2022 (8) TMI 170 - HC - Money Laundering

De-freezing of provisionally attached Bank Accounts of petitioner - freezing of bank accounts of the petitioner without any notice and without any justifiable reason - Section 5 of the PMLA Act - HELD THAT - It can be seen that provisional attachment can be made only for a period of (180 days) as per Section 5 Sub-Clause (1). As per Section 5 Sub-Clause (5) thereof, the officer who provisionally attaches the property shall file a complaint before the adjudicating authority within a period of (30) days from such attachment. Since the issue of provisional attachment is before the adjudicating authority, it is considered fit to direct the petitioner-Company to raise all the contentions before the adjudicating authority with regard to the validity of the provisional attachment - in the facts and circumstances of the case and in the interest of justice, it is considered appropriate to permit the petitioner to operate the bank accounts with respect to the amounts deposited on or after the date of communication of this order; and the attachment made by the 1st respondent / Directorate of Enforcement with regard to the bank accounts of the petitioner-Company shall be continued subject to passing of further orders by the adjudicating authority. Petition disposed off.

Summary

Issues involved:
- Freezing of bank accounts under the Prevention of Money Laundering Act, 2002
- Validity of provisional attachment order
- Rights of the petitioner to operate bank accounts during investigation

Detailed Analysis:

1. Freezing of Bank Accounts under PMLA:
The petitioner filed a Writ Petition under Article 226 of the Constitution of India seeking to de-freeze their bank account, which was frozen by the Directorate of Enforcement under the Prevention of Money Laundering Act, 2002 (PMLA). The petitioner argued that the freezing of the accounts without notice or justifiable reason was severely impacting their business operations, preventing them from conducting transactions necessary for their business activities, such as paying vendors, staff salaries, and operational expenses. The petitioner contended that the freezing of accounts was unjustified as they were operating in compliance with government regulations and paying taxes regularly. The petitioner claimed that there was no connection between the alleged offense and the seizure of their bank accounts, urging the court to allow the writ petition.

2. Validity of Provisional Attachment Order:
The Directorate of Enforcement contended that the petitioner's company was involved in a multi-level marketing scam, operating under the guise of 'Direct Selling' business with an illegal pyramid structure. The investigation revealed that the company had enrolled a large number of distributors, misleading them with promises of quick and easy money through commissions. The company was accused of projecting a fraudulent scheme as a legitimate business, collecting significant sums of money from members. The investigation further disclosed that proceeds of crime amounting to Rs.66.30 crores were attached, with efforts ongoing to recover the remaining amount. The Directorate of Enforcement defended the provisional attachment order, stating that the company's actions constituted proceeds of crime and that defreezing the accounts could lead to dispersal of illicit funds, causing irreparable loss to the country.

3. Rights of the Petitioner to Operate Bank Accounts:
The court analyzed Section 5 of the PMLA Act, which deals with the attachment of property involved in money laundering. The provision allows for provisional attachment of property for a specified period, during which a complaint must be filed before the adjudicating authority. The court noted that a complaint had been filed before the adjudicating authority in this case, and the matter was under consideration. Considering the circumstances, the court directed the petitioner to raise all contentions regarding the provisional attachment before the adjudicating authority. The court permitted the petitioner to operate the bank accounts for amounts deposited after the date of the court order, while maintaining the attachment subject to further orders by the adjudicating authority.

In conclusion, the court disposed of the Writ Petition, granting the petitioner liberty to present their case before the adjudicating authority and allowing them to operate bank accounts for recent deposits, subject to the adjudicating authority's decisions.