Company's Bank Account Can't Be Frozen For Criminal Investigation Against Unrelated Party : Supreme Court

The Supreme Court, on Tuesday, set aside freeze order and subsequent bank guarantee imposed on a Foreign Institutional Investor company as those actions were found to be taken on the basis of a criminal case pending against a person, who had no connection with the company.

A Bench comprising Justice Krishna Murari and Justice Sanjay Kumar noted that the freeze order and the bank guarantee in extension of the freeze order was in relation to investigation of allegations against Dharmesh Dosi, one of the accused persons in the 2001 Stock Broker Scam. The Bench found that there was no relation between the appellant company and Doshi. Moreover, the company was neither named as an accused in the FIR nor the chargesheet. In view of the same it noted -

"When the appellant company and the accused Dharmesh Doshi are two separate entities, and the appellant company is in no way connected to the concerned Investigation, the operation of the freeze order against the appellant company, is not legally tenable"

The Court also noted that the freeze order has been in operation for 17 years, causing huge losses to the company.

Factual Background

M/s. Jermyn Capital LLC Dubai is a Foreign Institutional Investor that was permitted by the Securities and Exchange Board of India (SEBI) to buy and sell shares and securities in the Indian Stock Market. Due to certain litigations, the company stopped trading in the Indian market in 2006. It had shares and money in its bank account with ICICI Bank.

On 20.10.2006, a freeze order under Section 102 CrPC (power of police officer to seize certain property) was imposed on the company, followed by a second one on 17.08.2010. The freeze orders were imposed on the grounds of necessity of investigation of an alleged crime.

With respect to the first freeze order, the Court allowed the company to sell the shares in its account, convert it into cash and repatriate the funds (Rs. 42.51 crores) with interest and without a bank guarantee. The company did the same. The second freeze order incapacitated the company to repatriate an amount of Rs. 38.52 crores, which was realised in favour of the company by an order passed by the Securities Appellate Tribunal (SAT) on 8th May, 2006.

Thereafter, the company moved the Apex Court, which granted it liberty to approach the Trial Court for the release of the amount. Noting that the Apex Court had permitted the company to repatriate Rs. 42.51 crores, the Trial Court held that it was entitled to repatriate the amount of Rs. 38.52 crores. However, it made the realisation of the find subject to a Bank Guarantee of equivalent amount. Aggrieved, the company approached the Gujarat High Court. The High Court also emphasised on the imposition of Bank Guarantee.

Analysis by the Supreme Court

The Court noted that the Trial Court and the High Court had solely imposed the Bank Guarantee based on the ongoing criminal proceedings against one Dharmesh Doshi, who was alleged to be connected to the company. The Court stated that upon perusal of the documents on record it has been apprised that Doshi has now been discharged of the alleged offence by the Trial Court. Moreover, Doshi was never connected to the company and the trial faced by him was in his individual capacity. It further noted that since the company and Doshi are two separate entities, the company is not connected with the investigation and the operation of the freese order against it is not legally tenable. The company had not even been named in the FIR or the chargesheet. The CBI also confirmed that no criminal proceedings are pending against the company. Therefore, the Court held that the freeze order against the company was redundant. It further noted that the freeze order which has been operational for the past 17 years has caused huge losses to the company. Noting that the investigation against the company has become redundant, the Court opined that the freeze of its assets and the bank guarantee imposed in furtherance of the freeze order is also redundant. It set aside the condition of Bank Guarantee.

The Court permitted the company to withdraw the concerned amount along with 4% interest payable from 08.05.2006 till the date of actual payment.

Case details

M/s. Jermyn Capital LLC Dubai v. CBI And Ors.| 2023 LiveLaw SC 412   |Special Leave Petition (Crl) No. 9134 of 2018| 9th May, 2023| Justice Krishna Murari and Justice Sanjay Kumar

Click here to read the judgment