Opto Circuit India Ltd. vs Axis Bank

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.102 OF 2021 (Arising out of SLP (Criminal) No.4171 of 2020)

OPTO Circuit India Ltd. .…Appellant(s)

Versus

Axis Bank & Ors. …. Respondent(s)

JUDGMENT

A.S. Bopanna, J.

Leave granted.

2. The appellant is before this Court assailing the Signature Not Verified Digitally signed by Sanjay Kumar order dated 13.08.2020 passed by the High Court of Date: 2021.02.03 16:43:49 IST Reason:

Karnataka in WP No.8031 of 2020. Through the said

Page 1 of 21 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.

3. When the Special Leave Petition was listed for

admission, 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. In that background, this

Court though had not found any reason to interfere with

the initiation of the proceedings under the Prevention of

Money­Laundering Act, 2002 (‘PMLA’ for short) had,

however, limited the scope of consideration in this appeal

Page 2 of 21 on the issue of defreezing the bank account so as to

enable the appellant to make the statutory payments. In

that view, notice had been issued to the respondent

through the order dated 11.09.2020 in the following

manner ­ “issue notice restricted to the purpose of

enabling necessary payment returnable within two

weeks”. The respondent on being served, having appeared

has filed the counter affidavit on behalf of respondent

No.4.

4. In that background we have heard Mr. Mukul

Rohatgi, learned Senior Advocate for the appellant and

Mr. S.V. Raju, learned Additional Solicitor General for the

respondent No.4 and perused the petition papers.

5. The instant appeal arises out of the proceedings

initiated by respondent No.4 against the appellant under

the PMLA. The analogous matter, which was considered

by the High Court along with the writ petition which is

the subject matter herein related to the action initiated

by the Central Bureau of Investigation (‘CBI’ for short) for

the alleged predicate offence and the instant proceedings

Page 3 of 21 is a fall out of the same. It is in that background the

Enforcement Directorate in order to track the money trail

relating to the predicate offence and prevent layering of

the same has initiated the proceedings under the PMLA.

In the said process the Deputy Director, Directorate of

Enforcement through the communication dated

15.05.2020 addressed to the Anti Money­Laundering

Officer (‘AML’ for short) of Respondents No.1 to 3 Banks

instructed them that the accounts maintained by the

appellant company be ‘debit freezed/stop operations’

until further orders, with immediate effect. It is in that

light the appellant claiming to be aggrieved filed WP No.

8031 of 2020 before the High Court seeking for issue of

an appropriate writ to quash the communication dated

15.05.2020 issued for debit freezing the account

No.914020014786978 maintained with the respondent

No.1, account No.200006044354 maintained with the

respondent No.2 and the account No. 39305709999

maintained with the respondent No.3. The appellant in

Page 4 of 21 that regard also prayed that the respondents be directed

to defreeze the accounts to which reference is made.

6. The High Court considered the matter in detail and

has taken into consideration the object with which the

PMLA was enacted and the validity of the Act being

considered by the High Court in the decisions referred to

in the course of the order. The permissibility and scope

of parallel proceedings under Section 3 and 4 of PMLA

was adverted to in detail and upheld the action. Insofar

as the reasoning adopted and the conclusion reached by

the High Court with regard to the power and competence

to initiate the proceedings under the PMLA in view of the

action taken for predicate offence, the High Court was

very much justified. However, the High Court having held

that the impugned communication was with competence

or justification ought to have examined whether the ‘due

process’ as contemplated under the PMLA was complied

so as to make it valid and sustainable in law, though the

power under the Act was available. As already noticed,

the consideration to be made in this appeal is therefore

Page 5 of 21 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.

7. While adverting to this aspect of the matter, what

cannot be lost sight is also the fact as to whether the

power available to the competent authority has been

exercised in the manner as is contemplated under PMLA.

The Directorate of Enforcement (Respondent No.4) in

their counter affidavit has taken contradictory stand

inasmuch as, while explaining the need to freeze the

account has stated that the ‘stop operation’ was

requested to stop the further layering/diversion of

proceeds of crime and to safeguard the proceeds of crime,

which we notice is a power available under PMLA. But in

the counter affidavit it is strangely stated that the same

has not been done under Section 17(1) of the PMLA.

However, in contrast it has been further averred with

regard to the power available under PMLA and that PMLA

being a stand­alone enactment and independent process

Page 6 of 21 whereunder Section 71 of PMLA has an overriding affect

over other laws. Irrespective of the stand taken, the

power exercised by the Competent Authority should be

shown to be in the manner as has been provided in law,

in this case under PMLA.

8. To appreciate this aspect, it would be appropriate

to refer to Section 17 of PMLA whereunder the freezing of

such property or record is also provided. Section 17 of

PMLA reads as hereunder: ­

17. Search and seizure­ (1) Where the Director or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section, on the basis of information in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person­

(i) has committed any act which constitutes money­laundering, or

(ii) is in possession of any proceeds of crime involved in money­ laundering, or

(iii) is in possession of any records relating to money­laundering, or

(iv) is in possession of any property related to crime

Page 7 of 21 then, subject to the rules made in this behalf, he may authorise any officer subordinate to him to­

(a) Enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;

(b) Break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;

(c) seize any record or property found as a result of such search;

(d) place marks of identification on such record of property, if required or make or cause to be made extracts or copies therefrom;

(e) make a note or an inventory of such record or property;

(f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act:

(1A) Where it is not practicable to seize such record or property, the officer authorised under sub­section (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned:

Page 8 of 21

Provided that if, at any time before its confiscation under sub­section (5) or sub­ section (7) of section 8 or section 58B or sub­ section (2A) of section 60, it becomes practical to seize a frozen property, the officer authorised under sub­section (1) may seize such property.

(2) The authority, who has been authorised under sub­section (1) shall, immediately after search and seizure or upon issuance of a freezing order forward a copy of the reasons so recorded along with material in his possession, referred to in that sub­section, to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed.

(3) Where an authority, upon information obtained during survey under section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence:

Provided that no authorisation referred to in sub­section (1) shall be required for search under this sub­section.

(4) the authority seizing any record or property under sub­section (1) or freezing any record or property under sub­section (1A) shall, within a period of thirty days from such seizure or freezing, as the case may be, file an application, requesting for retention of such record or property seized under sub­ section (1) or for continuation of the order of

Page 9 of 21 freezing served under sub­section (1A), before the Adjudicating Authority.

(emphasis supplied)

9. A perusal of the above provision would indicate

that the pre­requisite is that the Director or such other

Authorised Officer in order to exercise the power under

Section 17 of PMLA, should on the basis of information in

his possession, have reason to believe that such person

has committed acts relating to money laundering and

there is need to seize any record or property found in the

search. Such belief of the officer should be recorded in

writing. Sub­section (1A) to Section 17 of PMLA provides

that the Officer Authorised under sub­section (1) may

make an order to freeze such record or property where it

is not practicable to seize such record or property. Sub­

section (2) provides that after search and seizure or upon

issuance of a freezing order the Authorised Officer shall

forward a copy of the reasons recorded along with

material in his possession to the Adjudicating Authority

in a sealed envelope. Sub­section (4) provides that the

Page 10 of 21 Authority seizing or freezing any record or property under

sub­section (1) or (1A) shall within a period of thirty days

from such seizure or freezing, as the case may be, file an

application before the Adjudicating Authority requesting

for retention of such record or properties seized.

10. For the purpose of clarity, it is emphasised that the

freezing of the account will also require the same

procedure since a bank account having alleged ‘proceeds

of crime’ would fall both under the ambit “property” and

“records”. In that regard it would be appropriate to take

note of Section 2(v) and (w) of PMLA which defines

“property” and “records”. The same read as follows:

“Sec. 2(v) ­ “property” ­ means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located.”

“Sec. 2(w) – “records” – include the records maintained in the form of books or stored in a computer or such other form as may be prescribed.”

Page 11 of 21

11. The scheme of the PMLA is well intended. While it

seeks to achieve the object of preventing money

laundering and bring to book the offenders, it also

safeguards the rights of the persons who would be

proceeded against under the Act by ensuring fairness in

procedure. Hence a procedure, including timeline is

provided so as to ensure that power is exercised for the

purpose to which the officer is vested with such power

and the Adjudicating Authority is also kept in the loop.

In the instant case, the procedure contemplated under

Section 17 of PMLA to which reference is made above has

not been followed by the Officer Authorised. Except

issuing the impugned communication dated 15.05.2020

to AML Officer to seek freezing, no other procedure

contemplated in law is followed. In fact, the impugned

communication does not even refer to the belief of the

Authorised Officer even if the same was recorded

separately. It only states that the Officer is investigating

the case and seeks for relevant documents, but in the

tabular column abruptly states that the accounts have to

Page 12 of 21 be ‘debit freezed/stop operations’. It certainly is not the

requirement that the communication addressed to the

Bank itself should contain all the details. But what is

necessary is an order in the file recording the belief as

provided under Section 17(1) of PMLA before the

communication is issued and thereafter the requirement

of Section 17(2) of PMLA after the freezing is made is

complied. There is no other material placed before the

Court to indicate compliance of Section 17 of PMLA, more

particularly recording the belief of commission of the act

of money laundering and placing it before the

Adjudicating Authority or for filing application after

securing the freezing of the account to be made. In that

view, the freezing or the continuation thereof is without

due compliance of the legal requirement and, therefore,

not sustainable.

12. Mr. S.V. Raju, learned Additional Solicitor General

made a subtle attempt to contend that the power of

seizure is available under Section 102 of the Code of

Criminal Procedure, which has been exercised and as

Page 13 of 21 such the freezing of the account would remain valid. We

are unable to appreciate and accept such contention for

more than one reason. Firstly, as noted, it has been the

contention of Respondent No.4 that PMLA is a stand­

alone enactment. If that be so and when such enactment

contains a provision for seizure which includes freezing,

the power available therein is to be exercised and the

procedure contemplated therein is to be complied.

Secondly, when the power is available under the special

enactment, the question of resorting to the power under

the general law does not arise. Thirdly, the power under

Section 102 CrPC is to the Police Officer during the

course of investigation and the scheme of the provision is

different from the scheme under PMLA. Further, even

sub­section (3) to Section 102 CrPC requires that the

Police Officer shall forthwith report the seizure to the

Magistrate having jurisdiction, the compliance of which is

also not shown if the said provision was in fact invoked.

That apart, the impugned communication dated

Page 14 of 21 15.05.2020 does not refer to the power being exercised

under the Code of Criminal Procedure.

13. The action sought to be sustained should be with

reference to the contents of the impugned

order/communication and the same cannot be justified

by improving the same through the contention raised in

the objection statement or affidavit filed before the Court.

This has been succinctly laid down by this Court in the

case of Mohinder Singh Gill & Another vs. The Chief

Election Commissioner, New Delhi & Ors. (1978) 1

SCC 405) as follows;

“8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose J. in Gordhandas Bhanji:

(1) "Public orders, publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to effect the actings and conduct of those to whom they are addressed and must be

Page 15 of 21 construed objectively with reference to the language used in the order itself."

Orders are not like old wine becoming better as they grow older:”

In fact, in the instant case such contention of having

exercised power under Section 102 CrPC has not been

put forth even in the counter affidavit, either in this

appeal or before the High Court and has only been the

attempted ingenuity of the learned Additional Solicitor

General. Such contention, therefore, cannot be accepted.

In fact, in the objection statement filed before the High

Court much emphasis has been laid on the power

available under PMLA and the same being exercised

though without specifically referring to the power

available under Section 17 of PMLA.

14. The respondent No.4 in the counter affidavit has

stated that the action initiated against the appellant is

based on the complaint dated 02.11.2019 made by the

State Bank of India alleging that the appellant, its

Chairman and the Promoter Directors have conspired

Page 16 of 21 and cheated them to tune of Rs. 354.32 crores by

diversion of funds abroad. In that regard the CBI has

registered the case in FIR No. RC 18(A)/2019 dated

04.11.2019 under Section 120(B) read with Section 420,

468 and 471 IPC and under Section 13(2) read with

section 13(1)(d) of Prevention of Corruption Act, 1988.

Since the said offences are also schedule offences under

Section 2(1)(x) and (y) of PMLA, the case in ECIR­

BGZO/01/2020 was recorded by the Directorate on

02.01.2020 and action is taken to safeguard the alleged

proceeds of crime. On that aspect 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.

15. 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

Page 17 of 21 in no other manner. Among others, in a matter relating

to the presentation of an Election Petition, as per the

procedure prescribed under the Patna High Court Rules,

this Court had an occasion to consider the Rules to find

out as to what would be a valid presentation of an

Election Petition in the case of Chandra Kishor Jha vs.

Mahavir Prasad and Ors. (1999) 8 SCC 266 and in the

course of consideration observed as hereunder:

“It is a well settled salutary principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner”.

Therefore, 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

Page 18 of 21 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.

16. Apart from the above consideration, 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 Rs.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

Page 19 of 21 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.

17. In terms of the above, the communication dated

15.05.2020 is quashed. We direct that the respondents

shall defreeze the accounts bearing Nos.

914020014786978, 200006044354 and 39305709999

and honour payments advised by the appellant towards

statutory dues stated supra. Liberty is reserved to

Respondent No.4 thereafter to initiate action afresh in

accordance with law, if they so desire.

Page 20 of 21

18. The appeal is allowed to the above extent with no

order as to costs.

…..………….…………CJI.

(S.A. Bobde)

....……………………….J. (A.S. Bopanna)

…..………….…………….J. (V. Ramasubramanian) New Delhi, February 03, 2021

Page 21 of 21