Court permits temporary evidence preservation measure, modifies embargo duration, sets deadline for action.

The court found that the impugned letter dated 19.09.2014 was a lawful and necessary temporary measure for preserving evidence pending investigation. The court modified the letter, allowing the embargo to operate for three months, within which the authorities could initiate proceedings under the Act. If no action was taken within this period, the banks could permit the appellants to operate their accounts/assets in accordance with the law. The appeal was partly allowed, with the court's findings applicable solely for disposing of the appeal.

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Issues Involved:
1. Jurisdiction to issue the impugned letter dated 19.09.2014.
2. Applicability of the PML Act, 2002.
3. Legality of prohibiting/freezing withdrawal from the appellant's bank accounts.
4. Investigation scope under PML Act, 2002.
5. Temporary measures during investigation.

Issue-wise Detailed Analysis:

1. Jurisdiction to issue the impugned letter dated 19.09.2014:
The appeal challenges the jurisdiction of respondent No. 3 to issue the letter dated 19.09.2014 to respondent banks, prohibiting/freeze withdrawals from the appellant's accounts. The appellants argued that such power could only be exercised under sections 5 or 7 of the PML Act, 2002, which require recording reasonable belief based on materials in possession. The court, however, found that the impugned letter was issued as an incidental and consequential step necessary for preserving evidence pending investigation and was not an exercise of power under sections 5 or 7. The court held that the inclusive definition of "investigation" under section 2(na) of the PML Act allows for such temporary measures.

2. Applicability of the PML Act, 2002:
The appellants contended that the amounts collected through non-convertible debentures had already been refunded, and thus, the PML Act was not applicable. The court rejected this argument, stating that "proceeds of crime" under the PML Act includes not only the direct amounts collected but also any benefits or usufructs derived indirectly from the criminal activity. The court also noted that the investigation was not limited to the SEBI Act offense but extended to other scheduled offenses under the IPC, such as sections 420/120B, being investigated by the CBI.

3. Legality of prohibiting/freezing withdrawal from the appellant's bank accounts:
The court examined whether the direction to prohibit/freeze withdrawals was lawful. It found that such a measure was necessary to prevent the funds from being spirited away, which would render the investigation futile. The court held that the investigating agency must have the power to take such steps to preserve evidence and ensure effective enforcement of the Act. The court also noted that the respondent banks, as "reporting entities" under the Act, were duty-bound to assist the authorities under section 54 of the Act.

4. Investigation scope under PML Act, 2002:
The appellants argued that the investigation should be limited to the scheduled offense under the SEBI Act. The court disagreed, stating that an investigation is a dynamic process that can encompass other scheduled offenses as it progresses. The court emphasized that the investigation's scope is not restricted by the initial registration of the case and can include other offenses discovered during the investigation.

5. Temporary measures during investigation:
The court held that the impugned letter was a temporary measure for preserving evidence and was issued in aid of proceedings for attachment and seizure under sections 5 or 7 of the Act. The court emphasized that such measures are necessary to prevent the funds from being withdrawn and to ensure the effectiveness of the investigation. The court also noted that the impugned letter must be read as a temporary measure and cannot continue indefinitely.

Conclusion:
The court concluded that the impugned letter dated 19.09.2014 was a lawful and necessary temporary measure for preserving evidence pending investigation. The court modified the letter, directing that the embargo contained therein would operate for three months, within which the respondent authorities could initiate appropriate proceedings under the Act. If no proceedings were initiated within this period, the respondent banks would be at liberty to allow the appellants to operate the accounts/assets in accordance with the law. The appeal was partly allowed, and the findings were stated to be applicable only for the purpose of disposing of the appeal.

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