Allahabad High Court Quashes Kotak Mahindra Bank’s Account Freeze Order, Citing Lack of Legal Authority
In a significant ruling, the Allahabad High Court has quashed Kotak Mahindra Bank's decision to freeze the account of Proview Constructions Limited, stating that the bank had no legal authority to do so merely because of a matrimonial dispute involving one of the company's directors.
A division bench comprising Justice Ashwani Kumar Mishra and Justice Arun Kumar Singh Deshwal delivered this verdict in Writ-C No. 28679 of 2024. The court ruled that a private bank cannot act as an adjudicator in personal disputes and arbitrarily restrict access to corporate funds.
Case Background
Proview Constructions Limited, a registered company, had its current account at Kotak Mahindra Bank’s Ghaziabad branch frozen on May 28, 2024. This action was taken following a request from a woman involved in a matrimonial dispute with Rajeev Kumar Arora, one of the company's directors, despite her holding only a 0.75% stake in the company.
Without any court order, the bank unilaterally froze the company’s account, which had a balance of ?10.57 crore, citing an FIR and the respondent’s request. The company challenged this action in court, arguing that the bank had no right to deny access to its funds based on a private dispute.
Court’s Observations
The bank's counsel argued that a writ petition was not maintainable against Kotak Mahindra Bank as it is a private entity. However, the court ruled otherwise, holding that scheduled banks, being regulated by the RBI, have public obligations and cannot arbitrarily withhold deposits.
The court made strong observations, stating:
"A bank cannot arrogate to itself an adjudicatory role in a matrimonial dispute of an account holder."
"There is no legal provision allowing a private bank to freeze a corporate account due to a director’s personal matter."
"A scheduled bank acts as a trustee of public confidence and cannot function like a private money lender withholding deposits at will."
Final Ruling
The High Court quashed the bank's freeze order, directing immediate restoration of the account’s normal operations unless a competent authority orders otherwise. It also advised the respondent to seek legal remedies through proper forums such as Civil Courts or the NCLT instead of making informal requests to financial institutions.
This verdict reinforces the principle that banks must adhere to legal protocols and cannot arbitrarily disrupt business operations based on personal disputes.
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