The Supreme Court recently ruled that the requirement of a bank guarantee in relation to freezing accounts is unnecessary and unwanted.
M/s. Jermyn Capital LLC Dubai, a Foreign Institutional Investor permitted by the Securities and Exchange Board of India (SEBI) to engage in buying and selling shares and securities in the Indian Stock Market, faced a setback due to litigation in 2006. As a result, the company ceased its trading activities in the Indian markets. However, during this period, the appellant company maintained shares and funds in its ICICI bank account.
The appellant company was subject to two freeze orders under Section 102 of the Code of Criminal Procedure, 1973. The first freeze order was imposed against the appellant company on 20.10.2006, and the second freeze order was imposed on 17.08.2010.
The first freeze order was concerned with the appellant company to sell the shares in its account, convert it into cash, and repatriate the funds so received with interest and without a bank guarantee. The appellant company repatriated an amount of Rs. 42.51 crores without any bank guarantee.
The second freeze order, which was passed by the respondent (Central Bureau of Investigation & Ors) had incapacitated the appellant company herein to repatriate an amount of Rs. 38.52 crores, which by an order passed by the Securities Appellate Tribunal dated 08.05.2006.
Aggrieved, the appellant company had approached this Court for relief, and the Supreme Court gave liberty to the appellant company to approach the Trial Court for release of the said amount.
The trial court and, subsequently, the High Court imposed a bank guarantee equivalent to the amount sought to be withdrawn. The appellant company filed the present Appeal before the Supreme Court.
The two-judge Supreme Court Bench comprising Justice Krishna Murari and Justice Sanjay Kumar observed that the operation of the freeze order has been active for a period of 17 years and has caused huge losses to the appellant company.
The purpose of the freeze order, and the bank guarantee in extension of the freeze order, can only be in operation to aid in the investigation against the alleged crime. Since the investigation against the appellant company was redundant, the freezing of the appellant company’s assets and the bank guarantee imposed in furtherance of the freeze order also becomes redundant.
Therefore, the condition imposed upon the appellant to furnish a bank guarantee by the courts below was deemed unsustainable and was set aside.
As a consequence, the appellant was permitted to withdraw the aforementioned amount along with 4% simple interest, which shall be payable from 08.05.2006 until the date of actual payment.
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