M/S. Design Tech Systems ... vs The State Of Andhra Pradesh
2023 Latest Caselaw 71 AP

    THE HON'BLE SRI JUSTICE R.RAGHUNANDAN RAO

      Crl.R.C.No.301 of 2022 & Crl.P.No.3119 of 2022


ORDER:

The petitioner is accused No.4 in Crime No.29 of 2021

registered with the CID Police Station, Mangalagiri for offences

under Sections 120-B, 166, 167, 418, 420, 465, 468, 471, 409,

209, 109 r/w 34 and 37 of I.P.C along with Sections 13(2) r/w

13(1)(c) & (d) of Prevention of Corruption Act, 1988. This

compliant was registered on 09.12.2021 against 26 accused for

having caused wrongful loss of around Rs.241 crores to the

Government exchequer.

2. The allegations in the complaint were that M/s.

APSSDC had entered into an agreement with the petitioner

herein and M/s. SIEMENS Industries Software Development

Centers for establishing skill development centers, in

accordance with the conditions set out in the agreement. The

primary terms of the agreement were that the government was

to contribute 10% of the cost and M/s.SIEMENS and the

petitioner would contribute 90% of the remaining cost. The

contribution of the government, calculated at Rs.371 crores, was

released to the petitioner as an advance. The allegation is that

the management of the petitioner, after receiving the said

amount, had diverted a sum of Rs.241 crores to various shell

companies and is routing it back to the petitioner company

through Hawala transactions.

3. In the course of the investigation, the investigating

officer is said to have issued a notice dated 29.12.2021, under

Section 102 of Cr.P.C., bearing letter No.53/DSP-3/EOW-

II/CID/2021 to the State Bank of India, Pune Branch for

freezing the current account of the petitioner bearing

No.38036630496. Thereupon, the said account was frozen by

the State Bank of India. Subsequently the petitioner approached

the trial Court, namely the Special Judge for SPE and ACB

Cases-cum-Additional Metropolitan Sessions Judge, Vijayawada,

by way of Crl.M.P.No.55 of 2022 under Section 451 and 457 of

Cr.P.C, for de-freezing the bank account of the petitioner.

4. The petitioner, in support of the said application,

contended that the amount lying in the account was not in any

manner connected to the alleged crime or alleged diversion of

funds; the petitioner, on account of the general directions of the

Reserve Bank of India, is permitted to operate only one account

through which it has to pay the salaries of nearly 800 employees

directly and 200 employees indirectly. As the sole bank account

of the petitioner company has been frozen, the petitioner is

unable to pay the salaries of the employees; the amounts that

are deposited in the bank account of the petitioner, after the

bank account had been frozen in December, 2021, are amounts

which have been received by the petitioner from different

companies during the course of business transactions and as

such, freezing of the bank account, in relation to amounts of

money which are not related to the alleged crime, is beyond the

purview of Section 102 of Cr.P.C; the petitioner is unable to pay

its statutory dues including Provident Fund Contribution, ESI

Contribution etc., apart from being unable to meet its

contractual obligations and as such would be entitled for de-

freezing of the account.

5. The learned Public Prosecutor had opposed this

application on the ground that a sum of approximately 240

crores had been diverted by the petitioner to various shell

companies and the said money was being routed back to the

petitioner through various under hand transactions and it

would be difficult for the investigating officer to pinpoint which

transactions are valid and which transactions are part of the

attempt of the petitioner to rout the diverted funds back to it. In

such circumstances, keeping the account frozen is a valid

exercise of authority under Section 102 of Cr.P.C. The learned

Public Prosecutor also relied upon the Judgment of the Hon'ble

Supreme Court in Teesta Atul Setalvad vs. The State of

Gujarat1.

6. Heard Sri B.Adinarayana Rao learned senior counsel

appearing for Smt. Jyothi Ratna Anumolu, learned counsel for

the petitioner in Crl.P.No.3119 of 2022 and Sri

T.M.K.Chaitanaya, learned Government Pleader for Home-II.

7. The learned trial Judge took into consideration the

fact that the salaries of the employees and statutory dues of the

company would have to be paid out through the frozen account

alone and that there are various contractual obligations of the

petitioner that large multi-national companies, which would in

danger of being terminated on account of nonpayment of the

amounts payable under the contracts by the petitioner, had

allowed the application, subject to the petitioner depositing the

entire amount lying in the frozen bank account in a fixed deposit

and subject to furnishing the bank statement and record

explaining the transactions in the bank account on the first date

of every month to the investigating agency till further orders.

This would require the petitioner to getting an amount of

Rs.23,29,77,675/- in a fixed deposit till further orders.

(2018) 2 SCC 372

8. Aggrieved by the said order dated 18.04.2022, the

petitioner has approached this Court, by way of the present

Criminal Petition under Section 482 of Cr.P.C.

9. The investigating officer being aggrieved by the said

order dated 18.04.2022 has approached this Court, by way of

the Crl.RC.No.301 of 2022.

10. In Crl.P.No.3119 of 2022, the petitioner took the

plea that the balance in the bank account, on the day when it

was frozen, was Rs.2.8 crores. Subsequently, a sum of Rs.20

crores was deposited in the frozen bank account on account of

payment from various customers in the normal course of events

and such amounts cannot be treated as proceeds of the alleged

crime or as amounts relating to the alleged crime. In such

circumstances, the provisions of Section 102 of Cr.P.C would

not be available and consequently the petitioner is entitled to

release of all the funds in the said account, beyond the original

amount of Rs.2.8 crores, which was in the said account at the

time when the account was frozen. The petitioner also took the

ground that a perusal of the bank statement showing the

deposits from various customers, would clearly establish the

fact that the money received, after the account had been frozen,

are from various prestigious companies in India and large multi-

national companies which would not in any manner have

participated in any alleged crime. Further, the petitioner also

contends that the investigation officer, solely with a view to seize

all the money available with the petitioner, is refusing to look

into the transactions relating to which payments are being made

into the bank account of the petitioner and is refusing to

consider release of funds which have nothing to do with the said

crime.

11. The investigating officer taken an initial objection

that the order passed by the trial Court is a final order which

can be challenged only by way of a revision under Section 39 of

Cr.P.C and the present petition, filed under Section 482 of

Cr.P.C is not maintainable. The investigating officer would

further submit that the order of the trial Court dated

18.04.2022 is incorrect and needs to be set aside. The

investigating officer would contend that the trial Court had erred

in not following the guidelines laid down by the Hon'ble

Supreme Court in Teesta Atul Setalvad, wherein it had been

held that the investigating officer is entitled to attach any

material for purposes of investigation, and it would not be

incumbent upon the investigating agency to justify the material

on the basis of which such an attachment has been made, at

the stage of investigation. He would further contend that the

petitioner had diverted huge amounts of money through their

complicated bank transactions which would have to be

ascertained before any conclusion can be drawn as to the source

of funds coming into the account of the petitioner.

12. In view of the objections raised by the investigating

officer relating to the maintainability of the petition under

Section 482 of Cr.P.C, the matter was referred to a Division

Bench. After hearing arguments on this issue, the Division

Bench by an order dated 07.1.2.2022 had held that inspite of

availability of the relief of revision under Section 397 of Cr.P.C,

the inherent power under Section 482 of Cr.P.C can be exercised

by this Court when there is manifest abuse of the process of the

Court or the presence of other extraordinary situations and had

remitted both the cases back, for disposal on merits.

13. In view of the said directions of the Division Bench,

both the cases are being taken up for consideration on the

merits of the case. The petitioner is accused No.4 in the crime

registered against the petitioner and 25 others. The allegation

against the petitioner is that, the petitioner had diverted about

240 crores to its shell companies and was routing the money

back to the petitioner through various complicated bank

transactions. In the course of investigation of these

transactions, the bank account of the petitioner was frozen in

December, 2021. The balance available in the said bank

account, at that point of time was about Rs.2.8 crores.

Thereafter, about Rs.20 crores came to be deposited in the bank

account by various companies. The case of the petitioner is that

these are payments made by clients of the petitioner and has

nothing to do with the alleged diversion of funds or the alleged

routing back of these diverted funds.

14. Section 102 of Cr.P.C reads as follows:

Power of police officer to seize certain property.

1. Any police officer may seize any property which may be alleged or suspected to have been stolen, or which may be found under circumstances which create suspicion of the commission of any offence.

2. Such police officer, if subordinate to the office in charge of a police station, shall forthwith report the seizure to that officer.

3. Every police officer acting under sub-section (1) shall forthwith report the seizure to the Magistrate having jurisdiction and where the property seized is such that it cannot be conveniently transported to the Court, or where there is difficulty in securing proper accommodation for the custody of such property, or where the continued retention of the property in police custody may not be considered necessary for the purpose of investigation, he may give custody thereof to any person on his executing a bond undertaking to produce the property before the Court as and when required and to give effect to the further orders of the Court as to the disposal of the same.

Provided that where the property seized under subsection (1) is subject to speedy and natural decay and if the person entitled to the possession of such property is unknown or absent and the value of such property is less than five

hundred rupees, it may forthwith be sold by auction under the orders of the Superintendent of Police and the provisions of Sections 457 and 458 shall, as nearly as may be practicable, apply to the net proceeds of such sale.

15. The said provision had come up for consideration

before the Hon'ble Supreme Court in the case of Teesta Atul

Setalvad. In this case, the petitioner was accused of having

obtained donations for helping victims of ryots in Gujarat and

had diverted money, obtained from those donations, for personal

use and thereby committed breach of trust and had cheated the

victims. In the course of investigation, the bank accounts to

which funds had been sent were frozen. The petitioner therein

had moved the trial Court and subsequently the Hon'ble High

Court for unfreezing the said account unsuccessfully.

Thereafter, the petitioner approached the Hon'ble Supreme

Court which dismissed the appeal of the petitioner.

16. The Hon'ble Supreme Court while considering the

scope of 102 of Cr.P.C had held as follows:

23. In the case of M.T. Enrica Lexie, the Court noted in paragraph 7 that agencies had completed their respective investigations and vessel was seized in exercise of power under Section 102 of the Code. In Para 16, the Court noted the concession given by the counsel for the Government that the vessel was not the object of the crime or the circumstances which came up in the course of investigation that create suspicion of the commission of any offence. In that case, it was alleged that while the fishing boat was sailing through the Arabian Sea, indiscriminate firing was opened from the vessel in question, as a result of which two

innocent fishermen who were on board, died. The Counsel for the State had also conceded that the vessel was no longer required in connection with the offence in question. Indeed, in paragraph 14, the Court made the following observations:-

"14. The police officer in course of investigation can seize any property under Section 102 if such property is alleged to be stolen or is suspected to be stolen or is the object of the crime under investigation or has direct link with the commission of offence for which the police officer is investigating into. A property not suspected of commission of the offence which is being investigated into by the police officer cannot be seized. Under Section 102 of the Code, the police officer can seize such property which is covered by Section 102(1) and no other."

These observations are in no way different from the proposition expounded in the case of Tapas D. Neogy (supra).

17. After observing thus, the Hon'ble Supreme Court

had considered the facts of the case and had held that, on the

facts of the case and on account of the conduct of the petitioner

in the said case, that it would be appropriate that the accounts

remain frozen till investigation is completed and it would be

open to the petitioner therein, at that stage to apply for de-

freezing of the bank accounts.

18. In view of the observations of the Hon'ble Supreme

Court, in paragraph No.23 of the Judgment extracted above, the

test for determining whether any property can be attached by

the investigating officer under Section 102 of Cr.P.C would be

the test of whether there is a reasonable basis to hold that the

property is the object of the investigation or has direct link with

the commission of offence.

19. In the present case, the petitioner contends that the

money received after the account had been frozen, has no

connection whatsoever to the alleged crime that is said to have

been committed by the petitioner. The investigating officer has

taken the stand that the investigating officer at this stage of the

investigation, cannot determine which transactions relate to the

rerouting of funds diverted by the petitioner earlier and which

the transactions are genuine payments made by the clients of

the petitioner and as such the petitioner would have to ascertain

the conclusion of the investigation.

20. While the stand of the investigating officer cannot be

held to be unreasonable and that the investigating officer is only

erring on the side of caution, it must also be considered that the

petitioner is a running company with about 800 employees who

have to be paid their salaries and further nonpayment of

statutory dues by the petitioner would entail further criminal

prosecution against the petitioner. Apart from this, prohibiting

the petitioner from clearing its contractual dues would result in

the functioning of the petitioner coming to a grinding halt and

the same would have to be taken into consideration.

21. The trial Judge having taken the above factors into

consideration had held that the petitioner be permitted to

operate the bank account after depositing the existing balance

in a fixed deposit. This course of action has its own drawbacks.

Firstly, the existing balance of Rs.23 crores could include

genuine payments made by clients and freezing the said account

would not be in accordance with Section 102 of Cr.P.C.

Secondly, permitting the petitioner to operate the bank account

by furnishing a bank statement could result in the alleged

tainted money coming into the bank account and being

disbursed by the petitioner before the investigation officer can

step in to attach the said money.

22. In that view of the matter, it would be appropriate to

dispose of both Criminal Petition No.3199 of 2022 and Criminal

Revision Case No.301 of 2022 with the following directions:

1) The balance available in the bank account of the

petitioner, on the day the account was frozen, shall

remain frozen and shall not be withdrawn by the

petitioner, pending further orders of the trial court;

2) The petitioner shall place a statement of account of the

payments that have been received by the petitioner from

the date on which the account was frozen till today and

the investigating officer, shall consider the said payments

and indicate the payments which are clear payments

from the clients of the petitioner, which are unconnected

to the transactions under investigation. This exercise

shall be completed within two weeks from the date of

receipt of this order.

3) Upon the investigating officer indicating the transactions

which are acceptable as genuine transactions which have

no nexus to the transactions under investigation, the

petitioner shall be entitled to operate the account to the

extent of the said amount of money subject to the further

condition of the said money being utilized only for the

purposes of a) paying the salaries of its employees, b)

clearing its statutory dues and c) paying contractual dues

which are based on written agreements;

4) A statement of account of withdrawal of such money

shall be supplied to the investigating officer on a monthly

basis at the end of each month;

5) The petitioner, in relation to the future, will also place a

statement of account of its receipts at the end of each

month before the investigating officer who shall indicate

the transactions which have no connection to the

transactions under investigation and the petitioner shall

be entitled to withdraw such amounts in accordance with

the conditions set out above;

6) In the event of the investigating officer refusing to

indicate, within the time stipulated above, the

transactions which are not connected to the crime or in

the event of the petitioner being aggrieved by the refusal

of the investigating officer to accept genuine transactions,

it would be open to the petitioner to approach the trial

Court for release of funds in relation to such

transactions.

23. Accordingly, both Criminal Petition and Criminal

Revision Case are disposed of. There shall be no order as to

costs.

Miscellaneous petitions, pending if any, shall stand closed.

___________________________________ JUSTICE R.RAGHUNANDAN RAO Date :04.01.2023 RJS

THE HON'BLE SRI JUSTICE R.RAGHUNANDAN RAO

Crl.R.C.No.301 of 2022 & Crl.P.No.3119 of 2022

Date : 04.01.2023

RJS