Supreme Court Upholds Freezing of Bank Accounts in Misuse of Donations Case

The Supreme Court of India recently delivered a significant judgment in the case of Teesta Atul Setalvad vs. The State of Gujarat, addressing the legality of freezing bank accounts under Section 102 of the Code of Criminal Procedure (CrPC), 1973. The case involved allegations of financial mismanagement and the misuse of donations collected in the name of providing legal aid to the victims of the 2002 Gujarat riots.

The primary contention was whether the police had the authority to freeze the bank accounts of NGOs, individuals, and organizations linked to the accused during an ongoing investigation. The Supreme Court upheld the freezing of accounts, citing sufficient material creating suspicion of the commission of an offense. The ruling is crucial in reinforcing the power of law enforcement agencies to take necessary preventive actions during criminal investigations.

Background of the Case

The dispute arose after allegations that the appellants, including Teesta Setalvad, Javed Anand, and the NGOs Citizens for Justice and Peace (CJP) and Sabrang Trust, had misappropriated funds collected for riot victims. The funds were allegedly used for personal and organizational expenses rather than for the intended beneficiaries.

Allegations Against the Appellants

• Donations meant for Gujarat riot victims were diverted to personal and organizational accounts.
• Large sums were transferred between the NGOs and private accounts of the accused.
• Substantial cash withdrawals and credit card payments were made from the trust’s bank accounts.
• The accounts lacked proper auditing, raising suspicion of financial mismanagement.
• The investigating agency suspected criminal breach of trust, cheating, and forgery.

Arguments by the Appellants

The appellants contended that the police had no authority to freeze their accounts under Section 102 of the CrPC. They argued:

• The funds were lawfully received from donors, and there was no evidence of criminal activity.
• None of the donors had complained about misappropriation.
• Their financial transactions were transparent and approved by government agencies.
• Freezing accounts without prior notice violated the principles of natural justice.
• The investigation was being misused as a tool to stifle the activities of human rights organizations.

State’s Counterarguments

The State of Gujarat argued that the police had acted within their legal authority under Section 102 of the CrPC. The investigating agency highlighted:

• There was sufficient material to create a reasonable suspicion of the commission of an offense.
• The police had duly informed the Magistrate, as required under CrPC provisions.
• Financial records showed discrepancies, including large transfers to private accounts.
• The accused had not fully cooperated with the investigation, further strengthening suspicion.
• Continuing the freeze was essential to prevent the further misuse of funds.

Supreme Court’s Observations

The Supreme Court, in a judgment delivered by Justice Dipak Misra and Justice A.M. Khanwilkar, ruled in favor of the State, making several key observations:

“The investigating agency has in its possession a considerable material entitling it to freeze the accounts of the petitioners under Section 102 of Cr.P.C.”

The Court emphasized that:

• Bank accounts fall within the definition of “property” under Section 102 of the CrPC.
• Law enforcement agencies have the authority to freeze accounts if they suspect an offense.
• Prior notice to the account holder is not mandatory before freezing an account.
• The appellants’ explanation for financial transactions was insufficient at the investigation stage.
• The investigation was still in progress, and the freezing of accounts was necessary.

Final Judgment

The Supreme Court upheld the freezing of bank accounts, dismissing the appeals. The Court ruled that:

• The action of freezing accounts was justified and legal under Section 102 of the CrPC.
• The appellants must cooperate with the investigation and explain financial discrepancies.
• Once the investigation is complete, the accused can approach the court for de-freezing accounts.
• The accounts may be de-frozen only if found unrelated to the alleged offense.

Implications of the Judgment

This ruling has wide-ranging implications for criminal investigations involving financial transactions:

• Strengthens police powers to seize property, including bank accounts, during investigations.
• Reaffirms that accounts suspected of being linked to criminal activity can be frozen.
• Sets a precedent that prior notice is not necessary for freezing accounts under Section 102.
• Highlights the necessity of financial transparency for NGOs and charitable organizations.

This landmark judgment reinforces the investigative powers of law enforcement agencies, ensuring that assets linked to suspected criminal activities can be lawfully secured during an inquiry.

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Download Judgment: Teesta Atul Setalvad vs The State of Gujarat Supreme Court of India Judgment Dated 15-12-2017.pdf

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