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Indian court limits freezing bank accounts in crypto fraud cases

Indian court limits freezing bank accounts in crypto fraud cases

GrafaGrafa2024/09/15 22:05
By:Liezl Gambe

The Madras High Court of India has ruled that police cannot freeze entire bank accounts during fraud investigations, particularly in cryptocurrency-related cases.

The court's decision specifies that only the amount involved in the alleged fraud can be frozen, safeguarding account holders' livelihoods and financial stability. 

This ruling comes after a case where an account was frozen for over a year due to a cryptocurrency investigation.

Justice G. Jayachandran highlighted the issue of freezing entire accounts, stating it severely disrupts individuals' lives and business activities. 

He noted that many account holders are unaware of the reasons behind such freezes and face significant financial difficulties by the time they learn about them. 

He stated, "No doubt, the statutes empower the investigation agencies to request the bank concerned to freeze the accounts pending investigation... but whether the power is properly exercised or not is the moot question now looming large."

The court's ruling responded to a petition filed by Mohammed Saifullah, whose account at HDFC Bank in the Villivakkam branch was frozen by the Telangana State Cyber Security Bureau (TSCSB) due to a cryptocurrency investigation initiated in May 2023. 

Saifullah claimed he was unaware of the freeze's reasons, and the bank's counsel explained it was tied to a fraud case involving cryptocurrency transactions.

His account contained ?9.69 lakh (about $11,680) at the time.

Justice Jayachandran emphasised that, according to legal provisions, investigative agencies must notify both account holders and the courts when accounts are frozen. 

However, this is often overlooked.

He cited Section 102 of the Criminal Procedure Code, replaced by Section 106 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), which requires timely reporting of such actions. 

"Day in and day out, this court comes across petitions to defreeze bank accounts by highlighting the failure of the investigating agencies in not only communicating the reasons to the account holders but also not intimating the jurisdictional court about the freezing of the accounts," the judge noted.

In Saifullah's case, the judge allowed him access to his account, provided he maintains a minimum balance of ?2.48 lakh (approximately $2,990), the amount under investigation. 

The court concluded, “Under the guise of investigation, an order freezing the entire account without quantifying the amount and period cannot be passed.” 

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