Blanket Freezing of Bank Accounts Is Arbitrary, Says Delhi HC

The Delhi High Court has delivered a significant ruling on the limits of investigative powers in cybercrime cases, holding that blanket or disproportionate freezing of bank accounts belonging to entities that are neither accused nor suspects is unconstitutional . Justice Purushaindra Kumar Kaurav observed that such indiscriminate action violates fundamental rights guaranteed under Article 19(1)(g) , which protects the freedom to carry on trade and business, and Article 21 , which encompasses the right to livelihood . The court stressed that financially paralysing an innocent business without proof of wrongdoing amounts to punitive action without due process .

The case arose from a petition filed by Malabar Gold and Diamonds , whose accounts with State Bank of India and HDFC Bank were put on hold following instructions linked to a cyber fraud probe. The complaint, however, was filed against a customer Dallas Ecom Infotech Pvt Ltd that had purchased gold bars and coins from Malabar in July 2024 after completing standard KYC procedures . By March 2025, nearly ₹80 lakh in Malabar’s accounts had been frozen, disrupting salary payments and day-to-day operations .

At the heart of the issue lies the growing challenge of cybercrime enforcement. Investigators argue that swift account freezing is essential because fraud networks often rely on mule accounts used to park and rapidly move stolen funds through layered transactions. Agencies such as the Indian Cyber Crime Coordination Centre , functioning under the Ministry of Home Affairs , therefore push for quick preventive action to stop money trails from vanishing. However, the court clarified that while speed is important, action cannot be indiscriminate . Freezing an established company’s operational accounts without evidence of complicity cannot be justified merely because funds passed through its banking channels.

The judgment underlined that Malabar was a legitimate commercial entity conducting routine trade, not an account showing suspicious characteristics such as fictitious identity, abnormal transaction patterns, or KYC irregularities. Authorities, the court noted, had acted mechanically, issuing what it described as an “indefinite and unreasoned” freeze , despite the absence of any allegation directly implicating the company. Such blanket action paralyses lawful business operations, damages commercial goodwill, and imposes severe financial consequences on innocent parties.

Accordingly, the court directed the I4C to immediately instruct the banks to defreeze Malabar’s accounts, while clarifying that agencies remain free to take action if credible material suggesting involvement emerges but strictly in accordance with the law. Legal observers say the ruling strikes a balance between the need for rapid cybercrime response and constitutional safeguards , emphasising targeted action and evidence-based financial restraints rather than broad, automatic shutdowns.