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WPC Nos.32516 and 32291 of 2024 2025:KER:88312

7. The Bank has filed Counter Affidavits in both these Writ Petitions opposing the prayers in the Writ Petitions referring to various guidelines in the Circulars and Directions issued by the RBI and contending that the Bank has acted with all its bona fides and it is only discharging the obligations under various guidelines issued by the RBI which is binding on the Bank under Section 35A of the Banking Regulation Act, 1949. The Petitioner in W.P.(C) No.32516/2024 filed a Reply Affidavit to the Counter Affidavit filed by the Bank. The Reserve Bank of India filed a Counter Affidavit producing a copy of the Master Direction (MD) on Know Your Customer (KYC) dated 25.02.2016, updated on 14.08.2025, and contending that RBI has not issued any specific instruction regarding freezing of accounts of individuals/institutions except under the said Circular.

17. Of course, when Requisitions are received from law-enforcing agencies and Courts, the Banks are bound to act in accordance with the requisitions from such agencies and Courts. As far as the cases on hand, the Respondent/Bank has not received any requisition from any of the law enforcement agencies or courts even after a lapse of one year from the date of debit freezing.

18. Let me examine the guidelines issued by the RBI, which are placed on record by the parties to substantiate their contentions, to verify whether the Banks have the right to freeze the operations in an account when the Bank finds unusual and suspicious transactions in the account of its customers. The Respondent/Bank relies on Clause No.2.10 of the Master Circular - WPC Nos.32516 and 32291 of 2024 2025:KER:88312 Know Your Customer (KYC) Norms / Anti-Money Laundering (AML) Standards / Combating of Financing of Terrorism (CFT) / Obligation of Banks under PMLA, 2002 dated 02.07.2012 issued by RBI, dealing with monitoring of transactions. On going through the said provision, it is seen that the said provision is intended for ongoing monitoring as a part of the KYC procedure to control and reduce the risk of the Banks. It only provides for paying special attention to all complex, unusually large transactions and all unusual patterns which have no apparent economic or visible lawful purpose; transactions that involve large amounts of cash inconsistent with the normal and expected activity of the customer should particularly attract the attention of the Bank. It mandates filing STRs to FIU-IND. It mandates for periodical review of risk categorization and for periodical enhanced due diligence measures. The said provision does not enable the Banks to freeze WPC Nos.32516 and 32291 of 2024 2025:KER:88312 the account even if the Banks are having strong reasons to suspect the transactions in the account.

23. The Petitioner in W.P.(C) No.32516/2024 produced Ext.P6 Master Circular - Know Your Customer (KYC) Norms / Anti-Money Laundering (AML) Standards / Combating of Financing of Terrorism (CFT) / Obligation of Banks and Financial Institutions under PMLA, 2002, dated 01.07.2015. Clause 3.2.2.III deals with periodic updation of KYC. Clause B therein provides for freezing and closure of accounts. It provides that in case of non-compliance with KYC requirements by the customers despite repeated reminders, the Bank may WPC Nos.32516 and 32291 of 2024 2025:KER:88312 impose partial freezing on such KYC non-compliant accounts in a phased manner. The Account Holders can revive their accounts by submitting KYC documents. It is specifically provided that while imposing partial freezing, the Bank has to ensure that the option of partial freezing is exercised after giving due notice of three months initially to the customers to comply with KYC requirements to be followed by a reminder giving a further period of three months. It is clear from the said Clause that partial freezing means allowing all credits and disallowing all debits with the freedom to close the accounts. It provides that if the accounts are KYC non-compliant after six months of imposing initial partial freezing, the Bank has to disallow all debits and credits to the accounts, thereby rendering them inoperative. It is open to the Bank to close the account after due notice to the customer, explaining the reason. The said provision providing partial and full freezing is with respect to the operation of KYC non-compliant WPC Nos.32516 and 32291 of 2024 2025:KER:88312 accounts. By the said provision, the Bank cannot freeze the account without notice to the Account Holder. The said Clause is not applicable to the freezing of accounts or the amounts therein by the Bank on the grounds of suspicion.

Exhibit P6 True copy of the master circular regard KYC (know your customer) issued by the Reserve Bank of India dated 01/07/2015 Exhibit P7 TRUE COPY OF THE REPORT OF THE COMMITTEE FOR REVIEW OF CUSTOMER SERVICE STANDARDS IN RBI REGULATED ENTITIES DATED 24.04.2023 ISSUED BY RESERVE BANK OF INDIA, CONSUMER EDUCATION AND PROTECTION DEPARTMENT Exhibit P8 TRUE COPY OF THE ONLINE ACKNOWLEDGMENT RECEIPT ISSUED BY THE INCOME TAX DEPARTMENT DATED 14.03.2025 RESPONDENT EXHIBITS Exhibit R2 (a) True copy of the Master Direction (MD) on Know Your Customer (KYC) dated 25.02.2016, updated as on 14.08.2025 WPC Nos.32516 and 32291 of 2024 2025:KER:88312 APPENDIX OF WP(C) 32291/2024 PETITIONER EXHIBITS Exhibit-P1 TRUE PHOTOSTAT COPY OF THE SMS DATED NIL ISSUED BY THE 3RD RESPONDENT.