Foreign direct investment and proceeds of crime: bank-account freezing was unjustified absent a proven laundering trail.

Genuine foreign direct investment received through banking channels after RBI approval and compliance with FEMA and SEBI formalities cannot be treated as proceeds of crime without a foundational money trail. The appellant company was not named in the predicate FIR, and mere linkage between the investing entities and alleged accused was insufficient absent evidence that those entities themselves received crime proceeds or that the appellant's bank accounts were used for layering or concealment. If the alleged crime proceeds were first used to acquire equity abroad and then routed back as FDI, the proper target would be the equity interest rather than the recipient's bank accounts. On that footing, the freezing and retention of the accounts was held illegal and unjustified.

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Issues: Whether the freezing and retention of the appellant company's bank accounts was justified on the footing that the funds received as foreign direct investment were proceeds of crime routed through Dubai-based entities.

Analysis: The appellant was not named in the predicate FIR and the respondent had to establish a foundational money trail showing that the funds credited to the appellant were proceeds of crime. The record showed that the appellant received the investment through banking channels after approval from the Reserve Bank of India and after compliance with the Foreign Exchange Management Act, 1999 and the relevant SEBI formalities. The mere assertion that the investing entities were linked to the alleged accused was insufficient in the absence of material showing that those entities themselves were recipients of proceeds of crime or that the appellant's bank accounts were used for layering or concealment. If the respondent's case was that crime proceeds had been used to acquire equity abroad and then brought back as foreign direct investment, the proper subject of attachment would have been the equity interest, not the appellant's bank accounts.

Conclusion: The freezing and retention of the appellant's bank accounts was held to be illegal and unjustified, and the appeal succeeded.

Ratio Decidendi: Genuine foreign direct investment received through banking channels with regulatory approval cannot be treated as proceeds of crime in the absence of evidence establishing a money trail and linkage to laundering.

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