The freezing of a bank account under the Customs Act is not equivalent to the seizure of goods, and failure to explain the source of funds can lead to adverse presumptions.

Rajiv Sahai Endlaw, J.

1. This intra-court appeal impugns the judgment dated 20th December, 2013 of the learned Single Judge of this Court in W.P.(C) no.7449/2012 filed by the appellant to the extent the same, while directing the release of the amount deposited in the bank account of the appellant with the respondent no.3 Citibank after the date the same was frozen at the instance of the respondent no.2 Addl. Director General, Directorate of Revenue Intelligence (DRI), makes the same subject to the appellant furnishing a bank guarantee to the respondent no.2 DRI in respect of the amount credited in the account from the date of the freezing of the account.

2. The appeal came up for admission on 18th March, 2014 when the counsels for the respondents appeared on advance notice. The tenor of the order sheet thereafter shows that though no formal notice of the appeal was issued but the counsels were heard finally on the appeal from time to time. Vide order dated 7th July, 2014 the writ record was also requisitioned.

3. The appellant filed the writ petition from which this appeal arises pleading:-

(i) that the account of the appellant with the Punjabi Bagh Branch of the respondent no.3 Citibank was frozen at the instance of the respondent no.2 DRI in July, 2011;

(ii) the aforesaid account was frozen in the follow up of an investigation initiated by the respondent no.2 DRI against few companies who were importing high value Pesticides/Insecticides in the guise of Sodium Bi-Carbonate; however even on culmination of investigation, the appellant had neither been indicted nor arraigned as a notice in the show cause notice issued in relation to the said matter;

(iii) the order of freezing of the bank account was passed without any notice to the appellant;

(iv) that though the appellant firm is also engaged in manufacture of different types of Pesticides, Herbicides etc. but has undergone major changes and erstwhile partners have since resigned and new partners have acquired the appellant firm w.e.f. 1st April, 2012;

(v) that Section 110(1) of the Customs Act, 1962 provides for seizure of goods, documents, sale proceeds etc. on reasonable belief that the same are offending the provisions of the Act but Section 110(2) mandates that if a show cause notice under Section 124 has not been issued in respect of the said seizure, the person from whose possession the seizure was effected, shall be entitled to the release of the seized material;

(vi) that the arbitrary freezing of the bank account has put the appellant’s business to a halt;

(vii) that the Customs Authorities have not issued any show cause notice under Section 124 in respect of the account; and,

(viii) that the appellant has no liability under the Customs Act.

4. The respondent no.2 DRI filed a counter affidavit to the writ petition, pleading:-

(a) that the intelligence developed by DRI indicated that certain firms were importing high value pesticides/Insecticides/Herbicides/Fungicides from China under the guise of Sodium Bi-carbonate, Thionyl Chloride and Sodium Bromide and thereby evading higher customs duty;

(b) that live consignments imported by the firms were intercepted and search operations were carried out and samples of goods stored in various warehouses were drawn and sent to Central Insecticides Board, Faridabad and Institute of Pesticide Formulation Technology, Gurgaon;

(c) that the extent of undervaluation resorted to by the said firms was massive;

(d) that investigations revealed that such import was being done in the name of several fake front firms by one Mr. Vimal Kumar, proprietor of M/s. V.V.K. Traders, Bhagwan Dass Nagar, East Punjabi Bagh, new Delhi; goods imported against these fake front firms namely M/s Mehta Overseas, M/s Chopra Overseas and M/s Umesh Impex etc. were shown to be sold to individuals against fake cash bills; the imported chemicals with the correct description were shown to be supplied by another set of fake front firms to several firms controlled b