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DRI is not certain that money lying in bank a/c is sale proceeds of Gold - no justification in freezing 'cash credit' accounts: HC

By TIOL News Service

NEW DELHI, MAR 17, 2017: THE Petitioner has an export unit in Noida SEZ for importing gold, manufacturing jewellery and exporting the same.

They seek quashing of letters dated 23.12.2016 whereby the Directorate of Revenue Intelligence has directed the Respondent Banks to cease all banking activities of the bank accounts of the petitioner and letter dated 26.12.2016 whereby the petitioner has been informed by the Banks that all accounts of the petitioner have been stopped.

On 22.12.2016, the officers of DRI carried out searches in premises of Petitioner at Noida and Delhi. At Noida, the DRI officers seized 15 kg consignment of jewellery. The custom authorities had earlier seized 3 kg of jewellery.

On 23.12.2016, DRI officers seized Rs.2,48,45,500/- in demonetized currency notes and Rs.13,40,000/- in new currency notes and various documents.

The prayers in the petition are restricted to the freezing of the bank accounts only.

It is submitted by the petitioner that neither intimation with regard thereto was ever sent to the petitioner nor any show cause notice was issued prior to the issuance of letter dated 23.12.2016 to the bank for ceasing all operations in the accounts nor any formal order was passed.

It is further stated that the impugned letters issued by the DRI are silent as to under which provision of law the same have been issued; that the power to seize is u/s 110 of the Customs Act, 1962 but the same does not confer the DRI with the power to freeze bank accounts; that the coercive action of freezing of bank accounts could not have been taken prior to adjudication of penalty and prior to any sum having been crystallized or ascertained; that the cessation of operation of the bank accounts has virtually led to the entire business coming to a standstill.

Reliance is placed on the decisions in -

VIKASGUMBER = 2008-TIOL-769-HC-DEL-CUS

RAJENDRAVITTHALSHINDE = 2015-TIOL-29 37 -HC-MUM-CUS

KHAJA MUSTAFA KAMAL = 2016-TIOL-841-HC-MUM-CUS

The counsel for DRIcontended that the petitioner used to import gold duty free for making jewelleryupon the condition that it would export the entire jewellery made from the imported duty free gold; however, instead of exporting the gold jewellery, the petitioner used to divert the duty free imported gold in the open market; that approximately 431 Kg Gold, Silver, foreign Currency and Indian Currency approximately to the tune of Rs.141 to Rs.145Crore has been diverted.

Furthermore, as on 22.12.2016 a total quantity of 430 Kg of imported gold was found short. Out of the same, 196 Kg of gold, which was stated to have been sent to job worker had not returned and the remaining 235 Kg gold had been illegally taken out of SEZ.

It is submitted that since investigation is at a primary stage and the time for the issuance of show cause notice is six months, no show cause notice has been issued till date; that there is every possibility that sale proceeds of the Gold in question may be deposited in the bank accounts of the petitioner and, therefore, in order to save or to recover the sale proceeds, the bank accounts of the petitioner have been frozen. Reliance is placed on the decisions in EUROASIA GLOBAL = 2009-TIOL-56-SC-CUS and RAVI CORP SCIENCE = 2015-TIOL-2072-HC-DEL-CUS .

The High Court extracted the letter dated 23.12.2016 addressed by the DRI to the Bank Manager(s) and inter alia observed –

+ It is an admitted position that prior to the issuance of the impugned letters to the bank, no show cause notice was issued to the petitioners. The impugned letters are also silent about the provision of law under which the powers have been exercised by the DRI for directing the banks to cease the operation of the bank accounts.

+ In support of the impugned letters dated 23.12.2016, the respondents have neither relied upon nor produced any order or decision to show that the proper officer has formed any opinion that the bank accounts are liable to be confiscated or are useful for or relevant to any proceedings under the Act and consequently required to be seized.

+ The impugned letters only state that an investigation is being carried out against the petitioner. No show cause notice or order has either been communicated to the petitioner nor copy thereof filed in court. The only reason forthcoming is by way of the reply in the counter affidavit.

+ The reason forthcoming from the counter affidavit is that the Gold, which was imported by the petitioner and which is not available is liable to be confiscated. It is stated that since the gold is not available, it may have been sold and the sale proceeds of the Gold may be kept in the bank accounts of the petitioner and accordingly the said bank accounts have been frozen. The officers of DRI are not certain that the money lying in the accounts is the sale proceeds of Gold .

+ To the categorical stand of the petitioner that the bank accounts that have been seized are cash credit accounts (with credit limit of Rs.1000Crore), there is no denial by the respondents. The freezing of the accounts have a cascading effect on the business, as these accounts are Cash Credit accounts, which are being used by Petitioner to do business. There is no credit balance in the accounts that have been seized. The only credit balance that is stated to be there in the accounts is Rs.1,69,00,000/-.

Adverting to the case laws cited by the petitioner and distinguishing those cited by the counsel for the DRI, the High Court further observed -

+ There is no reference to any provision of law under which the impugned letters to the banks have been issued. No order under section 110 has been alleged to have been passed or produced. The counter affidavit merely states that the bank accounts have been seized as investigation is going on.

+ In the present case, there is no confiscation under section 110 of the Act. The stand is that as the gold is not available, it may have been sold and the sale proceeds of the Gold may be kept in the bank accounts of the petitioner . There is not even a reasonable belief that there are any sale proceeds in the bank accounts.

+ In the present case, apart from a vague statement that the Gold may have been sold and the sale proceeds may be kept in the frozen accounts, there is not even a reasonable belief expressed that the sale proceeds are lying in the frozen bank accounts. As already noticed, the frozen accounts being cash credit accounts, there is no amount of the petitioner lying in the said accounts, on the contrary, the petitioner has been provided with a facility by the banks to draw upto a particular limit from the accounts. Thus there can be no justification in freezing the cash credit accounts of the Petitioner.

Accordingly, the impugned letters dated 23.12.2016 issued by the Deputy Director,DRIwere quashed insofar as they relate to the cash credit accounts and the Bank accounts that are cash credit accounts were held liable to be de-frozen.

The petitioner was permitted to operate the cash credit accounts in RespondentBanks upon their, within a period of one week, furnishing a security of Rupees ten crores in the form of an unencumbered property, over and above the amount of Rs.7.5Crores in the form of gold and currency seized by the Respondents.

The petition was disposed of.

(See 2017-TIOL-510-HC-DEL-CUS)


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