FREEZING OF BANK ACCOUNTS AND ITS REMEDIES TO UNFREEZE: A STUDY

Freezing of bank accounts by investigating authorities in a mechanical fashion is an increasing problem faced by Indian businesses and companies. Such actions are routinely predicated on mere allegations or suspicions of tainted amounts being credited by accused persons or suspects involved in dubious financial dealings into the business or personal accounts of a bonafide party. One does not need to be an accused in the offence or even named in the First Information Report for the accounts to be frozen during investigation. This may have a crippling effect on the operational aspects of a business and can cause grave financial hardships and a party bearing the brunt of such actions, often get into deep waters.

In this piece, we seek to delineate the statutory procedural safeguards and legal position on this issue and expound on the legal remedies available to an aggrieved party in cases of arbitrary freezing of bank accounts.

Ambit of Power of Investigating Authorities

To understand the scope of powers that the investigating authorities possess to freeze a bank account, one needs to dive into the source of the power itself. This source can be traced to Section 102 of the Code of Criminal Procedure, 1973.

The purpose of Section 102 of the CrPC is to secure the property which has been or suspected to be stolen or which has a direct nexus with the commission of a crime from being ‘disposed of’ or ‘destroyed’. Such a measure of seizing property ensures that the court is able to get back the property concerned. Section 102 of the CrPC falls under Chapter VII which deals with the ‘Processes to Compel the Production of Things’. The provision states:

·?????? Power of police officer to seize certain property.

(1) Any police officer may seize any property which may be alleged or suspected to have been stolen, or which may be found under circumstances which create suspicion of the commission of any offence.

(2) Such police officer, if subordinate to the officer in charge of a police station, shall forthwith report the seizure to that officer.

(3) Every police officer acting under sub-section (1) shall forthwith report the seizure to the Magistrate having jurisdiction and where the property seized is such that it cannot be conveniently transported to the Court, or where there is difficulty in securing proper accommodation for the custody of such property, or where the continued retention of the property in police custody may not be considered necessary for the purpose of investigation, he may give custody thereof to any person on his executing a bond undertaking to produce the property before the Court as and when required and to give effect to the further orders of the Court as to the disposal of the same:

Provided that where the property seized under sub-section (1) is subject to speedy and natural decay and if the person entitled to the possession of such property is unknown or absent and the value of such property is less than five hundred rupees, it may forthwith be sold by auction under the orders of the Superintendent of Police and the provisions of sections 457 and 458 shall, as nearly as may be practicable, apply to the net proceeds of such sale.

·????? On an analysis of Section 102 of the CrPC and its related judicial pronouncements, the following broad essentials emerge:

The phrase ‘any property’ referred in Section 102 of the CrPC will only cover moveable property and excludes immovable property. The use of the terms such as ‘seize’ and ‘produce’ as included in the provision indicate that the phrase ‘any property’ as used under?Section 102 of the CrPC will apply only to moveable property.

The property must have a connection with the commission of a crime.

For the purpose of Section 102 of the CrPC, the property must be either:

a.???? Alleged or suspected to have been stolen; or

b.???? Have a nexus between the property and the commission of the crime.

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·?????? Bank Accounts Fall Within the Phrase ‘any property’.

When considering the issue of whether ‘bank accounts’ fall within the scope of Section 102 of the CrPC, it was held by the Supreme Court in?State of Maharashtra vs. Tapas D. Neogy [2 (1999) 7 SCC 685] that even bank accounts fall within the phrase ‘any property’ under Section 102 of the CrPC and could therefore be frozen by the investigating authorities, if found to have direct links with the commission of an offence.

Therefore, investigating authorities can freeze bank accounts if the deposit in the account is stolen money or the account is connected with an alleged offence which is under investigation.

Further, to invoke Section 102 of the CrPC, particularly to freeze a bank account, there must be a reasonable suspicion of the involvement of the bank account with the commission of a crime. It will be upon the investigating authority to satisfy that there exists sufficient material to show that the amount in the bank account is connected with the alleged offence. The property must not only have a close link to the alleged crime but the officer must have reasonable grounds to believe such a nexus exists.

·?????? Freezing of the bank account must be ‘forthwith’ reported to the concerned Magistrate.

The most often contravened condition under Section 102 of the CrPC is the requirement to apprise the Magistrate of the seizure of the property. Section 102(3) of the CrPC clearly mandates that “[e]very police officer acting under sub-section (1) shall forthwith report the seizure to the Magistrate having jurisdiction”. The violation of this mandatory condition is what often allows the courts to direct the de-freezing of bank accounts.

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Remedies

·?????? Before the Investigating Authority

By way of an amendment,31 Section 102(3) of the CrPC allows the investigating authority to decide whether to return custody of the seized property if it finds that the continued retention of the property is not necessary for the purpose of investigation but conditioned on the person executing a bond undertaking to produce the property before the Court when required.

The Supreme Court in Teesta Atul Setalvad and Ors. vs. The State of Gujarat and Ors., [(2018) 2 SCC 372] clarified that:

“at an appropriate stage or upon completion of the investigation, if the Investigating Officer is satisfied with the explanation offered by the Appellants and is of the opinion that continuance of the seizure of the stated bank accounts or any one of them is not necessary, he will be well advised to issue instruction in that behalf.”

Before the Magistrate

Though such a means as mentioned above exist, parties are often forced to approach the court. In this regard, a remedy available to the parties is to approach the concerned Magistrate under Section 451 or Section 457 of the CrPC. Courts have allowed for de freezing of bank accounts on the direction that the party execute a bond for the concerned amount before the Magistrate and produce such amount if so directed by the Magistrate. Section 457 of the CrPC empowers the Magistrate to deliver the seized property to the entitled person. Even for de-freezing of a bank account an application under Section 457 of the CrPC is maintainable.

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Before the High Court

Another remedy invoked by the parties is the writ jurisdiction of the High Courts on the basis of violation of right to livelihood under Article 21 of the Constitution and/ or the seizure is arbitrary and hence violative of Article 14. Since writ jurisdiction is an extraordinary remedy, the Court may reject such a writ petition on the ground that an effective alternative remedy in the form of a statutory remedy is available under Section 451 and 457 of CrPC and decline interference for non-exhaustion of such remedy.High Courts may find it appropriate to direct the Petitioner to approach the Magistrate under Section 451 or 457 of the CrPC, rather than to hear the matter on merits under a writ jurisdiction.

The provision of Section 102 has a wide compass and is not limited to recoveries during the search alone, nor is it restricted minutely to the cases in regard to cognizable offenses. The bank accounts like any other property is freezable as freezing the account is an act of investigation and this act surely commands and behooves secrecy to preserve the evidence and it does not deprive any person of his liberty. The bank account must be protected from dissemination, depletion or destruction by any mode and it would be absurd if the accused is allowed to operate his bank account or to close or to withdraw or transferred the money from the same bank account which is suspected of having been used for the commission of the offence. For meeting the ends of justice, the discharging of such powers by police on suspicion is necessary but seizure of bank account by police under Section 102 must be backed by suspicion and necessary evidence pointing towards the suspicion during the pendency of investigation.

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JUDGEMENTS

Superintedent of Police vs Devaki Muthiah on 15 arpil, 2019 (https://indiankanoon.org/doc/156912578/)

In view of the above undertaking given by the Respondent/A1 in Crl.OP.No.1509 of 2018 and his wife, Devaki Muthiah, the Respondent in Crl.OP.No.1508 of 2018, both the Respondents are directed to deposit the amounts equal to the amounts, which were lying in their accounts as on the date of freezing, in any one of the nationalied Banks, i.e Rs.1,37,50,952/- by the Respondent/A1 in Crl.OP.No.1509 of 2018 and Rs.36,54,328/- by Devaki Muthiah, the Respondent in Crl.OP.No.1508 of 2018. The above?amounts shall be deposited, within two weeks and the fixed deposit receipts shall be submitted before the Trial Court, within one week thereafter. The Trial Court shall permit both the Respondents to renew the fixed deposits on maturity, on appropriate application being filed by them and on renewal, the Respondents shall resubmit the renewed fixed deposit receipts, before the Trial Court, immediately after renewal.

Superintendent of police vs shera f Irani (https://indiankanoon.org/doc/68939703/)

The submission of the learned senior counsel for the Respondent/A21 that the Respondent/A21 undertakes to maintain the amounts as on the date of the freezing of the bank accounts, belonging to her and her family members is recorded. Taking into consideration the said undertaking of the Respondent/A21 and in view of the above facts and circumstances, this Court is of the opinion that the impugned order passed by the Trial Court, dated 27.03.2018, defreezing the bank accounts of the Respondent/A21 and her family members needs no interference by this Court. However, the Petitioner/CBI is at liberty to take appropriate/necessary steps under the provisions of the Criminal Law Amendment Ordinance, 1944, to deal with the assets of the Respondent/A21 and her family members, in accordance with law.

Tmt.T.Subbulakshmi vs The Commissioner Of Police on 30 August, 2013 (https://indiankanoon.org/doc/14883031/)

WHEREIN: From the dictum laid down in the judgments relied on by the learned senior counsel for the petitioners it is clear that the bank account is a property within the meaning of?Section 102?of Cr.P.C and sub-section (3) to?Section 102?requires the reporting of seizure of the property to the concerned Magistrate forthwith, which is mandatory in nature. Moreover, the freezing of bank account is an act of the investigation and therefore, the duty is cast upon the Investigating Officer under?Section 102(3)?of Cr.P.C. to report the same to the Magistrate, since the freezure of the bank account prevents the person from operating the bank account pursuant to an investigation by the Police in a criminal case registered against him. If there is any violation in following the procedures under?Section 102?of Cr.P.C., the freezing of the bank account cannot be legally sustained. Since in the case on hand the 2nd respondent-Police has not reported the freezing of the bank accounts of the petitioners herein to the concerned Magistrate forthwith, which is mandatory under?Section 102(3)?of Cr.P.C., the proceedings of the 2nd respondent-Police in freezing of the bank accounts of the petitioners herein are not legally sustainable.

J. Alice Mary vs The Inspector Of Police on 3 July, 2007 (https://indiankanoon.org/doc/28042/)

WHEREIN: The police officer if not already informed the Magistrate as well as the petitioner, he shall do it immediately within a week from the date of receipt of a copy of this order. Thereupon, the petitioner on receipt of the notice, shall be entitled to approach the learned Magistrate for getting the Bank account defreezed by setting out reasons and thereupon, it is open for the Magistrate to pass suitable orders whether to defreeze it or not. The learned Magistrate on receipt of a petition from the petitioner for defreezing the account, shall dispose of it within a period of fifteen days.

Uma Maheswari vs The State Rep. By on 20 December, 2013 (https://indiankanoon.org/doc/195505126/)

In this case, the freezing of the Bank accounts were done on 30.04.2013 and on 3.5.2013. However, the Investigation Officer has reported this to the learned XI Metropolitan Magistrate, Saidapet only on 27.6.2013. This will not be reporting of the freezing of the Bank account to the Magistrate forthwith. Thus, there is breach of mandatory requirement of law. Thus, the freezing of the Bank accounts is vitiated.

Manish Khandelwal & Ors. v. State of Maharashtra through Economic Offences & Ors. 2019 SCC OnLine Bom 1412 [Bombay High Court, Single Judge]

The question that arose was whether freezing of the bank accounts of the Petitioners by the Investigating Officer during the course of investigation without intimating the concerned magistrate is legally sustainable. The First Information Report was registered against the Petitioners for committing criminal breach of trust and cheating, and the Investigating Agency directed the banks that their accounts be freezed. The Petitioners, before approaching the Bombay High Court, in a writ petition, approached the concerned Magistrate and the Court of Sessions for defreezing their accounts, specifically raising a contention that Section 102(3) Cr.P.C. is mandatory, and that no compliance was by the Investigating Officer thereto. However, both the courts dismissed such applications.

It was submitted by the State that non-compliance of Section 102(3) Cr.P.C. is merely an irregularity, and it will not vitiate the proceeding of freezing of bank accounts. However, the High Court declined to accept such submission, and held that provision under Section 102(3) Cr.P.C. is a mandatory provision, and where it has not been followed, it will entail a direction to defreeze the said accounts. In the present case, no report of seizure, as mandated under Section 102(3) Cr.P.C., was sent to the concerned magistrate and in view of the same, the writ petition was allowed, directing the Investigating Officer to defreeze the said accounts.