Delhi High Court Directs ED To Decide Vivo India's Representation Against Freezing Of Bank Accounts

The Delhi High Court on Friday directed the Enforcement Directorate to take a decision on the representation made by Chinese smartphone maker Vivo, seeking permission to operate its frozen bank accounts.

Justice Yashwant Varma also asked ED's counsel to obtain instructions in the petition challenging the agency's action in connection with a money-laundering probe initiated by it, by Wednesday.

Vivo claims that nine of its bank accounts holding approximately Rs 250 crores have been frozen by the central agency.

ED alleges that the company remitted almost 50% of its total sales, which is Rs. 62,476 crore, to China, in order to disclose huge losses in Indian incorporated companies to avoid payment of taxes in India.

Vivo had sought urgent listing of its plea, claiming that the impugned would not only impede its existing business operations but would also have an adverse effect on its operations in India and across the globe. Vivo argued that all of its accounts, including the online sales accounts were frozen. This had resulted in the company's functionality to come to a standstill and would ultimately cause Vivo's "civil death".

Vivo's counsel argued that if the amounts in the company's bank accounts remain frozen, it would not be able to pay statutory dues to the competent authorities under various enactments, leading it to be further in violation of law. It would also prevent the payment of salaries to thousands of employees of the company. 

Counsel for ED on the other hand submitted that as per its investigation, in 2014, a company 'GPICPL' was set up and registered on basis of forged documents by Bin Lou, who is also a common director of petitioner. He had incorporated a total of 18 companies across the country and all orders placed in India were placed through these companies. As per the ED, these companies were found to have transferred huge amount of funds to Vivo India. Further, out of the total sale proceeds of Rs. 1,25,185 crores, Vivo India remitted Rs. 62,476 crores. i.e, almost 50% of the turnover out of India, mainly to China.

Vivo's counsel contended that as per the allegations of the ED, the distributors must be held liable and not Vivo. The ED could have exercised its powers under Section 5 of the Prevention of Money Laundering Act (PMLA) to enter, search and seize property of the 18 companies that the ED alleged had proceeds of crime. Instead, the ED exercised its powers under Section 17 of PMLA despite Section 17 requiring the authorised officer to have "reasons to believe that the accused had committed acts relating to money laundering" before conducting such a search.

The petitioner-company submitted that such belief of the authorised officer should be recorded in writing. However, the respondent had failed to give any reasons for debit freezing the bank accounts of the petitioner and had merely for namesake in the impugned order stated that "on reasonable belief proceeds of crime are selected and it is not practicable to seize the said bank account."

It was submitted that the records have to show what proceeds of crime are generated and why it was not practical to go after proceeds. The counsel for petitioner submitted that there has to be qualitative distinction between the powers of authorised officers under Section 5 and Section 17 of PMLA and that both sections "cannot be used to reach the same roots."

The ED responded that the entire premise of petitioner's argument that there was no reason to believe that the company was involved in money laundering was flawed as the the reason to believe for search was also the reason to seize. The ED submitted that around 1,400 crores come in the GPICL and out of these 1,400 crores, as of today, 1,200 crores were deposited into various bank accounts of Vivo. 

The matter will now be taken up on July 13.

Case Title: Vivo Mobile India Pvt. Ltd. v. Directorate of Enforcement