Bank accounts unfrozen in PMLA case; Court orders compliance with Section 17(1-A)

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 the Prevention of Money Laundering Act, 2002 (PMLA). The Court allowed the authorized officer of the Enforcement Directorate to take necessary action in accordance with the law and 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 decision was based on non-compliance with Section 17(1-A) and did not address the merits of the allegations.

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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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