2003 (12) TMI 4 - HC - Income Tax

Enforcement Directorate retains jurisdiction over seized money pursuant to FEMA

Haneefa Versus State of Kerala And Others.

The court upheld the Magistrate's order directing the handing over of the seized money to the Enforcement Directorate, dismissing the petition. The court ... The crime was registered against the petitioner and the other accused under sections 41(1)(d) and 102 of the Criminal Procedure Code. On March 20, 2003, the Circle Inspector of Police, Guruvayoor, intercepted an ambassador car in which accused Nos. 1 to 3 were travelling and seized Rs. 52 lakhs which was suspected to have been stolen. Accused Nos. 1 to 3 said that the money belonged to the petitioner and hence he was also made an accused in the crime. - On conducting investigation it was found that the currency notes seized were not stolen property and police filed a report to that effect in the court of the Magistrate. According to the petitioner, the money seized is his business income. The Assistant Director of Income-tax (Investigation), in the court of the Judicial Magistrate of the First Class, stating that the money seized was the unaccounted income from the business of the petitioner and requesting that the amount may be released to the Income-tax Department. Magistrate dismissed the petition stating that until a final report is filed by the police the amount could not be released. Issues Involved1. Legality of the seizure of money by the police.2. Jurisdiction and authority of the Enforcement Directorate under the Foreign Exchange Management Act (FEMA).3. Entitlement of the petitioner to interim custody of the seized money.4. Validity of the Magistrate's order directing the handing over of the money to the Enforcement Directorate.Detailed Analysis1. Legality of the Seizure of Money by the PoliceThe petitioner, the 4th accused in Crime No. 102 of 2003, was implicated after Rs. 52 lakhs were seized by the police from an ambassador car. Initially, the money was suspected to be stolen. However, the police investigation revealed that the currency notes were not stolen property. The petitioner claimed the money as his business income. The Assistant Director of Income-tax (Investigation) filed a petition asserting that the money was unaccounted income, but the Magistrate dismissed the petition until a final report was filed by the police.2. Jurisdiction and Authority of the Enforcement Directorate under FEMAThe police later reported that the case involved violations of section 3(b) and (c) of FEMA, which they were not competent to investigate. Consequently, the case was referred to the Enforcement Directorate. The Assistant Director, Enforcement Directorate, filed a petition in the Magistrate's court seeking the release of the seized money. The petitioner objected, arguing that the Enforcement Directorate could not request the money from the court since the seizure was initially made by the police under the assumption of cognizable offenses.3. Entitlement of the Petitioner to Interim Custody of the Seized MoneyThe petitioner filed an application under section 451 of the Criminal Procedure Code seeking the return of Rs. 36,40,000 out of the seized Rs. 52,00,000 after deducting income-tax. The Magistrate dismissed this application, and the petitioner challenged this decision. The petitioner's counsel argued that since the police found no cognizable offense, the money should be returned to the petitioner. However, the Magistrate found that the investigation suggested violations of FEMA, thus justifying the referral to the Enforcement Directorate.4. Validity of the Magistrate's Order Directing the Handing Over of the Money to the Enforcement DirectorateThe Magistrate's decision to hand over the money to the Enforcement Directorate was challenged. The court examined relevant case law, including decisions in *K. Choyi, ITO v. Syed Abdulla Bafakki Thangal* and *Assainar v. ITO*, which discussed the return of seized money when no offense is found. However, the court noted that the Enforcement Directorate has the authority to investigate and confiscate money involved in FEMA violations. The court concluded that the Magistrate's order was justified as the adjudicating authority under FEMA has the power to confiscate money in cases of contravention.ConclusionThe court upheld the Magistrate's order directing the handing over of the seized money to the Enforcement Directorate, dismissing the petition. The court found no illegality or irregularity in the Magistrate's decision, emphasizing the Enforcement Directorate's jurisdiction under FEMA to investigate and adjudicate such matters.