Delhi High Court recently held that the Directorate of Revenue Intelligence (DRI) has no jurisdiction to issue directions to freeze bank accounts without orders passed under the provisions of the Customs Act, 1962.
In the SB International v Directorate of Revenue Intelligence case, the DRI carried out a search of SB International’s warehouse suspecting the assessee had illegally imported tyres. After examining the enterprise’s bank statements, the DRI sent an order dated 14 November 2017 calling upon Axis Bank to freeze its bank account. SB International challenged DRI’s action before Delhi High Court after being refused access to the account.
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The Delhi high court observed that the DRI was entitled to proceed with the investigation and take appropriate action against the petitioner in accordance with law. But there was no provision allowing the DRI to prevent banking operations while investigations were ongoing. The court referred to section 121 of the Customs Act, and observed that it can only be invoked on a specific finding relating to the sale of smuggled goods. Operations could only be prevented in respect of the sale proceeds of smuggled goods and not on the basis of suspicion.
The court also observed that freezing a bank account is not the same as seizing an asset. It interdicts operation of a bank account and deprives the account holder of banking facilities, and there is no sanction in the Customs Act for such action. It subsequently declared the DRI’s freezing of accounts as unsustainable and set aside the communication.
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The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
