Petitioner’s Stance On Unauthorized Freezing of Accounts
The petitioner, a company represented by its director Rajeev Kumar Arora, approached the Allahabad High Court under Article 226 of the Constitution of India. The petitioner sought relief against Kotak Mahindra Bank for freezing its account without any legal authority. The bank’s action was based on a request from Arora’s wife amid an ongoing matrimonial dispute. The petitioner argued that the bank had no jurisdiction to interfere in a private dispute and that its action on freezing of accounts violated banking regulations, specifically the conditions under which it was granted a license by the Reserve Bank of India (RBI).
Factual Background
Rajeev Kumar Arora, a director with 41.14% shares in the petitioner company, was involved in a matrimonial dispute. His wife filed a criminal complaint and approached Kotak Mahindra Bank, requesting the freezing of the company’s account. The bank complied, citing internal disputes, and advised the wife to resolve the matter legally. Subsequently, the wife filed a civil suit to prevent the defreezing of the account. The petitioner, unable to access its funds, challenged the bank’s action in the High Court, arguing that the freezing was arbitrary and in violation of statutory provisions.
Court Observations
The High Court noted that banking operations in India are governed by the Reserve Bank of India Act, 1934, and the Banking Regulation Act, 1949. Kotak Mahindra Bank, being a scheduled bank under Section 2(e) of the 1934 Act, is subject to RBI regulations.
Under Section 22(3) of the 1949 Act, banks must meet specific conditions to operate, including the ability to repay depositors in full and maintaining public confidence. The Court observed that a bank cannot refuse withdrawal of deposited funds unless permitted by law.
The bank justified its action by citing a contractual agreement with the account holder. However, the Court emphasized that private banks are not immune from writ jurisdiction when their actions violate statutory obligations. Citing Federal Bank Ltd. Vs. Sagar Thomas, the Court noted that a writ petition against private financial institutions is maintainable when statutory violations occur. The S. Shobha Vs. Muthoot Finance Ltd. case further reinforced that the nature of a bank’s function, rather than its private or public status, determines its amenability to writ jurisdiction.
High Court Verdict
The Court ruled that Kotak Mahindra Bank’s unilateral freezing of the petitioner’s account, without any legal order, violated Section 22(3) of the Banking Regulation Act, 1949. It held that:
Banks act as trustees when they accept deposits and cannot withhold money arbitrarily.
Account freezing requires legal authorization, either through a court order or statutory provision.
Private banks performing public functions are subject to writ jurisdiction, especially when they violate banking regulations.
The Court concluded that the bank had no authority to entertain the wife’s request. They should have directed her to seek legal recourse. The writ petition was allowed, and the bank was directed to unfreeze the account. Thus, restoring the petitioner’s access to its funds.
