Freezing a bank account can severely cripple an individual. But banks and authorities such as the income tax department or investigative agencies like the police are empowered to resort to this stringent step in the event of unpaid loans, tax dues, suspected illegal activities in the account like money laundering or financing of terrorism. A reasonable suspicion that money swindled has been stashed away in a bank account is enough to trigger this action.
When information about the commission of a cognisable offence is reported to the officer in-charge of a police station, he is duty bound to register a First Information Report (FIR) under Section 154 CrPC. The next step is to investigate the alleged crime under Section 156(1) CrPC. The code defines 'investigation' in Section 2(h) as “the collection of evidence conducted by a police officer.” There are different categories of property to be seized. Property with respect to which an offence has been committed, either stolen or misappropriated or extorted, property used in the commission of an offence, and property which creates suspicion about the commission of an offence.
The police draws its power to activate the process of freezing bank account from Section 102 of the Code of Criminal Procedure (CrPC). Under sub-section (1)any police officer may seize any property which may be alleged or suspected to have been stolen or which may be found under circumstances which create suspicion of the commission of any offence. There are two conditions prescribed for this action. If the officer's rank is below that of the Inspector of the police station, he shall, as stipulated in sub-section (2), report the seizure to his senior “forthwith”. In turn, this seizure shall be “forthwith” reported to the Magistrate of that jurisdiction, under sub-section (3). The latter is sometimes followed in the breach.
The two words “shall” and “forthwith” are crucial. The Madras high court in Uma Maheshwari Vs State of Tamil Nadu stopped short of quashing the First Information Report (FIR) under Section 482 of the CrPC, for the offences of criminal breach of trust, cheating and criminal conspiracy, punishable under Sections 406, 420 and 120B Indian Penal Code (IPC) but set aside the order to freeze the accounts due to a delay in reporting it to the Magistrate. “In this back drop of the matter, the word 'forthwith' shall mean 'immediately', 'without delay', 'soon'. The reporting of the freezing of the bank accounts is mandatory. Failure to do so will vitiate the freezing of the bank account.”
Under such circumstances, the doctrine of natural justice, of giving the accused an opportunity of being heard before the freezing of the account, does not arise. As observed by the Supreme Court in Teesta Atul Setalvad Vs state of Gujarat, “Section 102 CrPC does not contemplate issuance of any such notice, and for the purpose of investigation, no notice to the suspect can be expected under the law.” The settled legal position that the “accused cannot have any say in investigation” and therefore “notice to the suspect is out of question”. The Court clarified that the “intention of the investigating agency is not required to be revealed to the suspect at that crucial stage, else, a message of alert would be received by the suspect creating a huge room for manipulation and or destruction of evidence.”
There was no clear consensus among different high courts over whether bank accounts fall under the definition of 'property' in the context of seizure under Section 102 CrPC. For instance, a Division Bench of the Delhi high court in Swaran Sabharwal Vs Commissioner of Police had noted that “the discovery of the bank account is a sequel to the discovery of the commission of the offence.”
Clearing the air, the apex court in state of Maharashtra Vs Tapas D.Neogy saw “no justification to give any narrow interpretation to the provisions of the Criminal Procedure Code. The court reasoned that “the entire money deposited in a bank which is ultimately held in the trial to be the outcome of the illegal gratification, could be withdrawn by the accused and the Courts would be powerless to get the said money which has any direct link with the commission of the offence committed by the accused.”
The provision to freeze accounts, or legal 'coldplay' as it were, may come across as draconian and have scope for abuse of powers. The safeguard lies in the procedure spelt out. Often, this is where the police fall short, giving the account holder legal leeway to challenge the action in court through a quash petition. The reality, however, is that quashing is more difficult than freezing!
(The writer is an advocate at the Madras high court, columnist & author)...