The Supreme Court recently ruled that the bank account of the company cannot be frozen for an investigation against a third party.
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.
Complicating matters, the appellant company found itself subject to two freeze orders under Section 102 of the Code of Criminal Procedure, 1973. The first freeze order was implemented on October 20, 2006, followed by the second freeze order on August 17, 2010.
These freeze orders were enforced as part of an investigation into an alleged crime. Notably, the investigation targeted an individual named Dharmesh Doshi, who had no affiliation with the appellant company. Doshi was neither an employee, shareholder, director nor a key managerial person within the appellant company.
Addressing the first freeze order, the Court granted permission for the two appellant companies to sell their shares, convert them into cash, and repatriate the funds, including interest, without the need for a bank guarantee. The appellant company successfully repatriated an amount of Rs. 42.51 crores without any bank guarantee.
However, the second freeze order, issued by the Central Bureau of Investigation & Ors, prevented the appellant company from repatriating Rs. 38.52 crores, which had been realized following an order by the Securities Appellate Tribunal.
Seeking relief from this situation, the appellant company approached the Supreme Court and was granted permission to approach the Trial Court for the release of the frozen funds. The Trial Court allowed the repatriation of Rs. 42.51 crores, acknowledging the appellant company’s entitlement to the amount of Rs. 38.52 crores. However, the release of these funds was contingent upon providing a bank guarantee equivalent to the withdrawn amount.
Displeased with this requirement, the appellant company filed an appeal to the High Court. Unfortunately, the High Court upheld the imposition of the bank guarantee in its impugned order. In response, the appellant company lodged a present Appeal with the Supreme Court.
The two-judge Supreme Court Bench of Justice Krishna Murari and Justice Sanjay Kumar observed that despite notice being served, ICICI Bank, (respondent no.2), chose not to appear. The lower courts’ decisions indicated that the bank guarantee and freeze orders were solely based on the ongoing criminal proceedings against Dharmesh Doshi, who allegedly had a connection to the appellant company.
However, upon reviewing the records, it came to light that Dharmesh Doshi had been discharged of the alleged offences by the Trial Court. Importantly, Doshi had no association with the appellant company as an employee, shareholder, director, or key managerial person.
Given the absence of any connection between Dharmesh Doshi and the appellant company, the Supreme Court deemed the freeze order against the appellant company legally untenable. It further emphasized that the appellant company had not been named in the FIR or charge sheet involving Dharmesh Doshi.
Furthermore, Mr. Shailesh Madiyal, representing the respondent CBI, stated that no pending criminal proceedings were against the appellant company regarding the present dispute, based on instructions received.
The Supreme Court clarified that even if Dharmesh Doshi’s discharge were to be reversed, leading to his conviction, it would have no impact on the appellant company’s properties as the appellant company was not implicated in the alleged crime.
Considering the appellant company’s lack of involvement in the alleged crime and its absence from the FIR or charge sheet, the freeze order on the appellant company’s properties was deemed redundant in relation to the investigation, as the appellant company was not essential for its conclusion.
Furthermore, it was brought to the Court’s attention that the freeze order had been in effect for 17 years, resulting in significant losses for the appellant company. The purpose of the freeze order and the accompanying bank guarantee was to aid the investigation into the alleged crime. However, since the investigation against the appellant company was deemed redundant, the freeze on its assets and the bank guarantee became unnecessary.
As a result, the appeal of the assessee was allowed.
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