2015 (10) TMI 27 - HC - Money Laundering

Court upholds jurisdiction to freeze accounts under Money-Laundering Act, emphasizes evidence preservation.

The High Court upheld the Assistant Director's jurisdiction to freeze bank accounts under the Prevention of Money-Laundering Act, referencing a previous ... Jurisdiction of authority - Freezing of bank accounts - violation of Articles 3 and 19(1)(g) of the Constitution of India - Held that:- There is no apparent connection between the issues before the Apex Court qua allotment of Coal Block and the one involved before this Court. The petitioner has not even started the mining and the same has been cancelled already. Neither the respondents are parties before the Apex Court nor the issues similar. Thus, the objection raised by the respondents is rejected - Division Bench has agreed with the exercise of power during the course of investigation. As there is no dispute on the power of the respondents to investigate, the ratio laid down therein would apply to the case on hand. In other words, the exercise of power by the respondents is well within their jurisdiction while discharging duties as an Investigation Officer. Therefore, the distinction sought to be made by the learned Senior Counsel appearing for the petitioner cannot be accepted. A specific statement has been made that the trust and retention accounts duly monitored by the lenders at the time of release. A further statement has been made that fixed deposits have been created only to augment interest. The need for releasing the amounts has also been reiterated from time to time. Unfortunately, these factors have not been taken into consideration by the respondents. The respondents have treated the power exercisable for investigation with the one available under Section 5 of the Act by an officer other than him. There is no explanation as to why the investigation has prolonged. There is no sufficient material to hold that the continuity of the orders impugned would be necessary for investigation. Admittedly, the power under Section 5 of the Act has not been invoked so far. Strangulating the petitioner would benefit none. When the exercise of power is for a specified purpose, it cannot be used otherwise. - Court is of the considered view that though the power is available to the respondents to pass the orders impugned, its continued exercise in the given case cannot be sustained in the eye of law. More over even under Section 5 of the Act, the provisional attachment can be in force only for a period of 180 days and not beyond. Issue being one of the continued existence of orders meant to be used sparingly for a temporary period, the rigour of Section 68 of the Act would not apply to the case on hand. We should also bear in mind the fact that these orders have been passed unilaterally without even affording an opportunity to the petitioner neither indicating the reasons nor the application of mind. Therefore, the respondents ought to have done a complete review by taking into consideration of the entire materials. - Impugned order is set aside - Decided in favour of Appellant. Issues Involved:1. Jurisdiction and power of the Assistant Director under the Prevention of Money-Laundering Act, 2002.2. Impact of the Supreme Court's order on the coal block allocation case.3. Similar orders passed by other Enforcement Directorates and their legal challenges.4. Validity and consequences of the impugned orders freezing the petitioner's bank accounts.Issue-wise Detailed Analysis:1. Jurisdiction and Power of the Assistant Director:The petitioner argued that the Assistant Director of the Directorate of Enforcement did not have the authority to freeze the bank accounts under the Prevention of Money-Laundering Act, 2002, and that the proper procedure was not followed, violating Articles 3 and 19(1)(g) of the Constitution of India. The respondents countered that they were the competent authority to investigate under the Act, and their actions were supported by Sections 2(1)(y), 49, and 54 of the Act. The court upheld the respondents' jurisdiction, referencing the Calcutta High Court's decision in ROSE VALLEY REAL ESTATE AND CONSTRUCTIONS LTD. v. UNION OF INDIA, which recognized the power of the investigating agency to take temporary measures during investigations.2. Impact of the Supreme Court's Order on the Coal Block Allocation Case:The petitioner contended that there was no connection between the issues before the Supreme Court regarding coal block allotment and the present case. The court agreed, noting that the coal block allotment had already been canceled and the respondents were not parties before the Supreme Court. Therefore, the objection raised by the respondents was rejected.3. Similar Orders Passed by Other Enforcement Directorates and Their Legal Challenges:The court noted that the Calcutta High Court had addressed a similar issue in the ROSE VALLEY case, where it was held that the power to freeze accounts was a temporary measure for preserving evidence during investigations and not an end in itself. The court emphasized that such power should be exercised sparingly and temporarily, and not as a substitute for the substantive powers under Section 5 of the Act.4. Validity and Consequences of the Impugned Orders Freezing the Petitioner's Bank Accounts:The petitioner argued that the freezing of accounts had brought their operations to a halt, affecting their ability to pay employees and continue the project. The court found that the respondents had not considered the petitioner's pleas or the civil consequences of their actions. The court held that while the respondents had the power to pass the impugned orders, the continued exercise of this power without proper review and consideration of relevant materials was arbitrary and violated Articles 14 and 19(1)(g) of the Constitution of India. The court set aside the impugned orders, allowing the writ petitions, but clarified that this would not prevent the appropriate authority from taking further action in accordance with the law based on relevant material.Conclusion:The High Court set aside the impugned orders freezing the petitioner's bank accounts, allowing the writ petitions. The court emphasized that the power to freeze accounts should be exercised temporarily and with proper consideration of relevant materials and civil consequences. The decision does not preclude further lawful actions by the appropriate authority.