Bank can’t freeze company accounts over internal disputes: Cal High Court

Kolkata: The Calcutta High Court has held that a bank cannot freeze a company’s bank and demat accounts merely because of internal management disputes and must act on the customer’s instructions unless restrained by a competent court or statutory authority.

A Division Bench of Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya set aside a single judge’s order that had kept in abeyance an earlier direction to defreeze the accounts of a company whose accounts were frozen by Axis Bank.

The accounts were frozen after the bank cited conflicting communications from rival groups claiming management control and a “management dispute” marking in the records of the Registrar of Companies. The company had also approached the Reserve Bank of India’s Banking Ombudsman, which declined to entertain the complaint, citing pendency of a similar issue before another forum.

Earlier, a single judge had directed the defreezing of the bank and demat accounts, subject to an indemnity being furnished by the company’s 100 per cent shareholder, but that order was later kept in suspension while recall and clarification applications filed by the bank were pending. Allowing the appeals, the Division Bench held that the bank exceeded its role by relying on communications issued by a third-party shareholder instead of acting on instructions issued by the account-holding company.

The court also noted that the freeze letter was addressed to a group entity rather than the company.

The Bench observed that a “management dispute” marking by the Registrar of Companies operates in company law and does not justify freezing bank accounts, and that a bank cannot suspend account operations on its own without a court order or statutory direction.

The judges noted that the marking was later removed following directions of the Ministry of Corporate Affairs and that the shareholder had supported defreezing and furnished an indemnity, leaving no justification for continuing the freeze.

The court also held that former directors, whose removal had not been stayed, had no locus to interfere with the company’s bank accounts and ruled that parties cannot be added to a writ petition after it has been finally disposed of.

Setting aside the impugned order, the Bench asked the single judge to decide the recall and clarification pleas first and then take up the contempt case.