Kerala High Court Unfreezes Company Bank Account | Police Must Seek Magistrate Approval Under Section 107 BNSS To Attach Proceeds Of Crime
Sanchayita Lahkar
The High Court of Kerala Single Bench of Justice V.G. Arun held that the police have no authority under Section 106 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) to order a debit freeze of a third-party bank account without following the specific procedure laid down in Section 107. The Court quashed the debit freeze imposed on the petitioner’s account and directed the investigating officer to approach the jurisdictional Magistrate under Section 107 of the BNSS if required.
The matter arose out of a commercial transaction involving an export deal that did not materialize. M/s Apple Middle East General Trading LLC, based in the UAE, engaged in the import and export of food grains, placed an order for the export of 378 metric tons of sugar through an intermediary, Headstar Trading LLP, to be procured from Spezia Organic Condiments Pvt. Ltd. A proforma invoice was raised, and an advance payment of ₹49.53 lakhs was transferred by the UAE company to Spezia Organic Condiments Pvt. Ltd.’s IDBI Bank account in Kochi.
Despite the agreement that the consignment would reach the UAE within 30 days, the export never occurred. Investigations revealed that the directors of Spezia Organic Condiments Pvt. Ltd. had allegedly failed to disclose the prevailing government policy change that prohibited sugar export from India. Upon confrontation, the directors promised a refund, which was not fulfilled. Consequently, the UAE-based company filed a complaint, leading to the registration of Crime No.732/2024 at the Kalamassery Police Station under Sections 406 and 420 read with Section 34 of the Indian Penal Code.
As part of the investigation, it was found that ₹46,50,525 from the advance was transferred to M/s Headstar Trading LLP, which in turn transferred ₹52,44,750 to Headstar Global Pvt. Ltd. (the petitioner). The investigating officer issued a letter directing the bank to freeze the petitioner's account, which prompted the company to approach the jurisdictional Magistrate for relief. The Magistrate rejected the request by order dated 8 April 2025, resulting in the present challenge before the High Court.
The petitioner contended that Sections 94 and 106 of the BNSS did not authorize the police to freeze a third-party account unless the property in question was alleged to be stolen or found under suspicious circumstances. It was submitted that the money transfers were part of regular business transactions and not proceeds of crime. The petitioner further argued that the newly introduced Section 107 of the BNSS provides the specific procedure for attaching proceeds of crime, which must be initiated by the police through the Magistrate.
In response, the 3rd respondent argued that the series of money transfers, accompanied by the fact that key individuals such as Mr. Sreekumar C.S. held overlapping managerial roles across the involved companies, strongly indicated an orchestrated effort to launder or conceal the funds obtained through deception. These factors, the respondent claimed, warranted the freezing of the petitioner’s account.
The State also participated in the hearing through the learned Public Prosecutor.
The Court began its analysis by examining the legal validity of freezing bank accounts under Section 102 of the Criminal Procedure Code, as interpreted by the Supreme Court in State of Maharashtra v. Tapas D. Neogy, which held:
“The bank account of the accused or any of his relations is ‘property’ within the meaning of Section 102 of the Criminal Procedure Code and a police officer in course of investigation can seize or prohibit the operation of the said account if such assets have direct links with the commission of the offence for which the police officer is investigating into.”
In subsequent judgments, including Teesta Atul Setalvad v. State of Gujarat, the Supreme Court reinforced this view and upheld seizure where circumstances created suspicion of an offence. However, the Kerala High Court noted a significant legislative change with the enactment of the BNSS, which replaced Section 102 CrPC with Sections 106 and 107.
The Court extracted Section 107 of the BNSS in full and observed: “Going by Section 107 of BNSS, a police officer investigating a crime has to approach the jurisdictional Magistrate seeking attachment of any property believed to be derived directly or indirectly from criminal activity or the commission of an offence.”
The Court distinguished between seizure under Section 106, which may be done by the police officer, and attachment under Section 107, which requires prior judicial authorization. It stated: “Seizure under Section 106 can be carried out by a police officer and an ex post facto report submitted to the Magistrate. On the other hand, attachment under Section 107 can be effected only upon the orders of the Magistrate.”
Applying this framework to the facts of the case, the Court found: “Even accepting that the Directors of the above mentioned three entities are known to each other or are related to each other, it may, at best, indicate that the money in the petitioner’s account is proceeds of the crime committed by the accused. If so, the amount can be attached or the account frozen only by following the procedure prescribed in Section 107 of BNSS.”
The High Court, after a detailed examination of the facts and statutory provisions, allowed the Criminal Miscellaneous Case. It recorded that in the present case, the reason stated in Annexure B notice for directing the bank to impose a debit freeze on the petitioner’s account was the transfer of certain amounts from the account of the accused to the account of Headstar Trading LLP, and subsequently, from that account to the petitioner’s account.
The Court acknowledged that even if it were accepted that the Directors of the three entities involved—Spezia Organic Condiments Pvt. Ltd., Headstar Trading LLP, and Headstar Global Pvt. Ltd.—were known to one another or related, such a circumstance, at the highest, may suggest that the funds in the petitioner’s account are proceeds of the crime allegedly committed by the accused persons.
Consequently, the Court held that in such a situation, the said funds could be subject to attachment or the account could be frozen only by following the procedure prescribed in Section 107 of the Bharatiya Nagarik Suraksha Sanhita, 2023.
Based on this conclusion, the Court proceeded to allow the Criminal Miscellaneous Case, quashed the impugned order passed by the Magistrate, and directed that the debit freeze imposed over the petitioner’s bank account be lifted.
However, it clarified that the investigating officer concerned would be at liberty to approach the jurisdictional Magistrate under Section 107 of the BNSS, should such a course of action be warranted.
Advocates Representing the Parties
For the Petitioners: Sri. Babu S. Nair, Advocate
For the Respondents: Shri. Sarathkumar T.S., Smt. Jismemol James, Shri. Shyam Kumar M.P., Shri. Achankunju P.C., Shri. Rony V.P., Smt. Vishnuja Vasudevan
Other Present: Public Prosecutor M.P. Prasanth
Case Title: Headstar Global Pvt. Ltd. v. State of Kerala & Ors.
Neutral Citation: 2025:KER:39285
Case Number: CRL.MC No. 3740 of 2025
Bench: Justice V.G. Arun
[Read/Download order]
