Freezing Bank Accounts

(Ref: Ezulix Software Pvt. Ltd. vs. State of Maharashtra and Ors., MANU/MH/1076/2021) ¹

The pervasive surge in economic offences and white-collar crimes is widely recognised as posing a serious threat to India’s economic prosperity. Both Central and State governments have enacted strong laws and policies in response to this trend. These are intended to give the police and other investigating agencies broad authority to effectively look into and prosecute cases involving complex financial transactions. The investigative agencies, inter alia, have been given the power to freeze bank accounts for better investigation of the crime. Section 102 of Criminal Procedure Code, 1973 (CrPC) clarifies the powers given to law enforcement agents about the confiscation of particular property.

Any police officer, regardless of rank, may seize property if there is reason to believe it may be connected to the commission of an offence (Section 102(1)). The legislature's choice of the word “may” over “shall” makes clear how discretionary the police seizure power is. Additionally, Section 102(2) requires the investigating officer to report the seized property to the officer-in-charge if the investigating officer is under that officer's supervision. The police officer has a lot of leeways to seize property under suspicious circumstances as required by any statute because the terms “any offence” and “any property” mentioned in Section 102 are so broad. Section 102(3) requires police authorities to notify the magistrate of any property seized, regardless of whether the offence is cognizable or not, to preserve balance in the use of this authority. The police are required to give the property to anyone willing to sign a bond guaranteeing that it will be turned over to the court at the magistrate's request if it cannot be shown before the court.

In the Italian Marines case of M.T. Enrica Lexie v. Doramma, ² the Supreme Court examined the types of property that the police could seize under Section 102. The Court outlined the conditions defining property to include (a) items that are stolen or reasonably suspected to be stolen, and (b) property directly associated with a crime. As per the Court's interpretation, property that is not being investigated by police authorities for possible involvement in an offence is not subject to seizure under Section 102. These two mandatory conditions for the applicability of Section 102 CrPC were discussed by the Supreme Court in State of Maharashtra v. Tapas D. Neogy ³

wherein the Court observed the conditions as:

• there must be a “property”; and
• In respect of that “specific property” there must be a suspicion of the commission of any offence.

Seizure of bank account

The Supreme Court ruled in the State of Maharashtra v. Tapas D. Neogy ⁴ that police authorities have the right and ability to confiscate an accused person's bank account while investigating Section 102 of CrPC. This is explained by pointing out that bank accounts are included in the definition of “property” in Section 102 of CrPC. Furthermore, there needs to be a solid suspicion that the bank account is connected to the commission of a crime for Section 102 of the CrPC to be activated, particularly when freezing a bank account. The Bombay High Court in Ezulix Software Pvt. Ltd. v. State of Maharashtra ⁵ observed that “On careful consideration of Section 102 of CrPC shows that Police Officer in the course of an investigation can seize any property under Section 102 of the Code, if such property is alleged or anticipated to have stolen or which may be found under circumstances which creates suspicion of commission of any offence”.

The onus is on the investigating authorities to show that there is sufficient evidence linking the money in the bank account to the alleged offence. ⁶ The property must not only have a close link to the alleged crime but the officer must have reasonable grounds to believe such a nexus exists. The definition or level of “suspicion” required for the investigating authority to order the freezing of a bank account is another matter that requires additional explanation. The Supreme Court made it clear in the Nevada Properties Private Limited v. State of Maharashtra ⁷ case that officers are not required to have a ‘firm opinion or an adjudication/finding” for them to be “found under circumstances which create suspicion of the commission of any offence” as stated in Section 102 of CrPC. The Court observed that the definition of “suspicion” is weaker and broader than “reasonable belief” or “satisfaction”, suggesting a subjective component as opposed to an objective assessment in the application of Section 102 of CrPC. This points to a subjective rather than an objective evaluation of how Section 102 of CrPC is applied, and investigating authorities frequently take advantage of this weakness. Courts nevertheless emphasise that authorities must ensure that there is a valid reason for the account to be frozen based on the information at hand. ⁸ In Teesta Atul Setalvad v. State of Gujarat, ⁹ the Supreme Court reaffirmed the perspectives expressed by the Division Bench of the Bombay High Court in Adarsh Coop. Housing Society Ltd. ¹⁰ stressed that, for Section 102, a bank account is considered “property”, meaning that police authorities can seize it and impose restrictions on its use if there is reason to believe that it has a direct connection to the commission of an offence. The Court made it clear that to order the freezing of a bank account, a notice must be sent to the magistrate and that Section 102 does not require the police to notify the account holder or the accused in advance. An application to de-freeze an account becomes relevant only if the police have not yet turned in their final report and the investigation is finished. In these situations, a request to de-freeze the account can be submitted to the relevant authority.

One crucial question revolves around whether there exists an obligation for prior and subsequent notification to the affected party under Section 102 of CrPC. Frequently, parties remain uninformed about freezing actions until they discover them later, hindering the possibility of pursuing appropriate remedies before any harm occurs. The Teesta Setalvad ¹¹ case is thought to have settled the matter of requiring prior notice at the Supreme Court level. The issue of requiring prior notice is considered to have been resolved by the Supreme Court in the case of Teesta Setalvad. ¹² The court stated that “there is nothing in Section 102 which mandates giving of prior notice to the account holder before the seizure of his bank account”.

Freezing of the bank account must be ‘forthwith’ reported to the concerned Magistrate

The frequently breached provision within Section 102 of CrPC pertains to the obligation of notifying the Magistrate about the property seizure. Section 102(3) expressly dictates that "every police officer acting under sub-section (1) shall forthwith report the seizure to the Magistrate having jurisdiction." The failure to adhere to this obligatory requirement is commonly the basis upon which courts may instruct the unfreezing of bank accounts. The High Court of Delhi in Muktaben M. Mashru v. State of NCT of Delhi ¹³ held that “...the reporting of the freezing of bank accounts is “mandatory”. Failure to do so, apart from other conditions, will vitiate the freezing of bank account, which should be ‘forthwith’ reported to the concerned Magistrate and non-compliance of this mandatory requirement, goes to the root of the matter.” The Delhi High Court further stated that if there is any violation in following the procedures under Section 102 of CrPC, the freezing of the bank accounts cannot be legally sustained.

When the investigating authorities freeze the bank accounts of a party who is neither named in the complaint nor an accused party, it creates an unusual situation. The Supreme Court decision in Teesta Setalvad where was noted by the Court that “the bank account need not be only of the accused, but it can be any account creating suspicion about the commission of an offence.”

De-Freezing

The affected party has recourse under Section 451 or 457 of the CrPC, depending on the circumstances, to approach the relevant Magistrate to request the unfreezing of the account if the seizure is found to be unlawful and the frozen account does not show a direct connection with the alleged offences. Nonetheless, the impacted party is not prohibited from requesting appropriate relief from this Court if the freezing is fundamentally unlawful and can be contested as such without getting into factual disputes. ¹⁵ In Madhu v. Sub Inspector of Police, ¹⁶ the Court stated that a Petitioner can approach the High Court itself “if the freezing is per se contrary to the provisions of law and could be assailed as illegal without reference to factual disputes involved in the matter.”In deciding on the motion to defreeze the account, the magistrate only needs to consider two factors: whether the alleged seizure was lawful, and whether the account had any connection to the alleged offences, either close or direct. ¹⁷

Section 102 is not limited to cases involving only cognizable offences; rather, its scope is broad and encompasses recoveries made solely during a search. Like any other type of property, bank accounts can be frozen because doing so is a component of an investigation. This action does not violate someone’s rights; rather, it requires confidentiality to preserve evidence. The bank account must be protected in any way from being discovered, exhausted, or destroyed. It would be nonsensical to permit the accused to access, close, withdraw, or transfer money from an account that is thought to have been connected to the alleged offence. It is essential for the sake of justice that the police use such powers when they have reason to suspect someone. Under Section 102, the seizure of funds or a bank account must be justified by suspicion and substantiated by relevant evidence that arises during the ongoing investigation.

Authored by Vishal Kumar, a Delhi based lawyer.