Proper Procedure Must Be Followed Before Attaching Bank Accounts: Bombay HC

Proper Procedure Must Be Followed Before Attaching Bank Accounts: Bombay HC

The high court has quashed the decision taken by the Customs attaching bank accounts of three gold bullion traders observing that the officers concerned failed to follow the procedure laid down in the Section 110 (5) of the Customs Act.

Urvi MahajaniUpdated: Thursday, March 14, 2024, 06:16 PM IST
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Bombay HC | PTI

Mumbai: Proper procedure must be followed before attaching bank accounts of persons and unguided discretion cannot be permitted because it would leave persons and their legitimate business activities to the peril of arbitrary power, the Bombay High Court said.

The high court has quashed the decision taken by the Customs attaching bank accounts of three gold bullion traders observing that the officers concerned failed to follow the procedure laid down in the Section 110 (5) of the Customs Act.

The section prescribes that a senior officer can temporarily block access to a bank account to protect revenue or prevent smuggling. However, a detailed procedure is laid down before attaching bank accounts.

“An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute. The exercise of unguided discretion would not be permissible because it would leave persons and their legitimate business activities to the peril of arbitrary power,” a bench of Justices Girish Kulkarni and Firdosh Pooniwalla said on March 12.

The HC was hearing a petition filed by three gold bullion traders – Chokshi Arvind Jewellers, Pallav Gold and Maxis Bullion – seeking quashing of the orders passed by the Customs attaching their bank accounts in January this year.

The action was taken after carrying out searches in their officer premises in connection to a probe pertaining to smuggling of gold into India. They claimed that they were not informed about the provisional attachment of their bank accounts by the Customs department. The department had allegedly sent the letter directly to the concerned banks.

Their advocate Sujay Kantawalla argued that provisional attachment was bad in law, as, till date, no “order” attaching the Petitioners’ bank accounts had been passed by the Commissioner of Customs (Preventive). He said that the Customs only sent a letter to the banks, asking them to freeze the bank accounts, Kantawalla added.

Customs’s advocate Jitendra Mishra said that “no written order for provisional attachment of bank account is required to be passed and the letter issued to the bank for provisional attachment is deemed to be an order”. Also, there is no provision / requirement for informing or serving any notice to the account holder.

Disagreeing with the argument, the HC said that a proper officer has to form an opinion that it is “necessary” to provisionally attach the bank accounts for the purpose of protecting the interest of revenue or preventing smuggling. Further, this opinion has to be formed based on tangible material available with the proper officer.

“The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of government revenue and / or preventing smuggling,” the bench added.

Also, the court observed that considering the drastic nature of this power, such an “order in writing” directing provisional attachment should be served not only on the bank but also on the bank account holder.

The court said that Customs’ interpretations on the provisions of Section 110(5) are “ex-facie oblivious to the settled principles of law” and if, accepted “virtually make a mockery of the provisions of Section 110(5)” and deprives the Petitioners of all the safeguards before the power of provisional attachment can be exercised.

The court set aside the attachment orders and directed the banks to permit the petitioners to operate their accounts without any hindrance. The court, however, clarified it is always open to Customs to provisionally attach the bank accounts of the petitioners by following the “due procedure in law”.

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