Freezing Of Bank Accounts Under Pmla

Author: LawSphereX

Category: Banking & Finance

Published: 2026-08-23T19:52:31.603Z

Updated: 2026-08-30T07:05:46.841Z

FREEZING OF BANK ACCOUNTS UNDER PMLA

Revant Sinha, Maharashtra National Law University, Mumbai

ABSTRACT

The recent times have seen the widespread increase in the white-collar crimes and many types of economic offenses and have posed a significant threat to India’s economic welfare. In the light of these offenses has implemented policies to counter-balance these investigation authorities, including the police where they have provided certain powers to prosecute complex financial transactions. It is also seen that there has been a rise of misuse of power by the authorities, which has resulted in adverse consequences for both the innocent parties and accused. One of the most concerned issues faced by individuals is the freezing of the banks of accounts by the investigating authorities. These actions are done mostly on the basis of presumption or allegations of the accused being in the possession of the tainted funds.

This practice can impact the operations of a business and lead to significant difficulties to the party that is affected or accused. There are a lot of procedural safeguards related to the protection of the accused under the CRPC and PMLA provisions which are needed to be followed by the authorities in relation to the Freezing of the accounts by the authorities. The project delves into the procedural safeguards provided by the Statutes and legal stance on the aforementioned issue, where it aims to elucidate the complexities which are regarding the freezing of the bank accounts during the course of investigation by the authorities. The project also looks in the aspect of reason to believe in the PMLA and the discretion which the authorities have before the freezing of the accounts and the adverse effects it has on the people whose accounts have been frozen.

INTRODUCTION

The rise of white-collar crimes and economic offenses are often seen as a major threat to the Indian economy’s interests, leading to legislative response by the government. Freezing of bank accounts is a power which is conferred to the authorities investigating these offenses to seize the property of the accused in order to investigate and since bank accounts cannot be frozen it can be said that freezing prevents the accused from escaping the investigation. The Supreme Court has stated that the authorities should exercise caution while exercising the same power conferred to them under the section 102 CR. P. C,1and section 17(1-A) of PMLA, emphasising that these powers shall only be used in rare cases.

2 The freezing of the account can have very adverse effect on the accused and since this deprives the accused of their money for the purpose of investigation the courts have often emphasised that there should be valid reasons and those reasons should be backed by a nexus that such offense exists. 3 The research has delved into the procedural safeguards provided studied with the legal precedents which has discussed the same. The project delves into what various courts have stated and what are the interpretations of the Section 102 CR. P. C. The project also compares the freezing of accounts under PMLA and Cr. P. C. Power conferred to the authorities. On the analysis of the aforementioned section along with important precedents then there are certain essential to freeze the accounts come into light.

1. THE ATTACHMENT MUST BE RELATED TO THE ‘PROPERTY’ RELATED TO THE PROCEEDS OF

CRIME Bare reading of the provision creates the confusion as to what comes under the ambit of the property which can be frozen by the authorities. This confusion was cleared by the SC in the Nevada Properties case, wherein it was held that the term ‘any property’ includes moveable and not immovable property.4 Furthermore, it was held by SC in the Tapas D. Neogy case where

1 Teesta Atul Setalvad v. State of Gujarat and Ors. (2018), 2 SCC 372.

2 B. Kavitha v. Inspector of Police. MANU/TN/4197/2019

3 Madhu vs. Sub Inspector of Police, 2020 (5) KHC 35.

4 Nevada Properties (P) Ltd. v. State of Maharashtra, (2019) 20 SCC 119

the bank accounts were also included within the ambit of ‘any property.’5 The Madras HC in the cases of Bharath Overseas Bank v. Minu Publication6 and Bharath Overseas bank v. Prerna Ramalingam, held that the ‘money’ in the bank account can be frozen.7

2. THE PROPERTY SHOULD BE CONNECTED WITH THE CRIME.

1. Alleged Or suspected to have been stolen; or

2. Have a nexus between the property and commission of the crime.8

From the above it is stated that the authorities can freeze the accounts if the money is connected to the crime which they are investigating. Furthermore, before the freezing order the authority also needs to have reasonable grounds to believe that the alleged property is tainted,9 and there should be materials supporting that suspicion. 10 There also needs to be preliminary evidence that leads to the reasonable suspicion. 11 In the P. K Kumar v. UOI case, the Delhi High Court justified the CBI’s action of freezing the bank accounts as there was evidence that the accused forged the signatures of his wife and children and hence there existed a reasonable suspicion. 12 In the existence of a reasonable suspicion the authorities can freeze the accounts.

The Himachal HC observed that the seizure should be done on the account that the bank account creates the suspicion of the commission of the offense. 13

3. THE IDENTIFICATION OF THE CRIME SHOULD FOLLOW THE IDENTIFICATION OF THE

PROPERTY AND NOT THE OTHER WAY AROUND.

The freezing order should not be applied unless the property held by the authority leads to reasonable suspicion to the offense, if the authority fails to do the same then the account cannot

5 State of Maharashtra v. Tapas D. Neogy, (1999) 7 SCC 685.

6 Bharath Overseas Bank v. Minu Publication, 1988 SCC OnLine Mad 488.

7 Bharath Overseas bank v. Prerna Ramalingam, 1990 SCC OnLine Mad 900.

8 Central Bureau of Investigation v. Arvinderjeet Kaur Puri, 2023 LiveLaw (PH) 283.

9 Supra note. 3.

10 Ezulix Software Pvt. Ltd. vs. State of Maharashtra and Ors., MANU/MH/1076/2021.

11 Gulam Sarvar vs. State of Maharashtra and Ors., 2018 SCC OnLine Bom 164

12 P.K Kumar v. UOI, 1992 SCC OnLine Del 136.

13 Anita Aggarwal Vs State of HP, 2023 LiveLaw (HP) 14.

be frozen. 14 It was held in the case of R. Chandrasekar vs. Inspector of Police, Fair Land Police Station Salem, and Ors. that the bank account must be found which has the connection with the commission of the offense. 15 The High Court of Allahabad rejected the argument that the property must precede the offence,16 However, the SC in the Nevada Properties case, stated that the “discovery of the property should precede the detection of crime. ” And held that the freezing of accounts cannot be done till the property has not been traced or discovered which leads to the detection of crime.

17 Freezing Of Bank Accounts Of Third Parties The third party in the present case refers to the parties who are neither involved in the case and nor the accused but they are being subjected to the freezing order which has affected their rights and being deprived of their rights of their lawfully earned money. The same was raised in the Hon'ble HC in the Rohan Jagdale case. 18 The High Court in the case of Neelofar Abass v. State of J&K and ors. , court relied on the case of Tapas D Neogy wherein the court had held that the accused as well as the third parties (which in this case was relatives of the accused) can be frozen under the scope of CRPC. 19 The Court reiterated that the accounts of not only the accused but any account which creates suspicion about the commission of the offense.

20 However the authorities have to freeze these accounts under very strong suspicion for the accounts of third parties to be frozen,21 and the freezing of the bank account has to be done cautiously. 22 The courts have also maintained their stance that when a third party is not connected to the offense and the objective of their freezing is not aligning with the nexus of the offense then the account of that third party ought to be de-freezed by the authorities. 23 The court has held that

14 Vinod Kumar Ramachandran Valluvar vs. State of Maharashtra, MANU/MH/2353/2011.

15 R. Chandrasekar vs. Inspector of Police, Fair Land Police Station Salem and Ors., 2002(5) CTC 598

16 Suninder Sandha vs. State of U.P. and Ors., MANU/UP/0018/2018

17 Supra note 3.

18 Rohan Ashok Jagdale and Ors. vs. The Police Station Officer and Ors., 2016 (4) Bom CR (Cri )512

19 Neelofar Abass vs. State of J. and K. and Ors., 2020 SCC OnLine J&K 585.

20 Ibid.

21 Anuradha Sadashivamurthy vs. State of Karnataka and Ors., MANU/KA/5007/2018.

22 Rajamani vs. The Inspector of Police, Shevapet Police Station and Ors., 2003 SCC OnLine Mad 915.

23 South Indian Chamber of Commerce and Industries Members Welfare Charitable Society and Ors. vs. M. C. Alex and Ors. , 2020 SCC OnLine Ker 16814. the freezing of account is a far-fetched measure and affects the reputation of the account holder. 24 Interplay Of Section 102 Of CrPC And PMLA In the case of Tapas D. Neogy case, the Hon’ble Supreme Court pointed out that under the Section 102 of the Crpc. the term ‘any property’ had a wide ambit. 25 This ambit covered the offenses which were created under any statute. There is a different view which clash with each other on the interpretation of 102 CRPC through PMLA. However, the Supreme Court in the Opto Circuits case had held that the PMLA is a standalone enactment and the power to freeze accounts under the special statutes will always be above than the power done under general statutes.

26 The section 65 of PMLA states that if there are no conflicting provisions then only the provisions of the CRPC would apply to the cases,27 but in case of a conflict the provisions of special provisions would apply which is mentioned in the Section 71 of PMLA. 28 The Delhi HC has also held that the procedure to freeze the accounts under the provisions of the PMLA has to be applied with the provision under which the officer is going ahead with the freezing of the bank accounts. 29 Remedies Available A. HIGH COURT: Another remedy available to the person whose account has been frozen is to approach the High Court and according to the merits of the matter. 30 But since it is an extraordinary remedy, it may be rejected on the basis of presence of another efficacious remedy.

31 The courts can also reject the plea if the court takes the view that such freezing would prove to be an issue towards the proceedings,32 or the investigation is complete or not. 33 A person can

24 Madhu vs. Sub Inspector of Police, 2020 (5) KHC 35.

25 Supra note. 4.

26 Opto Circuit India Ltd. vs. Axis Bank and Ors., AIR 2021 SC 753.

27 The Code of Criminal Procedure, no. 2 of 1973, acts of parliament, §65.

28 The Code of Criminal Procedure, no. 2 of 1973, acts of parliament, §71.

29 Directorate of Enforcement vs. Abdullah Ali Balsharaf and Ors., 2019 SCC OnLine Del 6428.

30 Madhu vs. Sub Inspector of Police, 2020 (5) KHC 35.

31 AP Product and Ors. vs. State of Telangana and Ors., 2020 SCC OnLine TS 1628.

32 Operation Mobilization India and Ors vs. State of Telangana and Ors. (MANU/TL/0401/2021).

33 Neelofar Abass vs. State of J. and K. and Ors., 2020 SCC OnLine J&K 585.

approach the High Court of proper jurisdiction under Article 226 of Constitution34 or Sec. 482 of Cr.P.C35. 36 High Courts have heard the matters for the de-freezing of the accounts which are made through the afore mentioned sections.37 In the Indiabulls case the court heard the matter filed under 226 of the constitution.38 B. ADJUDICATING AUTHORITY UNDER PMLA: Under the PMLA there is the presence of the Adjudicating authority under PMLA under section 8 of PMLA.39 The person can ask for the proper evidence against him and if there’s no evidence can lead to the defreezing of their account. Issues

1. The discretion of the authorities before freezing of the bank accounts under PMLA be

checked or not.

2. What are the procedural safeguards under PMLA.

3. What should be the ambit of the term “reason to believe” under the provisions of PMLA.

Findings

of the research The following covers the finding of the research work conducted:

1. VAGUE AREAS. The use of the word Suspicion does not mean that the officers have firm

opinion or any incriminating evidence rather than just have belief, the use of the word is vague and denotes that this word is subjective.

2 POSITION OF COURTS

The courts however, have taken the stance that the authorities should be satisfied only on the basis of the material they have in their possession.40 In case of absence of any material facts lead it to defreezing.41

34 India Const. Art. 226.

35 The Code of Criminal Procedure, no. 2 of 1973, acts of parliament, §71.

36 M. Adithya Cholan and Ors. vs. The Union of India and Ors., 2015 SCC OnLine Mad 6729.

37 Rakesh P. Sheth and Ors. vs. The State, 2016 SCC OnLine Mad 25294.

38 Indiabulls Commercial Credit Limited vs. Economic Offences Wing and Ors., 2021 SCC OnLine Del 2906.

39 Prevention of Money Laundering act,

40 IMZ Corporate Private Limited and Ors. vs. State of Bihar and Ors., 2020 SCC OnLine Pat 2712.

41 South Indian Chamber of Commerce and Industries Members Welfare Charitable Society and Ors. vs. M.C. Alex and Ors., 2020 SCC OnLine Ker 16814.

3 REASON TO BELIEVE

The “reason to believe” under which a freezing of a property is done should be on the basis of evidence and not at the discretion of the authorities before the freezing, and in absence of the incriminating evidence the defreezing should be done. Suggestions

1. The courts should firstly check the procedure which is laid down in PMLA being complied

by the authorities or not and in the cases like the courts have ordered the de-freezing of the accounts should do the same in the future.

2. The courts should also order the authority to compensate for the damages to the reputation

of the account holder along with the losses he/she had to face due to the actions of the authorities and in case the person is proved to be innocent.

3. The extension of the time of the freezing shall only be done if the authorities have material

facts in their possession which proves that the crime has been done through the account of the person whose account has been frozen.

4. Along with the procedural safeguards there should also be certain objective criteria which

should be in place to freeze the accounts of a certain individual. The criteria should not be solely on the hands of the authorities.

5. The courts should entertain the plea of the person and should consider their material facts

that they provide for proving their innocence and if the court is satisfied by their innocence then must order the de-freezing of their accounts before the time period of the authorities are over. Conclusion The judicial pronouncements discussed above indicate that bank accounts can be frozen even if the account holder is not directly involved in the alleged crime. However, this action must comply with procedural safeguards and be deemed reasonable. It quite peculiar that individuals or businesses engaging in genuine transactions may face such consequences without any fault of their own. Often, it is not practical for someone to verify the source of the other party's income before every transaction, especially in routine dealings or business interactions.

Given this scenario, it is essential for courts to issue strict directions to investigating authorities on how they should handle investigations involving third-party bank accounts. While the Madras High Court rightly emphasized that freezing third-party accounts should occur only in rare cases and with utmost restraint,42 this viewpoint has not been fully adopted by investigating agencies, including the police. In essence, there exists a need for a balanced and more balanced approach that ensures the effectiveness of investigations while safeguarding the rights of innocent individuals or businesses caught up in such situations.

42 Anuradha Sadashivamurthy vs. State of Karnataka and Ors., MANU/KA/5007/2018.