2019 (11) TMI 962 - HC - Money Laundering

Court upholds ED's actions under PMLA, dismisses writ petitions challenging legality of PAO and Complaint

The court dismissed all writ petitions challenging the Enforcement Directorate's actions under the Prevention of Money Laundering Act. It upheld the ... Provisional attachment of property involved in money laundering - reason to believe (recorded in writing) for attachment - continuing offence - merger of investigatory communications with provisional attachment order - exhaustion of statutory remedies under the Prevention of Money Laundering Act - confirmation of provisional attachment order by Adjudicating AuthorityExhaustion of statutory remedies under the Prevention of Money Laundering Act - confirmation of provisional attachment order by Adjudicating Authority - Maintainability of writ petitions in view of statutory adjudicatory and appellate remedies under the PMLA. - HELD THAT: - The Court held that where a provisional attachment order (PAO) under Section 5(1) of the PMLA has been followed by complaint under Section 5(5) and adjudication under Section 8, the aggrieved person must pursue the statutory forum and appellate remedies provided by the Act. The Adjudicating Authority has the jurisdiction to determine whether the attached property constitutes proceeds of crime and to pass a reasoned order after notice and hearing; once adjudicated and confirmed, the appropriate challenge lies before the Appellate Tribunal under the PMLA and further before the High Court in accordance with the statutory scheme. In the present case the PAO was adjudicated and confirmed, and therefore the writ petitions seeking to bypass the statutory fora were held not maintainable. [Paras 10, 16, 19, 21]Writ petitions are not maintainable as the petitioner failed to avail the statutory adjudicatory and appellate remedies under the PMLA; challenge lies before the Appellate Tribunal/appropriate statutory forum.Merger of investigatory communications with provisional attachment order - provisional attachment of property involved in money laundering - Effect of earlier letters directing banks not to permit debits and whether those letters were subsumed by the subsequent PAO. - HELD THAT: - The Court accepted the submission that the communications sent by the Enforcement Directorate to the banks, which directed that debits not be permitted without prior permission, were merged with the subsequently issued PAO. Consequently, writ petitions challenging those letters were rendered infructuous in view of the PAO and the statutory proceedings that followed, and thus could be dismissed on that ground. [Paras 6, 21, 22]Letters to banks were merged with the PAO and petitions challenging those communications were rendered infructuous.Reason to believe (recorded in writing) for attachment - provisional attachment of property involved in money laundering - Whether the statutory preconditions for passing a PAO under Section 5(1) of the PMLA were required and the nature of scrutiny available in writ jurisdiction. - HELD THAT: - The Court reiterated that a PAO can be passed only upon the authorised officer having a 'reason to believe' recorded in writing based on material in possession, and that procedural requirements for notice under Section 8 must be observed. However, where the statutory complaint under Section 5(5) is filed and the Adjudicating Authority issues notice and conducts adjudication, the correctness of the material and sufficiency of reasons are matters for the Adjudicating Authority and appellate forums; interference by the High Court under Article 226 is not appropriate if statutory remedies are available and have not been exhausted. [Paras 7, 9, 10, 18]Procedural and substantive compliance for a PAO is a matter for the Adjudicating Authority; High Court will not ordinarily entertain pre emptive review where statutory remedies exist.Continuing offence - provisional attachment of property involved in money laundering - Applicability of the second proviso to Section 5(1) of the PMLA to property acquired prior to the proviso's enactment and the concept of continuing offence. - HELD THAT: - The Court observed that whether an offence is continuing depends on its nature and purpose. The second proviso to Section 5(1), which permits immediate attachment where non attachment would frustrate proceedings, applies to property acquired before the proviso's coming into force if the nature of the offence involves continuance. Thus retrospective application for purposes of attachment was held not to be impermissible in the circumstances described. [Paras 12, 17]The second proviso to Section 5(1) applies to property acquired prior to its enactment where the offence is of a continuing character; retrospective attachment in such cases is permissible.Final Conclusion: The writ petitions challenging the ED communications, the provisional attachment and related proceedings were dismissed as the impugned PAO had been adjudicated and confirmed by the Adjudicating Authority and the petitioner was required to pursue the statutory remedies under the PMLA; further, the Court upheld the applicability of the second proviso to Section 5(1) in continuing offence contexts and treated the earlier bank communications as merged with the PAO. Issues Involved:1. Legality of the letter sent by the Enforcement Directorate (ED) to banks freezing the petitioner’s accounts.2. Validity of the Provisional Attachment Order (PAO) under Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA).3. Challenge to the Complaint filed under Section 5(5) of the PMLA seeking confirmation of the PAO.4. Jurisdiction and procedural compliance by the ED under PMLA.5. Applicability of the PMLA to offenses committed before the inclusion of certain sections in its schedule.Detailed Analysis:1. Legality of the Letter Sent by ED to Banks Freezing Accounts:The petitioner challenged the letter dated 24-9-2018 sent by the ED to banks, which directed them not to allow any debit transactions in the petitioner’s accounts without prior permission. The petitioner sought directions to defreeze these accounts. The ED contended that these letters were not freezing orders but mere communications to prevent debits without permission. The court found that these letters merged with the subsequent PAO dated 10-10-2018, rendering the writ petitions questioning the letters infructuous.2. Validity of the Provisional Attachment Order (PAO) under Section 5(1) of PMLA:The petitioner contested the PAO dated 10-10-2018, attaching assets worth Rs. 31.55 Crores, on grounds of lack of jurisdiction, mala fides, and perversity. The court noted that Section 5 of the PMLA empowers the ED to provisionally attach properties if there is a 'reason to believe' that the property involved is proceeds of crime. The ED argued that the attachment was based on substantial material and investigation, including statements and digital evidence linking the petitioner to the alleged money laundering activities. The court emphasized that the PAO is valid for 180 days, and a complaint must be filed within 30 days to the Adjudicating Authority, which was done in this case.3. Challenge to the Complaint Filed Under Section 5(5) of PMLA:The petitioner sought to quash the complaint dated 26-10-2018 filed by the ED under Section 5(5) of the PMLA. The court observed that the Adjudicating Authority is responsible for confirming the PAO after issuing notice and hearing the parties. The petitioner argued that the PAO was based on the uncorroborated statement of Indrani Mukherjea, but the ED maintained that the attachment was based on a comprehensive investigation. The court found that the Adjudicating Authority had already confirmed the PAO, and the petitioner should challenge this confirmation before the Appellate Tribunal.4. Jurisdiction and Procedural Compliance by ED Under PMLA:The petitioner contended that the ED lacked jurisdiction as the alleged offenses under Sections 120B and 420 IPC were included in the PMLA schedule only after 1-6-2009, while the offenses occurred in 2008. The court clarified that the PMLA's second proviso to Section 5(1) allows attachment of property acquired before the provision came into force if non-attachment would frustrate proceedings. The court also noted that procedural violations should be addressed before the Adjudicating Authority or Appellate Tribunal, not directly under Article 226 of the Constitution.5. Applicability of PMLA to Offenses Committed Before Inclusion in Schedule:The petitioner argued that the PMLA could not be applied retrospectively to offenses committed before the inclusion of relevant sections in its schedule. The court held that money laundering is a continuous offense, and the second proviso to Section 5(1) applies to property acquired even before the provision's enactment. The court dismissed the contention that the PMLA's application was prospective only.Conclusion:The court dismissed all the writ petitions, holding that the petitioner should have exhausted alternative remedies before the Adjudicating Authority and Appellate Tribunal. The PAO and subsequent complaint were found to be procedurally compliant and based on substantial material. The court reiterated that the PMLA's provisions could apply retrospectively to continuous offenses like money laundering. The petitions were dismissed as devoid of merits, with no order as to costs.