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OPTO Circuit India Ltd. v. Axis Bank & Ors.

Criminal Appeal · 2021 INSC 56Decided 3 Feb 2021
Criminal Appeal No. 102 of 2021
Chief Justice S.A. Bobde · Justice A.S. Bopanna · Justice V. Ramasubramanian

Background

The State Bank of India had alleged that the appellant company, its Chairman and promoter-directors cheated it of about Rs. 354.32 crores by diverting funds abroad, leading to a CBI FIR and, since the offences were scheduled offences under PMLA, an Enforcement Directorate (ED) case. The ED directed three banks to "debit freeze/stop operations" on the company's accounts. The company challenged this freeze before the Karnataka High Court, which upheld the ED's power to act under PMLA but did not examine whether the correct legal procedure had actually been followed, leaving the company unable to pay statutory dues like TDS, PF, ESI and employee salaries.

Decision Breakdown

The Supreme Court agreed that the ED had the power under PMLA to act against proceeds of crime, but held that the specific procedure under Section 17 of the PMLA, recording a written "reason to believe" before freezing, and reporting the freezing order with material to the Adjudicating Authority, had not been followed; the freezing communication itself gave no indication that this due process had been observed. The Court rejected the ED's alternative argument that the freeze could instead be justified under Section 102 CrPC, holding that an order's validity must be judged by the reasons actually given at the time, not reasons added later in court, and that since PMLA is a standalone special law, its own procedure must be followed rather than falling back on the general Code of Criminal Procedure. As the freezing order failed to comply with the mandatory procedure, it was quashed and the banks were directed to defreeze the accounts and honour payments towards statutory dues, while leaving the ED free to initiate fresh action in accordance with law if it wished.

Lesson Learnt

When a law (like PMLA) prescribes a specific procedure for exercising a power such as freezing a bank account, including recording reasons in writing and reporting to an oversight authority, that exact procedure must be followed, and the government cannot cure a defective order after the fact by offering new justifications in an affidavit before the court.

Official source (sci.gov.in)View Judgment (PDF)

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