Patna HC: Customs Cannot Freeze Bank Accounts Without Following Section 110(5) Safeguards

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 23.09.2026

Patna HC: Customs Cannot Freeze Bank Accounts Without Following Section 110(5) Safeguards

In an important ruling governing the Customs Department’s power to provisionally attach bank accounts, the Patna High Court has held that the safeguards contained in Section 110(5) of the Customs Act, 1962 must be strictly followed, considering the drastic consequences that freezing a bank account can have on an ongoing business.

The Division Bench of Justice Rajeev Ranjan Prasad and Justice Sunil Dutta Mishra partly allowed a writ petition filed by Nxtify Technologies Private Limited, a company engaged in digital and affiliate marketing and resale of gift vouchers/cards, challenging the freezing and provisional attachment of several bank accounts.

The Court quashed attachment orders that had been issued without the required approval of the Commissioner and held that certain debit-freeze directions issued in October 2025 did not comply with Section 110(5). It also set aside extension orders for want of a pre-decisional hearing and reasons.

At the same time, the Court declined to interfere with certain fresh provisional attachment orders dated 7 January 2026 that satisfied the statutory requirements. The ruling is therefore a significant clarification that Customs’ power to protect revenue is available, but only through strict compliance with the procedure prescribed by Parliament.

Investigation Into Alleged Fraudulent Exports Led to Nxtify’s Accounts

• The controversy originated from a Customs investigation initiated around October 2023 against certain exporters, including M/s Venus Exports, M/s Vidhur Enterprises and M/s B.K. Overseas.
• The allegations concerned fraudulent export activities and wrongful availment of Input Tax Credit.
• During the investigation, Customs found that substantial amounts had allegedly been transferred by entities under investigation into Nxtify’s accounts. Although the investigation was initially not against Nxtify itself, Customs formed the view that certain money allegedly arising from fraudulent activities had reached the company and proceeded to provisionally attach its bank accounts.
• Nxtify was subsequently described as a third-party beneficiary of amounts allegedly fraudulently availed by exporters, and additional accounts maintained with different banks were subjected to attachment.

Earlier Penalties and Appropriation From Attached Accounts

• The dispute had a longer history.
• Nxtify had earlier approached the Karnataka High Court challenging provisional attachments. During those proceedings, Customs passed adjudication orders dated 18 October 2024 relating to show-cause notices issued to exporters and imposed penalties of ₹50 lakh and ₹1.50 crore.
• Those amounts were appropriated from Nxtify’s provisionally attached bank accounts.
• The Karnataka High Court subsequently granted an interim stay on 29 October 2024. The judgment records that further amounts of ₹87,924.64 and ₹82 lakh were thereafter debited on 4 November and 14 November 2024 respectively.
• Nxtify filed statutory appeals before the Commissioner (Appeals), Patna, which were stated to be pending.

Five Bank Accounts Put Under Debit Freeze in October 2025

• The immediate controversy before the Patna High Court arose when several of Nxtify’s accounts were again subjected to debit freezes during October 2025.
• The judgment records that five bank accounts maintained with ICICI Bank, RBL Bank, IDFC First Bank and Kotak Mahindra Bank were placed under debit freeze.
• Nxtify contended that it received no prior notice and initially came to know of the action through communications and SMS messages from the banks.
• After making representations, the company received a communication dated 17 November 2025 stating that a trail of funds had been noticed during investigations involving certain exporters and that the accounts had been attached under Section 110(5) of the Customs Act.

Nxtify: Written Attachment Order Cannot Come After Bank Freeze

• Nxtify’s principal argument was that Customs could not first freeze the bank accounts and subsequently issue a formal order in an attempt to regularise the action.
• The company argued that the exercise of power under Section 110(5) must precede the actual attachment.
• According to Nxtify, the accounts were frozen in October 2025, whereas certain impugned written orders were issued only on 7 January 2026. It characterised this as an impermissible post-facto attempt to validate an action already taken without authority of law.
• The company further contended that a valid attachment requires formation of an opinion based on tangible material, a written order, prior approval of the Principal Commissioner or Commissioner, and a demonstrated necessity to protect revenue or prevent smuggling.

Customs: Fresh Investigations Revealed New Money Trails

• The Customs Department disputed Nxtify’s case.
• It alleged that the company had received substantial funds originating from fraudulent exporters through intermediaries and thereafter converted those amounts into prepaid instruments or gift cards.
• According to Customs, statements recorded under Section 108 of the Customs Act showed that amounts had been received from entities such as Venus Exports and used for issuing prepaid cards against commission.
• Customs further stated that fresh investigations involving other exporters had revealed additional financial trails.
• In the case of M/s Kumar Enterprises, Customs alleged that ₹46.52 lakh had been transferred to Nxtify.
• In another investigation concerning M/s Kentil Technosoft Private Limited, the Department claimed that a money trail exceeding ₹3 crore had flowed into Nxtify’s accounts. Customs maintained that the subsequent attachments arose from separate investigations and fresh financial trails rather than merely continuing the earlier action.
• These remained the Department’s allegations; the High Court was deciding the legality of the attachment procedure, not finally determining the underlying allegations.

Section 110(5) Imposes Mandatory Safeguards

• Section 110(5) of the Customs Act empowers the proper officer, during proceedings under the Act, to provisionally attach a bank account where the officer considers it necessary for protecting the interest of revenue or preventing smuggling.
• However, the statute imposes several conditions.
• The proper officer must form the required opinion; the attachment must be made by an order in writing; approval of the Principal Commissioner of Customs or Commissioner of Customs must be obtained; and the initial attachment cannot exceed six months.
• An extension for a further period of up to six months requires reasons to be recorded in writing, with the extension communicated before expiry of the original period.

Provisional Attachment Is a Drastic Power: High Court

• The Patna High Court relied significantly on the Supreme Court’s decision in Radha Krishan Industries v. State of Himachal Pradesh, (2021) 6 SCC 771.
• Although that case dealt with provisional attachment under GST legislation, the High Court considered the relevant statutory provisions to be in pari materia for purposes of examining the substantive and procedural safeguards governing provisional attachment.
• The Supreme Court had emphasised that provisional attachment is a draconian power carrying serious consequences and therefore requires strict compliance with the statutory preconditions.
• The formation of opinion cannot be based on unguided discretion. There must be a proximate and live nexus between the attachment and protection of government revenue, and the authority must establish necessity, rather than mere expediency.

Customs Admitted Two Attachment Orders Lacked Commissioner’s Approval

• A critical development occurred during the proceedings.
• The Department’s own records showed that provisional attachment orders dated 10 October 2025 concerning Kentil Technosoft and 23 October 2025 concerning Kumar Enterprises had been issued without approval of the Commissioner.
• The respondents admitted this position.
• The High Court held that where the statutory approval required by Section 110(5) was absent, the provisional attachment orders as well as their subsequent extensions were illegal.
• The Court accordingly quashed those attachment orders and their extensions.

Debit Freeze Without Proof of Written, Reasoned and Approved Order Held Invalid

• The Court also examined the freezing of other Nxtify accounts.
• Customs maintained that the October 2025 directions themselves were provisional attachment orders and that the January 2026 orders related to different accounts or stages of the investigation.
• However, the Department did not establish that the relevant October directions were written orders containing reasons and supported by approval of the competent authority.
• The High Court therefore concluded that the October 2025 debit-freeze directions concerning those accounts were not in accordance with Section 110(5).
• This aspect of the judgment is particularly important for Customs investigations: an instruction to a bank restricting operation of an account cannot be treated as a substitute for compliance with the formal statutory conditions governing provisional attachment.

Written Order and Commissioner’s Approval Are Not Empty Formalities

• The Court’s reasoning reinforces that the safeguards in Section 110(5) are substantive, not merely procedural technicalities.
• A provisional attachment can severely disrupt working capital, employee payments, vendor payments and ordinary commercial operations. The statutory requirement of prior approval by a senior Customs authority therefore operates as an important check against arbitrary exercise of coercive power.
• The High Court referred to Boxster Impex Pvt. Ltd. v. Union of India, 2020 SCC OnLine Bom 978, where the Bombay High Court identified the essential conditions for Section 110(5): a written order, pendency of proceedings under the Customs Act, formation of the necessary opinion, prior approval of the Principal Commissioner/Commissioner and adherence to the six-month statutory period.
• The Court also considered Chokshi Arvind Jewellers v. Union of India, 2024 SCC OnLine Bom 793, which stressed that the necessity for attachment must rest upon tangible material and that the written order should disclose why attachment is required to protect revenue or prevent smuggling.

Not Every January 2026 Attachment Was Quashed

• Importantly, Nxtify did not succeed in having every attachment set aside.
• The High Court separately examined the provisional attachment orders dated 7 January 2026.
• It found that these orders had been issued after obtaining the Commissioner’s approval. The orders were in writing and recorded reasons on the basis of which the proper officer formed the opinion that attachment was necessary in connection with investigations relating to Kumar Enterprises and Kentil Technosoft.
• The Court therefore held that these provisional attachment orders did not require interference.
• This distinction is central to understanding the judgment: the High Court did not hold that Customs lacked power to attach Nxtify’s accounts. Rather, it invalidated those exercises of power that failed to comply with Section 110(5), while leaving legally compliant attachment orders undisturbed.

Extension of Attachment Requires Pre-Decisional Hearing: Patna HC

• The judgment contains another significant ruling concerning extension of provisional attachment beyond the original period.
• The Court examined an extension order and found that before extending the attachment, the competent authority had neither issued a show-cause notice nor afforded Nxtify an opportunity of hearing. The extension order also did not disclose reasons.
• The Department attempted to provide a hearing during the pendency of the writ petition and passed a fresh order on 6 July 2026.
• The High Court was sharply critical of that course.
• It recorded its “reservations and unhappiness” with the authority taking fresh steps while the writ petition was pending and observed that the attempt to alter the position during the adjournment was not “fair play in action” and was in breach of judicial discipline. The ASG ultimately stated that the Department would not press the fresh order.

Section 110(5) Requires Pre-Decisional, Not Post-Decisional, Hearing for Extension

• The High Court ultimately accepted Nxtify’s submission that the requirement in the context of extension under Section 110(5) is one of pre-decisional hearing, not post-decisional hearing.
• Since the extension orders had been passed without giving the petitioner an opportunity of hearing and without properly recording reasons, the Court held them to be bad in law and liable to be set aside.
• Thus, an authority cannot first extend the coercive attachment and subsequently attempt to cure the deficiency by offering a hearing after the decision has already been taken.

Department Free to Proceed Afresh in Accordance With Law

• The High Court, however, protected the Department’s statutory powers.
• It clarified that setting aside the defective attachment/extension orders would not prevent Customs from continuing pending adjudication proceedings.
• The Department was also left free, if so advised, to take such steps as are available under the Customs Act, including passing fresh provisional attachment or extension orders where legally permissible and after complying with statutory requirements.
• Accordingly, the writ petition was allowed to the extent indicated in the judgment, rather than in absolute terms.

Why This Judgment Matters for Customs Investigations

• The ruling is significant for importers, exporters, intermediaries and even third parties whose accounts become connected to Customs investigations through an alleged money trail.
• Section 110(5) gives Customs substantial protective power, but the judgment demonstrates that this power cannot be exercised through informal banking instructions or retrospectively regularised paperwork.
• The key safeguards emerging from the ruling are clear: there must be a valid proceeding under the Customs Act; the proper officer must form an opinion based on relevant material; attachment must be necessary for protecting revenue or preventing smuggling; the decision must be embodied in a written order; prior approval of the Principal Commissioner or Commissioner is mandatory; and any extension must comply independently with the statutory safeguards, including reasons and the procedural protection recognised by the Court.
• The judgment also underscores that procedural compliance assumes greater importance precisely because freezing a bank account can cripple an operating business.

Key Takeaway

The Patna High Court has drawn a clear line between the existence of Customs’ power to freeze a bank account and the lawful exercise of that power.

Customs may invoke Section 110(5) where the statutory conditions exist, including in the course of investigations involving alleged fraudulent exports and money trails. But a debit freeze unsupported by a duly approved, reasoned written order cannot be sustained merely by issuing documentation later.

Equally significant, an extension of attachment cannot be treated as automatic: according to the High Court, pre-decisional hearing and reasons are essential before continuing the coercive restriction beyond the initial period.

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Source: Patna High Court

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Ravi Shekhar Jha – Advocate, Bar Council of Delhi