The Bombay High Court has asserted that, under Section 102 of the Code of Criminal Procedure, 1973, a police officer may freeze or seize bank accounts, demat accounts or other property only where the property is alleged or suspected to be stolen, or is found in circumstances creating suspicion of the commission of an offence, and there must be a direct and objective nexus between the property seized and the offence under investigation.
The Court clarified that Section 102 is an investigative power meant to assist collection of evidence; and it cannot be used to secure the complainant’s financial interest, to preserve assets merely because the accused may ultimately be found liable, or to achieve what is in substance recovery or attachment before judgment. The Court held that where such nexus is not prima facie established, continued freezing is unjustified, and a condition such as furnishing a bank guarantee of the equivalent amount, which effectively nullifies de-freezing, is impermissibly onerous; at most, reasonable protective conditions such as an indemnity bond may be imposed.
A Single Judge Bench of Justice N.J. Jamadar examined Section 102 of the CrPC and emphasized that the power of seizure is tied to the character of the property and not merely to its association with the accused. It noted that, although bank accounts and demat accounts are “property” for the purposes of Section 102, the provision can be invoked only where the property is alleged or suspected to have been stolen, or is found in circumstances creating suspicion of commission of an offence, and there must be a direct link between the seized property and the alleged offence. The Bench summarized that property not suspected of being connected with the offence under investigation cannot be seized under Section 102.
Applying those principles, the Bench observed that the core dispute was whether the shares had been lent as alleged by the first informant or sold as alleged by the accused, and that those questions would be decided at trial. The Bench further observed that the shares allegedly transferred to the accused’s demat accounts had themselves not been seized; what had been frozen were amounts lying in bank accounts and mutual fund units. It noted that some mutual fund accounts had been opened and units acquired even before the transactions in question, and that the trail connecting the sale proceeds of the allegedly lent shares to the amounts in the frozen accounts and mutual funds remained a matter of proof. On the material then available, the Bench held that the necessary nexus between the frozen property and the alleged offences was not prima facie established.
The Bench also observed that Section 102 is only an investigative tool to assist collection of evidence and is not meant to allow the police to seize property in order to do justice for, or secure recovery in favour of, the person whom the investigating agency considers the rightful owner. It added that criminal proceedings are not for realization of disputed dues and that criminal courts are not expected to act as recovery agents.
The Bench found that continuing the freezing merely to secure the first informant’s interest, in the absence of the required nexus, would effectively amount to detaining the accused’s property pending adjudication and would negate the presumption of innocence. The Bench also took into account that the first informant had filed a civil suit and withdrawn the notice of motion seeking interim relief, and held that continuation of freezing till trial would, in substance, resemble attachment before judgment without satisfaction of the legal requirements for such relief.
On the condition imposed by the Magistrate, the Bench held that requiring a bank guarantee of Rs. 6.55 crores were onerous and virtually defeated the very object of de-freezing. Once the trial court had found no nexus between the seized property and the commission of the alleged offences, and had also noted that trial would not conclude within a reasonable period, it ought to have de-frozen the accounts on reasonable conditions rather than by imposing a condition that effectively denied relief. The Bench therefore upheld de-freezing but modified the condition by directing accused No. 2 to furnish an indemnity bond in the sum of Rs. 6.55 crores to bring back that amount along with such interest as the Court may direct at the conclusion of trial.
Briefly, the applications under Section 482 of CrPC have been filed challenging an order passed by the Additional Chief Metropolitan Magistrate, Mumbai, on de-freezing of accounts. The first informant, Parag Shah, challenged the very de-freezing of the accounts of the accused, whereas Geeta Kampani, accused No. 2, challenged the condition requiring a bank guarantee of Rs. 6.55 crores for such de-freezing.
The FIR arose from allegations that, between 2011 and 2013, the first informant, a director of Kimaya Securities & Financial Services Pvt Ltd., transferred various shares to the demat accounts of accused Nos. 1 and 2 on the understanding that the shares were being lent for six months, that interest at 10% per annum on the market value would be paid, and that all corporate benefits would be returned. According to the first informant, the accused initially made some payments and returned some shares, but later refused to return the balance shares after those shares had substantially appreciated in value.
On that basis, an FIR was registered for offences under Sections 120B, 406, 420 read with Section 34 of the Indian Penal Code. During investigation, the Investigating Officer froze the HDFC Bank accounts of accused Nos. 1 and 2 and also froze mutual fund units held by them with various asset management companies. The accused had earlier sought de-freezing, and the Magistrate had allowed that request subject to an indemnity bond of Rs. 6 crores, but that order was set aside in revision and the matter was remanded. After remand, the Magistrate again ordered de-freezing, this time subject to furnishing a bank guarantee of Rs. 6.55 crores. The Magistrate reasoned that investigation was complete, the charge-sheet had been filed, and the trial was not likely to conclude soon, so continued freezing was not justified.
Appearances:
Sharan Jagtiani, Senior Advocate with Shraddha Achliya, Namita Maneshinde, for Applicant in APL 790 of 2024 and for Respondent No.1 in APL No.191 of 2024
Sanjeev Kadam, Senior Advocate with Dr. Kshitija Wadatkar, Varsha Thorat, Vikrant Khare, Malay Mishra, Vidhi Shah, Khushi Patharia i/by M/s. Kshitija Wadatkar for Applicant in APL No.191 of 2024 and for Respondent No.2 in APL No.790 of 2024
R.S. Tendulkar, APP for State
