Most of a shopkeeper’s business may be conducted through one bank account. Customer payments flow in and rent and wages flow out. If that account is frozen while the investigation into the cybercrime is ongoing, the shopkeeper could find themselves without access to funds required to pay normal bills. This may occur even if the complaint is about a single payment.
When fraud is reported, there’s a good reason to act quickly. A person might have lost their savings, and the funds could be transferred among accounts. Banks and police must stop the money from disappearing. If that occurs, it will be a lot more difficult to get the money back to the person who owns it.
However, the recipient of a payment might have provided goods or services without being aware of the fraud. A payment trail provides investigators with something to look at. It does not establish all recipients’ involvement. Meanwhile, producing an invoice can’t resolve who is entitled to disputed money.
Those are questions that must be answered. The challenge starts when a restriction continues without an explanation or a decision on whether it is still necessary. The effects on the account holder are felt daily. The supplier still wants to be paid, and employees still need to be paid. Money in the account is not much consolation if it cannot be used.
On January 16, 2026, the Delhi High Court addressed this issue in Malabar Gold and Diamond Limited v. Union of India. The restrictions affected the petitioners’ ability to pay their business expenses, such as salaries, and the respondents had not demonstrated the petitioners’ complicity.
The Court ordered the accounts to be unfrozen. It also allowed fresh action under the law if specific material showing complicity was found. The order dealt with the facts of that case but allowed for a lawful investigation. The legal process is pertinent in this regard. A police officer shall immediately inform the Magistrate of the jurisdiction of the seizure as per Section 106 of the Bharatiya Nagarik Suraksha Sanhita.
Section 107 provides for a court process for the attachment of alleged criminal proceeds, including expedient interim orders. The person making the request for a restriction should identify the legal basis on which they are relying and follow the safeguards.
The Reserve Bank of India (RBI) has proposed a mechanism for temporary holding of a customer’s account in case of suspected money mule transactions in a draft set of amendments to the Know Your Customer (KYC) directions. The draft suggested that the bank should allow customers to clarify the transactions and then re-evaluate them and refer the case if there was any doubt. A draft proposal is not a binding direction/court order that regulates an account.
A bank’s temporary hold is also different from a hold that is issued by a police direction or court order. A bank cannot cancel a lawful restriction that is still in effect just because it accepts the customer’s explanation. The customer should be aware of which restriction is still in place and who can reconsider it.
That information should be readily available. Subject to lawful limits protecting the investigation, the bank should inform the client of the transaction in question, the amount of money that is restricted and where the client can submit a request for review.
A complaint reference and a working contact would assist the customer to provide relevant papers. Being told only that the police have frozen the account is not much information. Review should consider the amount of funds that need to remain blocked. If the amount in dispute can be determined and preserved, the authority may wish to consider permitting the use of the remaining amount.
There may be evidence to support a broader restriction. If this is the case, the reasons for maintaining it should be documented and reviewed at appropriate times. This question should not remain unanswered for an extended period during an investigation. The position can be difficult to understand due to complaints from various States. Addressing a complaint may not eliminate another restriction.
Current grievance procedures should enable customers to find out all the directions in force and to lodge their papers without having to make multiple visits to the offices. The bank should clarify what still needs to be done to release the funds and who is responsible. There should also be a mechanism to seek immediate assistance for critical needs.
If the law permits, a competent authority may consider providing limited relief, while still safeguarding the disputed money. The claim of the fraud complainant and any appropriate protection measures should be considered. Financial hardship requires immediate attention, but it does not necessarily mean that the original payment was legal.
These arrangements would be more useful if there were clear instructions for bank staff. There should be someone to take responsibility for the referral of a customer’s request and to follow up. After a specified time, any request that has not been answered should be directed to a senior officer and the customer informed of when they can expect a response.
When a lawful release instruction is received by the bank, the instruction shall be executed immediately. If not, one can get relief on paper and not be able to use the account. Fraud victims deserve to get their money back. Those whose accounts are under investigation should be given a reasonable chance to provide their side of the story.
Both require decisions to be made and acted upon. All ongoing restrictions must have a responsible authority, a clear reason and a clear pathway for review before they cause further harm during the waiting period.
*Adv. Shivanshu Agarwal is practising in Allahabad High Court & Vidisha Shekhawat is Assistant Professor