7 Reasons Why Banks Freeze Accounts In India?

Freezing of accounts means you will not be able to undertake any transaction in your banking account until further notice. All payment and transactions will be stopped even cheques issued by the holder earlier.

Regulators such as the Reserve Bank of India, Securities and Exchange Board of India, income-tax authorities or courts have rights to order a freeze bank accounts.

What is a frozen account?

It can be a nasty surprise to discover that your checking account is frozen. When a bank blocks your account, it means there may be a problem with your account or someone has a judgment against you to collect an unpaid debt. An account freeze essentially means that the bank is suspending you from carrying out certain transactions. You can still use your bank accounts, but there are limits to what you can do.

You can still monitor your account and receive deposits, including your paycheck. But the account freeze prevents any withdrawal or transfer from happening. Thus, everything that is deposited into the account during this period remains unchanged. This includes any pre-authorized payments that you may have scheduled to go through your checking account. So if you have a rent or mortgage payment, a car loan, or monthly fees for your gym membership, chances are they won't be accepted.

Key points on frozen account:

1. You can still receive deposits into frozen bank accounts, but withdrawals and transfers are not allowed.
2. Banks can freeze bank accounts if they suspect illegal activities such as money laundering, terrorist financing or writing bad checks.
3. Creditors can request a judgment against you, which can cause a bank to freeze your account.
4. The government can request an account freeze to the bank for any unpaid taxes or student loans.
5. Check with your bank or lawyer how to lift the freeze
   

   Can banks freeze accounts?

   If the banks feel that the transaction in the account is suspicious they can freeze an account. However, they have to send notice to the holder before freezing.
   An unusual transaction could in involve an illegitimate business transaction is savings account as prohibited under RBI rules. In fact, once it is frozen for legitimate reasons getting the account in order is going to be a long and tedious process. Now, how do you define an illegitimate transaction you need to check the rules for the same or with the bank.

   

   Here are 7 reasons to freeze your bank account

   1) Unpaid private loans

   If you have not paid your loans despite several reminders, your account could be froze.

   2) Tax dues

   Classic examples have been Sahara and Kingfisher Airlines, where accounts have been frozen for non payment of tax dues.

   3) Unpaid money to a organisation/individual.

   4) Suspicious activities in the account

   5) Use of the account for illegal activities

   6) Money laundering

   7) Terrorist financing

   More recently, Kingfisher accounts were frozen as the Airline failed to clear dues of Rs 40 crore to the tax department.

   Even the Sahara Group accounts were frozen by the market regulator the Securities Exchange Board of India (SEBI) as per an order by the Honourable Supreme Court.

   You have to have a favourable court verdict in order to unfreeze and secure your bank account.

    

    

   

   What you should do if banks freeze your acccount?

   Banks are within their rights to freeze accounts, if they are operating for illegal purposes. If you feel that none of the above points are applicable to you and the bank has unjustly frozen your account, you can talk to them. Most likely they will see reason. However, in case they do not, you can approach the Reserve Bank of India to resolve matters. It is most unlikely that the matter would not be resolved. However, there is some running around that you would need to do to solve the problem amicably.

   In case, you do not want to go through the long and cumbersome process, it's best you open a new account.

   Also read: Best Salary Accounts

   

   Is dormant account the same as a frozen account?

   No, the dormant account is totally different from a frozen account. In the case of the former, you can still open the account, if you take the necessary steps.  A dormant account is one in which there is no transaction for the last 24 months. So, there is no activity at all that has taken place. These accounts can be once again activated after taking care of certain procedures and formalities.

   

   How can the dormant account be opened?

   Unlike the frozen accounts, a dormant account can be activated very easily. You can give an application for Re-Activation of Dormant Account in your bank. An Application for Re-Activation of Dormant Account also has to be given to the branch transfer. Remember, can a frozen account re-opened is all the more complicated. If you realize that your bank account has been frozen by mistake or for all the wrong reasons, you may kindly contact the branch of the bank.