What is the scope of power of investigating authorities to freeze bank accounts in India, and what are the legal safeguards and remedies available to an aggrieved party in cases of arbitrary freezing of bank accounts?

The investigating authorities in India have the power to freeze a bank account under Section 102 of the Code of Criminal Procedure, 1973 (“CrPC”). This power is intended to secure the property suspected to have been stolen or to have a direct connection with the commission of a crime from being 'disposed of' or 'destroyed'. According to Section 102, any police officer can seize any property, including bank accounts, if they have a reasonable suspicion that the account is connected to an alleged offence.

To freeze a bank account, the investigating authority must satisfy that there exists sufficient material to show that the amount in the bank account is connected with the alleged offence. The property must not only have a close link to the alleged crime, but the officer must have reasonable grounds to believe such a nexus exists. There should be prima facie evidence to indicate that there are entries in the bank account which can be connected to the commission, result or proceeds of a crime.

The Supreme Court has held that Section 102 of the CrPC applies to offences created under any statute, but when a special enactment such as the PMLA provides for a power and procedure for seizure, resorting to the power under the general law such as the CrPC does not arise. The essentials of Section 17 of the PMLA which pertain to 'search and seizure' must be strictly complied with, and recourse cannot be taken to Section 102 of the CrPC.

The freezing of bank accounts of third parties who are neither accused nor named parties in the complaint raises an anomalous situation. The High Court has held that the bank account need not be only of the accused but can be any account creating suspicion about the commission of an offence. However, there has to be a 'strong' suspicion for such bank accounts of third parties to be frozen, and the discretion has to be invoked with the 'utmost restraint'. In some cases, courts have found no nexus or relevance of the freezing of the bank account to the investigation of the offence registered against the actual accused and ordered the de-freezing of the accounts. The courts have also considered the impact of freezing bank accounts on the rights of people and directed the de-freezing of accounts in cases where the accounts have no direct nexus with the offence and freezing them will adversely affect the interests of the account holders.

The freezing of bank accounts is a common tool used by investigating authorities during the investigation of criminal offences. Section 102 of the CrPC allows investigating authorities to freeze bank accounts if they are found under circumstances that create suspicion of the commission of an offence. However, the unselective and capricious utilization of the police authorities to freeze bank accounts has emerged as a concern for Indian enterprises and corporations. This can severely impair the functioning of a business and result in significant financial challenges. To tackle this problem, specific legal remedies and procedural safeguards are accessible to a suffering entity.

The aggrieved party can approach the High Court or the Supreme Court of India for relief. The courts have the power to quash the order freezing the bank account if it is found to be arbitrary, without jurisdiction, or in violation of any legal provision. The courts can also direct the investigating authorities to release the frozen account if they find that there is no evidence of any connection between the account and the alleged offence.

One remedy available to the account holder is to execute a bond undertaking to produce the property before the court when required, as allowed by an amendment to Section 102(3) of the CrPC. If the investigating authority finds that the continued retention of the property is not necessary for the investigation, they may return custody of the seized property subject to the bond. The Supreme Court has clarified that the investigating officer should issue instructions to return the seized property if they are satisfied with the explanation offered by the account holder and if they believe the seizure is unnecessary.

The account holder can also approach the concerned magistrate under Section 451 or Section 457 of the CrPC. Courts have allowed de-freezing of bank accounts on the condition that the account holder executes a bond for the concerned amount and produces such amount if directed by the magistrate. Section 457 empowers the magistrate to deliver the seized property to the entitled person.

Alternatively, an aggrieved party may assail the freezing order by taking recourse to Section 482 of the CrPC and Article 226 of the Constitution before the jurisdictional High Court. High Courts have entertained petitions under Section 482 of the CrPC, invoking its inherent powers for de-freezing bank accounts. However, the court may reject the request for de-freezing if it believes that it would frustrate the investigation or the investigation is not yet complete.

The issue of whether prior and post freezing notice is required by Section 102 of the CrPC remains ambiguous. The Supreme Court has held that there is no requirement for prior notice, but the service of the prohibitory order post freezing and seizure memo remains a tenable objection. Another area that requires further clarity is the nature or extent of 'suspicion' required for the investigating authority to order the freezing of a bank account. The courts emphasize the requirement that the investigating authorities must satisfy themselves on the basis of the material available to them that there is a need to freeze the account to prevent arbitrary use of Section 102 of the CrPC.

In conclusion, the police have the authority to freeze bank accounts in specific cases. However, it is crucial for them to exercise this power prudently while respecting the rights of uninvolved parties. There are legal measures in place that can help an aggrieved person seek justice and prevent the misuse of the authority to freeze bank accounts. These measures guarantee that individuals are not unjustly targeted by arbitrary freezing of their bank accounts.

By - Lakshmi Raman