Karnataka HC Quashes Order Directing Freezing Of Startup Company's Bank Account After Director Was Accused Under NDPS Act

The Karnataka High Court set aside an order freezing the bank accounts of a startup company after one of the directors was booked for offences punishable under the Narcotics Drugs and Psychotropic Substances Act (NDPS).A single-judge bench of Justice M Nagaprasanna allowed the petition filed by M/s. Ownpath Learning Private Limited and said “Freezing the bank accounts of the Petitioner - Company in respondent No.2 Bank, is quashed.” The company is a registered startup under the DPIIT Startup India Initiative. It claims to be involved in helping professionals to up-skill themselves in software design and lay a path for better career opportunities to those professionals in the technological industry.A crime was registered by the Narcotics Control Bureau against one of the Directors of the petitioner/company for offences punishable under Section 8(c) r/w Sections 20(B)(ii)(A), 23(a), 27, 27A, 28 and 29 of the NDPS Act. The company argued that it was not an accused in the case and the investigation had ended as well. It was submitted that the debit freezing direction from the Investigating Officer to the Bank was contrary to the law. The respondents opposed the plea stating that one need not be an accused for freezing of the account since if the money trail of the accused leads to the deposit of funds into the account of the company, it would be enough to direct freezing of the account. Further, it was argued that there was a direct link to the account operated by the company to one of the Directors who received narcotics substances in his name of the Director of the Company from a foreign post office. The bench noted that the power to direct debit freezing of an account for offences under the Act is under Section 68 F of the NDPS Act. Court noted that the mandate of Section 68F was twofold – first being once the seizure or freezing is made it shall be duly informed by an order made under sub-section (1) and the same shall be communicated to the competent authority within forty-eight hours and the second being freezing order shall have no effect unless the said order is confirmed by an order of the competent authority within 30 days. Following this it held that in the case at hand, neither of the two grounds had been followed since the communication was not even made to the competent authority by the NCB and the competent authority under Section 68D, being the Commissioner of Income-Tax, Chennai, had not approved such seizure within 30 days.Thus allowing the plea it said “Therefore, it is not a case of competent authority not functioning. It is a case where there is a blatant violation of section 68F and its mandate. In the light of afore-said admitted facts of twin violation of Section 68F, the order directing debit freezment or action of freezing of the account of the petitioner/company would lose its legal legs to stand and results in its obliteration.”However, it clarified that the quashing would not mean that the NCB would be precluded from initiating future proceedings in accordance with law.Appearance: Advocate Siddharth Suman for Petitioner.Advocate Shridevi Bhosale Maruti for R1. Citation No: 2024 LiveLaw (Kar) 39Case Title: M/s Ownpath Learning Private Limited AND State By Intelligence Officer & ANRCase No: Writ Petition No 14764 OF 2023.Click Here To Read/Download Order

Karnataka HC Quashes Order Directing Freezing Of Startup Company's Bank Account After Director Was Accused Under NDPS Act

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Karnataka HC Quashes Order Directing Freezing Of Startup Company's Bank Account After Director Was Accused Under NDPS Act

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