Karnataka High Court sets aside NCB order that froze startup's bank account following director's NDPS Act accusation

The Karnataka High Court recently set aside an order of the Narcotics Control Bureau (NCB) that directed freezing of a startup's bank accounts after a crime under Narcotic Drugs and Psychotropic Substances (NDPS) Act was registered against one of its directors [Ownpath Learning Private Limited vs State and Ors].Justice M Nagaprasanna observed that the mandate under Section 68F of the Act, which deals with the power to direct debit freezing of a bank account, was not adhered to.."It is a case where there is a blatant violation of section 68F and its mandate. In the light of afore-said admitted facts of twin violation of Section 68F, the order directing debit freezment or action of freezing of the account of the petitioner/company would lose its legal legs to stand and results in its obliteration," the Court said..The Court was hearing a plea by the company seeking a direction to Kotak Mahindra Bank's Banashankari branch to de-freeze its accounts.On November 14, 2022, a crime was registered against one of the directors of the company under NDPS Act after a package containing narcotics was received in a post office. Consequently, the NCB directed the accounts of the company to be debit frozen. As per the prosecution, the package was addressed to the director of the company..Advocate Siddharth Suman appeared for the petitioner and contended that the company was not an accused. He informed the Court that the investigation had also come to an end. Further, he argued that the debit freezing direction was unlawful and therefore, prayed that the same be quashed..On the other hand, advocate Shridevi Bhosale Maruti for the NCB contended that one need not be an accused for their accounts to be frozen under NDPS Act. This is because if the money trail of the accused leads to dropping of funds into the account of the company, it would be a circumstance enough for directing freezing of the account, she argued.There was a direct link to the account operated by the company to the act of one of its directors, she contended while seeking dismissal of the petition..The Court stated that the issue did not relate to the merit of the alleged crime but to whether the investigating officer could have directed freezing of the account of the company without following the due process of law.It noted that Section 68F of NDPS Act mandates that once seizure is directed by the NCB, it has to be informed to the competent authority and an order for freezing has no effect unless confirmed by an order of the competent authority within a period of 30 days.The Court observed that in the case at hand, the twofold mandate was not followed. "The communication is not even made to the competent authority (Commissioner of Income-Tax, Chennai) by the NCB and the competent authority has not approved such seizure within 30 days," the Court said.Therefore, the Court set aside the order that directed defreezing of the account. It however clarified that the NCB was not precluded from initiating proceedings in accordance with law, if necessary..[Read Order]