The Karnataka High Court has ruled that the police cannot direct a debit freeze of accounts of the sister concerns of a company under investigation.
Justice Sachin Shankar Magadum thus directed the police and banks to defreeze the bank account of Mufin Green Finance Limited, a listed non-bank financial company (NBFC).
“Impugned action of respondent No.1 (Police) is arbitrary, contrary to statutory mandate, and violative of settled legal principles. The petitioners, who are not even arrayed as accused, cannot be subjected to such coercive measures in the absence of any incriminating material and in the face of judicial orders already securing the alleged amounts,” his April 29 order read.
Mufin Green Finance Limited and Mufin Technologies Private Limited had questioned the Hulimavu police’s notice issued to RBL and State Bank of India, directing a debit freeze of their accounts.
Last year, the police investigated a case of alleged illegal online gaming and arrested certain people. Muffin Pay, a sister company of the petitioners, allegedly received certain amounts suspected to be linked to illegal gaming, gambling, and other unlawful activities carried out by certain people. However, neither of the petitioner companies was named as an accused in the chargesheet filed by the police.
Senior advocates Murthy D Naik and Sandesh J Chouta, appearing for the two companies, argued that the very substratum for invoking coercive measures against the petitioners was conspicuously absent because they were not named in the chargesheet.
Questioning the February 24 debit freeze notice to the banks, the counsel argued that once a chargesheet is filed in a case, the investigating officer cannot continue to exercise powers of seizure or freezing.
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It was also brought to the court’s notice that Muffin Payment Solutions Private Limited had earlier approached the jurisdictional court to defreeze its bank account by marking a lien on the disputed amount and that the investigating officer had been directed to defreeze the accounts subject to marking of the lien.
“Therefore, the alleged ‘crime proceeds’ already stand sufficiently secured and protected under orders of the competent Court,” the counsel submitted.
‘Substantial transfers from Muffin Pay to Muffin Green’
The government advocate opposed the petitions, stating that the investigation had revealed financial transactions of considerable magnitude, including the transfer of substantial sums from Muffin Pay to Muffin Green. Supporting the communication issued to the banks by the police, the advocate said, “To safeguard the alleged proceeds of crime and to prevent dissipation of funds during the course of investigation, it was necessary.”
Alleged proceeds of crime quantified
The high court referred to the magistrate court’s direction to defreeze the account of Muffin Payment Solutions Private Limited and noted, “The alleged ‘crime proceeds’, which formed the substratum of the investigation, have already been identified, quantified, and duly secured under judicial orders. The chargesheet also came to be filed on 15.02.2026.”
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“Therefore, once the investigation has culminated in filing of the chargesheet and the alleged amount stands protected by virtue of a judicial order in C.C.No.15166/2026, the subsequent action of respondent No.1 in directing debit freeze of accounts of the petitioners who are admittedly sister concerns under the guise of continuing investigation, is wholly unwarranted and legally unsustainable.”
Police notice violated BNSS norms
The high court referred to section 107 of the Bharatiya Nagarik Suraksha Sanhitha (BNSS), which provides for a structured procedure before effecting the seizure or freezing of property, including bank accounts. It mandates that such action must be supported by reasons, subject to supervisory control, and ordinarily requires reporting to the jurisdictional magistrate.
Justice Magadum said, “In the present case, respondent No.1 (police) has not placed any material before this Court to demonstrate compliance with the mandatory procedural safeguards. There is no indication of prior approval from superior officers, nor is there any material to show that the jurisdictional Court was apprised of the action contemporaneously.”
His order added, “The impugned communication dated 24.02.2026, directing debit freeze, appears to have been issued unilaterally, without adherence to the statutory discipline mandated under BNSS.”
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Allowing the petitions, the court held that the petitioner companies, which are not even arrayed as accused, cannot be subjected to such coercive measures in the absence of any incriminating material and in the face of judicial orders already securing the alleged amounts.
“The impugned action of respondent No.1 in directing debit freeze of the bank accounts of the petitioners is arbitrary, disproportionate,” it added.
