'Belief Of Commission Of Act Of Money Laundering' Has To Be Recorded Before Directing Freezing Of Bank Accounts Under PMLA: Supreme Court

The Supreme Court observed that, before directing freezing of bank accounts under Prevention of Money­ Laundering Act, the Authority has to record the belief of commission of the act of money laundering.

In this case, Deputy Director, Directorate of Enforcement through the communication addressed to the Anti Money­ Laundering Officer of some Banks instructed them that the accounts maintained by the a   company be 'debit freezed/stop operations' until further orders, with immediate effect. The High Court had upheld this, while disposing the writ petitions filed by the Company.

In appeal, the Apex court bench comprising CJI SA Bobde, Justices AS Bopanna and V. Ramasubramanian, referring to Section 17 of PMLA, the bench noted that a procedure is contemplated therein. It said:

"The pre­requisite is that the Director or such other Authorised Officer in order to exercise the power under Section 17 of PMLA, should on the basis of information in his possession, have reason to believe that such person has committed acts relating to money laundering and there is need to seize any record or property found in the search. Such belief of the officer should be recorded in writing. Sub­section (1A) to Section 17 of PMLA provides that the Officer Authorised under sub­section (1) may make an order to freeze such record or property where it is not practicable to seize such record or property. Subsection (2) provides that after search and seizure or upon issuance of a freezing order the Authorised Officer shall forward a copy of the reasons recorded along with material in his possession to the Adjudicating Authority in a sealed envelope. Sub­section (4) provides that the  Authority seizing or freezing any record or property under sub­section (1) or (1A) shall within a period of thirty days from such seizure or freezing, as the case may be, file an application before the Adjudicating Authority requesting for retention of such record or properties seized.   For the purpose of clarity, it is emphasised that the freezing of the account will also require the same procedure since a bank account having alleged 'proceeds of crime' would fall both under the ambit "property" and "records". In that regard it would be appropriate to take note of Section 2(v) and (w) of PMLA which defines "property" and "records"."

The court also observed that PMLA also safeguards the rights of the persons who would be proceeded against under the Act by ensuring fairness in procedure. It said:

"The scheme of the PMLA is well intended. While it seeks to achieve the object of preventing money laundering and bring to book the offenders, it also safeguards the rights of the persons who would be proceeded against under the Act by ensuring fairness in procedure. Hence a procedure, including timeline is provided so as to ensure that power is exercised for the purpose to which the officer is vested with such power and the Adjudicating Authority is also kept in the loop.

The bench noted that the communication does not even refer to the belief of the Authorised Officer and only states that the Officer is investigating the case and seeks for relevant documents. The court noted that there is no other material placed before the Court to indicate compliance of Section 17 of PMLA, more particularly recording the belief of commission of the act of money laundering and placing it before the Adjudicating Authority or for filing application after securing the freezing of the account to be made. In this regard, the bench observed:

"It certainly is not the requirement that the communication addressed to the Bank itself should contain all the details. But what is necessary is an order in the file recording the belief as provided under Section 17(1) of PMLA before the communication is issued and thereafter the requirement of Section 17(2) of PMLA after the freezing is made is complied. There is no other material placed before the Court to indicate compliance of Section 17 of PMLA, more particularly recording the belief of commission of the act of money laundering and placing it before the Adjudicating Authority or for filing application after securing the freezing of the account to be made. In that view, the freezing or the continuation thereof is without due compliance of the legal requirement and, therefore, not sustainable."

The bench also rejected the contention that the power of seizure is available under Section 102 of the Code of Criminal Procedure, which has been exercised and as such the freezing of the account would remain valid. It said:

"When the power is available under the special enactment, the question of resorting to the power under the general law does not arise. The power under Section 102 CrPC is to the Police Officer during the course of investigation and the scheme of the provision is different from the scheme under PMLA. Further, even sub­section (3) to Section 102 CrPC requires that the Police Officer shall forthwith report the seizure to the Magistrate having jurisdiction, the compliance of which is also not shown if the said provision was in fact invoked. That apart, the impugned communication dated Page 14 of 21 15.05.2020 does not refer to the power being exercised under the Code of Criminal Procedure."

The  bench said that the action sought to be sustained should be with reference to the contents of the impugned order/communication and the same cannot be justified by improving the same through the contention raised in the objection statement or affidavit filed before the Court. If a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner, the court added.

Holding thus, the bench directed to defreeze of the accounts of the company.

Case: OPTO Circuit India Ltd. vs. Axis Bank [CRIMINAL APPEAL NO.102 OF 2021]
Coram: CJI SA Bobde, Justices AS Bopanna and V. Ramasubramanian
Counsel: Sr. Adv Mukul Rohatgi, ASG SV Raju
Citation: LL 2021 SC 61

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