2024 (11) TMI 1086 - HC - Customs

Customs department's provisional bank account attachment ruled illegal without pending proceedings under Section 110(5)

The Rajasthan HC held that the customs department's provisional attachment of petitioner's bank account was illegal and invalid. The court found that the ... Provisional attachment of Bank account - Legality and validity of the action of the respondents in freezing the bank account of the petitioner - HELD THAT:- Without there being any proceedings pending under the Act, the power of attachment could not be exercised on stand alone basis. In the present case, the exercise of power, if we may say so, is in violation of the statutory mandate, as referred under subsection 5 of Section 110 of the Act. The petitioner has assailed validity of communication made by the respondent-authorities to the bank. A perusal of the said communication shows that it contains nothing much less an opinion based on any tangible material to the effect that it has become necessary to freeze the bank account for the purpose of either protecting the interest of revenue or preventing smuggling. The text and tenor of the order is merely a communication and not an order in writing, which is mandated under the law. Though, the petitioner terms it as an order, in our considered opinion, it does not fulfill any legal requirements of an order. It is merely a communication addressed to the bank. The order was required to be in writing and that too recording opinion, as envisaged under the law. In the absence of all those things, communication is merely a communication and not an order at all. We are unable to accept the submission of custom department that while passing the order of provisionally freezing the bank account at the first instance, there is no legal requirement of passing an order. This argument is completely against not only the letter but also spirit of law. The expression 'order in writing' preceding the expression 'provisionally attach any bank account for a period not exceeding six months' clearly shows that the order of provisional attachment has to be by an order in writing and not by other mode. It is well settled principles of law that when power is required to be exercised in a particular manner, as provided under the law, it has to be exercised in that manner alone and not otherwise. The argument that the opinion formed by the authority which may have contained the records and files, is substantial compliance of requirement of law, cannot be accepted. It is not the language of the statue that only recording of opinion is enough. Use of expression 'by order in writing', reflects the necessity to regulate the exercise of power. Requirement of passing an order in writing is not an empty formality but such provisions have been made by the statue to militate against arbitrary or malafide exercise of power. Once the Court holds that the first action of freezing of account, as communicated to the bank vide order dated 14.03.2024 itself was in breach of law, there is no question of extending any illegal order. Therefore, all subsequent action which has been taken on the basis of the impugned action and order of the respondents must also go. In the result, the petition is allowed. The action of the respondents in freezing the bank account of the petitioner is held illegal and inoperative in law. The result would be that the bank account of the petitioner shall forthwith be released and the petitioner is allowed to operate the account. Issues Involved:1. Legality and validity of the action of freezing the petitioner's bank account under Section 110 of the Customs Act, 1962.2. Compliance with statutory requirements for provisional attachment of a bank account.3. Requirement of an order in writing for freezing a bank account.4. Extension of the order of freezing the bank account.Detailed Analysis:1. Legality and Validity of Freezing the Bank Account:The primary issue in this case is the legality and validity of the respondents' action in freezing the petitioner's bank account. The petitioner, a proprietorship firm engaged in the business of bullion, challenged the freezing of its bank account by the customs authorities. The petitioner argued that the action was taken without a proper written order as mandated by Section 110(5) of the Customs Act, 1962, which requires an order in writing containing an opinion based on tangible material for the purpose of protecting the interest of revenue or preventing smuggling. The court found that the communication to the bank dated 14.03.2024 did not fulfill the legal requirements of an order as it lacked any opinion based on relevant and tangible material, thus rendering the action illegal.2. Compliance with Statutory Requirements:Section 110 of the Customs Act provides for the seizure of goods, documents, and things, and also allows for the provisional attachment of a bank account under certain conditions. The court emphasized that the power to attach a bank account is supplementary and can only be exercised during proceedings under the Act. The statutory conditions include forming an opinion that it is necessary to attach the bank account to protect revenue or prevent smuggling, and obtaining approval from the Principal Commissioner or Commissioner of Customs. The court found that these conditions were not met in this case, as there was no order in writing or any opinion formed based on tangible material.3. Requirement of an Order in Writing:The court highlighted the importance of an order in writing for the provisional attachment of a bank account, as specified under Section 110(5) of the Act. The expression 'order in writing' is crucial to regulate the exercise of power and prevent misuse or abuse. The court rejected the respondents' argument that an order in writing was not required at the first instance, stating that the statutory language mandates such an order. The court reiterated that the validity of a statutory order must be judged by the reasons stated in the order itself, and not by reasons supplied later in affidavits or replies.4. Extension of the Order of Freezing the Bank Account:The respondents argued that during the pendency of the petition, the initial period of six months expired, and a fresh order for extension was passed with recorded reasons. However, the court held that since the original action of freezing the account was in breach of the law, any extension of such an illegal order was also invalid. The court emphasized that the subsequent actions based on the initial illegal order must also be nullified.Conclusion:The court concluded that the action of the respondents in freezing the petitioner's bank account was illegal and inoperative in law. Consequently, the petition was allowed, and the bank account was ordered to be released, allowing the petitioner to operate it. The court's decision underscores the necessity of strict compliance with statutory requirements and the importance of written orders in exercising powers that have significant consequences on individuals and businesses.