Andhra Pradesh High Court Quashes Direction To Bank To Freeze Firm's Accounts Citing Non-Compliance With Procedure U/S 17(1A) PMLA

The single bench of Justice Ravi Nath Tilhari of Andhra Pradesh High Court has quashed the direction to freeze the bank account of a partnership firm accused under PMLA (The Prevention of Money-Laundering Act, 2002) on the ground that the order was not passed under Section 17 (1A) and consequently due compliance was not made.

Section 17 provides that where an authorized officer has reason to believe ( recorded in writing) that any person has committed any act which constitutes money laundering, etc. may effect search and seizure. Section 17(1A) stipulates where it is not practicable to seize record or property, the officer authorised may make an order to freeze such property.

The writ petition was filed before the High Court by M/s. C.Gopal Reddy & Co. and partners under Article 226 of Constitution to declare the action of the Assistant Directorate of Enforcement in directing banks to debit freeze the account of petitioners as illegal and contrary to provisions of the PMLA.

In February 2022, about 42 FIRs were registered at various police stations by RTO under certain provisions of the Indian Penal Code (IPC) against the petitioner-firm for fraudulently registering various vehicles on the basis of fake, forged and fabricated documents.

The proceeding was initiated under the PMLA against the firm and its partners (petitioners no.1 to 3).

In June 2022, the officials of ED conducted a search at the residential premises of the second petitioner under Section 17 (1) of the PMLA and seized certain items.

Thereafter in October 2022 directions by email were made by the Assistant Directorate of Enforcement to respective banks to debit freeze the bank account of the petitioners.

The counsel for Petitioner Sri I.Koti Reddy, argued that the order was not passed under Section 17 (1A),PMLA which is a pre-condition order to issue directions to the Bank to debit freeze the account, therefore it is against the law.

It was further submitted that under Section 17 PMLA the Director or officer not below the rank of Deputy Director authorized by the Director have the power to search and seizure of the property, when there is a reason to believe that any act relating to money laundering has been committed and there is a need to seize any property, such property may be seized, recording the reasons for such belief in writing.

On the other hand J. Bhaskara Rao counsel for Central Government submitted that the instructions were issued to the Banks vide e-mails not to entertain debit transactions from the accounts of the petitioners, as a measure to safeguard the balances in the accounts, with a view to issue provisional attachment order under Section 5 (1) of the PMLA, 2002.

However, it was admitted that no order was passed under Section 17 (1A) of the PMLA therefore the question of following the provisions of Section 17 (2) & (4) did not arise.

After hearing both sides, the court decided that it is not disputed that the order to freeze the account was not passed under Section 17 (1A) of PMLA.

The question for consideration is whether, in the absence of any order to freeze the Bank Accounts under Section 17 (1A)PMLA, the action in directing the bank through email, not to entertain the debit transactions from the accounts of the petitioners, is legally sustainable?

The court held that the impugned E-mails cannot be sustained in law and are liable to be quashed on the ground that the order was not passed under Section 17 (1A) and consequently due compliance was not made.

The court explained that, “The object of the PMLA which is to achieve preventing money laundering and bring the offenders to book as also at the same time to safeguard the rights of the persons who would be proceeded against under the PMLA by ensuring fairness in procedure, in the light of the facts of the present case, as brought on record from both the sides.”

Case Title: N.Jeevan Kumar vs Axis Bank And others

Citation: 2023 LiveLaw (AP) 7

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