2021 (2) TMI 117 - SC - Money Laundering

Freezing of Bank Accounts - 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 - HELD THAT - If the salutary principle is kept in perspective, in the instant case, though 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. 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. What has also engaged the attention of this Court is with regard to the plea put forth on behalf of the appellant regarding the need to defreeze the account to enable the appellant to pay the statutory dues. The appellant in that regard has relied on the certificate issued by the Chartered Accountant, (AnnexureP/ 38 at page 231) which indicates the amount payable towards ITDS, PF, ESI, Professional Tax, Gratuity and LIC employees deductions, in all amounting to ₹ 79,93,124/. 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. Needless to mention that if any further amount is available in the account after payment of the statutory dues and with regard to the same any action is to be taken by the respondent No.4 within a reasonable time, it would open to them to do so subject to compliance of the required procedure afresh, as contemplated in law. It is directed that the respondents shall defreeze the accounts and honour payments advised by the appellant towards statutory dues - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Freezing of bank accounts under the Prevention of Money Laundering Act, 2002 (PMLA).
2. Compliance with procedural requirements under Section 17 of the PMLA.
3. Validity of freezing orders under general law vs. special law.
4. Payment of statutory dues from frozen accounts.

Issue-wise Detailed Analysis:

1. Freezing of Bank Accounts under the PMLA:
The appellant challenged the High Court's order regarding the freezing of their bank accounts by the Directorate of Enforcement under the PMLA. The freezing was initiated to track the money trail related to a predicate offense and prevent the layering of proceeds of crime.

2. Compliance with Procedural Requirements under Section 17 of the PMLA:
The Supreme Court emphasized the necessity of adhering to the procedural requirements under Section 17 of the PMLA. Section 17 mandates that the Director or an authorized officer must record in writing their reason to believe that a person is involved in money laundering before freezing any account. The officer must then forward a copy of these reasons to the Adjudicating Authority in a sealed envelope and file an application within thirty days requesting the retention of the frozen property. The Court found that the Directorate of Enforcement did not comply with these procedures, as the impugned communication did not refer to the belief of the authorized officer, nor was there evidence of compliance with Section 17(2) and (4).

3. Validity of Freezing Orders under General Law vs. Special Law:
The respondent argued that the freezing of the accounts could be justified under Section 102 of the Code of Criminal Procedure (CrPC). The Court rejected this argument, stating that PMLA is a standalone enactment with specific provisions for freezing accounts, and the power under PMLA should be exercised according to its procedures. The Court also noted that the impugned communication did not mention the exercise of power under the CrPC, and even if it did, the procedural requirements under Section 102 CrPC were not shown to be complied with.

4. Payment of Statutory Dues from Frozen Accounts:
The Court considered the appellant's plea to defreeze the accounts to enable the payment of statutory dues. The appellant provided a certificate from a Chartered Accountant indicating the amounts payable towards ITDS, PF, ESI, Professional Tax, Gratuity, and LIC employees' deductions. The Court directed the respondents to defreeze the accounts and honor payments advised by the appellant towards these statutory dues, subject to the availability of funds in the accounts. The Court also allowed the Directorate of Enforcement to initiate fresh action in accordance with the law if necessary.

Conclusion:
The Supreme Court quashed the communication dated 15.05.2020 and directed the respondents to defreeze the specified accounts to allow the appellant to make statutory payments. The Court emphasized the importance of following the procedural requirements under the PMLA and clarified that actions taken under special laws should adhere to the specific procedures laid out in those laws. The appeal was allowed to the extent of defreezing the accounts, with no order as to costs.