2018 (12) TMI 1193 - AT - Money Laundering

Bank account freezing deemed illegal due to lack of evidence; Enforcement Directorate criticized for procedural faults. Appeal allowed.

The Tribunal found the freezing of the appellant's bank account to be illegal as it lacked concrete evidence of money laundering involvement. It ... Offence under Prevention of Money Laundering Act - Attachment of bank account - Held that:- The PMLA allows retention/continuation of freezing action by the Respondent No. 1 only under circumstances mentioned in Section 20(1) of the PMLA, that is, if the property is required for the purpose of adjudication under Section 8, PMLA. The Adjudicating Authority can authorize retention only if it is satisfied that the property is “prima facie involved in money-laundering and the property is required for the purposes of adjudication under section 8”. The Authority cannot permit retention or continuation of freezing order for any other purpose than those provided in section 20(4). As far as proceedings pertaining to freezing of properties under the PMLA, the officer carrying out the freezing action under 17(1A) has to record his reasons to believe in writing in terms of section 17(1) (i) to (iv), PMLA. Even after the property is frozen, the officer has to record his reasons to believe in writing and pass an Order for continuation of freezing of the property in terms of section 20(1) read with 20(2), PMLA. In the case, there is no other attachment, except the bank account. The impugned order dated 12.9.2017 against the appellant with regard to continuation of attachment of account is set-aside by allowing the appeal. However, it is clarified that, no opinion is expressed or any direction to the bank about the declaration of NPA, the said issue, if any by the bank to be decided or reconsidered as per its own merit. OA against the appellant is accordingly dismissed. Issues Involved:1. Legality of freezing the appellant's bank account.2. Non-application of judicial mind by the Adjudicating Authority.3. Compliance with procedural requirements under the Prevention of Money Laundering Act (PMLA), 2002.4. Impact of freezing on the appellant's business operations.5. Jurisdiction of the Tribunal regarding the declaration of Non-Performing Asset (NPA).Issue-Wise Detailed Analysis:1. Legality of freezing the appellant's bank account:The appellant, M/s. Geoxa Steels Private Limited, challenged the freezing of its loan account by the Enforcement Directorate (ED) under Section 17 of the PMLA. The account was frozen on 07.04.2017 based on the presumption that it might be involved in money laundering. However, the appellant argued that the account was a cash-credit account with a debit balance for over eight years, unrelated to the ongoing inquiry. The Tribunal found that the freezing was done without specific incriminating evidence, as no single transaction justifying the freezing was pointed out by the ED. The Tribunal concluded that the freezing was based on presumptions and perceptions rather than concrete evidence.2. Non-application of judicial mind by the Adjudicating Authority:The High Court observed that the Adjudicating Authority's order dated 12.09.2017 showed 'total non-application of mind,' as it failed to consider the appellant's submissions. The Tribunal noted that the Adjudicating Authority's finding that the respondents did not explain why the seizure should not be confirmed was incorrect. The appellant had filed replies and letters dated 02.05.2017 and 23.06.2017, explaining the nature of the account and its lack of involvement in money laundering. The Tribunal found that the Adjudicating Authority's failure to consider these submissions rendered the order legally flawed.3. Compliance with procedural requirements under the PMLA:The Tribunal emphasized the distinct terms 'seizure' and 'freezing' under Sections 8 and 17 of the PMLA. The ED's action to freeze the account should have been followed by a proper application for continuation of the freezing order under Section 17(4). The Tribunal noted that the ED sought retention of the frozen amount, which was incorrect as the amount was never seized but frozen under Section 17(1A). The Tribunal clarified that retention could only be authorized if the property was prima facie involved in money laundering and required for adjudication under Section 8, PMLA. The ED's reason for retention, stating it was needed for investigation, was contrary to the PMLA provisions.4. Impact of freezing on the appellant's business operations:The appellant argued that freezing the cash-credit account caused immense prejudice, hindering its ability to conduct transactions with customers and suppliers. The account's freezing led to its classification as an NPA under RBI guidelines, further affecting the appellant's business. The Tribunal acknowledged the adverse impact on the appellant's business operations and noted that the ED's mindless freezing resulted in the account becoming an NPA.5. Jurisdiction of the Tribunal regarding the declaration of NPA:The Tribunal clarified that it had no jurisdiction to order the deletion of the NPA declaration. The appellant's counsel stated that the appellant intended to settle the amount to continue its business. The Tribunal noted that the issue of NPA declaration by the bank should be decided or reconsidered on its own merits by the bank.Conclusion:The Tribunal set aside the impugned order dated 12.09.2017 regarding the continuation of the attachment of the appellant's account, allowing the appeal. The Tribunal did not express any opinion or direction regarding the NPA declaration, leaving it to the bank to decide based on its own merits. The Original Application (OA) against the appellant was dismissed, and no costs were awarded.