The Karnataka High Court, in Sri. Madhu v. The Indusind Bank Ltd held that the banks cannot freeze the whole account when the investigating agencies have asked for a partial freeze up to a certain amount. In this case, IndusInd Bank froze the entire account of a customer, even though it had received police directions for only ₹25,000. The bank argued that it did so expecting further directions but Justice Suraj Govindaraj rejected it saying that administrative convenience or apprehensions of the future cannot supplant a valid legal mandate.
The Court stressed that the role of a bank is only ministerial, i.e., custodial, not investigative or adjudicative. As the account funds are the customer’s property, any restriction must be proportionate. In the future, banks should freeze only the amount specifically asked for and let the account holder have access to the rest of the money unless there is a law or order that specifically requires the entire account to be frozen.
Researched and Authored by Sai Ram B.