Court Condemns Bank’s Reliance on Third-Party Communications Over Direct Instructions from Customer Company
In a landmark decision delivered on January 5, 2026, the Calcutta High Court’s Division Bench, comprising Justices Sabyasachi Bhattacharyya and Supratim Bhattacharya, overturned Axis Bank’s freeze on the accounts of August Agents Limited, a company directed by Ravindra Pratap Singh. The court found that the bank acted improperly by relying on communications from third-party entities instead of adhering to direct instructions from its customer, August Agents Limited.
The legal dispute began when Axis Bank froze the accounts of August Agents Limited, citing conflicting instructions from different management factions of the company and a letter from Vindhya Telelinks Limited (VTL), a third-party entity holding 100% of the shares in August Agents Limited. The appellants argued that the bank had no grounds to freeze the accounts based on third-party communications, especially since the company had provided clear instructions backed by valid resolutions.
The court noted that the bank's freeze letter, dated June 9, 2021, addressed not the customer company but rather a finance manager within the M.P. Birla Group, highlighting procedural irregularities. Furthermore, the court emphasized that once the Registrar of Companies (ROC) removed the "management dispute" marking from August Agents Limited, there was no justification for continuing the account freeze.
Additionally, the court dismissed the claims of the respondent directors, who were removed from their positions and lacked the locus standi to intervene in the company’s affairs, citing the dismissal of their oppression and mismanagement claims by the National Company Law Tribunal (NCLT).
The High Court's ruling mandates that Axis Bank defreeze the accounts and refrain from intervening in internal management disputes unless supported by a valid court order. The court also ordered the removal of the third-party directors from the writ petition, recognizing that their involvement lacked legal standing.
This judgment underscores the autonomy of corporate entities in managing their internal affairs without unwarranted interference from financial institutions, reaffirming the principle that banks must act solely based on direct instructions from their account holders.
Bottom Line:
Banking Law - Bank accounts cannot be frozen without valid justification - Third-party communications cannot be relied upon to freeze a customer's account contrary to direct instructions from the account holder company.
Statutory provision(s): Companies Act, 2013 Sections 241, 242, 115, 173
Ravindra Pratap Singh v. Reserve Bank of India, (Calcutta)(DB) : Law Finder Doc Id # 2833429
