Police Cannot Freeze Bank Accounts To Perform Compensatory Justice; Direct Nexus With Offence Essential: Bombay High Court

"Section 102 is not, per se, an enabling provision by which the police officer acts to seize the property to do justice and to hand over the property to a person whom the police officer feels is the rightful and true owner," Bombay High Court, in a significant ruling dated May 7, 2026, held that the power of a police officer to seize or freeze property under Section 102 of the Code of Criminal Procedure (CrPC) is not a general power but is strictly contingent upon a direct link between the property and the alleged offence.

A bench of Justice N.J. Jamadar observed that the investigating agency cannot use the power of seizure to perform "compensatory justice" or act as a recovery mechanism for a complainant’s disputed dues. The Court emphasized that the emphasis of the law is on the character of the property itself rather than its mere association with an accused person.

The dispute arose from allegations by a stockbroker (the first informant) that he had "lent" various shares to the accused persons between 2011 and 2013, which were never returned despite promises. Following a complaint with the Economic Offences Wing (EOW), the Investigating Officer (IO) froze the bank accounts and mutual fund units of the accused under Section 102 CrPC. While a Magistrate later ordered the de-freezing of these accounts, it was made subject to an onerous condition of furnishing a bank guarantee of Rs. 6.55 Crores, leading both the complainant and the accused to approach the High Court.

The primary question before the court was whether the IO was justified in freezing bank accounts and mutual funds where a direct nexus with the alleged crime was not established. The court was also called upon to determine whether the condition of furnishing a massive bank guarantee for de-freezing was legally sustainable when the property was not prima facie "stolen property" or found under suspicious circumstances.

Police Power Under Section 102 CrPC Limited By Statutory Character

The Court noted that the phraseology of Section 102(1) CrPC makes it clear that a police officer is only empowered to seize property that is either alleged/suspected to be stolen or found under circumstances creating suspicion of an offence. Justice Jamadar clarified that the legislature has not conferred a general power to seize any and all descriptions of property belonging to a person privy to a crime.

Direct Link Between Property And Offence Is A Non-Negotiable Pre-Condition

Referring to the Supreme Court’s decision in State of Maharashtra v. Tapas D. Neogy, the Court reiterated that while bank accounts are "property," they can only be frozen if the assets have a "direct link" with the commission of the offence being investigated. The Court stressed that without such a link, the seizure lacks legal foundation and cannot be sustained merely because the accused is under investigation.

"The pre-condition for exercise of power under Section 102(1) is the existence of direct link between the seized property and the alleged offence."

Police Cannot Trench Upon Adjudicatory Province To Do Justice

The Court observed that Section 102 is essentially a tool for investigation and the collection of evidence, not a repository of power to secure property for eventual delivery to a victim. It noted that allowing the investigating agency to seize property without a direct link would amount to allowing them to trench upon the adjudicatory province of a civil court.

Criminal Courts Are Not Recovery Agents For Complainants

Justice Jamadar highlighted the well-recognized principle that criminal proceedings are not meant for the realization of disputed dues. The judgment noted that the criminal court is not expected to act as a "recovery agent" to realize the dues of a complainant without a full trial, especially in cases where the underlying transaction may have a civil flavour.

"Section 102 does not enable the police to seize the property, with a view to do justice and hand it over to the person whom they believe to be legitimately entitled thereto."

Presumption Of Beneficial Ownership Under Companies Act

The Court addressed the nature of the shares involved, noting that under Section 46 of the Companies Act, 2013, the record of a depository is prima facie evidence of the interest of the beneficial owner. Since the shares were in the Demat accounts of the accused, the Court held that it was for the prosecution to dislodge the presumption of ownership, and the frozen bank funds were acquired much prior to the disputed transactions.

Freezing Cannot Substitute Civil Remedies Or Attachment Before Judgment

The Court observed that the first informant had previously sought and then withdrawn interim relief in a civil suit regarding the same dispute. Justice Jamadar remarked that allowing the freezing of accounts to continue would effectively amount to an "attachment before judgment" without the complainant meeting the strict legal rigors required in civil law, thereby circumventing the withdrawal of the civil interim application.

"Continuity of the freezing of accounts would amount to an order of attachment before judgment without satisfying the requisite legal standard."

Onerous Conditions For De-freezing Amount To Denial Of Relief

Regarding the Magistrate's order, the High Court found that while the de-freezing was justified, the condition of a Rs. 6.55 Crore bank guarantee was unsustainable. The Court held that imposing such an onerous condition virtually amounts to a denial of the prayer for de-freezing. Since no nexus was established and the trial was unlikely to conclude soon, the Court substituted the bank guarantee with a reasonable condition.

Final Directions and Modification of Order

The Court dismissed the complainant's application to maintain the freeze and allowed the accused's application for modification. The Court ordered the de-freezing of the bank accounts and mutual funds subject to the accused furnishing an indemnity bond in the sum of Rs. 6.55 Crores, undertaking to bring back the amount with interest if directed by the Court at the conclusion of the trial.

The High Court reaffirmed that the police cannot bypass the necessity of proving a direct nexus between a crime and a bank account simply to protect a complainant's potential financial recovery. By setting aside the onerous bank guarantee, the Court protected the accused's right to property and the presumption of innocence during the pendency of a trial where the "stolen" nature of the property is yet to be adjudicated.

Date of Decision: 07 May 2026