With the statutory transition to the Nagarik Suraksha Sanhita, 2023 (BNSS), the legislative framework governing property seizures has undergone a radical structural shift, firmly bringing these executive actions under judicial supervision.
Recently, India has witnessed an unprecedented surge in digital financial fraud. In a rapid attempt at damage control, investigative agencies have relied heavily on a standard enforcement protocol: Tracing the transactional chain and debit-freezing every bank account connected to the alleged funds. To prevent fraudsters from quickly moving illicit wealth, these freezes are routinely executed without any prior notice to the account holder.
However, this fast-tracked enforcement mechanism has unleashed severe collateral damage. In a highly integrated digital banking ecosystem, capital moves across multiple tiers within seconds. Consequently, secondary or tertiary (“layer 2” or “layer 3”) genuine corporate entities, vendors, and online merchants find their operational bank accounts frozen in their entirety. For an innocent business, a total debit freeze is catastrophic — paralysing daily operations, halting working capital, and causing irreparable injury to commercial reputation — frequently without the account holder receiving any information beyond a vague reference to a far-removed FIR.
The judicial guardrails: Mohd. Saifullah
To curb the harsh realities of indiscriminate freezing under the old regime, the Madras High Court in Mohd. Saifullah v. RBI1, intervened with significant procedural guardrails. The High Court inter alia held that a lien or freeze directed under Section 102, Criminal Procedure Code, 1973 (CrPC), must be limited strictly to the specific quantum of the alleged proceeds of crime, rather than freezing the entire account balance. Furthermore, the court mandated that an intimate notification must be issued to the account holder immediately upon the execution of the freeze to ensure basic procedural fairness.
Despite this judicial mandate, field-level law enforcement practices rarely changed. However, with the statutory transition to the Nagarik Suraksha Sanhita, 2023 (BNSS) (effective from 1 July 2024), the legislative framework governing property seizures has undergone a radical structural shift, firmly bringing these executive actions under judicial supervision.
Statutory bifurcation: Section 102 CrPC versus Sections 106 and 107 BNSS
Under the old framework, police routinely relied on the broad, general powers of seizure under Section 102 CrPC to freeze bank accounts indefinitely. The BNSS has structurally dismantled this unchecked power by splitting general police seizures from the specialised procedure required to handle the proceeds of crime:
1. Section 106 BNSS (General Power of Seizure): This provision replaces Section 102 CrPC, keeping the general police power to seize property found under circumstances that create a direct suspicion of the commission of an offence.
2. Section 107 BNSS (Attachment of Proceeds of Crime): This specialised section introduces a comprehensive procedural regime for the attachment, forfeiture, or restoration of property alleged to be the proceeds of crime.
Section 107 BNSS stipulates the necessity of filing an application before the Magistrate by the investigating officer for the attachment of proceeds of crime. It explicitly upholds the principles of natural justice by requiring a show-cause notice to persons who will be aggrieved by an adverse order. Under this framework, the Magistrate is also armed with the power to pass an ex parte interim order for attachment of the alleged proceeds of crime prior to the issuance of notice. This power is specifically carved out to curb the mischief of interested persons secreting illicit wealth or creating third-party interest in the subject property. But before any action is taken, the law fundamentally requires a judicial scrutiny of the application by the Magistrate prior to the issuance of an order.
The new jurisprudential dictum: Headstar Global and shifting authority
The Kerala High Court was the first to interpret Sections 106 and 107 BNSS in the context of the attachment of proceeds of crime in Headstar Global (P) Ltd. v. State of Kerala2, wherein it was held as follows:
12. 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 Magistrate may thereupon order attachment after hearing all parties concerned or issue an interim order for attachment, if issuing notice to the owner will defeat the purpose of attachment and seizure. After confirming that the attached property is the proceeds of crime, the Magistrate can direct the District Magistrate to distribute the property among those affected by the crime. Thus Section 107 confers the jurisdictional Magistrates with explicit authority to act swiftly in cases involving proceeds of crime.
13. Another aspect of importance is that, while Section 106 speaks of seizure, Section 107 deals with attachment, forfeiture and restoration. 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. The logic behind this distinction being that the purpose of seizure is more to secure the evidence during an investigation, whereas attachment is intended to secure the proceeds of crime by preventing its disposal and thus ensuring its availability for legal procedure such as forfeiture and distribution to the victim/s.
The ratio of the above decision was later followed by the Bombay High Court and the Delhi High Court in Kartik Yogeshwar Chatur v. Union of India3 and Malabar Gold & Diamond Ltd. v. Union of India4, respectively.
In the Kartik Yogeshwar Chatur case, the Bombay High Court explicitly quashed debit freezing orders executed under Section 106, confirming the investigating agency’s lack of authority to unilaterally freeze bank accounts when dealing with alleged proceeds of crime. The courts have uniformly affirmed that because Section 107 BNSS provides a wholesome, dedicated procedure for the attachment of proceeds of crime, it operates as a special provision overriding any general executive powers under Section 106.
Conclusion
Consequently, the legislative intent behind the BNSS is clear: The police cannot bypass the judiciary under the guise of an emergency investigation. Therefore, freezing of the bank account by an investigation agency for the attachment of proceeds of crime, without the order of the Magistrate, is illegal, and is in violation of the procedure established by law.
*Advocate and Legal Consultant, SP Law Chambers. Author can be reached at: sujay@splawchambers.com.
