OPTO CIRCUIT INDIA LTD. versus AXIS BANK & ORS. on 3 February 2021

[2021] 2 S.C.R. 81

OPTO CIRCUIT INDIA LTD.

v.

AXIS BANK & ORS.

(Criminal Appeal No. 102 of 2021)

FEBRUARY 03, 2021

[S.A. BOBDE, CJI, A.S. BOPANNA AND

V. RAMASUBRAMANIAN, JJ.]

Prevention of Money-Laundering Act, 2002 – s.17, 2(v) ands.2(w) – The Directorate of Enforcement initiated the proceedingsagainst the appellant under PMLA – In the said process the DeputyDirector, Directorate of Enforcement through the communicationdated 15.05.2020 addressed to the Anti Money-Laundering (AML)Officer of Respondents No.1 to 3 Banks instructed them that theaccounts maintained by the appellant company be ‘debit freezed/stop operations’ – Aggrieved, the appellant filed writ petition andsought to quash the communication dated 15.05.2020 issued fordebit freezing the account – The High Court upheld thecommunication dated 15.05.2020 – Before the Supreme Court,appellant pleaded to defreeze the bank accounts for the purposestatutory payments and payment of salaries to the employees – Held:In the instant case, the procedure contemplated u/s.17 of PMLAwas not followed by the Officer Authorised – Except issuing theimpugned communication dated 15.05.2020 to AML Officer to seekfreezing, no other procedure contemplated in law is followed – Thesaid communication does not refer to the belief of the AuthorisedOfficer – It only states that the Officer is investigating the case andseeks relevant document – Thereafter, it abruptly states that accountshave to be ‘debit freezed/stop operations’ – However, what isnecessary is an order in the file recording the belief as provided u/s. 17(1) of PMLA before the communication is issued and thereafterthe requirement of s.17(2) of PMLA after the freezing is compliedwith – No material placed to indicate compliance of s.17 of PMLA,more particularly recording the belief of commission of the act ofmoney laundering and placing it before the Adjudicating Authorityor for filing an application after securing the freezing of the account– Therefore, freezing is without due compliance of the legalrequirement and not sustainable – The communication dated

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A15.05.2020 is quashed – Since, the freezing was done without duecompliance of law, the respondents directed to defreeze the accountsand honour payments advised by the appellant towards statutorydues etc.

Interpretation of Statutes – If a statute provides for a thing toBbe done in a particular manner, then it has to be done in that manneralone and in no other manner – If the salutary principle is kept inperspective, in the instant case, though the Authorised Officer inPrevention of Money-Laundering Act, 2002 is vested with sufficientpower; such power is circumscribed by a procedure laid down underthe statute – As such the power is to be exercised in that mannerCalone, failing which it would fall foul of the requirement of complyingdue process under law.

Prevention of Money-Laundering Act, 2002 – Scheme andobject of – discussed.

DPartly allowing the appeal, the Court

Conclusion

HELD: 1. A perusal of s.17 of Prevention of Money-Laundering Act, 2002 (PMLA) would indicate that the pre-requisite is that the Director or such other Authorised Officer inorder to exercise the power under Section 17 of PMLA, shouldEon the basis of information in his possession, have reason tobelieve that such person has committed acts relating to moneylaundering and there is need to seize any record or property foundin the search. Such belief of the officer should be recorded inwriting. Sub-section (1A) to Section 17 of PMLA provides thatthe Officer Authorised under sub-section (1) may make an orderFto freeze such record or property where it is not practicable toseize such record or property. Sub-section (2) provides that aftersearch and seizure or upon issuance of a freezing order theAuthorised Officer shall forward a copy of the reasons recordedalong with material in his possession to the Adjudicating AuthorityGin a sealed envelope. Sub-section (4) provides that the Authorityseizing or freezing any record or property under sub-section (1)or (1A) shall within a period of thirty days from such seizure orfreezing, as the case may be, file an application before theAdjudicating Authority requesting for retention of such recordor properties seized. [Para 9][89-C-F]H

2. The scheme of the PMLA is well intended. While it seeksto achieve the object of preventing money laundering and bringto book the offenders, it also safeguards the rights of the personswho would be proceeded against under the Act by ensuringfairness in procedure. Hence a procedure, including timeline isprovided so as to ensure that power is exercised for the purposeto which the officer is vested with such power and the AdjudicatingAuthority is also kept in the loop. In the instant case, theprocedure contemplated under Section 17 of PMLA to whichreference is made above has not been followed by the OfficerAuthorised. Except issuing the impugned communication dated15.05.2020 to AML Officer to seek freezing, no other procedurecontemplated in law is followed. In fact, the impugnedcommunication does not even refer to the belief of the AuthorisedOfficer even if the same was recorded separately. It only statesthat the Officer is investigating the case and seeks for relevantdocuments, but in the tabular column abruptly states that theaccounts have to be ‘debit freezed/stop operations’. It certainlyis not the requirement that the communication addressed to theBank itself should contain all the details. But what is necessaryis an order in the file recording the belief as provided underSection 17(1) of PMLA before the communication is issued andthereafter the requirement of Section 17(2) of PMLA after thefreezing is made is complied. There is no other material placedbefore the Court to indicate compliance of Section 17 of PMLA,more particularly recording the belief of commission of the act ofmoney laundering and placing it before the Adjudicating Authorityor for filing application after securing the freezing of the accountto be made. In that view, the freezing or the continuation thereofis without due compliance of the legal requirement and, therefore,not sustainable. [Para 11][90-B-G]

3. This Court has time and again emphasised that if a statuteprovides for a thing to be done in a particular manner, then it hasto be done in that manner alone and in no other manner. Therefore,if the salutary principle is kept in perspective, in the instant case,though the Authorised Officer is vested with sufficient power;such power is circumscribed by a procedure laid down under the AB

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84SUPREME COURT REPORTS

Astatute. As such the power is to be exercised in that manneralone, failing which it would fall foul of the requirement ofcomplying due process under law. This Court found fault with theAuthorised Officer and declared the action bad only in so far asnot following the legal requirement before and after freezing theaccount. This shall not be construed as an opinion expressed onBthe merit of the allegation or any other aspect relating to thematter and the action initiated against the appellant and itsDirectors which is a matter to be taken note in appropriateproceedings if at all any issue is raised by the aggrieved party.[Para 15][92-E-F; G-H; 93-A-C]CMohinder Singh Gill & Another vs. The Chief ElectionCommissioner, New Delhi & Ors. (1978) 1 SCC 405 :[1978] 2 SCR 272; Chandra Kishor Jha vs. MahavirPrasad and Ors. (1999) 8 SCC 266 : [1999] 2 Suppl.SCR 754 – relied on.D

Case Law Reference

CRIMINAL APPELLATE JURISDICTION :Criminal Appeal No.E102 of 2021

From the Judgment and Order dated 13.08.2020 of the High Courtof Karnataka at Bengaluru in WP No. 8031/2020(GM-RES)

S.V. Raju, ASG, Mukul Rohatgi, Sr. Adv. Shashikiran Shetty,Mahesh Thakur, Zoheb Hussain, Ms. Aakanksha Kaul, Tejas Patel,FBhuvan Kapoor, Kanu Agarwal, Arvind Kumar Sharma, P. S. Sudheer,Ms. Shruti Jose, Anil Kumar Sangal, Sidharth Sangal, Nilanjani Tandon,B.V. Balramdas, B. Krishna Prasad, Advs. for the appearing parties.

The Judgment of the Court was delivered by GA.S. BOPANNA, J.

1. Leave granted.

2. The appellant is before this Court assailing the order dated13.08.2020 passed by the High Court of Karnataka in WP No.8031 of2020. Through the said common order the High Court has disposed of H

two writ petitions but the consideration herein relates to the issue raisedin Writ Petition No.8031 of 2020 which was filed before the High Court,by the appellant herein raising the issue relating to the freezing of theirbank account.

3. When the Special Leave Petition was listed for admission, thelearned senior counsel for the appellant while assailing the order passedby the High Court, inter alia contended that the freezing of the bankaccounts maintained by the appellant company has prejudiced theappellant, inasmuch as, the amount in the account which belongs to theappellant is made unavailable to them due to which statutory paymentsto be made to the Competent Authorities under various enactments iswithheld and the payment of salary which is due to the employees is alsoprevented. In that background, this Court though had not found any reasonto interfere with the initiation of the proceedings under the Prevention ofMoney-Laundering Act, 2002 (‘PMLA’ for short) had, however, limitedthe scope of consideration in this appeal on the issue of defreezing thebank account so as to enable the appellant to make the statutorypayments. In that view, notice had been issued to the respondent throughthe order dated 11.09.2020 in the following manner - “issue noticerestricted to the purpose of enabling necessary payment returnable withintwo weeks”. The respondent on being served, having appeared has filedthe counter affidavit on behalf of respondent No.4.

4. In that background we have heard Mr. Mukul Rohatgi, learnedSenior Advocate for the appellant and Mr. S.V. Raju, learned AdditionalSolicitor General for the respondent No.4 and perused the petition papers.

5. The instant appeal arises out of the proceedings initiated byrespondent No.4 against the appellant under the PMLA. The analogousmatter, which was considered by the High Court along with the writpetition which is the subject matter herein related to the action initiatedby the Central Bureau of Investigation (‘CBI’ for short) for the allegedpredicate offence and the instant proceedings is a fall out of the same. Itis in that background the Enforcement Directorate in order to track themoney trail relating to the predicate offence and prevent layering of thesame has initiated the proceedings under the PMLA. In the said processthe Deputy Director, Directorate of Enforcement through thecommunication dated 15.05.2020 addressed to the Anti Money-Laundering Officer (‘AML’ for short) of Respondents No.1 to 3 Banksinstructed them that the accounts maintained by the appellant company A

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Abe ‘debit freezed/stop operations’ until further orders, with immediateeffect. It is in that light the appellant claiming to be aggrieved filed WPNo. 8031 of 2020 before the High Court seeking for issue of an appropriatewrit to quash the communication dated 15.05.2020 issued for debitfreezing the account No.914020014786978 maintained with therespondent No.1, account No.200006044354 maintained with theBrespondent No.2 and the account No. 39305709999 maintained with therespondent No.3. The appellant in that regard also prayed that therespondents be directed to defreeze the accounts to which reference ismade.

6. The High Court considered the matter in detail and has takenCinto consideration the object with which the PMLA was enacted and thevalidity of the Act being considered by the High Court in the decisionsreferred to in the course of the order. The permissibility and scope ofparallel proceedings under Section 3 and 4 of PMLA was adverted to indetail and upheld the action. Insofar as the reasoning adopted and theDconclusion reached by the High Court with regard to the power andcompetence to initiate the proceedings under the PMLA in view of theaction taken for predicate offence, the High Court was very muchjustified. However, the High Court having held that the impugnedcommunication was with competence or justification ought to haveexamined whether the ‘due process’ as contemplated under the PMLAEwas complied so as to make it valid and sustainable in law, though thepower under the Act was available. As already noticed, the considerationto be made in this appeal is therefore limited to the aspect of freezing/defreezing the account, more particularly keeping in view the requirementof the appellant to make the statutory payments even if the freezing ofFthe account is found justified.

7. While adverting to this aspect of the matter, what cannot belost sight is also the fact as to whether the power available to the competentauthority has been exercised in the manner as is contemplated underPMLA. The Directorate of Enforcement (Respondent No.4) in theirGcounter affidavit has taken contradictory stand inasmuch as, whileexplaining the need to freeze the account has stated that the ‘stopoperation’ was requested to stop the further layering/diversion of proceedsof crime and to safeguard the proceeds of crime, which we notice is apower available under PMLA. But in the counter affidavit it is strangelystated that the same has not been done under Section 17(1) of the PMLA.H

OPTO CIRCUIT INDIA LTD. v. AXIS BANK & ORS.[A.S. BOPANNA, J.]

OPTO CIRCUIT INDIA LTD. v. AXIS BANK & ORS.[A.S. BOPANNA, J.]

However, in contrast it has been further averred with regard to the poweravailable under PMLA and that PMLA being a stand-alone enactmentand independent process whereunder Section 71 of PMLA has anoverriding affect over other laws. Irrespective of the stand taken, thepower exercised by the Competent Authority should be shown to be inthe manner as has been provided in law, in this case under PMLA.

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8. To appreciate this aspect, it would be appropriate to refer toSection 17 of PMLA whereunder the freezing of such property or recordis also provided. Section 17 of PMLA reads as hereunder: -

17. Search and seizure- (1) Where the Director or any otherofficer not below the rank of Deputy Director authorizedby him for the purposes of this section, on the basis ofinformation in his possession, has reason to believe (thereason for such belief to be recorded in writing) that anyperson- C

-(i)has committed any act which constitutes moneyDlaundering, or

(ii) is in possession of any proceeds of crime involved-in moneylaundering, or -(iii)is in possession of any records relating to moneylaundering, or E

(iv) is in possession of any property related to crimethen, subject to the rules made in this behalf, he-may authorise any officer subordinate to him to (a)Enter and search any building, place, vessel,vehicle or aircraft where he has reason tosuspect that such records or proceeds of crimeare kept; F

(b) Break open the lock of any door, box, locker,safe, almirah or other receptacle for exercisingGthe powers conferred by clause (a) where thekeys thereof are not available;

(c) seize any record or property found as a resultof such search; H

A(d)place marks of identification on such record ofproperty, if required or make or cause to bemade extracts or copies therefrom; (e)make a note or an inventory of such record orproperty; B

(f) examine on oath any person, who is found to bein possession or control of any record orproperty, in respect of all matters relevant forthe purposes of any investigation under this Act:

(1A) Where it is not practicable to seize such record or-property, the officer authorised under subsection (1), maymake an order to freeze such propertywhereupon theproperty shall not be transferred or otherwise dealt with,except with the prior permission of the officer making suchorder, and a copy of such order shall be served on theperson concerned:

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Provided that if, at any time before its confiscation undersub-section (5) or sub-section (7) of section 8 or section58B or sub-section (2A) of section 60, it becomes practicalto seize a frozen property, the officer authorised under sub-section (1) may seize such property.

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-(2) The authority, who has been authorised under subsection (1) shall, immediatelyafter search and seizure orupon issuance of a freezing order forward a copy of thereasons so recorded along with material in his possession,referred to in that sub-section, to the Adjudicating Authorityin a sealed envelope, in the manner, as may be prescribedand such Adjudicating Authority shall keep such reasonsand material for such period, as may be prescribed.

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(3) Where an authority, upon information obtained duringsurvey under section 16, is satisfied that any evidence shallGbe or is likely to be concealed or tampered with, he may,for reasons to be recorded in writing, enter and search thebuilding or place where such evidence is located and seizethat evidence:

Provided that no authorisation referred to in sub-sectionH(1) shall be required for search under this sub-section.

-(4) the authority seizing any record or property under sub-section (1) or freezing any record or property under subsection (1A) shall, within a period of thirty days from suchseizure or freezing, as the case may be, file an application,requesting for retention of such record or property seizedunder sub-section (1) or for continuation of the order of-freezing served under subsection (1A), before theAdjudicating Authority.

(emphasis supplied)

9. A perusal of the above provision would indicate that the pre-requisite is that the Director or such other Authorised Officer in order toexercise the power under Section 17 of PMLA, should on the basis ofinformation in his possession, have reason to believe that such personhas committed acts relating to money laundering and there is need toseize any record or property found in the search. Such belief of theofficer should be recorded in writing. Sub-section (1A) to Section 17 ofPMLA provides that the Officer Authorised under sub-section (1) maymake an order to freeze such record or property where it is not practicableto seize such record or property. Sub-section (2) provides that aftersearch and seizure or upon issuance of a freezing order the AuthorisedOfficer shall forward a copy of the reasons recorded along with materialin his possession to the Adjudicating Authority in a sealed envelope.Sub-section (4) provides that the Authority seizing or freezing any recordor property under sub-section (1) or (1A) shall within a period of thirtydays from such seizure or freezing, as the case may be, file an applicationbefore the Adjudicating Authority requesting for retention of such recordor properties seized.

10. For the purpose of clarity, it is emphasised that the freezing ofthe account will also require the same procedure since a bank accounthaving alleged ‘proceeds of crime’ would fall both under the ambit“property” and “records”. In that regard it would be appropriate to takenote of Section 2(v) and (w) of PMLA which defines “property” and“records”. The same read as follows:

“Sec. 2(v) - “property” - means any property or assets ofevery description, whether corporeal or incorporeal,movable or immovable, tangible or intangible and includesdeeds and instruments evidencing title to, or interest in,such property or assets, wherever located.”

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A“Sec. 2(w) – “records” – include the records maintained inthe form of books or stored in a computer or such otherform as may be prescribed.”

11. The scheme of the PMLA is well intended. While it seeks toachieve the object of preventing money laundering and bring to book theBoffenders, it also safeguards the rights of the persons who would beproceeded against under the Act by ensuring fairness in procedure. Hencea procedure, including timeline is provided so as to ensure that power isexercised for the purpose to which the officer is vested with such powerand the Adjudicating Authority is also kept in the loop. In the instantcase, the procedure contemplated under Section 17 of PMLA to whichCreference is made above has not been followed by the Officer Authorised.Except issuing the impugned communication dated 15.05.2020 to AMLOfficer to seek freezing, no other procedure contemplated in law isfollowed. In fact, the impugned communication does not even refer tothe belief of the Authorised Officer even if the same was recorded Dseparately. It only states that the Officer is investigating the case andseeks for relevant documents, but in the tabular column abruptly statesthat the accounts have to be ‘debit freezed/stop operations’. It certainlyis not the requirement that the communication addressed to the Bankitself 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 PMLAEbefore the communication is issued and thereafter the requirement ofSection 17(2) of PMLA after the freezing is made is complied. There isno other material placed before the Court to indicate compliance ofSection 17 of PMLA, more particularly recording the belief of commissionof the act of money laundering and placing it before the AdjudicatingFAuthority or for filing application after securing the freezing of the accountto be made. In that view, the freezing or the continuation thereof iswithout due compliance of the legal requirement and, therefore, notsustainable.

12. Mr. S.V. Raju, learned Additional Solicitor General made a subtle attempt to contend that the power of seizure is available underGSection 102 of the Code of Criminal Procedure, which has been exercisedand as such the freezing of the account would remain valid. We areunable to appreciate and accept such contention for more than one reason.Firstly, as noted, it has been the contention of Respondent No.4 thatPMLA is a stand-alone enactment. If that be so and when such enactmentHcontains a provision for seizure which includes freezing, the power available therein is to be exercised and the procedure contemplatedtherein is to be complied. Secondly, when the power is available underthe special enactment, the question of resorting to the power under thegeneral law does not arise. Thirdly, the power under Section 102 CrPCis to the Police Officer during the course of investigation and the schemeof the provision is different from the scheme under PMLA. Further,even sub-section (3) to Section 102 CrPC requires that the Police Officershall forthwith report the seizure to the Magistrate having jurisdiction,the compliance of which is also not shown if the said provision was infact invoked. That apart, the impugned communication dated 15.05.2020does not refer to the power being exercised under the Code of CriminalProcedure.

13. The action sought to be sustained should be with reference tothe contents of the impugned order/communication and the same cannotbe justified by improving the same through the contention raised in theobjection statement or affidavit filed before the Court. This has beensuccinctly laid down by this Court in the case of Mohinder Singh Gill& Another vs. The Chief Election Commissioner, New Delhi & Ors.(1978) 1 SCC 405) as follows; “8. The second equally relevant matter is that when a statutoryfunctionary makes an order based on certain grounds, its validitymust be judged by the reasons so mentioned and cannot besupplemented by fresh reasons in the shape of affidavit orotherwise. Otherwise, an order bad in the beginning may, by thetime it comes to court on account of a challenge, get validated byadditional grounds later brought out. We may here draw attentionto the observations of Bose J. in Gordhandas Bhanji:

(1) “Public orders, publicly made, in exercise of a statutory authoritycannot be construed in the light of explanations subsequently givenby the officer making the order of what he meant, or of what wasin his mind, or what he intended to do. Public orders made bypublic authorities are meant to have public effect and are intendedto effect the actings and conduct of those to whom they areaddressed and must be construed objectively with reference tothe language used in the order itself.”

Orders are not like old wine becoming better as they grow older:”In fact, in the instant case such contention of having exercisedpower under Section 102 CrPC has not been put forth even in the counter A

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Aaffidavit, either in this appeal or before the High Court and has onlybeen the attempted ingenuity of the learned Additional Solicitor General.Such contention, therefore, cannot be accepted. In fact, in the objectionstatement filed before the High Court much emphasis has been laid onthe power available under PMLA and the same being exercised thoughwithout specifically referring to the power available under Section 17 ofBPMLA.

14. The respondent No.4 in the counter affidavit has stated thatthe action initiated against the appellant is based on the complaint dated02.11.2019 made by the State Bank of India alleging that the appellant,its Chairman and the Promoter Directors have conspired and cheatedCthem to tune of Rs. 354.32 crores by diversion of funds abroad. In thatregard the CBI has registered the case in FIR No. RC 18(A)/2019 dated04.11.2019 under Section 120(B) read with Section 420, 468 and 471IPC and under Section 13(2) read with section 13(1)(d) of Prevention ofCorruption Act, 1988. Since the said offences are also schedule offences Dunder Section 2(1)(x) and (y) of PMLA, the case in ECIR-BGZO/01/2020 was recorded by the Directorate on 02.01.2020 and action is takento safeguard the alleged proceeds of crime. On that aspect we havealready indicated that the High Court was justified in upholding the actioninitiated under the PMLA but the consideration herein was only withregard to freezing of the bank account and as to whether while doing soEthe due process had been complied by adhering to the procedureprescribed under Section 17 of PMLA.

15. This Court has time and again emphasised that if a statuteprovides for a thing to be done in a particular manner, then it has to bedone in that manner alone and in no other manner. Among others, in a Fmatter relating to the presentation of an Election Petition, as per theprocedure prescribed under the Patna High Court Rules, this Court hadan occasion to consider the Rules to find out as to what would be a validpresentation of an Election Petition in the case of Chandra Kishor Jhavs. Mahavir Prasad and Ors. (1999) 8 SCC 266 and in the course ofconsideration observed as hereunder:G“It is a well settled salutary principle that if a statute provides fora thing to be done in a particular manner, then it has to be done inthat manner and in no other manner”.

Therefore, if the salutary principle is kept in perspective, in theinstant case, though the Authorised Officer is vested with sufficient power;H

such power is circumscribed by a procedure laid down under the statute.As such the power is to be exercised in that manner alone, failing whichit would fall foul of the requirement of complying due process under law.We have found fault with the Authorised Officer and declared the actionbad only in so far as not following the legal requirement before and afterfreezing the account. This shall not be construed as an opinion expressedon the merit of the allegation or any other aspect relating to the matterand the action initiated against the appellant and its Directors which is amatter to be taken note in appropriate proceedings if at all any issue israised by the aggrieved party.

16. Apart from the above consideration, what has also engagedthe attention of this Court is with regard to the plea put forth on behalf ofthe appellant regarding the need to defreeze the account to enable theappellant to pay the statutory dues. The appellant in that regard hasrelied on the certificate issued by the Chartered Accountant, (Annexure-P/38 at page 231) which indicates the amount payable towards ITDS,PF, ESI, Professional Tax, Gratuity and LIC employees’ deductions, inall amounting to Rs.79,93,124/-. Since we have indicated that the freezinghas been done without due compliance of law, it is necessary to directthe respondents No.1 to 3 to defreeze the respective accounts and clearthe cheques issued by the appellant, drawn in favour of the CompetentAuthority towards the ITDS, PF, ESI, Professional Tax, Gratuity andLIC employees’ deductions, subject to availability of the funds in theaccount concerned. Needless to mention that if any further amount isavailable in the account after payment of the statutory dues and withregard to the same any action is to be taken by the respondent No.4within a reasonable time, it would open to them to do so subject tocompliance of the required procedure afresh, as contemplated in law.

17. In terms of the above, the communication dated 15.05.2020 isquashed. We direct that the respondents shall defreeze the accountsbearing Nos. 914020014786978, 200006044354 and 39305709999 andhonour payments advised by the appellant towards statutory dues statedsupra. Liberty is reserved to Respondent No.4 thereafter to initiate actionafresh in accordance with law, if they so desire.

18. The appeal is allowed to the above extent with no order as tocosts.

Ankit Gyan

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