceptions: When a Full Freeze May Be Lawful

A total freeze may be justified only when:

Ordered by a competent court
Mandated under specific laws (e.g., PMLA, FEMA, Income Tax Acts)
Supported by clear statutory authority
Necessary to prevent the dissipation of the entire proceeds of crime

Even then, judicial supervision remains essential.

Implications for Banks and Authorities

Authorities and financial institutions must:

Avoid mechanical or routine account freezing
Apply proportionality
Respect the customer’s right to livelihood
Periodically review restrictions

Failure to comply could lead to:

Judicial invalidation of the freeze
Compensation claims
Constitutional censure

Conclusion

Indian law is now firmly established: freezing an entire bank account when only a portion of the funds is disputed is illegal, arbitrary, and unconstitutional unless expressly permitted by law and due process.
Authorities can investigate and protect public interest—but not by infringing fundamental rights.