Police need not obtain court permission before freezing bank accounts: Karnataka High Court

The Karnataka High Court recently observed that the police cannot be first asked to approach the magistrate for permission to freeze a property, particularly proceeds of crime moving electronically from one bank account to other [State of Karnataka v Jar Gold Retail Pvt Ltd].

If police is asked to first approach a magistrate to debit freeze an account, the money may travel through ten accounts or simply vanish beyond retrieval by the time the procedural journey reaches its destination.

Justice M Nagaprasanna made the observation while stressing on the importance of Section 106 of the Bharatiya Nagarik Suraksha Sanhita (BNSS) that allows police to seize a property on suspicion of crime.

"The law cannot insist that the Police first complete a judicial pilgrimage while the proceeds of crime are electronically galloping from account to account. The distinction between the immediate preservative power under Section 106 of the BNSS and the adjudicatory mechanism under Section 107 of the BNSS becomes particularly vivid in this context," the Court said.

The Court added that the seizure done under Section 106 is a preservatory measure intended to secure suspected tainted assets without need for judicial order.

"Such seizure is a preservatory measure intended to secure suspected tainted assets during the investigation and ordinarily warrants no judicial interference during the pendency of investigation."

Pertinently, the Court said that a debit freeze of a bank account is not required to travel through the procedural rigmarole contemplated under Section 107 of the BNSS.

Imposing such a mandate would have disastrous consequences in today's time when the world is grappling with cybercrime

"In such crimes, money does not merely move; it flies—from one account to another, through a labyrinth of mule accounts, often in a matter of seconds," the judge observed.

Hence, a debit freeze must done as fast as possible for it to be effective, the Court said.

"A naïve and gullible citizen may see his life’s savings disappear at the click of a mouse or the stroke of a key," the Court further said.

The Court made these observations while setting aside a sessions court order to de-freeze bank accounts belonging to a digital gold company, Jar Gold.

After Jar Gold was accused of offences under the Banning of Unregulated Deposit Schemes (BUDS) Act of 2019, police seized 1,521 kilograms of gold and 2,541 kilograms of silver belonging to the company.

The company then moved a sessions court which ordered release of the seized gold and silver.

The orders were challenged by the State before High Court.

In response, the counsel representing Jar Gold argued that permission of the magistrate under Section 107 BNSS was needed before passing an order of freezing. Thus, he prayed for upholding the trial court decision.

However, the Court said while Section 106 of the BNSS speaks of seizure by police followed by immediate reporting to the magistrate, Section 107 of the BNSS provides for attachment of property believed to be derived or obtained from criminal activity through the intervention and order of the magistrate.

 "The former recognises an investigative power followed by judicial intimation; the latter engrafts a judicial process into the very act of attachment. It is this distinction—between seizure under Section 106 of the BNSS and attachment of proceeds of crime under Section 107 of the BNSS—that must illuminate the answer to the controversy at hand," the Bench said.

The Court said the two provisions though complementary are distinct in their fields of operation. 

While Section 107 seeks to preserve property during the investigation, Section 106 proceeds against property on the premise that it represents proceeds of crime and may ultimately culminate in forfeiture or restoration, the Bench said.

"Section 106 preserves; Section 107 of the BNSS adjudicates. Section 106 seizes; Section 107 of the BNSS attaches, forfeits or restores," it added.

The Court said if even a debit freeze of a bank account is required to travel through the entire procedural rigmarole contemplated under Section 107 of the BNSS, the consequence would be catastrophic as nations across the globe, and India in particular, are today grappling with an unprecedented proliferation of cybercrime.

"It cannot be lost sight of that nations across the globe, and India in particular, are today grappling with an unprecedented proliferation of cybercrime. Technology has bestowed upon mankind extraordinary convenience; it has, at the same time, placed in the hands of the unscrupulous an equally extraordinary ability to commit crime with speed, anonymity and geographical indifference," the Court said.

An account where a victim's money is transferred by fraud must be subjected to a debit freeze within seconds if not minutes, the Court stressed.

Otherwise, the Court added, an order of attachment would exist only over an empty account.

"Once the prohibitory direction is issued and the amount secured from further dissipation, the police officer would then forthwith report the action to the jurisdictional Magistrate, as mandated under Section 106(3) of the BNSS. The sequence is thus both legally structured and practically efficacious—preserve first; report forthwith thereafter," the Court said further.

Considering the findings, the Court set aside the session court orders favouring Jar Gold.

However, the Court also continued an interim order that allows the company's bank accounts to be operated for paying salaries to employees and making statutory payments of GST.

State Public Prosecutor BN Jagadeesha appeared for the State.

Senior Advocate Sandesh J Chouta along with Advocate P Chinnappa appeared for Jar Gold.

Advocate Angad Kamath was amicus curiae in the case.

[Read Order]