Supreme Court Allows Operation Mobilization India to Use Frozen Funds for Institutional Expenses: Operation Mobilization India & Ors. vs. State of Telangana & Ors. (2024)

Date of the Judgment: April 5, 2024

Citation: 2024 INSC 275

Judges: Vikram Nath, J., Prashant Kumar Mishra, J.

Can an investigating agency freeze the accounts of an organization, thereby hindering its operations, even when the investigation is ongoing? The Supreme Court of India recently addressed this critical question in a case involving Operation Mobilization India, an organization running numerous educational and health institutions. The court had to balance the need for investigation with the need to ensure that the organization could continue its operations. The bench comprised of Justices Vikram Nath and Prashant Kumar Mishra.

Case Background

The case originated from a First Information Report (FIR) lodged on September 29, 2016, by respondent no. 3, alleging offenses under Sections 409, 420, 477(A) of the Indian Penal Code, 1860 and Section 37 of the Foreign Contribution (Regulation) Act, 2010. The Economic Offences Wing (CID) of Telangana State initiated the investigation. The challenge to the FIR was rejected in 2017. The investigation continued, and in November 2020, the CID Telangana State froze the accounts of the petitioners. This action led the petitioners to approach the High Court, which upheld the freezing order. The petitioners then appealed to the Supreme Court.

Timeline

Course of Proceedings

Initially, the challenge to the FIR was rejected by the Supreme Court in SLP(Crl.) No. 3888 of 2017 on September 12, 2017, with directions to expedite the investigation. Subsequently, another SLP(Crl.) D. No. 27899 of 2018 was filed by the informant, which was also declined by the Supreme Court. The informant then filed a Writ Petition (W.P. No. 13044 of 2019) before the High Court, seeking investigation by the Central Bureau of Investigation (CBI). The CBI declined to investigate. The High Court rejected the challenge to the freezing of the accounts, leading to the present appeal before the Supreme Court.

Legal Framework

The case involves allegations under Sections 409, 420, and 477(A) of the Indian Penal Code, 1860, which deal with criminal breach of trust, cheating, and falsification of accounts, respectively. Additionally, Section 37 of the Foreign Contribution (Regulation) Act, 2010, is invoked, which pertains to offenses under the Act. The State of Telangana also referred to a notification issued by the Ministry of Home Affairs vide SO No. 2446 (E), dated 27-10-2011, which specifies the competent authority for investigation in cases of FCRA violations involving amounts exceeding one crore.

Arguments

Petitioners’ Arguments:

• The petitioners argued that the freezing of their accounts was causing severe disruption to the functioning of their 103 educational institutions and more than a dozen primary health centers across 18 states.
• They contended that the State CID was not authorized to conduct the investigation as the amount involved was more than one crore, and that the CBI was the competent authority as per the notification issued by the Ministry of Home Affairs.
• The petitioners sought the continuation of the interim order allowing them to use their accounts for salary and institutional expenses.

Respondents’ Arguments:

• The State of Telangana acknowledged that the petitioner organization was running numerous institutions and health centers, requiring funds for their operation.
• The State insisted that the petitioners maintain proper accounts, audited by a Chartered Accountant, and provide these to the investigating agency on a regular basis.
• The respondents also initially argued that the CID Telangana was not authorized to conduct the investigation and that the CBI was the competent authority, but later sought permission to file a charge sheet or to entrust the investigation to the CBI.
• The private respondents tried to press the Contempt Petition.

Submissions Table:

Issues Framed by the Supreme Court

• Whether the interim order dated 7th April, 2021, allowing the petitioners to use their accounts for salary and institutional expenses, should be made absolute.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not cite any specific case laws or books in this judgment. The court primarily relied on the submissions of the parties and the factual context of the case.

Legal Provisions Considered:

• Sections 409, 420, and 477(A) of the Indian Penal Code, 1860, dealing with criminal breach of trust, cheating, and falsification of accounts, respectively.
• Section 37 of the Foreign Contribution (Regulation) Act, 2010, pertaining to offenses under the Act.
• Notification issued by Ministry of Home Affairs vide SO No. 2446 (E), dated 27-10-2011, specifying the competent authority for investigation in cases of FCRA violations involving amounts exceeding one crore.

Authority Table:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court considered Sections 409, 420, and 477(A) of the Indian Penal Code, 1860, and Section 37 of the Foreign Contribution (Regulation) Act, 2010, as the basis of the allegations against the petitioners, but did not make any specific findings on the merits of the allegations.
• The Court noted the State of Telangana’s reference to the notification issued by the Ministry of Home Affairs vide SO No. 2446 (E), dated 27-10-2011, regarding the competent authority for investigation, but did not make any specific finding on this issue.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure the smooth functioning of the 103 educational institutions and more than a dozen primary health centers run by the petitioners. The Court acknowledged the State’s contention that the petitioners needed funds to operate these institutions. The Court also emphasized the importance of maintaining proper accounts and providing quarterly statements to the investigating agency or the trial court. The Court did not delve into the merits of the allegations, focusing instead on the practical aspects of ensuring the continuity of the petitioners’ operations.

Fact:Law Ratio:

Logical Reasoning:

The Court did not delve into the merits of the contempt petition and left it open for the investigating agency or the Trial Court to decide. The Court also clarified that it had not made any observations on the merits of the case and that the order was passed only for the smooth functioning of the institutions run by the petitioners.

“At this stage, we are, therefore, satisfied on the own showing of the respondent -State of Telangana that the order of attachment dated 21st November, 2020 needs to be stayed in so far as salary and institutional expenses are concerned. It is ordered accordingly.”

“In view of the above, we dispose of the petitions making the interim order dated 7th April, 2021 absolute, however, with a rider that the petitioners would not only maintain proper and complete statement of accounts but would also get the same audited by a Chartered Accountant and provide quarterly statements of the same to the Investigating Officer or to the Trial Court on regular basis.”

“We also make it clear that we have not made any observations on merits and the above order has been passed only for smooth functioning of the 103 educational institutions and more than a dozen primary health centres run by the petitioners.”

Key Takeaways

• The Supreme Court prioritized the smooth functioning of educational and health institutions run by the petitioners.
• The Court made the interim order absolute, allowing the petitioners to use their frozen accounts for salary and institutional expenses.
• The petitioners are required to maintain proper accounts, get them audited by a Chartered Accountant, and provide quarterly statements to the investigating officer or the trial court.
• The Court did not make any observations on the merits of the case, and the pending proceedings before all other forums are to continue in accordance with law.

Directions

The Supreme Court directed the petitioners to maintain proper and complete statements of accounts, get them audited by a Chartered Accountant, and provide quarterly statements to the Investigating Officer or to the Trial Court on a regular basis.

Development of Law

The ratio decidendi of this case is that in cases where organizations are running numerous institutions, the courts should ensure that the organizations are able to continue their operations even while investigations are ongoing. The court prioritized the smooth functioning of the institutions and directed that the petitioners could use their frozen accounts for salary and institutional expenses, subject to maintaining proper accounts and providing quarterly statements.

Conclusion

The Supreme Court disposed of the petitions by making the interim order dated April 7, 2021, absolute, allowing Operation Mobilization India to use their frozen accounts for salary and institutional expenses. The Court emphasized the need for the smooth functioning of the educational and health institutions run by the petitioners, while also directing them to maintain proper accounts and provide quarterly statements. The Court did not make any observations on the merits of the case, and the pending proceedings before all other forums are to continue in accordance with law.