Supreme Court Upholds Freezing of Bank Accounts in Gujarat Riot Funds Case: Teesta Setalvad & Ors. vs. State of Gujarat (2017) INSC 1069 (15 December 2017)

Introduction

Date of the Judgment: 15th December, 2017
Citation: (2017) INSC 1069
Judges: Dipak Misra, CJI, and A.M. Khanwilkar, J.
Can police freeze bank accounts during a criminal investigation, even if those accounts are not directly named in the FIR? The Supreme Court of India addressed this question in a case involving allegations of misuse of funds meant for victims of the 2002 Gujarat riots. The court examined the scope of police powers under Section 102 of the Code of Criminal Procedure, 1973, to seize property, including bank accounts, suspected to be connected to a crime. The judgment was delivered by a bench comprising Chief Justice Dipak Misra and Justice A.M. Khanwilkar, with Justice Khanwilkar authoring the opinion.

Case Background

The case revolves around a First Information Report (FIR) filed on January 4, 2014, by Firozkhan Saeedkhan Pathan, a member of the Gulberg Co-Operative Housing Society. The FIR alleged that Teesta Setalvad, Javed Anand, and others conspired to misuse funds collected in the name of providing assistance to the victims of the 2002 Gujarat riots. Specifically, the complaint stated that the accused displayed photos and videos of the Gulberg Society on the websites of Citizens for Justice and Peace (CJP) and Sabrang Trust, appealing for donations. The complainant alleged that these funds, amounting to crores of rupees, were diverted for personal use rather than being used for the intended purpose.

The FIR also alleged that the accused misused Rs. 1,51,00,000 between 2009 and 2011. Following the registration of the FIR, the police issued instructions to freeze nine bank accounts belonging to the appellants, including those of CJP and Sabrang Trust, on January 21, 2014.

Timeline:

Course of Proceedings

The appellants initially approached the Bombay High Court seeking to quash the FIR and lift the freezing order, but their petition was rejected on November 4, 2014. They then withdrew their special leave petition before the Supreme Court, opting to approach the competent authority. Subsequently, they withdrew their application before the High Court of Gujarat at Ahmedabad and moved to the Metropolitan Magistrate’s Court at Ahmedabad. The Magistrate dismissed their applications on November 28, 2014, upholding the freezing of the bank accounts. The appellants then filed revision applications before the High Court of Gujarat, which were also dismissed on October 6/7, 2015. The High Court upheld the Magistrate’s decision, stating that the investigating agency had sufficient material to justify the freezing of the accounts under Section 102 of the Code of Criminal Procedure, 1973.

Legal Framework

The core legal provision in this case is Section 102 of the Code of Criminal Procedure, 1973, which deals with the power of a police officer to seize certain property. Section 102(1) states:

“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.”

This section allows the police to seize property if it is suspected to be stolen or connected to a crime. The law also requires the police officer to report the seizure to the Magistrate having jurisdiction. The Supreme Court has interpreted “property” under this section to include bank accounts, which means that police can freeze them if they suspect they are linked to a crime.

The court also considered Section 406, Section 420, and Section 120B of the Indian Penal Code, as well as Section 72A of the Information Technology Act, 2000, under which the FIR was registered. Additionally, the Foreign Contribution (Regulation) Act, 1976, was relevant as the Trusts involved received foreign donations.

Arguments

Appellants’ Arguments:

• ✓ The appellants argued that the police could not seize their bank accounts under Section 102 of the Code of Criminal Procedure, 1973, because the funds in the accounts were not directly linked to the alleged crime. They contended that the police must demonstrate that the seized funds are the proceeds of the crime.
• ✓ They argued that the investigating agency had not followed the procedure under Section 102 of the Code by not informing the Magistrate of the action of freezing of accounts.
• ✓ They contended that the Investigating Officer did not provide prior notice before freezing their bank accounts.
• ✓ The appellants claimed that the CJP Trust, which was not named as an accused in the FIR, should not have had its accounts frozen.
• ✓ They argued that the Trusts maintained proper accounts, which were audited, and that there was no evidence of any illegality.
• ✓ They argued that the freezing of their bank accounts was motivated and intended to stifle their social welfare activities.
• ✓ The appellants argued that the bank accounts had no direct connection with the alleged offenses.
• ✓ They argued that the freezing of accounts was an indefinite measure and that the accounts should be released upon the execution of a bond.
• ✓ They contended that the accounts were under the Foreign Contribution (Regulation) Act, 1976, and local police had no authority to freeze them.
• ✓ They argued that the investigating authority must demonstrate that the monies held in these accounts are connected with the commission of the offence.
• ✓ They argued that the police has investigated the entire accounts of the appellants even beyond the period referred to in the FIR.
• ✓ They argued that the seized accounts have nothing to do with the subject matter of the FIR.
• ✓ They contended that only the private person who has contributed can be heard to make grievance about entrustment and criminal breach of trust.
• ✓ They argued that the ingredients of the offence of cheating required dishonest or fraudulent inducement of any person to deliver any property to the accused, and none of the donors have come forward to make such a grievance.
• ✓ They relied on M.T. Enrica Lexie and Anr. v. Doramma and Ors. (2012) 6 SCC 760 and Sri Jayendra Saraswathy Swamigal (II), T.N. v. State of T.N. and Ors. (2005) 8 SCC 771 to contend that in the absence of due procedure as specified by Section 102 of the Code, seizure of bank accounts would be illegal.

Respondents’ Arguments:

• ✓ The respondents argued that the investigation was still in progress and the appellants had not fully cooperated with the investigation.
• ✓ They contended that the proper procedure for seizing bank accounts was followed, and the Magistrate was informed as required under Section 102 of the Code.
• ✓ They argued that the nature of the allegations in the FIR and the material gathered during the investigation warranted the freezing of the bank accounts.
• ✓ They stated that the High Court had already found substance in the allegations against the appellants regarding the misuse of funds.
• ✓ They contended that the appellants were not cooperating with the investigation.
• ✓ The respondents argued that the material gathered during the investigation created suspicion of the commission of the alleged offence.
• ✓ They argued that the seizure of the bank accounts should continue until the completion of the investigation.
• ✓ They argued that the investigating agency had sufficient material to justify the action under Section 102 of the Code.
• ✓ They argued that the power under Section 102 of the Code could be exercised, as the bank accounts were “property” that was suspected to be linked to the commission of an offence.

Submissions of Parties:

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue for consideration:

1. What is the sweep, purport, and applicability of Section 102 of the Code of Criminal Procedure, 1973, regarding the power of a police officer to seize property, specifically bank accounts?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Cases:

• ✓ State of Maharashtra v. Tapas D. Neogy (1999) 7 SCC 685 – This case established that a bank account is considered “property” under Section 102 of the Code of Criminal Procedure, 1973, and can be seized by the police if it is linked to a crime.
• ✓ Vinoskumar Ramachandran Valluvar V. The State of Maharashtra (2011) Cri.L.J. 2522 (Bom.) – The Bombay High Court Full Bench decision, which overruled the earlier view that prior notice was required before freezing a bank account.
• ✓ Dr. Shashikant D. Karnik v. State of Maharashtra (2008) Cri.L.J. 148 (Bom.) – This case was overruled by the Full Bench decision in Vinoskumar Ramachandran Valluvar.
• ✓ Adarsh Co-operative Housing Society Limited v. Union of India & Ors. (2012) Cri.L.J. 520 (Bom.) – The Bombay High Court reiterated that prior notice is not required before seizing a bank account.
• ✓ Sri Jayendra Saraswathy Swamigal (II), T.N. v. State of T.N. and Ors. (2005) 8 SCC 771 – The Supreme Court cautioned against the indiscriminate use of powers under Section 102 of the Code, particularly in cases where it could paralyze the activities of an organization.
• ✓ M.T. Enrica Lexie and Anr. v. Doramma and Ors. (2012) 6 SCC 760 – The Supreme Court held that property not suspected of commission of the offence cannot be seized.

Legal Provisions:

• ✓ Section 102 of the Code of Criminal Procedure, 1973 – This section empowers a police officer to seize property suspected to be connected to a crime.
• ✓ Sections 406, 420, and 120B of the Indian Penal Code – These sections deal with criminal breach of trust, cheating, and criminal conspiracy, respectively, which were the offenses alleged in the FIR.
• ✓ Section 72A of the Information Technology Act, 2000 – This section was also invoked in the FIR.
• ✓ Foreign Contribution (Regulation) Act, 1976 – This act regulates the acceptance and utilization of foreign contributions by organizations in India.

Judgment

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

How each authority was viewed by the Court?

• ✓ State of Maharashtra v. Tapas D. Neogy (1999) 7 SCC 685: The Court followed this case, reiterating that a bank account is considered “property” under Section 102 of the Code of Criminal Procedure, 1973, and can be seized by the police if it is linked to a crime.
• ✓ Vinoskumar Ramachandran Valluvar V. The State of Maharashtra (2011) Cri.L.J. 2522 (Bom.): The Court endorsed this Full Bench decision of the Bombay High Court, which held that prior notice is not required before freezing a bank account.
• ✓ Dr. Shashikant D. Karnik v. State of Maharashtra (2008) Cri.L.J. 148 (Bom.): The Court noted that this decision was overruled by the Full Bench decision in Vinoskumar Ramachandran Valluvar.
• ✓ Adarsh Co-operative Housing Society Limited v. Union of India & Ors. (2012) Cri.L.J. 520 (Bom.): The Court affirmed the view taken in this case that prior notice is not required before seizing a bank account.
• ✓ Sri Jayendra Saraswathy Swamigal (II), T.N. v. State of T.N. and Ors. (2005) 8 SCC 771: The Court distinguished this case, noting that while it cautioned against the indiscriminate use of powers under Section 102 of the Code, it did not lay down a proposition that it is impermissible to freeze multiple bank accounts if circumstances warrant.
• ✓ M.T. Enrica Lexie and Anr. v. Doramma and Ors. (2012) 6 SCC 760: The Court clarified that this case was not different from the proposition expounded in Tapas D. Neogy and held that property not suspected of commission of the offence cannot be seized.

What weighed in the mind of the Court?

The Supreme Court’s decision to uphold the freezing of the bank accounts was primarily influenced by the following factors:

• ✓ Suspicion of Offence: The Court emphasized that the Investigating Officer had gathered material that created a reasonable suspicion of the commission of an offence. The discrepancies in the accounts, the conduct of the appellants, and the allegations in the FIR all contributed to this suspicion.
• ✓ Ongoing Investigation: The Court noted that the investigation was still in progress and that the appellants had not fully cooperated with the investigation. This justified the continued seizure of the bank accounts to prevent any manipulation of evidence or funds.
• ✓ Interpretation of Section 102 CrPC: The Court reiterated its stance from State of Maharashtra v. Tapas D. Neogy (1999) 7 SCC 685, that the term “property” under Section 102 of the Code includes bank accounts. This allowed the police to seize the accounts if there was a suspicion of their connection to a crime.
• ✓ No Requirement for Prior Notice: The Court affirmed that Section 102 of the Code does not mandate giving prior notice to the account holder before the seizure of his bank account, relying on the Full Bench decision of the Bombay High Court in Vinoskumar Ramachandran Valluvar V. The State of Maharashtra (2011) Cri.L.J. 2522 (Bom.).
• ✓ Material Discrepancies in Accounts: The Court took note of the discrepancies in the accounts, the non-disclosure of new accounts, and the incorrect statements made by the appellants, which further strengthened the suspicion of the commission of an offence.
• ✓ Public Interest: The Court also emphasized the need to protect public interest, especially in cases involving allegations of misuse of funds meant for vulnerable victims.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

The Court considered the arguments made by the appellants, including the lack of direct connection between the seized funds and the alleged crime, the violation of procedure, and the lack of prior notice. However, the Court rejected these arguments, emphasizing that the police had followed the necessary procedure and that the material gathered during the investigation created a reasonable suspicion of the commission of an offence. The Court also noted that the investigation was ongoing and that the appellants had not fully cooperated with the investigation.

The Court also considered the argument that the CJP Trust was not named as an accused in the FIR, but it noted that the investigation revealed that the appellants were actively associated with the Trust and had carried out suspicious transactions. The Court clarified that the seizure of bank accounts was a necessary step to ensure that the investigation could proceed smoothly.

The Court also considered the argument that the freezing of the accounts was an indefinite measure and that the accounts should be released upon the execution of a bond. However, the Court held that the seizure could continue until the investigation was complete and that it was the responsibility of the investigating officer to determine the extent of the tainted accounts and to defreeze the rest, if warranted.

The Court also emphasized that the explanation offered by the appellants in respect of the discrepancies in the accounts would be a matter of defense and that the appellants would have an opportunity to present their case before the concerned court after the investigation was complete.

The Court quoted the following from the judgment:

“The legislature having used the expression „any property ‟ and „any offence ‟ have made the applicability of the provisions wide enough to cover offences created under any Act.”

“We are, therefore, persuaded to take the view that the bank account of the accused or any of his relations is „property‟ within the meaning of Section 102 ofthe Code and the police officer in course of investigation can seize or prohibit the operation of the said account if the same has a direct link with the commission of the offence for which the police officer is investigating into.”

“The power under Section 102 of the Code can be exercised even if the bank account is not of the accused but of any person if the said account is suspected to be linked with the commission of the offence.”

“It is the duty of the investigating officer to complete the investigation as expeditiously as possible and to determine the extent of the tainted accounts and to defreeze the rest, if warranted.”

Final Verdict

The Supreme Court dismissed the appeals and upheld the freezing of the bank accounts. The Court held that the police had the power to seize bank accounts under Section 102 of the Code of Criminal Procedure, 1973, if they were suspected to be linked to a crime. The Court also held that prior notice to the account holder was not required before the seizure of the bank account.

The Court’s decision reaffirmed the broad powers of the police under Section 102 of the Code to seize property, including bank accounts, during a criminal investigation. The judgment also clarified that the term “property” in Section 102 includes bank accounts and that the police do not need to provide prior notice before seizing them. However, the Court also emphasized that the police must report the seizure to the Magistrate having jurisdiction and that the seizure should be for a limited period.

Implications:

• ✓ The judgment has significant implications for the powers of the police during criminal investigations. It clarifies that the police can freeze bank accounts if they suspect that those accounts are related to a crime, even if the accounts are not directly named in the FIR.
• ✓ The judgment also has implications for NGOs and other organizations that receive donations. It reinforces the importance of maintaining proper accounts and ensuring that funds are used for their intended purpose.
• ✓ The judgment also highlights the importance of cooperation with the investigating agency during a criminal investigation.
• ✓ The judgment has clarified that the powers under Section 102 of the Code can be exercised even if the bank account is not of the accused but of any person if the said account is suspected to be linked with the commission of the offence.
• ✓ The judgment has clarified that the investigating officer must complete the investigation as expeditiously as possible and to determine the extent of the tainted accounts and to defreeze the rest, if warranted.