SC directs defreezing of bank account seized under PMLA to pay statutory dues due to non observance of procedure prescribed
ABCAUS Case Law Citation
ABCAUS 3446 (2021) (02) SC
Important case law relied referred:
Chandra Kishor Jha vs. Mahavir Prasad and Ors. (1999) 8 SCC 266
Mohinder Singh Gill & Another vs. The Chief Election Commissioner New Delhi & Ors. (1978) 1SCC 405)
In this Special Leave Petition (SLP) the appellant company had challenged the order of the Hon’ble High under Prevention of Money Laundry Act (PMLA) 2002 and inter alia contended that the freezing of the bank accounts had prejudiced the company, as the amount in the account was made unavailable to them due to which statutory payments towards TDS, PF, ESI, Professional Tax, Gratuity and employees’ deductions to be made to the Competent Authorities under various enactments was withheld and the payment of salary which was due to the employees was also prevented.
The Hon’ble Supreme Court though did not interfere with initiation of proceedings under PMLA 2002 by Enforcement Directorate but admitted the SLP on the limited scope of consideration on the issue of defreezing the bank account particularly keeping in view the requirement of the appellant to make the statutory payments even if the freezing of the account is found justified.
The important question was whether the power available to the competent authority had been exercised in the manner as is contemplated under PMLA?
The stand of the ED was that ‘stop operation’ was requested to bank to stop the further layering/diversion of proceeds of crime and to safeguard the proceeds of crime.
The Hon’ble Supreme Court observed that such power is available under PMLA. But the ED stated that such powers had not been done under Section 17(1) of the PMLA. With regard to the power available under PMLA it was stated that PMLA being a standalone enactment and independent process whereunder Section 71 of PMLA has an overriding affect over other laws.
When enactment contains a provision for seizure including freezing, procedure therein is to be followed
The Hon’ble Supreme Court noted the prerequisite of Section 17 of PMLA providing freezing of property or record related to information in possession, reasons to believe, recording of belief etc. also apply to freezing of bank account.
The Hon’ble Supreme Court opined that in the instant case, the said procedure had not been followed by the Authorised Officer except issuing the impugned communication to AML Officer to seek freezing.
The Hon’ble Supreme Court clarified that certainly it is not required that the communication addressed to the Bank itself should contain all the details. But an order in the file recording the belief is necessary before communication is issued.
The Hon’ble Supreme Court opined that in view of the above, the freezing or the continuation thereof was without due compliance of the legal requirement and, therefore, not sustainable.
When power is available under the special enactment, question of resorting to power under general law does not arise
It was contended that the power of seizure is available under Section 102 of the Code of Criminal Procedure, which had been exercised and as such the freezing of the account would remain valid.
However the Apex Court rejected this contention and stated that when a special enactment contains a provision for seizure which includes freezing, the power available therein is to be exercised and the procedure contemplated therein is to be complied. Secondly, when the power is available under the special enactment, the question of resorting to the power under the general law does not arise. Thirdly, 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.
The Hon’ble Supreme Court stated that the action sought to be sustained should be with reference to the contents of the impugned or der/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.
The Hon’ble Supreme Court directed the Authorities/Bank to defreeze the accounts and clear the cheques issued by the appellant, drawn in allowed the appeal of in the favour of the assessee of various statutory authorities.
The Hon’ble Supreme Court stated that if any further amount is available in the account after payment of the said statutory dues and with regard to the same any action is to be taken by the ED within a reasonable time, it would open to them to do so subject to compliance of the required procedure afresh.
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