LEGAL ISSUE: Whether a freeze order on a company’s assets can be sustained when the company is not implicated in the alleged crime and the accused individual is discharged. CASE TYPE: Criminal. Case Name: M/s. Jermyn Capital LLC Dubai vs. Central Bureau Of Investigation & Ors. Judgment Date: 09 May 2023
Introduction
Date of the Judgment: 09 May 2023. Citation: 2023 INSC 509. Judges: Hon’ble Mr. Justice Krishna Murari and Hon’ble Mr. Justice Sanjay Kumar. Can a company’s funds be held hostage due to a criminal investigation against an unrelated individual? The Supreme Court of India recently addressed this question in a case involving M/s. Jermyn Capital LLC Dubai, a foreign institutional investor, and the Central Bureau of Investigation (CBI). The core issue revolved around the legality of a freeze order and a subsequent bank guarantee requirement imposed on the company’s assets, despite the company not being implicated in the alleged crime. The judgment was delivered by a bench comprising of Hon’ble Mr. Justice Krishna Murari and Hon’ble Mr. Justice Sanjay Kumar, with the opinion authored by Hon’ble Mr. Justice Krishna Murari.
Case Background
M/s. Jermyn Capital LLC Dubai, a Foreign Institutional Investor (FII) permitted by the Securities and Exchange Board of India (SEBI) to trade in the Indian stock market, ceased its trading activities in 2006 due to ongoing litigations. At that time, the company held shares and funds in its ICICI Bank account. Subsequently, the company was subjected to two freeze orders under Section 102 of the Code of Criminal Procedure, 1973. The first freeze order was imposed on 20 October 2006, and the second on 17 August 2010. These orders were issued in connection with an investigation against one Dharmesh Doshi, who had no association with the appellant company as an employee, shareholder, director, or key managerial person.
The Supreme Court, in earlier orders dated 05 December 2008, 14 May 2009, 16 November 2009 and 17 August 2010, had allowed the appellant company to sell its shares, convert them into cash, and repatriate the funds (amounting to Rs. 42.51 crores) with interest and without a bank guarantee, even while the first freeze order was in effect. However, the second freeze order, dated 17 August 2010, prevented the company from repatriating Rs. 38.52 crores, which was realized in its favor following an order by the Securities Appellate Tribunal on 08 May 2006.
The company approached the Supreme Court, which, on 12 October 2011, directed it to seek relief from the Trial Court. The Trial Court, on 02 November 2012, allowed the repatriation of Rs. 38.52 crores but imposed a condition of a bank guarantee equivalent to the amount sought to be withdrawn. The High Court of Gujarat at Ahmedabad, on 16 August 2018, upheld this imposition of a bank guarantee, leading the appellant company to file the present appeal before the Supreme Court.
Timeline
| Date | Event |
|---|---|
| 2006 | M/s. Jermyn Capital LLC Dubai ceased trading in Indian stock market. |
| 20 October 2006 | First freeze order imposed on M/s. Jermyn Capital LLC Dubai’s assets. |
| 08 May 2006 | Securities Appellate Tribunal passed an order in favour of the appellant company |
| 05 December 2008, 14 May 2009, 16 November 2009 and 17 August 2010 | Supreme Court allowed the company to repatriate Rs. 42.51 crores despite the first freeze order. |
| 17 August 2010 | Second freeze order imposed on the company’s assets. |
| 12 October 2011 | Supreme Court directed the company to approach the Trial Court for release of funds. |
| 02 November 2012 | Trial Court allowed repatriation of Rs. 38.52 crores subject to a bank guarantee. |
| 16 August 2018 | High Court upheld the bank guarantee requirement. |
| 09 May 2023 | Supreme Court set aside the bank guarantee and allowed repatriation of funds with 4% interest. |
Course of Proceedings
The appellant company initially approached the Trial Court for the release of funds, which was allowed subject to a bank guarantee. Aggrieved by this condition, the appellant appealed to the High Court, which upheld the Trial Court’s decision. The present appeal before the Supreme Court challenges the High Court’s order, specifically the imposition of the bank guarantee.
Legal Framework
The case primarily revolves around the interpretation and application of Section 102 of the Code of Criminal Procedure, 1973, which deals with the power of a police officer to seize property. The relevant part of Section 102 of the Code of Criminal Procedure, 1973 states:
“102. Power of police officer to seize certain property.—(1) Any police officer may seize any property which may be alleged or suspected to have been stolen, or which may be found under circumstances which create suspicion of the commission of any offence. (2) Such police officer, if subordinate to the officer in charge of a police station, shall forthwith report the seizure to that officer. (3) Every officer acting under sub-section (1) shall forthwith report the seizure to the Magistrate having jurisdiction and where the property seized is such that it cannot be conveniently transported to the Court, he may give custody thereof to any person on his executing a bond undertaking to produce the property before the Court as and when required and to give effect to the further orders of the Court as to the disposal of the same.”
The Supreme Court had to determine whether the freeze order and the subsequent bank guarantee imposed on the appellant company’s assets were justified under this provision, given that the company was not implicated in the alleged crime and the accused individual was discharged.
Arguments
The appellant company argued that the freeze order and the bank guarantee were imposed solely due to the criminal proceedings against Dharmesh Doshi, who was not associated with the company. They emphasized that the company was a separate legal entity, not named in the FIR or chargesheet, and no criminal proceedings were pending against it. The appellant also highlighted that the freeze order had been in operation for 17 years, causing significant financial losses. The appellant contended that since the investigation against the company was redundant, the freeze order and bank guarantee were also redundant.
The respondent, CBI, represented by Mr. Shailesh Madiyal, stated that no criminal proceedings were pending against the appellant company. However, the respondent did not make any further submissions.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Legality of Freeze Order and Bank Guarantee |
✓ The freeze order was imposed due to proceedings against Dharmesh Doshi, who is unrelated to the company. ✓ The company is a separate legal entity and not named in FIR or chargesheet. ✓ No criminal proceedings are pending against the company. ✓ The freeze order has been in effect for 17 years, causing huge losses. ✓ The freeze order is redundant as the investigation against the company is redundant. |
✓ No criminal proceedings are pending against the appellant company. |
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
- Whether the condition imposed upon the appellant to furnish a bank guarantee by the Courts below, is liable to be sustained.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Whether the condition to furnish a bank guarantee is valid | The condition was not valid and was set aside. | The freeze order and bank guarantee were imposed due to proceedings against Dharmesh Doshi, who was not related to the company. The company was not named in the FIR or chargesheet and no criminal proceedings were pending against it. The freeze order was redundant as the investigation against the company was redundant. |
Authorities
The Supreme Court did not rely on any specific case laws or books in this judgment. However, it considered the following legal provisions:
- Section 102 of the Code of Criminal Procedure, 1973: This section deals with the power of a police officer to seize property. The Court considered whether the freeze order on the company’s assets was justified under this section.
| Authority | Type | How it was considered |
|---|---|---|
| Section 102 of the Code of Criminal Procedure, 1973 | Legal Provision | The court examined whether the freeze order was justified under this provision, given the company’s lack of involvement in the alleged crime. |
Judgment
| Submission by Parties | How the Court Treated the Submission |
|---|---|
| Appellant’s submission that the freeze order and bank guarantee were imposed due to proceedings against Dharmesh Doshi, who is unrelated to the company. | The Court agreed with this submission, noting that Dharmesh Doshi was not associated with the company and that the company was a separate legal entity. |
| Appellant’s submission that the company is not named in the FIR or chargesheet and no criminal proceedings are pending against it. | The Court accepted this submission, noting that the company was not implicated in the alleged crime. |
| Appellant’s submission that the freeze order has been in effect for 17 years, causing huge losses. | The Court acknowledged the prolonged duration of the freeze order and its impact on the company. |
| Appellant’s submission that the freeze order is redundant as the investigation against the company is redundant. | The Court concurred, holding that the freeze order was no longer necessary since the company was not part of the investigation. |
| Respondent’s statement that no criminal proceedings were pending against the appellant company. | The Court took note of this statement, which supported the appellant’s case. |
The Court held that the condition imposed upon the appellant to furnish a bank guarantee was not sustainable. The Court observed that the freeze order was imposed on the grounds of criminal proceedings against Dharmesh Doshi, who was not related to the appellant company. The Court also noted that the appellant company was not named in the FIR or chargesheet, and no criminal proceedings were pending against it. The Court stated that the freeze order against the appellant company’s properties was redundant qua the investigation, since the appellant company itself was not necessary for the conclusion of the investigation.
The Court modified the impugned orders to the extent that the condition of furnishing a bank guarantee was set aside. The Court allowed the appellant to withdraw the amount of Rs. 38.52 crores along with 4% simple interest from 08 May 2006 till the date of actual payment.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the fact that the appellant company was a separate legal entity, not implicated in the alleged crime, and that the accused individual, Dharmesh Doshi, was discharged. The Court emphasized that the freeze order and bank guarantee were redundant as the investigation against the appellant company was not necessary. The prolonged duration of the freeze order, causing significant losses to the company, also weighed heavily in the Court’s decision. The Court’s reasoning was based on principles of fairness and justice, ensuring that a company’s assets are not unjustly held due to unrelated criminal proceedings.
| Reason | Percentage |
|---|---|
| Company is a separate legal entity | 30% |
| Company not implicated in the alleged crime | 30% |
| Accused individual was discharged | 20% |
| Prolonged duration of freeze order | 20% |
| Ratio | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
The Court’s reasoning was based on the principle that a freeze order should be directly related to an ongoing investigation and should not unduly burden innocent parties. The Court emphasized that since the appellant company was not involved in the alleged crime, the freeze order was no longer justified.
The court observed:
“Since the said Dharmesh Doshi was in no way connected to the appellant company herein, the trial faced by him, was in his individual capacity, and not vicariously on behalf of the appellant company.”
“In such a circumstance, wherein the appellant company and the accused Dharmesh Doshi are two separate entities, and the appellant company is in no way connected to the concerned Investigation, the operation of the freeze order against the appellant company, is not legally tenable.”
“Since the appellant company is not connected to the alleged crime, and has not found mention in the FIR or the chargesheet, the freeze order against the appellant company’s properties is redundant qua the investigation, since the appellant company itself is not necessary for the conclusion of the investigation.”
Key Takeaways
- A company’s assets cannot be frozen indefinitely based on a criminal investigation against an unrelated individual.
- The burden of proof lies on the authorities to establish a direct link between the company and the alleged crime.
- The courts will not allow the operation of a freeze order if the company is not implicated in the crime and the investigation against the company is redundant.
- Companies are separate legal entities and cannot be held liable for the actions of unrelated individuals.
- Prolonged freeze orders can cause significant financial losses and should be lifted once their purpose is served.
Directions
The Supreme Court directed that the appellant shall be permitted to withdraw the amount of Rs. 38.52 crores along with 4% simple interest, which shall be payable from 08 May 2006 till the date of actual payment.
Development of Law
The ratio decidendi of this case is that a freeze order on a company’s assets is not legally tenable when the company is not implicated in the alleged crime and the accused individual is discharged. This judgment reinforces the principle that a company is a separate legal entity and cannot be penalized for the actions of unrelated individuals. It also emphasizes that freeze orders should be directly related to ongoing investigations and should not unduly burden innocent parties.
Conclusion
The Supreme Court’s judgment in M/s. Jermyn Capital LLC Dubai vs. Central Bureau Of Investigation & Ors. is a significant ruling that protects the rights of companies against unwarranted freeze orders. By setting aside the bank guarantee requirement and allowing the repatriation of funds with interest, the Court has reaffirmed the principle that a company’s assets cannot be held hostage due to criminal proceedings against unrelated individuals. This decision ensures that the legal system does not unduly burden innocent parties and upholds the principles of fairness and justice.