2019 (2) TMI 882 - AT - Money Laundering

Court sets aside retention order due to procedural errors, emphasizes importance of compliance and case merits.

The court allowed the appeal, setting aside the retention order issued by the Adjudicating Authority. The judgment found the order deficient in legal ... Money laundering - infusion of cash from M/s. Jagat Projects Ltd. into bank accounts of entities controlled by Jain Brothers as reflected in the bank accounts of these entities - ITO recorded a finding that M/s. Jagat Projects Ltd had laundered its unaccounted income through a set of companies controlled by Jain Brothers in the guise of share subscription money at a huge premium to the tune of ₹ 64.70 Crores - respondent filed the application under section 17 (4) of PMLA,2002 for retention of the property during the pendency of the proceeding relating to any offence under this Act Held that:- The PML Act is the Special Act. The provisions of said Act are very stringent which have to be applied strictly. No different meaning or interception can be given in the absence of ambiguity of any provisions. It is settled law that a particular thing should be done in a particular manner, it must be done in that way and none other. To retain such property for the purpose of proceeding under section 8 of the Act, the learned counsel appeared on behalf of the appellant has argued that the impugned order is totally contrary to the law passed by the adjudicating authority as due process has not been followed by the ED, which is mandated under section 20 of the Act. After the retention of the property, the respondent has not passed an order for retention or confirmation of freezing of the property for purposes of adjudication under section 8 of the Act. Rule 3 of ‘The Prevention of Money-laundering (The manner of forwarding a copy of the order of retention of seized property along with the material to the Adjudicating Authority and the period of its retention) Rules, 2005 mandates for the same It appears from the impugned order, there is no discussion at all with regard to retention the property, except it is stated that after considering the original application, submission of the defendant, it is held that the condition laid down for retention are satisfied and original application is allowed. The case on merit of the parties has not been discussed or considered by the adjudicating authority. This said fact is admitted by the learned counsel for the respondent before us. Under these circumstances, the impugned order is an order in the eyes of law which is not sustainable Issues Involved:1. Legality of the search and seizure operations.2. Compliance with procedural requirements under Section 17 and Section 20 of PMLA, 2002.3. Validity of the retention order issued by the Adjudicating Authority.Issue-Wise Detailed Analysis:1. Legality of the Search and Seizure Operations:The appellant was implicated in ECIR No. 01/DZ-II/2017 for allegedly acting as a mediator to help certain corporate entities evade tax. The respondent conducted searches on the appellant's residential and official premises, seizing various items, including 59 files, one laptop, three hard disks, and Rs. 6 lakhs. The search was executed under Section 17(1) of PMLA, 2002, based on a strong reasonable belief that proceeds of crime or related documents could be found.2. Compliance with Procedural Requirements under Section 17 and Section 20 of PMLA, 2002:Section 17 of PMLA, 2002 outlines the authority's power to search and seize based on reasonable belief recorded in writing. Sub-section (4) mandates that within thirty days of such seizure or freezing, an application must be filed for retention of the property. The respondent filed this application under Section 17(4) for retention during the pendency of proceedings.Section 20(1) authorizes the retention of seized or frozen property for up to 180 days for adjudication under Section 8. Sub-section (2) requires that a copy of the retention order, along with material in possession, be forwarded to the Adjudicating Authority in a sealed envelope. Sub-section (3) stipulates that upon expiry of 180 days, the property should be returned unless further retention is permitted by the Adjudicating Authority.3. Validity of the Retention Order Issued by the Adjudicating Authority:The appellant argued that due process under Section 20 was not followed by the Enforcement Directorate (ED). Specifically, no order for retention or continuation of freezing was passed, and procedural requirements under Rule 3 of the Prevention of Money-laundering (The manner of forwarding a copy of the order of retention of seized property along with the material to the Adjudicating Authority and the period of its retention) Rules, 2005 were not met. The Investigating Officer admitted that no formal order was passed, only a letter was handed over, and no Form-I was signed.The impugned order by the Adjudicating Authority was found to be deficient as it merely reproduced facts from the respondent's application without substantive discussion on the merits of the case. The order failed to address the necessity for retention of the property, which is a critical requirement under the law.Conclusion:The judgment concluded that the impugned order lacked legal sustainability due to non-compliance with procedural mandates and insufficient consideration of the case's merits. Consequently, the appeal was allowed, and the impugned order was set aside.