Jar Gold Case: Karnataka High Court Allows Police to Freeze Bank Accounts Without Prior Court Permission
The Karnataka High Court recently ruled that the police cannot be required to first approach a magistrate for permission to freeze a bank account. The Court observed that if the police are required to approach a magistrate before ordering a debit freeze, the money in the account could be transferred to other accounts in the meantime.
The Court said that a debit freeze of a bank account does not have to go through the procedural requirements contemplated under Section 107 of the Bharatiya Nagarik Suraksha Sanhita (BNSS).
The case relates to digital gold company Jar Gold, whose advertisements many people may have seen. The company’s bank accounts were frozen after it was accused of offences under the Banning of Unregulated Deposit Schemes (BUDS) Act, 2019. The police also seized 1,521 kilograms of gold and 2,541 kilograms of silver belonging to the company.
Jar Gold challenged the action before a Sessions Court. The Sessions Court ordered the de-freezing of the company’s bank accounts and also directed the release of the seized gold and silver. The State challenged these orders before the Karnataka High Court.
Before the High Court, counsel representing Jar Gold argued that permission from the magistrate under Section 107 of the BNSS was required before the police could freeze the company’s bank accounts. The counsel therefore sought dismissal of the State’s challenge and continuation of the Sessions Court’s order.
The High Court, however, rejected this argument. The Court observed that the police cannot be required to first approach a magistrate for permission to freeze a bank account. It noted that when money obtained through fraud is transferred into a bank account, the account may need to be subjected to a debit freeze within seconds or minutes. If the police have to wait for a magistrate’s permission, the money could be transferred elsewhere, defeating the purpose of the freeze.
The High Court therefore set aside the Sessions Court orders that had favoured Jar Gold. However, the Court continued an interim arrangement allowing the company to operate its bank accounts for paying employee salaries and making statutory payments, including GST.
What is the Jar Gold case?
The startup company Jar allows users to save money automatically by buying small amounts of digital gold. A legal dispute began when the Reserve Bank of India (RBI) grew concerned that this business setup might be acting as an illegal public savings scheme. Because of this, the police and cyber crime teams began investigating Jar under India’s strict laws against unregulated deposit schemes.
Jar tried to stop the investigation by arguing that they do not take cash deposits, but instead operate a regular online shop where people buy and store physical gold. However, the Karnataka High Court rejected Jar’s request to drop the case. The court decided that modern digital gold apps still count as public investment schemes under the law, meaning the police have the full right to investigate the platform and freeze its bank accounts while they look into the matter.
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