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Supreme Court elucidates on freezing of bank accounts under Prevention of Money Laundering Act 2002
A Full Bench of the Hon’ble Supreme Court comprising Justices S. A. Bobde, A. S. Bopanna and V. Ramasubramanian in the case of OPTO Circuit India Ltd. v. Axis Bank & Others., REED 2021 SC 02001, while expounding on the scope of Enforcement Directorate’s power to freeze bank accounts under Prevention of Money Laundering Act, 2002, (PML Act) held that though the Directorate of Enforcement (ED) is vested with sufficient power to freeze the accounts, it requires the recording of reasons and failures to adhere to it will render the freezing to be illegal. The brief background of the case, the issue raised and analysis of the ruling are discussed below.
The Central Bureau of Investigation (CBI) initiated an investigation against the Appellant in order to track the money trail relating to the predicate offence and prevent layering of the same under the PML Act. The present appeal arose from a challenge to ED’s action for issuing a direction to the Respondents banks to debit freeze the various bank account of the Appellant. The Appellant challenged before the Karnataka High Court the initiation of parallel proceeding under sections 3 and 4 of PML Act and the direction issued to Respondent by ED and sought that the bank account is defreezed for the purpose of making statutory payments under various enactments and paying salaries of employees. The High held that the action initiated under PML Act was valid, and hence an appeal has been filed against the above order before the Supreme Court.
The issue that arose for the consideration of the Supreme Court primarily was that whether the power available to the competent authority has been exercised in the manner as contemplated under PML Act?
The procedure to freeze the bank account is contained in section 17 of the PML Act. section 17 stipulates that the officer must have reasons to believe, based on information available to him, that a person has committed act relating to money laundering and there is a need to seize or freeze the record or property in the search conducted. This provision also specifically mandates that the “reasons to believe” must be recorded in writing. Further, section 17(1A) enables the Authorized Officer to freeze the concerned record or property if it’s not practicable to seize the record or property. section 17(2) also requires the Authorized Officer to forward a copy of recorded reasons along with the matter substantiating his belief to the Adjudicating Authority in the sealed envelope. Moreover, section 17(4) provides that the Authorized Officer must present an application before the Adjudicating Authority within 30 days from the date of seizure or freezing from recording such property or records.
The Supreme Court noted that the actions taken under standalone enactments such PML Act must conform with the inbuilt safeguards and in the absence of compliance with a procedural requirement under the PML Act, the Code of Criminal Procedure (CrPC), 1973 cannot be resorted to. This observation was made on ED’s submission that the freezing order was issued for preventing layering/diversion of proceeds of crime under section 102 of the CrPC but not under section 17 of PML Act. Moreover, even the procedure under section 102 of the CrPC that mandates the Police Officer to forward the seizure report to the Magistrate has not been complied with in the present case. In this regard, relying on Chandra Kishor Jha v. Mahavir Prasad and Ors., (1999) 8 SCC 266. the court also reiterated that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner.
The Court also noted that freezing of a bank account requires the same procedure as freezing of property or record since the bank account falls under the definition of property as well as a record under the PML Act. Hence, the Supreme Court concluded that there was no material placed before it to prove compliance of section 17 as there was no recording of reasons that indicated the belief of the Authorized Officer in the commission of act related to money laundering by the Appellant. Further, on the Appellant’s plea regarding the need to defreeze the account to enable it to pay the statutory dues, the court held that considering that the freezing order was itself illegal, the Court allowed the Appellant to pay amount due to statutory authorities while granting liberty to ED to freeze the accounts again, after complying with the procedural requirements.