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IN THE HIGH COURT OF DELHI AT NEW DELHI
V. KAMESWAR RAO, J.
M/S KUMAR FOOD INDUSTIRES LTD. – Petitioner
Versus
UNION OF INDIA – Respondent
W.P. (C) No. 12033 of 2021, C.M. No. 37418, 40579 of 2021
Decided On : 10-03-2022
Indian Penal Code, 1860 - Section 420 read with Sections 120-B, 467, 468 and 471 - Prevention of Corruption Act, 1988 - Section 13(2) read with Section 13(1)(d) - Prevention of Money Laundering Act, 2002 - Sections 5, 8 and 42 - Criminal Procedure Code, 1973 - Section 102 - Provisional Attachment Order - Condonation of Delay - Business of manufacturing and sale of products - Delay of 8 days in filing counter affidavit - Non Performing Asset - Debit freeze bank accounts - Seeking Quash and set aside ‘debit freeze’ direction issued by Respondent No. 2 to Respondent No. 3 Bank in relation to the Bank Account of Petitioner Company and all consequential proceedings arising therefrom - Challenges and impugns direction/order/communication of respondent No. 2/Directorate of Enforcement (‘ED’) against petitioner company under Section 5 of Act, 2002 directing respondent No. 3 Bank to ‘debit freeze’ bank accounts of petitioner company - whether a bank account can be held to be a property within the meaning of Section 102 Cr.P.C. - Case of petitioner that actions of respondent No. 2 are actuated by malice and is unsustainable in law - Allegations, SBFL had inflated its receivables and stock statement to present a rosy picture to the banks for availing financial assistance. It is stated in the petition that the petitioner company has not been accused or even mentioned in the said case.
Finding of the Court:
Proceedings before the Adjudicating Authority under Section 8 of the PMLA shall have no bearing on the challenge to the Provisional Attachment Order under Section 5 of the PMLA, which can be decided/adjudicated independently irrespective of the remedy available under Section 8 of PMLA - Power of seizure under Section 102 of the Code of Criminal Procedure and whether the bank account can be held to be “property” within the meaning of the said Section 102(1), we see no justification to give any narrow interpretation to the provisions of the Criminal Procedure Code - Plea of Mr. Mir that the Provisional Attachment Order dated August 25, 2021 does not expressly state that the Bank Account itself is attached, is also untenable, as the said Provisional Attachment Order in paragraph 20 under ‘Schedule of Attached Properties’ include the Bank Account with the amount lying therein.
Result: Writ Petition dismissed.
JUDGMENT :
V. KAMESWAR RAO, J.
C.M. No. 40579/2021 (by respondent No. 2 for condonation of 8 days delay in filing the counter affidavit)
For the reasons stated in the application, the same is allowed and the delay of 8 days in filing the counter affidavit is condoned. Counter affidavit is taken on record. Application is disposed of.
W.P. (C) No. 12033/2021
1. This present petition has been filed with the following prayers:
(b) And Pass any other orders as this Hon'ble Court may deem fit in the facts and circumstances of the present case.”
2. The instant petition challenges and impugns the direction/order/communication dated August 25, 2021 of the respondent No. 2/Directorate of Enforcement (“ED” hereinafter) against the petitioner company under Section 5 of the Prevention of Money Laundering Act, 2002 (“the PMLA” for short), directing the respondent No. 3 Bank to ‘debit freeze’ the bank accounts of the petitioner company bearing Nos. 28321300000046 and 31141600000028. It is the case of the petitioner that the actions of the respondent No. 2 are actuated by malice and is unsustainable in law.
3. It is stated that the petitioner company, incorporated in 1991, is engaged in the business of manufacturing and sale of products related to the food processing. It uses the licences and trade names of M/s Shakti Bhog Foods Limited (“SBFL” for short), a company which is currently under liquidation. The petitioner company has an established retail marketing network and enjoys considerable market presence in North India and also has tie ups with third parties in other parts of the country and is a running concern that directly employs over 172 people.
4. On June 7, 2011, the petitioner availed a loan of Rs. 10 crore from the State Bank of India (“SBI” for short), Karol Bagh, New Delhi to meet its working capital needs and to further its business expansion plans. On December 11, 2017, the said loan was taken over by the DCB Bank, (respondent No. 3 herein) from the SBI, whereupon, the petitioner was issued a No Dues Certificate. The respondent No. 3 Bank also sanctioned a term loan of Rs. 17.35 crore and an overdraft facility of Rs. 1 crore.
5. On December 31, 2020, the Central Bureau of Investigation (“CBI” for short) registered an FIR bearing No. RC0742020E0014 under Section 420 read with Sections 120-B, 467, 468 and 471 of the Indian Penal Code along with Section 13(2) read with Section 13 (1) (d) of the Prevention of Corruption Act, 1988 against one company namely M/s Shakti Bhog Foods Limited (“SBFL” for short) along with four other individuals who are the promoters of the said company. It is stated that the petitioner company is a sister concern of SBFL. The said company SBFL is in liquidation since January 2018 and an Official Liquidator is currently looking after the affairs of the said company. The CBI has alleged in the FIR that SBFL has caused a loss to the tune of Rs. 3269 crore to the consortium of banks from whom the company had taken financial assistance for reviving its business. As per the allegations, the SBFL had inflated its receivables and stock statement to present a rosy picture to the banks for availing financial assistance. It is stated in the petition that the petitioner company has not been accused or even mentioned in the said case.
6. Pursuant to the case being registered by the CBI, the ED, on January 30, 2021, registered an Enforcement Case Information Report (“ECIR” for short) bearing No. DLZO-I/12/2021 in which the allegations made in the CBI FIR were reiterated. It is stated that even in the ECIR, the name of the petitioner company has not been mentioned.
7. On August 18, 2021, when the petitioner company tried to operate its bank accounts bearing Nos. 28
Provisional Attachment Orders must have justified legal grounding, requiring explicit evidence of connections to alleged criminal activity, and prior judicial conclusions limit enforcement authority ....
The main legal principle established is that properties to be proceeded against under PMLA must be connected to the criminal activity, and ex facie illegal acts can be interfered with under Article 2....
Point of law: powers of judicial review are limited and while exercising such power the Court has to see whether the process adopted or decision made by the authority is malafideor is intended to fav....
(1) Freezing of Bank Account – If a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner failing which it would fall foul....
The court upheld the validity of the debit freeze on the appellant's accounts, affirming that the funds were reasonably suspected to be proceeds of crime under PMLA.
The freezing of a business account requires identification of the tainted amount to ensure proportionality, and blanket freezes violate constitutional protections against arbitrary state action.
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