2020 (10) TMI 74 - HC - Customs

Court invalidates unauthorized bank account freeze under Customs Act, emphasizes procedural requirements

The court ruled in favor of the petitioner, who challenged the freezing of their bank account without notice under the Customs Act. The court found that ... Provisional attachment of bank account - prospective operation of coercive statutory provision - procedural preconditions for provisional attachment - absence of statutory authority for freezing under Section 108 - temporary nature and time limitation of provisional attachmentAbsence of statutory authority for freezing under Section 108 - provisional attachment of bank account - Validity of the communication dated 19th April, 2018 to the bank requesting no debit transactions from the petitioner's account in the absence of any order under the statutory provision now embodied in Section 110(5). - HELD THAT: - The Court examined the statutory scheme and found that Section 108 does not empower freezing of bank accounts. The provision which contemplates provisional attachment of bank accounts is Section 110(5), inserted with effect from 1 August 2019; prior to that insertion there was no power under the Customs Act to provisionally attach a bank account. In the absence of any order passed under Section 110(5) or any other statutory provision conferring such authority at the relevant time, the communication of 19 April 2018 purporting to freeze the petitioner's bank account lacked statutory authority and was therefore unlawful. [Paras 6, 7, 34]The communication dated 19th April, 2018 effected an unlawful freezing of the petitioner's bank account as there was no statutory power to do so at that time.Procedural preconditions for provisional attachment - temporary nature and time limitation of provisional attachment - prospective operation of coercive statutory provision - Whether, even assuming Section 110(5) applied, the requirements and time limits prescribed by that sub section were complied with and whether continuation of the attachment beyond the permissible period was lawful. - HELD THAT: - The Court set out the mandatory conditions under Section 110(5): a written order by a proper officer during proceedings under the Act, formation of opinion as to necessity for protecting revenue or preventing smuggling, prior approval of the Principal Commissioner/Commissioner, and a temporal limit of six months with a possible single six month extension recorded in writing and communicated before expiry. The Court noted these are coercive procedural preconditions and, being coercive, the provision operates prospectively; it further observed that respondents did not produce any order under Section 110(5) or show compliance with the prescribed procedure. The statutory language and dictionary definition confirm the provisional attachment is temporary, subject to the statutory timeline, and cannot be continued indefinitely; continuation beyond the permissible period is therefore bad in law. [Paras 6, 8, 31, 32, 33]The procedural preconditions and time limits for provisional attachment were not shown to have been complied with, and continuation of the attachment beyond the permissible period was unlawful.Provisional attachment of bank account - Relief to be granted in view of the illegality of the freezing of the bank account. - HELD THAT: - In light of the absence of statutory authority at the time of the communication and the failure to comply with the mandatory procedure and timelines where applicable, the Court concluded that the impugned communication must be set aside. The temporary nature of any lawful provisional attachment and the excessive continuance of the freeze justified immediate relief allowing the petitioner to operate the account. [Paras 9]Impugned communication dated 19th April, 2018 is quashed and respondents are directed to allow the petitioner to operate its bank account.Final Conclusion: Writ petition allowed; the communication freezing the petitioner's bank account is set aside as made without statutory authority and beyond permissible temporal limits, and the bank is directed to permit operation of the account. Issues:Challenge to communication freezing bank account without notice under Customs Act.Analysis:The petitioner challenged a communication from the Directorate of Revenue Intelligence freezing their bank account without notice. The petitioner, engaged in trading precious stones, argued all statutory dues were paid, and no outstanding demands existed. The freezing was requested under Section 108 of the Customs Act, which does not allow for bank account attachment. The respondent justified the attachment as necessary at that time. However, the court noted that Section 110 of the Customs Act, dealing with seizure, allows provisional bank account attachment for protecting revenue or preventing smuggling, with strict procedural requirements. A recent decision clarified that this provision has prospective application from August 2019 and cannot be invoked retrospectively. The court highlighted the necessity of a written order for provisional attachment, approval from Customs authorities, and a maximum six-month period for attachment. Since no such order was produced, the attachment was deemed unauthorized.The court emphasized that the freezing exceeded the statutory period, as provisional attachments are temporary and subject to a specific timeline. The communication from 2018 was set aside and quashed, directing the respondents to allow the petitioner to operate the bank account. The judgment, allowing the writ petition, did not award any costs. The order was to be digitally signed and acted upon upon receipt of a digitally signed copy.This detailed analysis of the judgment showcases the court's interpretation of the Customs Act provisions regarding bank account attachment, the importance of procedural compliance, and the consequences of unauthorized freezing beyond the permissible period. The ruling provides clarity on the limitations of such actions and upholds the petitioner's right to operate their bank account.