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2023 (3) TMI 589 - HC - Money LaunderingMoney Laundering - proceeds of crime - Freezing of bank accounts of petitioner - case of petitioners is that the order under Section 17 (1-A), PMLA to freeze the Bank accounts, has not been passed, which order is a pre-condition to issue directions to the Bank - Seeking to furnish the balance held in the accounts maintained in those banks by the petitioner(s)/fixed deposits, with further request not to entertain debit transactions from the said accounts until further directions from the Office of the Enforcement Directorate - Power of Assistant Director to pass the order under Section 17 (1-A) being below the rank of the Deputy Director. Whether, in the absence of any order to freeze the property (Bank Accounts), under Section 17 (1-A) of the PMLA, the action of the respondents in directing the Bank Respondent Nos.3 and 4, vide the impugned e-mails, not to entertain the debit transactions from the Bank accounts of the petitioners mentioned in the e-mails, is legally sustainable? HELD THAT - In OPTO Circuit India Limited 2021 (2) TMI 117 - SUPREME COURT , the Hon'ble Apex Court held that the pre-requisite, is that the Director or such authorised Officer in order to exercise the power under Section 17 of the PMLA should on the basis of information in his possession, have reason to believe that such person has committed acts related to money-laundering and there is need to cease any record or property found in the search and such belief of the Officer should be recorded in writing. Sub-section (1A) of Section 17 of the PMLA, provides that the Officer authorised under sub-section (1) may make an order to freeze such record or property where it is not practicable to seize such record or property, but it was clarified and emphasized that the freezing of the account will also require the same procedure since a bank account having proceeds of crime shall fall, both under the ambit of property and records - the Hon'ble Apex Court observed that in that case, except issuing the impugned communication dated 15.05.2020 to Anti-Money Laundering Officer to seek freezing, no other procedure contemplated in law was followed. Such impugned communication also did not even refer to the belief of the authorised Officer. It was held that though it was not the requirement that the communication addressed to the Bank should contain all the details but what was necessary was an order in the file recording the belief as provided under Section 17 (1) of the PMLA before the communication is issued and thereafter the requirements of Section 17 (2) of the PMLA, after the freezing was made, was required to be complied with. In the present case, the basic facts to attract the applicability of the law laid down in OPTO Circuit India Limited (supra), are almost the same. The respondent No.2 herein issued the E-mail/communication to the respondent Nos.3 and 4 Banks, requesting not to entertain debit transactions hence forthwith from the accounts of the petitioners. The communication, though it is not required to mention all the details, containing the reasons for the belief of issuance of such direction to the Bank in the communication e-mails, does not mention about any order to freeze the account as per the procedure prescribed, on the record/file of the ED. The admitted case of the respondents taken in their counter affidavit is that any order under Section 17 (1-A) of PMLA has not been passed. This Court is of the considered view that though there is power to direct freezing of the account or to issue the communications as has been issued in the present case to the Banks, under Section 5 or/and Section 17, but such power/direction which has the effect of freezing the property/bank account under Section 17 (1-A) is to be exercised as per the law by following the procedure prescribed. - It is settled in law by various pronouncements, and reiterated in OPTO Circuit India Limited, by the Hon'ble Apex Court, 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 impugned E-mails cannot be sustained in law and are liable to be quashed. As this Court found that the impugned E-mails deserve to be quashed on the ground of there being no order passed under Section 17 (1-A), this Court is of the view that there is no need to enter into the submission of the learned counsel for the petitioners that the Assistant Director, the respondent No.2, is not competent to pass the order under Section 17 (1-A) being below the rank of the Deputy Director, though prima facie, the Court is not in agreement, for, the use of the expression the officer authorized under sub-section (1) in Section 17 (1-A) in the phrase the officer authorized under sub-section (1) may make an order to freeze such property . Considering the object of the PMLA which is to achieve preventing money laundering and bring the offenders to book as also at the same time to safeguard the rights of the persons who would be proceeded against under the PMLA by ensuring fairness in procedure, in the light of the facts of the present case, as brought on record from both the sides, but without making any observation on the merit of the correctness thereof or otherwise, that the amount in accounts of the petitioners with the respondent Banks is alleged to be proceeds of crime , while setting aside the impugned e-mails it would be in the interest of justice to prevent the alleged money laundering, to keep it open to the authorized officer of E.D under Section 17 of the PMLA to take necessary action, by proceeding in accordance with law and further, for a period of 15 days from today to restrain the petitioners with direction to the respondent Nos.3 to 4 Bank, that there shall be no debit transaction from the aforesaid accounts. Petition allowed in part.
Issues Involved:
1. Legality of the action of freezing bank accounts without an order under Section 17(1-A) of the Prevention of Money Laundering Act, 2002 (PMLA). 2. Competence of the Assistant Director to issue freezing orders. 3. Compliance with the procedural requirements under PMLA for freezing bank accounts. Issue-wise Detailed Analysis: 1. Legality of the action of freezing bank accounts without an order under Section 17(1-A) of the Prevention of Money Laundering Act, 2002 (PMLA): The petitioners challenged the emails dated 18.10.2022 from the Assistant Director, Directorate of Enforcement (ED), which directed Axis Bank and Union Bank of India to freeze the petitioners' bank accounts. The petitioners argued that no order under Section 17(1-A) of PMLA was passed, which is a pre-condition for freezing bank accounts. The Court noted that the respondents admitted that no such order was passed. The Court referred to the Supreme Court's judgment in OPTO Circuit India Limited, which emphasized that freezing bank accounts requires compliance with the procedural requirements under PMLA. The Court held that in the absence of an order under Section 17(1-A), the action of freezing the bank accounts was not legally sustainable. The impugned emails were quashed on this ground. 2. Competence of the Assistant Director to issue freezing orders: The petitioners also contended that the Assistant Director, being below the rank of Deputy Director, was not competent to issue freezing orders under Section 17(1-A) of PMLA. The Court did not find it necessary to decide this issue, as the impugned emails were quashed on the ground of non-compliance with Section 17(1-A). However, the Court noted that the expression "officer authorized" under Section 17(1) includes the Director and any officer not below the rank of Deputy Director authorized by the Director. Such authorized officers may further authorize subordinate officers for the purposes of Clauses (a) to (f) of Section 17(1). Thus, the Court indicated that a subordinate officer authorized under Section 17(1) could potentially issue freezing orders under Section 17(1-A), but did not express a final view on this matter. 3. Compliance with the procedural requirements under PMLA for freezing bank accounts: The Court emphasized the importance of following the due process prescribed under PMLA for freezing bank accounts. It referred to the Supreme Court's judgment in OPTO Circuit India Limited, which held that the power to freeze accounts must be exercised in accordance with the procedure laid down in PMLA. This includes recording the belief in writing, forwarding a copy of the reasons to the Adjudicating Authority, and filing an application for retention of the frozen property within 30 days. The Court reiterated that if a statute provides for a thing to be done in a particular manner, it must be done in that manner alone. Since the respondents did not follow the prescribed procedure, the impugned emails were quashed. Conclusion: The Court quashed the impugned emails directing the freezing of the petitioners' bank accounts due to the absence of an order under Section 17(1-A) of PMLA. The Court allowed the authorized officer of ED to take necessary action in accordance with the law. It also restrained the petitioners and the banks from making any debit transactions for 15 days, subject to any order passed by the authorized officer under Section 17. The Court clarified that the quashing of the emails was solely based on non-compliance with Section 17(1-A) and did not reflect an opinion on the merits of the allegations or other aspects of the matter.
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