TaxTMI 
TaxTMI 
2026 (10) TMI 1780
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....t, as illegal, arbitrary, without authority of law, ultra vires the Reserve Bank of India (Commercial Banks - Know Your Customer) Directions, 2025 and violative of Articles 14 and 19(1)(g) of the Constitution of India; b) In the alternative to Prayer (a), issue an appropriate writ, order or direction in the nature of Certiorari quashing and setting aside the provisions of UCO Bank Circular No. HO/OSD-TMV/KYC&AML Cell/02/2026-27 dated 02.04.2026, titled "Master Circular - Threshold Limit in Customer Account", insofar as they provide for real-time ADC blocking and/or Finacle/over-the-counter debit restriction merely upon breach of an internally fixed threshold limit; c) Issue an appropriate writ, order or direction in the nature of Mandamus directing Respondent Nos. 1 to 3 to forthwith remove the freeze/debit freeze/restriction placed upon Current Account No. 01530210003671 maintained in the name of M/s S.S. Enterprises with UCO Bank, Punjabi Bagh Branch, New Delhi, and permit the Petitioner to freely operate the said account " 2. The brief facts of the case are that the petitioner maintains a Current Account bearing No. 01530210003671 with the respondent N....
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....hange the threshold limit.; II. The petitioner shall also produce all KYC documents; III. The respondent shall re-visit the threshold limit fixed in November, 2025, in view of the documents furnished by the petitioner and if everything is found in order, immediately unfreeze the account of the petitioner. 8. The counter affidavit handed over in Court today is taken on record. 9. With these directions, the petition is disposed of granting liberty to the petitioner to revive in case of any difficulty." 11. Subsequently, on the basis of the directions issued by this Court, the. petitioner furnished all of its relevant documents and completed e-KYC. 12. Thereafter, the respondent No. 1-3 Bank addressed an email dated 31.08.2026 raising fresh queries regarding GST turnover, sales invoices and transaction-wise reconciliation of the account. 13. The petitioner did not respond to the same as the petitioner did not want to divulge the confidential information vis-a-vis its client and business transactions. 14. Mr. Tamber, learned counsel for the respondent No. 1-3 Bank, draws my attention to the Reserve Bank of India (Commercial Banks -Know Yo....
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.... an account-based relationship or otherwise and monitor their transactions." 18. Lastly, he relies on paragraph No. 27 of the judgment of Hon'ble Kerala High Court passed titled as Abdul Azeez v. Union of India, 2025 SCC OnLine Ker 12455. Paragraph No. 27 of the said judgment reads as under:- "27. Hence, I am of the view that till the time the RBI comes forward with a Standard Operating Procedure for the Banks to deal with suspicious accounts, it is for this Court to intervene and give guidance to the Banks, taking note of the object of the aforesaid Guidelines issued by the RBI. Accordingly, the following guidelines are made for freezing the operations in the account when the Bank entertains suspicion about the operation of the account. 1. If the Bank is having reason to believe suspicious transactions in the account, the Bank is free to effect a debit freeze of the account without notice to the Account Holder. 2. The Bank shall intimate the freezing of the Account to the Account Holder by sending a Communication with reasons for suspicion by SMS and Registered post on the date of freezing itself. 3. The Bank shall send a Communication detail....
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....etitioner was at Rs. 5 Lakhs and in the relevant period, the transactions in the petitioner's account were to the tune of Rs. 8.5 Crores. Resultantly, the petitioner's account was put under the debit freeze. 21. From a conspectus of the aforesaid, it is evident that Clause 17.3 of the RBI directions is the only relevant provision, which may be possibly construed by the respondent Bank as an enabling provision for it to place the bank account of the petitioner under debit freeze. 22. The said Clause, to my mind, cannot be considered to enable the respondent No. 1-3 Bank to freeze the petitioner's bank account. It only permits the respondent No. 1-3 Bank "not to undertake a transaction" meaning thereby that the respondent No. 1-3 Bank will not expose itself to the concerned person/entity for a loan transaction or overdraft, which the petitioner may seek to avail. 23. Further, it also directs the respondent No. 1-3 Bank not to commence an account based relationship without following the Customer Due Diligence ("CDD") procedure. 24. In the present case, the respondent No. 1-3 Bank permitted the petitioner to open a bank account only after duly undertaking the CDD procedure.....
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....ty requirement shall not inhibit sharing of information under paragraph 8 of these Directions of any analysis of transactions and activities which appear unusual, if the bank has done any such analysis." 26. A perusal of the aforesaid Clauses of the RBI directions shows that the Bank is under an obligation to intimate and forward all suspicious transaction reports to the Financial Intelligence Unit. 27. It is also pertinent to note that Clause 54 of the RBI directions categorically prohibits the bank from putting any restrictions on the account merely on the basis of suspicious transaction reports. 28. Hence, to my mind, Clause 54 of the RBI Directions is clear in its ambit and scope as it is only a provision imposing a reporting obligation on the Bank and the same in no manner be construed as a source of power to freeze an account. Thus, the impugned action of the respondent No. 1-3 Bank cannot be sustained under the garb of fulfilling its duties. 29. The reliance placed by the respondent No. 1-3 Bank on Clause 16 of the account opening is also unfounded as the said clause clearly states that the account will be activated and debits will be allowed only after completio....
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.... preventive and not penal in nature. 9. Along with the counter-affidavit, the Statement of Account or the petitioner has also been annexed and the same shows the following transactions:- ... 10. A perusal of the same shows that the total withdrawal was of about Rs. 45 lakhs and deposits of about Rs. 64 lakhs. Whereas, the "Enhanced Due Diligence" report by respondent Bank, also annexed in the said short affidavit of the respondent Nos. 2 and 3, shows expected turnover of about Rs. 4 crores. 11. The present case displays a classic example of total non-application of mind and high handedness. A bank is not an enforcement agency and cannot question the legitimate transactions of its customer. The petitioner is GST compliant and in case there is any violation, it is under the ambit of GST authorities/Income Tax authorities and a bank cannot be granted the rights of enforcement/police agencies. 12. Further, the Master Directions issued by RBI only suggest that the Bank is to be aware of suspicious entries/business transactions only with a view to ensure that the overdraft accounts do not become Non-Performing Assets. In the present case, to m....
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....bit freeze on its account, thus, the impugned action is also in violation of principles of natural justice and the same cannot be allowed to sustain. 36. Additionally, it is evident that the respondent No. 1-3 Bank had no authority to question the legitimate transactions of its customer in furtherance to its business activities as the Bank is not an enforcement agency and it cannot be allowed to assume this role in order to govern the business activities of its customers in an autocratic manner conferring itself with unbridled powers against the rule of law. 37. To my mind, in any case the petitioner was not required to satisfy or provide any explanation to the apprehensions/suspicion of the Bank. 38. In view of the aforesaid order, the submission of the learned counsel for the respondent No. 1-3 Bank cannot be accepted, as the same would permit the respondent No. 1-3 Bank to look into confidential business transactions of an individual/ business entity, which is purely private in nature and cannot be looked into until the respondent No. 1-3 Bank is given the policing powers to investigate/control transactions of its Customers. 39. As regards the argument of the learned....