Banks Can’t Freeze Company Accounts Over Internal Management Disputes Without Court Order: Calcutta HC

The Calcutta High Court has held that banks cannot freeze company accounts over internal management disputes without court order. The Bench of Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya set aside the impugned order dated June 19, 2025, holding that neither Axis Bank nor certain former directors had the locus standi to interfere with the operation of the company’s accounts in the absence of any judicial restraint or subsisting statutory embargo. The controversy arose after Axis Bank froze the bank and demat accounts of August Agents Limited, citing conflicting communications and an alleged “management dispute” reflected in the records of the Registrar of Companies (ROC). The freezing action followed the removal or non-reappointment of certain directors and competing claims over authorized signatories. Aggrieved by the freezing of accounts, the company and its director approached the Calcutta High Court by way of a writ petition. On April 9, 2025, a Single Judge directed Axis Bank to defreeze the accounts, subject to the furnishing of an indemnity bond. The Court also left it open for the petitioners to seek damages for losses caused due to the bank’s refusal to permit account operations. However, subsequent applications were filed—one by Axis Bank seeking clarification regarding authorized signatories, and another by certain former directors seeking recall of the April 9 order and their impleadment as parties. Acting on these applications, the Single Judge, by an order dated June 19, 2025, kept the contempt proceedings in abeyance, suspended the operation of the April 9 order, and directed that the former directors be added as parties. The court took a critical view of the bank’s conduct as well as the procedural course adopted by the Single Judge. The Court noted that the primary basis for freezing the accounts was a letter not issued by the account-holder company but by its 100% shareholder, Vindhya Telelinks Limited (VTL). The Bench found it “disturbing” that Axis Bank relied on communications from a third party while disregarding instructions issued on the letterhead of its actual customer. Importantly, VTL itself had later supported the defreezing of accounts and had furnished an indemnity before the writ court, thereby demolishing the very premise on which the accounts were frozen. The Bench further held that the marking of “management dispute” by the ROC could not justify a unilateral freezing of bank accounts. Such marking, the Court observed, operates in a different statutory sphere under company law and has no automatic bearing on banking operations. In any event, the ROC had subsequently unmarked the company as having a management dispute pursuant to directions from the Ministry of Corporate Affairs, a fact that Axis Bank failed to give due weight to. A key aspect of the judgment is the Court’s categorical finding that the former directors had no locus standi to interfere with the company’s affairs. Their challenge to removal under Sections 241 and 242 of the Companies Act, 2013 had already been dismissed by the National Company Law Tribunal (NCLT), and although an appeal was pending before the NCLAT, there was no stay of the NCLT order. “In the absence of any stay, the removal of the said respondents subsists,” the Bench held, adding that the bank could not act as an arbiter of internal corporate disputes. The Court also rejected the contention that the former directors were necessary parties to the writ petition, noting that the freeze was triggered by a shareholder’s letter and not by any complaint from them. The Division Bench also found serious procedural infirmities in the impugned order. It held that once a writ petition is disposed of on merits, there is no scope for adding parties unless the order is first recalled or reviewed in accordance with law. Directing impleadment in a “dead writ petition,” the Court said, was contrary to basic principles of jurisprudence. Further, the Bench observed that the Single Judge had suspended the April 9 order without recording any prima facie reasons, rendering the suspension unsustainable. Setting aside the June 19, 2025 order, the High Court allowed all three appeals. It clarified that the recall application filed by the former directors and the clarification application filed by Axis Bank must first be decided by the Single Judge, after which the contempt application may be taken up, depending on the outcome. Case Details Case Title: Ravindra Pratap Singh and another Vs. Reserve Bank of India and others Case No.: MAT No. 989 of 2025 IA No: CAN 1 of 2025 Date: 05.01.2026 Counsel For Petitioner: Abhrajit Mitra, Sr. Adv. Counsel For Respondent: Suchismita Ghosh Click Here To Read Order Read More: No Stay On Bombay HC’s Order Allowing Inter-State Transfer of Unutilised GST ITC After Amalgamation; SC Issues Notice

Banks Can’t Freeze Company Accounts Over Internal Management Disputes Without Court Order: Calcutta HC

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