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Freezing of bank account under PMLA without due compliance of the legal requirement not sustainable

The Supreme Court held on Wednesday that freezing of bank accounts or the continuation thereof under PMLA without due compliance of the legal requirement is not sustainable.

A three-judge bench of the Supreme Court, comprising of Justices S. A. Bobde, A. S. Bopanna, and V. Ramasubramanian was hearing a case in which the appellant was assailed the order passed by the High Court of Karnataka in WP No.8031 of 2020. Through the said common order the High Court has disposed of two writ petitions but the consideration herein relates to the issue raised in Writ Petition No.8031 of 2020 which was filed before the High Court, by the appellant herein raising the issue relating to the freezing of their bank account.

The learned senior counsel for the appellant while assailing the order passed by the High Court, inter alia contended that the freezing of the bank accounts maintained by the appellant company has prejudiced the appellant, inasmuch as, the amount in the account which belongs to the appellant is made unavailable to them due to which statutory payments to be made to the Competent Authorities under various enactments is withheld and the payment of salary which is due to the employees is also prevented.

The Apex Court had not found any reason to interfere with the initiation of the proceedings under the Prevention of Money Laundering Act, 2002 (PMLA) had, however, limited the scope of consideration in this appeal on the issue of defreezing the bank account so as to enable the appellant to make the statutory payments.

The Supreme Court Bench noticed, the consideration to be made in this appeal is therefore limited to the aspect of freezing/ defreezing the account, more particularly keeping in view the requirement of the appellant to make the statutory payments even if the freezing of the account is found justified.

On the issue of the justification of the upholding the action initiated under PMLA, the Court said, “we have already indicated that the High Court was justified in upholding the action initiated under the PMLA but the consideration herein was only with regard to freezing of the bank account and as to whether while doing so the due process had been complied by adhering to the procedure prescribed under Section 17 of PMLA”. The Bench further added, “This Court has time and again emphasised 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 Bench noticed that the Authorised Officer is vested with sufficient power; such power is circumscribed by a procedure laid down under the statute. As such the power is to be exercised in that manner alone, failing which it would fall foul of the requirement of complying due process under law.

The Supreme Court said, “We have found fault with the Authorised Officer and declared the action bad only in so far as not following the legal requirement before and after freezing the account. This shall not be construed as an opinion expressed on the merit of the allegation or any other aspect relating to the matter and the action initiated against the appellant and its Directors which is a matter to be taken note in appropriate proceedings if at all any issue is raised by the aggrieved party”.

The Apex court Bench observed, “Since we have indicated that the freezing has been done without due compliance of law, it is necessary to direct the respondents No.1 to 3 to defreeze the respective accounts and clear the cheques issued by the appellant, drawn in favour of the Competent Authority towards the ITDS, PF, ESI, Professional Tax, Gratuity and LIC employees’ deductions, subject to availability of the funds in the

account concerned.

Mr. Mukul Rohatgi, learned Senior Advocate appeared for the appellant and Mr. S.V. Raju, learned Additional Solicitor General argued for the respondent No. 4.

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