Bombay High Court: Freezing of bank accounts continued after expiration of limitation period is unlawful

Bombay High Court: Freezing of bank accounts continued after expiration of limitation period is unlawful

The division bench of the Bombay High Court (HC) comprising of Justices Milind N. Jhadav and Ujjal Bhuyan, clarified that provisional attachment of bank account can be for a period of six months but the said period can be extended for a further period not exceeding six months for reasons to be recorded in writing and communicated to the affected person before expiry of the initial period of six months

On 19 January 2021, the HC while hearing the case of Goodmatric Export Pvt. Ltd. & Anr. (Petitioner) v. Union of India &Ors. (Respondent) gave directions of immediate unfreezing of the bank accounts as it cannot be continued after the expiration of the limitation period.

The factual matrix of the case is, Goodmatric Export Pvt. Ltd. (petitioner) challenged the letter dated 8 May 2019 issued by the Directorate of Revenue Intelligence, Kolkata Zonal Unit to the General Manager, Kotak Mahindra Bank Limited, requesting debit-freeze of one account of the petitioners.

According to the letter, there was an ongoing investigation undertaken by the Directorate of Revenue Intelligence in respect of the import of precious and semi-precious stones from Kolkata.

In the course of the investigation, it was found that petitioners had opened an account in the Kotak Mahindra Bank and the bank was requested to keep the said account under debit-freeze mentioning that the letter was issued in terms of Section 110 of the Customs Act, 1962 (Act).

Apart from the above provisional attachment, three other bank accounts of the petitioners were frozen with effect from 15 May 2019 on instructions issued by the respondent authority.

It was contended that even the extended period of six months was not available to the respondents as no order was passed for extending the initial period of six months.

Mr. Jetly, senior counsel for the respondents referred to the averments made in the reply affidavit and submits that conduct of the petitioners does not inspire confidence. It was further submitted that such a person is not entitled to invoke the discretionary jurisdiction of the writ Court under Article 226 of the Constitution of India.

The issue before the HC was-

Whether a provisional attachment of a bank account can be continued beyond the period of one year?

The HC referred to the case of Samyak Jewels Pvt. Ltd. v. Union of India decided on 25 September 2020 wherein the Court was confronted with a similar issue wherein the bank account of the petitioner was frozen on 19 April 2018 and continued to remain frozen for a period of more than one year.

Examining the meaning of the word 'provisional', it has been held that it is a temporary arrangement. The two words - 'provisional' and 'attachment' read in conjunction can only mean a temporary attachment

The Bench after hearing the submissions of both the parties noted that the initial period of six months had expired in November 2019. It further observed that even after assuming and giving the benefit of a further period of six months to the respondent authority, the outer limit of one year expired in May 2020.

The Bench stated, "Such exercise of the power of freezing bank accounts is clearly unlawful and in any case cannot be continued now after expiration of the outer limitation period of one year."

The HC quashed the impugned letter and directed the bank to unfreeze the Petitioners' Bank Accounts immediately. It stated, "We do not find any justification to continue with the provisional attachment of the bank accounts of the petitioner."