Court Orders Immediate De-freezing and Imposes Costs on Bank for Violating Fundamental Rights
In a landmark decision, the Allahabad High Court has strongly criticized banks for arbitrarily freezing accounts without legal authority, underscoring the violation of fundamental rights under Articles 19(1)(g) and 21 of the Constitution of India. The court directed the Indian Overseas Bank to immediately de-freeze the account of M/s S. A. Enterprises and imposed a compensation of Rs. 50,000 for the financial loss and reputational damage incurred by the petitioner.
The writ petition was filed by M/s S. A. Enterprises, represented by counsel Shrikant Mishra and Mansi Saxena, against the arbitrary freezing of its bank account by the Indian Overseas Bank. The account was frozen following a Rs. 23 lakh transaction, which the bank deemed suspicious without any formal complaint or directive from competent authorities.
The court, comprising Justices Shekhar B. Saraf and Abdhesh Kumar Chaudhary, held that the bank's actions were illegal and breached the trust inherent in the banker-customer relationship. The judgment emphasized that banks must act as trustees and cannot assume the role of investigative agencies without proper authorization. The court noted that the bank's reliance on the Prevention of Money Laundering Act, 2002, was misplaced, as Section 12 merely mandates record maintenance and does not empower banks to freeze accounts.
The decision also highlighted that the Reserve Bank of India's circular explicitly prohibits banks from restricting account operations where suspicious transaction reports have been filed, further invalidating the bank's actions.
The court asserted that the arbitrary freezing of accounts directly infringes on the fundamental rights of individuals, including the right to livelihood and the freedom to carry on trade. The judgment referenced the Supreme Court's ruling in OPTO Circuits (India) Ltd. v. Axis Bank, reinforcing that such freezing cannot be done casually and must be backed by legal authority.
In conclusion, the court ordered the Indian Overseas Bank to de-freeze the petitioner's account immediately and compensate the petitioner for the unwarranted financial and reputational harm caused by the bank's actions. This decision serves as a critical reminder to banks to adhere to legal protocols and respect the fundamental rights of account holders.
Bottom Line:
Bank cannot self-authorize freezing of an account without proper legal authority, cogent material, or instructions from competent authorities. Arbitrary freezing of accounts violates fundamental rights under Articles 19(1)(g) and 21 of the Constitution of India.
Statutory provision(s): Articles 19(1)(g) and 21 of the Constitution of India, Prevention of Money Laundering Act, 2002 Sections 12, 12A, RBI Circular of 2012
