2019 (7) TMI 961 - AT - Money Laundering

Tribunal overturns order retaining seized assets, citing lack of link to alleged crime. Procedural lapses noted.

M/s. Prakash Industries Ltd. & Ors. Versus The Assistant Director, Directorate of Enforcement, Chandigarh

M/s. Prakash Industries Ltd. & Ors. Versus The Assistant Director, Directorate of Enforcement, Chandigarh - TMI Issues Involved:1. Legality of the retention of documents and jewellery seized.2. Validity of the ECIR based on a closed FIR.3. Compliance with procedural requirements under PMLA, 2002.4. Justification for retention of seized items.Issue-Wise Detailed Analysis:1. Legality of the Retention of Documents and Jewellery Seized:The appellants challenged the retention of documents and jewellery seized during a search conducted by the Directorate of Enforcement (ED). The Adjudicating Authority had allowed the ED to retain these items. The appellants argued that the jewellery and documents were owned by them prior to the alleged period of the offense and thus could not be considered 'proceeds of crime' under section 2(1)(u) of the PMLA. The Tribunal noted that the Adjudicating Authority failed to provide a valid reason linking the jewellery to the alleged crime, and therefore, set aside the order concerning the retention of gold and jewellery.2. Validity of the ECIR Based on a Closed FIR:The ECIR was registered based on FIR No. RC 219 2014 E0002 dated 26.03.2014, which was filed by the CBI alleging criminal conspiracy, cheating, and misconduct. However, the CBI later filed a closure report stating that no offense was made out, and the FIR was lodged due to a 'mistake of fact.' The Tribunal observed that since the FIR was the basis of the ECIR and was sought to be closed, the continuation of proceedings based on such an ECIR was questionable.3. Compliance with Procedural Requirements Under PMLA, 2002:The Tribunal scrutinized the compliance with sections 17, 18, 20, and 21 of the PMLA. Section 17(1) requires the authorized officer to record reasons to believe in writing before conducting a search and seizure. The Tribunal found that no such reasons were produced, and the seizures were made based on apprehension and presumption. Additionally, the Tribunal highlighted that no report against the appellant was forwarded to a Magistrate, no complaint was filed, and no cognizance of the scheduled offense was taken by any authority, thus failing to meet the procedural requirements.4. Justification for Retention of Seized Items:The Tribunal examined the justification provided by the Adjudicating Authority for retaining the seized items. The Authority had stated that the value of the company's shares might rise, making it a matter of investigation. However, it was admitted that the gold jewellery might not be related to the manipulation in share prices or have any linkage to the alleged crime. The Tribunal criticized the reasoning that no harm would be caused by continuing retention, emphasizing that the Adjudicating Authority must provide material evidence that the party is involved in money laundering and that the property is acquired from the proceeds of crime.Conclusion:The Tribunal set aside the impugned order concerning the retention of gold and jewellery, stating that there was no evidence linking these items to the proceeds of crime. The appellants were entitled to obtain copies of the documents under section 21(2) of the PMLA. The appeal was partly allowed, modifying the impugned orders.