SUPREME COURT HOLDS MONEY LAUNDERING HAS TO BE RECORDED UNDER THE PREVENTION OF MONEY LAUNDERING ACT, 2002

The Three Judge Bench of the Hon’ble #SupremeCourt of India comprising of Justices S.A. Bobde, A.S.Bopanna and V. Ramasubramanian passed a Judgment dated 03.02.2021 in the case of OPTO Circuit India Ltd. v. Axis Bank & Ors. {CRIMINAL APPEAL NO.102 OF 2021 (Arising out of SLP (Criminal) No.4171 of 2020)} and held that before directing the freezing of #BankAccounts under the Prevention of Money Laundering Act, 2002 (the Act), 2002, a belief of commission of act of #moneylaundering has to be recorded.

In the present case, Axis Bank (hereinafter Respondent No. 4) had initiated proceedings against OPTO Circuit India Ltd. (hereinafter Appellant) under the provisions of the PMLA. The Central Bureau of Investigation (CBI) initiated an action for the alleged predicate offence. In order to track the money trail in relation to the offence and to prevent the layering of the same, the Enforcement Directorate initiated proceedings under the Act.

Through the communication dated 15.05.2020, the Deputy Director, Directorate of Enforcement instructed the Anti Money­Laundering Officer (AML) of Respondents No.1 to 3 Banks, that the accounts maintained by the Appellant Company be ‘debit freezed/stop operations’ until further orders, with immediate effect.

Aggrieved, the Appellant filed a Writ Petition (W.P. WP No. 8031 of 2020) before the High Court of Karnataka (the High Court) seeking the quashing of communication dated 15.05.2020 which was issued for debit freezing the accounts of the Appellant maintained with the Respondent Banks. Further, the Appellant made a prayer that a direction shall be given to the Respondents to defreeze the accounts.

The High Court vide Order dated 13.08.2020 disposed of the Writ Petitions filed by the Appellant Company upheld the Orders passed by the Deputy Director, Directorate of Enforcement.

The Appellant Company filed a Special Leave Petition in the Hon’ble Supreme Court of India impugning the Order dated 13.08.2020. The Appellant Company contended that due to the freezing of accounts, it is unable to make statutory payments to the Competent Authorities under various enactments and the payment of salary due to the employees is also prevented.

After taking into consideration the arguments advanced by the Parties to the dispute the Apex Court observed that the Act mandates that before freezing of a bank account, it is obligatory for the Authority to record the belief of commission of the act of money laundering in accordance with the procedure prescribed under Section 17 of the Act. Furthermore, the Bench observed that the objective of the Act is to safeguard the rights of the persons who would be proceeded against and to ensure the fairness in the procedure. It stated as follows:

“11. 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 Supreme Court noted thatin the present case, the Communication dated 15.05.2020 only states that the Officer is investigating the case, it does not even refer to the belief of the Authorised Officer. No material evidence was placed on record or before the Adjudicating Authority to prove the compliance of the procedure contemplated under Section 17 of the Act, in particular the recording of belief of commission of the act of money laundering.

In this regard, the Court made the following observation:

“11…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.”   

Partly allowing the Appeal, the Apex Court passed a direction to defreeze the accounts of the Appellant Company.

Suchitra Upadhyay

Associate

The Indian Lawyer & Allied Services