Malabar Gold and Diamond Limited & Ors v. Union of India & Ors 

This Case Analysis is written by Hitesh Bhootra, he is a 3rd-year LL.B. student at Aishwarya College of Education and Law. He also serves as an author at Lexful Legal.

Court: High Court of Delhi 

Justice: Hon’ble Mr Justice Purushaindra Kumar Kaurav

Citation: 2026 SCC OnLine Del 297 (order passed on 16 January 2026)

Case No.: W.P.(C) 4198/2025 & CM Appl. 19454/2025

Background and Facts:

• Malabar Gold and Diamond Limited (MGDL) operates as a jewellery business that purchases and sells gold ornaments, bars and coins, and precious stones through standard banking methods, while adhering to all applicable statutory and regulatory obligations.

• Dallas E‑com Infotech Pvt. Ltd. (“Customer”) requested to buy gold items from MGDL in July 2024. MGDL completed KYC formalities and conducted due diligence to verify that all payments would be made through normal banking channels before starting its business operations.

• The Customer and MGDL conducted multiple transactions between August 2024 and March 2025, which resulted in total business activities of approximately ₹14.20 crore (₹14,20,74,954.99) with all transactions processed through banks without using cash. Various third-party complainants accused the Customer (Dallas E‑com) of cyber-fraud and cheating after they filed complaints against the Customer.

• No FIR, complaint or criminal proceeding was initiated against MGDL or its group entities.
• Board of Investigation showed no evidence to treat MGDL as either an accused person or a suspect in any cybercrime investigations.
• Investigating agencies from different states and union territories sent banks specific instructions to freeze certain amounts in MGDL’s bank accounts because they suspected those funds to be criminal proceeds, although no evidence existed that linked MGDL to any wrongdoing.

• The banks executed account freeze operations on MGDL’s accounts after receiving these communications, and they suspended access to ₹80,10,857, which they maintained across various accounts from February until March 2025, without any previous notification or show-cause procedure or hearing opportunity provided to MGDL.

• MGDL alleged that because of the freezing:
• The organisation lost all access to its banking accounts.
• The organisation was unable to pay both employee salaries and its standard business expenditures.
• The organisation’s daily activities and business reputation suffered major harm.

• MGDL and its associated companies filed their legal case at the Delhi High Court through Article 226 which they used to contest the account freeze order while requesting its reversal.

Procedural History:

The Court requested status reports from the respondents after issuing the notice. The Court ordered the respondents to explain whether MGDL faced any investigation after the Court established on 2 December 2025 that the previous status report did not present any material evidence of MGDL’s involvement in the case.

In response:

• The respondents admitted that no complaint/FIR was registered against MGDL,
• No investigation recorded MGDL’s complicity,
• The freezing was based purely on police communications linking funds in MGDL’s accounts to cyber‑fraud by the Customer.

The prosecution did not present any Magistrate’s order according to Section 107 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS). The prosecution failed to provide any documents that would establish MGDL’s involvement or present judicial permission for asset freezing despite having multiple chances to do so.

Issues Before the Court:

The Court established key issues from the pleadings and arguments presented before it:

1. The first issue to determine exists because MGDL bank accounts received freezing treatment without any evidence linking the company to alleged cyberfraud activities.

• The second issue to resolve exists because police and investigating agencies need to understand whether they can perform debit freezing and bank account attachment through Section 106 of BNSS or whether they must obtain a Magistrate’s order to execute such actions according to Section 107.

• The third issue to resolve exists because the authorities froze bank accounts of individuals who never faced charges or accusations, which they believe infringes upon the fundamental rights protected by Articles 19(1)(g) and 21 of the Constitution.

The Legal Framework Considerations:

1. Sections 106 and 107 of BNSS, 2023

The Court examined Sections 106 and 107 of BNSS, which established a new legal framework to replace the previous Criminal Procedure Code provisions. The Court examined Sections 106 and 107 of BNSS, which established a new legal framework to replace the previous Criminal Procedure Code provisions.

The police officers under Section 106 BNSS havethe authority to take possession of items which they believe to be stolen or connected to a crime for use as evidence after issuing a report to the Magistrate. The law addresses seizure procedures, which differ from civil procedures that involve freezing bank accounts and seizing assets.

Section 107 BNSS establishes procedures for handling criminal assets, which include property seizure procedures, asset confiscation and asset return to its owners. The process requires three steps,w hich include:

• Application to a competent Magistrate, 
• Issuance of notice/show‑cause to the affected person, 
• Consideration of their explanation before ordering attachment/freezing.

The Court explained that the process of freezing bank accounts represents a more severe form of evidence seizure which requires Section 107 rules instead of Section 106 rules.

• Fundamental Rights

The Court linked the freezing of accounts to the following constitutional protections:

The Article 19(1)(g) constitutional right allows people to choose their professional and business activities freely. The Article 21 right protects both life and personal liberty which judicial decisions have extended to include the right to work and live with dignity. The court determined that the business suffered rights violations because it could not access its funds which it needed for salary payments and normal business operations.

Petitioner Arguments (Malabar Gold & Ors):

1. No power to debit‑freezes under Section 106 BNSS 

Police can use Section 106 BNSS to seize evidence only while the law prevents them from freezing or seizing bank accounts. 

Headstar Global (P) Ltd. v. State of Kerala, 2025 SCC established that Section 107 provides the only method to attach or freeze money suspected to be criminal proceeds while Section 106 remains unavailable. 

Kartik Yogeshwar Chatur v. Union of India, 2025 SCC established that investigating agencies lack authority to attach or freeze bank accounts through Section 106 BNSS. 

• Attachment/freezing only through Section 107 BNSS with Magistrate’s order 

Section 107 mandates: application to Magistrate, notice to the person affected, hearing and reasoned order before attachment. 

Both Headstar Global and Kartik Chatur treat Section 107 as the exclusive route for freezing/attachment of bank accounts; police letters per se are insufficient. 

• Blanket freezing of entire accounts is disproportionate and arbitrary 

The authorities have frozen all account activities because they suspect the petitioners who are not named as accused or suspects. 

The court ruled in Neelkanth Pharma Logistics (P) Ltd. v. Union of India, that freezing all accounts of a non-accused party because they received suspected funds is “disproportionate and arbitrary”. 

The same principle applies here because only identified disputed amounts which receive lawful attachment can be blocked from access while the entire account remains open.

• Violation of Articles 19(1)(g) and 21 non‑accused cannot be economically paralysed

Freezing stops payment of salaries, vendors and operational expenses, crippling lawful trade. 

Following Neelkanth Pharma, indiscriminate freezing of non‑accused accounts violates Article 19(1)(g) (right to carry on business) and Article 2 (right to livelihood and dignified existence) as it imposes punitive consequences without accusation or due process.

Respondent Arguments (Union of India / Police / Banks):

1. The authorities need to secure all potential cyber-crime evidence as urgent evidence which needs to be protected for investigation purposes. 

The investigation requires immediate account freezing because authorities discovered cyber fraud complaints against Dallas E-com which resulted in funds moving to the petitioners’ bank accounts. 

The victims need immediate asset freezing procedures which will stop asset destruction while protecting their rights to future compensation because a Magistrate’s order process will delay the investigation which needs to be completed without hesitation.

• Section 106 BNSS to be read broadly in digital‑banking context

The term “seizure” in Section 106 should be understood as enabling banks to maintain control over their digital assets through their freezing operations. 

The Section 107 process requires formal attachment to begin after police briefings which have established temporary asset restrictions as Section 106 investigatory procedures.

•  The case of Dr Sajeev v. RBI & Anr. serves as evidence for our argument because it supports our position.

The Kerala High Court established in Dr Sajeev v. RBI that police identification of specific suspect amounts to be frozen by banks which can only operate about those amounts because banks need to inform police about extension requests.

The respondents present this evidence to prove that judges follow established judicial methods which permit police to request freezing operations that need to follow specific time limits.

• Reasonable restriction in public interest; banks acted in good faith

The rights protected by Articles 19(1)(g) and 21 can be limited through reasonable restrictions which serve the purposes of crime prevention and victim protection. 

Banks must follow law enforcement procedures because they operate as regulated entities while their response to official cyber fraud reports demonstrates their dedication to anti money laundering efforts instead of acting without purpose.

 Court’s Analysis and Reasoning:

The court found that the case lacked evidence because there were no charges or criminal complaints yet there were no materials which could establish MGDL’s involvement in criminal activities. MGDL had only conducted standard business operations with the customer after performing KYC procedures through banking methods.

The court found that MGDL’s bank accounts should not be frozen because the customer had committed multiple criminal acts. People who own accounts without wrongdoing should not face penalties because their accounts received alleged criminal funds until the investigation determines their connection to the matter.

The Court interpreted Section 106 to establish that:

The police have authority under Section 106 to seize items which serve their evidentiary needs. The police lack power to implement account freezes or debit restrictions.

The ability to freeze or attach assets belongs to Section 107 BNSS which only a Magistrate following established procedures can execute.

The police need to provide more than their internal instructions to establish valid reasons for freezing bank accounts through debit restrictions.

The court established that banks must follow Section 107 BNSS procedures when they want to attach or freeze accounts which contain funds that law enforcement believes to be proceeds of crime. The frozen bank account process needs three steps which include

Application to the Magistrate:

• Notice to the account holder,
• Opportunity to be heard,
• Reasoned order of attachment.

In the present case, no such Magistrate’s order was shown; hence, the freezing lacked statutory foundation and was ultra vires.

The Court decided that freezing the whole bank account system proved to be an excessive measure because the bank account holder did not face any accusations even though the Court found some funds in the account to be suspicious.

The Court described such indiscriminate debit‑freezing as:

The complete freeze which prevented payment of salaries and essential expenses proved to be completely unjustified.

The Court established that the freeze Directly impacted MGDL’s ability to carry on its trade/business which violated Article 19(1)(g)

Interfered with its right to livelihood and survival of its employees which implicating Article 21.

The action could not be defended as a “reasonable restriction” under Article 19(6) because it lacked statutory authorization through BNSS. The measure proved to be obviously arbitrary and unconstitutional.

Holding and Directions:

• The Delhi High Court ruled in favour of the writ petition because Police and investigating agencies lack authority to execute debit-freezes or bank account attachments according to Section 106 BNSS. Freezing or attachment can be carried out only under Section 107 BNSS through a Magistrate order which needs to be executed according to established legal procedures.
• The practice of freezing bank accounts without reason and without evidence against individuals who are not involved in criminal activity violates their constitutional rights according to Articles 19(1)(g) and 21 of the Constitution.
• The freezing of MGDL’s accounts became unlawful because there was no evidence that MGDL had been involved in criminal activity The police required a Magistrate’s order under Section 107 to proceed with freezing MGDL’s accounts.
• The Court issued the following directions to be followed by the parties involved in the case.
• The respondent needed to instruct the respondent banks to defreeze MGDL’s bank accounts without delay. MGDL Banks will restore MGDL’s frozen accounts when enforcement agencies present specific evidence of wrongdoing. MGDL, on its part, undertook to fully cooperate with any lawful investigation.

Significance and Key Takeaways:

The decision functions as a fundamental judicial decision which determines whether banks possess the legal authority to freeze customer bank accounts during cyber‑fraud investigations that involve third‑party transactions according to BNSS 2023.

Key doctrinal takeaways:

1. No debit‑freeze power under Section 106 BNSS: Investigating agencies cannot use Section 106 to freeze or attach bank accounts because that provision only permits evidence seizure.
2. Attachment only under Section 107 with Magistrate’s order: Judicial authorities must obtain notice and hearing from magistrates before they can freeze bank accounts that police suspect contain proceeds from criminal activities.
3. Protection of non‑accused/non‑suspects: Any blanket freezing of accounts which do not identify an account holder as either an accused person or a suspect creates a presumption of unconstitutional arbitrary action.
4. Proportionality requirement: The complete freezing of an account becomes excessive when a dispute exists because only the contested amount should undergo restriction.
5. Constitutional anchoring: The judgment establishes a strong connection between BNSS procedural safeguards and Articles 19(1)(g) and 21 substantive rights because it prevents criminal procedure from being abused to impose economic penalties on innocent people.