2015 (11) TMI 191 - HC - Indian Laws

Violation of Sections 12A and 24 of the SEBI Act - Attachment of property - Prevention of money laundering - Freezing of bank accounts - Held that - On a reading of the order of adjudicating authority it is apparently clear that the applicability of the 2002 Act has not been addressed and no finding given in respect thereof. This, therefore, is contrary to the order dated 28th July, 2014 passed by the Appeal Court in AST 345 of 2014 with ASTA 246 of 2014. As the merits of the case has been considered, and a finding given in respect thereof, this, therefore, renders the order dated 10th September, 2014 bad and liable to be set aside. - Impugned order is set aside. Correctness of the letter dated 19th September, 2014 - In the instant case to quash the letter dated 19th September, 2014 will give rise to a situation likely to do injustice to the debenture holders, therefore, no interference is called for with the letter dated 19th September, 2014. At this stage to form any opinion on the applicability of the 2002 Act would amount to usurping the power of the adjudicating authority. Needless to mention that investigation will continue and in the event the same is completed before a decision is taken by the adjudicating authority, let no effect be given to the order to be passed till the decision of the adjudicating authority. - The object of the 2002 Act is to prevent money laundering and confiscation of property derived from such money laundering or proceeds of crime. It is only in furtherance of the object of the 2002 Act that the letter dated 19th September, 2014 has been issued so that mischief if any is suppressed and the object of the legislature advanced. - Petition disposed of.

Summary

Issues:
1. Applicability of the 2002 Act to the petitioner
2. Legality of the order dated 10th September, 2014
3. Validity of the letter dated 19th September, 2014

Analysis:

1. Applicability of the 2002 Act to the petitioner:
The petitioner challenged an order dated 10th September, 2014, arguing that the 2002 Act was not applicable to them. The petitioner contended that the Act's purpose is to prevent money laundering from proceeds of crime related to drug transactions, which did not apply to their case. The petitioner raised objections regarding the Act's applicability before the adjudicating authority, emphasizing that the SEBI complaint against them did not fall under the Act's purview. The petitioner argued that the adjudicating authority's failure to address the Act's applicability rendered the subsequent order invalid.

2. Legality of the order dated 10th September, 2014:
The Court noted that the order dated 10th September, 2014 did not address the applicability of the 2002 Act as directed by a previous order. The Court found this omission contrary to the directive given by the Appeal Court, which required the issue of applicability to be decided before any other matters. As a result, the Court set aside the order dated 10th September, 2014 and directed the adjudicating authority to consider the Act's applicability and the preliminary objections raised before proceeding with other issues.

3. Validity of the letter dated 19th September, 2014:
The petitioner contended that the Directorate's request to freeze their accounts lacked statutory backing and was an attempt to fish for evidence without initiating proper proceedings. The Directorate justified the request based on ongoing investigations under the 2002 Act to prevent fund depletion by the petitioner. The Court acknowledged that while specific Act provisions were not invoked, the Directorate's request was justified to prevent potential injustice to debenture holders and advance the Act's objective of preventing money laundering. Therefore, the Court decided not to interfere with the letter dated 19th September, 2014, emphasizing the importance of continuing investigations in line with the Act's purpose.

In conclusion, the Court disposed of the writ petition, emphasizing the importance of ongoing investigations and the need to uphold the objectives of the 2002 Act. The Court's decision highlighted the delicate balance between preventing financial crimes and ensuring fairness in legal proceedings.