Don't freeze accounts on police request, just withhold disputed amount: Kerala HC tells banks

High Court of Kerala.

Kozhikode: The High Court of Kerala has directed banks not to freeze the accounts of their customers based on requests from police investigating cyber crimes but only withheld the disputed amount received through UPI transactions.

Disposing of all cases related to bank account freeze, the single bench of Justice Devan Ramachandran also directed the police concerned to inform the banks in eight weeks whether the freeze on the accounts of the petitioners was required to continue and till what time.

The judge said in his order that the directions are specific safeguards "lest the people lose their faith in the UPI system itself, especially when it is recognised internationally as a vanguard initiative of India".

The order is a big relief to bank account holders facing indiscriminate and indefinite freeze orders from police across the country, said advocate Ameen Hassan, who represented 12 victims of account freeze in the high court. "This is the first time the high court has issued such a specific order almost prohibiting freezing of bank accounts," he said.

On the flip side, the judge confined the order to the petitioners and UPI transactions. "So, the next victim will have to approach the court again. But banks can take a cue from this order and refrain from freezing accounts of their customers," he said.

Justice Ramachandran clubbed 16 petitions from 24 bank account holders and delivered a common judgment on September 25. He clubbed the remaining petitions and gave a similar judgment on October 6, said Hassan.

Cyber crimes registered on the National Cyber Crimes Portal (NCCP) are forwarded to the respective police stations. During the investigation, the police pull out the money trail from the banks and ask them to freeze accounts that have received money, directly or indirectly, from the original perpetrators of cyber crimes.

Representational image
Representational image: Canva

The petitioners, mostly retailers, and restaurants, said they received the disputed money through mobile payment apps using the unified payments interface (UPI) as part of trade or genuine services rendered.

The action by the police and banks has put them out of business, they told the court.

In his judgment, Justice Ramachandran said: "(T)he petitioners, who, prima facie, are all ordinary law-abiding citizens, have little capacity to track or follow the cases which have led them to the present situation". Their daily lives and businesses are affected because some persons -- with whom they had no previous acquaintance -- happened to transfer money to their accounts using the UPI platform as part of bona fide business transactions, the judgment said.

They cannot cannot find the status of their cases because the request to their banks to freeze their accounts was made by police stations in very far-off places in other states, it said.

The retailers and small business people trusted the UPI for its convenience and safety but are now rudely shaken.

When police authorities mention the exact disputed amount in their letters to banks, one fails to fathom why bank customers' accounts should remain frozen in full, the judgment said.

Dayasindhu Sreehari, the counsel for the Union government, said the orders issued by the police of other states were necessary to track the money that is routed through different accounts.

When the judge specifically asked him why the accounts should be frozen when the police knew of the exact amount that was transferred to several accounts, Sreehari said the Home Ministry, which runs the cybercrime registering portal, had given no such instructions. The counsel left it to the High Court to make the appropriate decision.

Justice Ramachandran in his judgment said the petitioners (bank customers) could never be considered as accused even if disputed money was credited to their account unless the investigation eventually revealed that they were complicit in the cybercrime or had received the money after being aware of the crime, Justice Ramachandran said in his order. "It will be doubtful if the amounts in question could be even recovered from the petitioners if they had received the money as part of valid transactions, unaware of it being proceeds of crime," the judgment said. had done a series of reports on how banks were freezing accounts of their customers based on vague requests from police in other states. Cyber criminals often convert their ill-gotten money to cryptocurrencies but the crypto traders may not be aware of the source of the money.

Crypto trading platforms have stringent KYC (know your customer) norms that would help police track cybercriminals. But the police conveniently target the crypto traders who transfer the money received in rupees to the accounts of their relatives and friends who pay bills with the money.

Based on requests from police, the banks have frozen accounts of entire family members, travel agencies, restaurants, eateries, snack shops, and even schools.

Many crypto traders have complained that police from other states were using complaints registered on the National Cyber Crimes Portal (NCCP) to freeze their accounts and then demand bribes to lift the freeze.

In August this year, Kochi's Kalamassery Police took into custody Inspector Shivaprakash, constables Shivanna, Vijaya Kumar, and Sandesh of Bengaluru's Whitefield CEN Crime Police Station for allegedly taking Rs 4 lakh as bribes from two crypto traders to close cases against them.

Among the 24 petitioners who moved the Kerala High Court, 14 were from Malappuram, five were from Kozhikode, two were from Ernakulam, and one each from Kasaragod, Kannur, and Idukki districts.

Their complaints were against police from Gujarat (nine cases), Telangana (5), Karnataka (3), Uttar Pradesh (2), Delhi (1), Haryana (1) and Maharashtra (1), Rajasthan (1), and Uttar Pradesh (1).

The banks that were directed to unfreeze their accounts are Axis Bank, ICICI Bank, Federal Bank, South Indian Bank, State Bank of India, Bank of Baroda, HDFC Bank, DBS, Porur Service Cooperative Bank in Malappuram and Kotak Mahindra Bank.

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