Banking Law

Bank Account Freeze Rules India

There are certain circumstances in which a bank can suspend operation or freeze a Bank Account. Generally bank make payment on  the instruction of account holder. But sometimes bank, by refusing instruction of account holder, can suspend the operation of a account, and this can be called suspending or freezing of account.  A bank’s powers to suspend an account are set out in standards of good banking practice.

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Suspending an account during a dispute

Dealing with a Joint account, if there is legal dispute among the joint account holder and one of them request the bank to suspend the account OR If there is dispute suspecting the use of account, a bank can freeze operation of account.  A bank may suspend a company account on the representation of its one of the directors if he put the Bank in knowledge about the dispute with another director. If the bank becomes aware of a dispute, he may also suspend an account at its own discretion. The Bank is not in responsibility to resolve dispute among the account holders and the suspension will continue until the dispute resolves. No need at the end of Bank to inform the account holders before the account is froze to protect the funds. Prior information to the account holder would provide undue opportunity to withdraw money. However, ideally as soon as possible afterwards the frozen of account,the bank will inform each and every account holder.

Suspending an account when required by law

The Revenue Department requires banks to verify the tax status of people who have opened accounts since 1 July 2017 to ensure payment of the right amount of tax. If required information is not provided to bank, the bank may suspend or close the account.

Suspicious or Illegal Activity–

Banks have the authority and discretion to freeze accounts if suspect account holders are conducting illegal activities. Banks routinely monitor accounts for suspicious or illegal activity like money laundering, where large sums of money generated from criminal activity are deposited into bank accounts and moved around to make them seem as though they are from a legitimate source.

Creditors can seek judgment against the account holder, which can lead a bank to freeze the account. The government can request to freeze an account for any unpaid taxes or student loans. When the account is frozen, withdrawals and transfers are not permitted.

Unpaid Debts Through Creditors

If the account holder have any unpaid debts, the creditors can get the bank to freeze the account in order to satisfy his obligations, but after obtaining approval from the courts of law. They do this by getting a judgment against the debtor. which is kept on file of bank.

For account holders who have their loan accounts at the same institution as their bank account, the lender can access the account(s) to pay the defaulted loans without filing a lawsuit or judgment. When the loanee sign for the loan, he give the bank full access to his account, even in the event of default.

Unpaid Debts to the Government

Owing students education loan or taxes to the government also impact the frozen od bank account.The Internal Revenue Service (IRS) can issue a tax levy for any unpaid taxes. It cannot be lifted until the debt is paid in full.

The government can do a few different things for unpaid student loans including seizing tax refund or garnishing a percentage of paycheck each month. When your loan is in default, your federal loan lender may likely garnish wages and taxes without pursuing a judgment from the courts.

In the chance that the bank account is frozen because of debt collectors or suspicious activity, the bank account should not be wiped clean of funds. Depending on the state, there are limits to what type of income can be taken from the account.

What an Account Freeze Means –

the account holder won’t have access to any of money until the situation is resolved. Withdrawal of any money becomes  restricted and any payment cannot be done from the said account which will cause non-sufficient funds (NSF) charge. And the same will be deducted from the account. If not, the account will be dipped into a negative balance by putting into an overdraft and in such circumstances additional fees and interest to cover the temporary shortfall will be chargeable. If any creditor seeks judgment against the said account holder, it will hit on credit report.  

If the bank suspects using the account illegally for whatever reason, it could close the account completelyand the account holder will be left without any money. Possibilities is there that the account holder would not  be able to do any business with that bank in the future. But that’s just one outcome. If the bank reports the account activity to authorities, the holder could face fines and/or prosecution.


What You Should Do

Causes should beresolved, failing whichor ignoring the matter of a frozen bank account shall put in the worse problem, causing drops in credit score and a build-up of bank charges. Once account is frozen over unpaid debts, it is crucial to get the creditor’s attorney’s information from the bank immediately. There need to have a better idea of what’s going on with your account and work out a payment arrangement.