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(By Ms. Sirjan Kaur, a 3rd year Law student pursuing B.A. LLB from MERI Professional and Law)
The practice of freezing and placing a lien on bank accounts by Law Enforcement Agencies or Investigating Authorities has gained a significant attention in recent days by Indian businesses and companies. Imagine how benevolent it would be that you woke up one morning and you got your Bank Account marked with lien or Debit Freeze?
There are plethora of cases where the police or other government authorities place a lien on the bank accounts in order to restrict a person to access bank account, typically as part of an ongoing criminal investigation. Although these actions of the authorities are authorized by law, they have at the same time raised the significant question of the balance between law enforcement agency actions and an individual’s rights.
The accumulating numbers of white-collar crimes, financial crimes, and money laundering cases led to an alarming policy and jurisdictive response by the central and state governments to facilitate the investigation algorithm by equipping investigation authorities with wide-dimensional power to effectively investigate the offenses, including financial transactions.
This rise has been facilitated by the increasing use of digital banking and the ability of authorities to monitor financial transactions more closely. It is argued by the investigating authorities that freezing of bank accounts should culminate to prevent further criminal activity and economic offenses.
Power of investigation authority to freeze the bank account
The freeze of a bank account can be ordered under the part of the investigation of illegal activities, including money laundering, unpaid debts, or fraud. The scope of power is traced from the source of Section 106 of Bhartiya Nagarik Suraksha Sahita, 2023 (B.N.S.S).
This provision of B.N.S.S deals with the power of police to seize the property without a warrant, particularly in the case where the officer has reason to believe that any property is stolen or used in the commission of an offense.
“106. Power of police officer to seize certain property.
(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.
(2) Such police officer, if subordinate to the officer in charge of a police station, shall forthwith report the seizure to that officer.
(3) Every police officer acting under sub-section (1) shall forthwith report the seizure to the Magistrate having jurisdiction and where the property seized is such that it cannot be conveniently transported to the Court, or where there is difficulty in securing proper accommodation for the custody of such property, or where the continued retention of the property in police custody may not be considered necessary for the purpose of investigation, he may give custody thereof to any person on his executing a bond undertaking to produce the property before the Court as and when required and to give effect to the further orders of the Court as to the disposal of the same:
Provided that where the property seized under sub-section (1) is subject to speedy and natural decay and if the person entitled to the possession of such property is unknown or absent and the value of such property is less than five hundred rupees, it may forthwith be sold by auction under the orders of the Superintendent of Police and the provisions of sections 503 and 504 shall, as nearly as may be practicable, apply to the net proceeds of such sale.”
Why the Bank Accounts of third Parties get frozen?
As the ratio of white-collar crimes is increasing day by day, there are several situations emerging where the bank accounts of the third persons are frozen by the law-enforcing authorities who neither belong to any of the accused persons nor have any involvement in the criminal activity. Clarification over the massive issue arising “whether the bank account of third party or the petitioners can be freeze” is given by the Hon’ble High Court of Bombay in the judgement of Manish Khandelwal And Ors vs The State Bank Of Maharashtra And Ors On 30 July,2019. The Learned Single Judge directed to defreeze the bank accounts which were frozen by the concern bank, pursuant to directions of concerned police officer. in the present case, the Investigating Agency/Officer, in freezing the accounts of the Petitioners, has not reported freezing of the accounts of the Petitioners to the learned Magistrate which is mandatory requirement under sub-Section (3) of Section 102 of Cr.PC (Section 106 of B.N.S.S).
For How long an investigation authority can freeze an account?
It is the biggest concern of the account holder of whether a company, a business or an individual that “How long their account will be freezed or How long an investigation can last for?” This issue was raised before the Madras High Court and same is clarified in the judgement of “Mr. Guruprasath vs State [CRL. R.C. NO. 1332 OF 2017]” in which Hon’ble Court has taken the reference to the Judgement of Hon’ble Supreme Court, which has indicated that while freezing account, pursuant to any pending investigation, such freezing shall be of very short duration and the period should also be specific and pending investigation, Bank accounts cannot be freezed indefinitely. In this case, the petitioner is not even arrayed as an accused, but his business accounts are being freezed without any intimation and in violation of statute and contrary to the dictum laid in the judgments of the Supreme Court.
Similarly, the Hon’ble Delhi High Court recently in a petition filed by the “Chhole-Bhature vender” against the freezing of his bank account, an Order is passed by Justice Manoj Jain ordering the investigation authority to defreeze the bank account of the vendor. Moreover, a remark has passed by the Court that “The continued freezing of the entire bank account of the petitioner, without even hinting that the petitioner was either mastermind or accomplice in the cybercrime or knowingly received the funds as part of any illegal activity will not be justifiable and sustainable, at the moment which has violated the right to livelihood of a small vender who is dependent on the daily earning to fulfil his needs.”
REMEDIES
There is plethora of remedies which can be accessed by an individual or a business to get their Bank Account de-freeze or remove lien. In case the Bank Account is marked with Debit Freeze or Lien, by any of the Investigation Authorities. Some of the most effective remedies are suggested as below :-
- Before the Investigation Authority
As per Section 106 of B.N.S.S, police officials as the investigation authority have the power to freeze the account as a part of investigation. Similarly, at the same time, the debit freeze or Lien from a Bank Account can be removed by the police officials/Investigating Officer at an appropriate stage or after the completion of the investigation. In case a valid explanation is offered by the appellant to define the transaction, due to which debit freeze or lien was applied, or the investigation authority feels that continuance of seizure is no longer required, in that case, police officials/investigating officers can issue an instruction to the concerned bank to remove the debit freeze or lien.
- Before the Magistrate
A person whose bank account got Debit Freeze or marked with Lien are more often forced to approach the court, due to an inappropriate unfruitful action of the investigating authorities. For the same, remedies are available before the affected person to approach the Magistrate under Section 497 or 503 of B.N.S.S, as court have the jurisdiction over such disputes and may pass an order to remove the lien/de-freeze the concerned bank account.
- Before the High Court
An individual or any business, may also approach the High Court under Article 32 of The Constitution of India on the basis of violation of Fundamental Right to earn livelihood as per the provision of Article 21 of The Indian Constitution which provides the Right to Life to every citizen of the India. However, at the same time it may be rejected by the High Court or High court can direct the parties to approach the Magistrate under section 497 or 503 of B.N.S.S.
Similarly, an issue was highlighted before the Hon’ble High Court of Kerala “Questions may often arise as to the legal remedy which a person can resort to, upon being aggrieved by the seizure of his bank account which reveals no nexus with the alleged offence.” Which was resolved by the Hon’ble Court in the Judgement of Madhu.K vs The Sub Inspector Of Police on 26th August, 2020 by remarking that “In case the seizure is illegal and the account freezed lacked direct link with the offences alleged, the legal remedy open to the aggrieved is to approach the concerned Magistrate under Section 451 or 457 of the CrPc as the case may be, and seek to get the account de-freezed.” This writ petition was disposed by the high court with the direction to the petitioner to approach the learned Magistrate concerned, who shall, on the motion of the former, de-freeze the account in case the second Respondent fails to submit the report as directed above and in case a report as directed is submitted, the learned Magistrate shall pass necessary orders after hearing both parties, in accordance with law.
Conclusion
The practice of marking lien or freezing a bank account is a significant financial measure that can be executed by the investigation authorities as part of an investigation to minimize the risk of financial offenses. While it serves to protect both financial institutions and individuals, it can also cause considerable inconvenience to individuals, businesses, and companies. The cause and implication of a bank freeze/lien are crucial to understand, particularly in the scenario where it has affected innocent individuals or disrupted legitimate business activities. However, Investigation Authorities are responsible for maintaining transparency while freezing the bank account to minimize the risk of unjust consequences.
DISCLAIMER
The present Article intends to provide brief and general information on the above mentioned subject & in no manner provides exhaustive details on the same. This document shall not be construed as a legal advise & further, shall not form as a base to take any decision without seeking proper legal advise from us. We shall not be responsible for whatsoever sustained by any person relying on this material.
