Karnataka High Court Rules Banks Cannot Freeze Entire Account For Partial Orders

The Karnataka High Court has ruled that banking institutions do not have the authority to freeze an entire bank account if an official directive only mandates a partial freeze. The ruling was delivered in Bengaluru by Justice Suraj Govindaraj, following a petition by a local resident concerning the IndusInd Bank branch in Kothanur.

The decision came after a private sector employee and Bengaluru resident, Madhu, filed a petition challenging the actions of his bank. Madhu had approached the high court to contest the decision of the IndusInd Bank branch in Kothanur, which had placed a complete freeze on his personal bank account.

The bank had enacted the total freeze after receiving two communications, including one issued by the cybercrime police of Mehsana in Gujarat. Instead of restricting only the specified portion of the funds, the Kothanur branch chose to freeze the petitioner's entire account, blocking his access to all of his money.

While allowing Madhu's petition, Justice Suraj Govindaraj observed that a bank has no power to expand the freezing of funds in an account beyond the limits stipulated in official directions. The high court ruled that whenever a freezing direction specifies a particular amount, the bank must permit the account holder to operate the remaining balance in the account.

The only exception to this rule is if the official direction itself explicitly requires the complete freezing of the account. This ruling establishes a legal safeguard for bank account holders, ensuring they retain access to the remainder of their funds when only a specific portion is subject to a freeze order. By allowing the petition, the court has made it clear that banks must strictly adhere to the limits set by official communications.