Ruling by Karnataka High Court on Freezing Bank Accounts
In a significant judgment, the Karnataka High Court recently determined that police authorities are not required to seek prior court approval before freezing bank accounts suspected of containing proceeds of crime. This decision was rendered in the case State of Karnataka v Jar Gold Retail Pvt Ltd.
Justice M Nagaprasanna emphasized that requiring the police to obtain a magistrate’s permission before freezing accounts could result in the illicit funds being transferred through multiple accounts, potentially beyond recovery. He highlighted the urgency in such scenarios where electronic transfers can occur within moments, complicating retrieval efforts.
Under Section 106 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), the police are empowered to seize properties suspected of criminal connections without immediate judicial intervention. Justice Nagaprasanna noted, “The law cannot insist that the Police first complete a judicial pilgrimage while the proceeds of crime are electronically galloping from account to account.” He further clarified the distinction between the immediate power to preserve under Section 106 and the adjudicatory function under Section 107 of the BNSS.
Preservative vs. Adjudicatory Measures
The Court emphasized that the seizure under Section 106 serves as a protective measure designed to secure assets thought to be tainted, without requiring judicial oversight during an ongoing investigation. This measure is crucial in countering the rapid movement of funds in cybercrime, where money can quickly disappear.
The case arose when a sessions court ordered the release of frozen assets belonging to Jar Gold, a digital gold company, after accusations of violating the Banning of Unregulated Deposit Schemes (BUDS) Act of 2019 were made. The State challenged this order, arguing that it hampered the investigation’s effectiveness.
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Legal Distinctions and Court’s Conclusion
The High Court clarified the roles of Section 106 and Section 107 of the BNSS. Section 106 allows police to seize property, followed by a report to the magistrate, while Section 107 involves the attachment of property suspected of being derived from crime through judicial orders.
The Bench explained, “The former recognizes an investigative power followed by judicial intimation; the latter engrafts a judicial process into the very act of attachment.” The Court underscored that these provisions are both complementary and distinct, with Section 106 focusing on immediate preservation and Section 107 on adjudicatory processes.
Ultimately, the Court set aside the sessions court’s order in favor of Jar Gold but allowed the company to operate its bank accounts for paying salaries and statutory dues. This decision acknowledges the practical necessity of swift actions in financial crime cases.
The State was represented by Public Prosecutor BN Jagadeesha, while Senior Advocate Sandesh J Chouta and Advocate P Chinnappa defended Jar Gold. Advocate Angad Kamath served as amicus curiae.
