Summary
The Supreme Court quashed an Enforcement Directorate communication freezing company bank accounts because the safeguards under Section 17 PMLA had not been followed. Authority to investigate did not dispense with recording the requisite belief, informing the adjudicating authority and seeking timely continuation. The banks were directed to permit specified statutory-dues payments, subject to available funds. The allegations were not decided, and the Directorate remained free to initiate fresh action in accordance with law.
Issues
- Whether the bank-account freeze could stand without compliance with Section 17 PMLA.
- Whether a later reliance on general criminal-procedure powers could sustain the communication and what payment relief should follow.
Provisions considered
- Sections 17(1), 17(1A), 17(2) and 17(4), Prevention of Money-Laundering Act, 2002Freezing required a recorded statutory belief, forwarding the reasons and material to the adjudicating authority, and an application within thirty days for continuation. No material demonstrated the required compliance here. (¶¶ 8, 9, 10, 11, 15)
- Sections 2(1)(v) and 2(1)(w), Prevention of Money-Laundering Act, 2002The Court treated bank accounts containing alleged proceeds of crime as within the property and records framework, so the statutory procedure applied to their freezing as well. (¶ 10)
Held
- The power to initiate PMLA proceedings and the validity of its particular exercise are distinct. A lawful freezing process required contemporaneous compliance with the safeguards; an internal order recording belief was necessary even though every detail need not appear in the letter to the bank. (¶¶ 6, 7, 9, 10, 11, 15)
- The attempted reliance on Section 102 CrPC did not sustain this communication. The special statutory procedure had not been followed, the communication did not invoke that power, and even the asserted reporting requirement under the general provision was not shown to have been met. (¶¶ 12, 13)
- A statutory order cannot acquire validity through improved reasons later offered in litigation. The Directorate’s subsequent explanation did not repair the missing procedural foundation. (¶ 13)
- The banks were to defreeze the accounts and honour cheques for the specified tax, provident-fund, insurance and other statutory dues, subject to funds being available. Fresh action concerning remaining funds could be taken within a reasonable time after complying with the required procedure. (¶¶ 16, 17)
- The Court expressed no view on the alleged offences or their merits; the investigation and the option of fresh lawful action were preserved. (¶¶ 14, 15, 17, 18)
Result
Appeal allowed to the stated extent; freezing communication quashed and payment directions issued, with liberty for fresh action in accordance with law and no costs.