2022 (7) TMI 657 - HC - Money Laundering

Court quashes summons and attachment order under PMLA citing overreach, lack of valid reasons, and abuse of process.

The Court set aside and quashed the summons issued under Section 50 of the Prevention of Money Laundering Act, 2002, and the Provisional Attachment Order. ... Money Laundering - Criminal Conspiracy - proceeds of crime - scheduled offences or not - reasons to believe - Validity of the summons issued - validity of provisional attachment order - issuance of summons to explain the source of funds for the premia paid for the insurance policies - HELD THAT:- On perusal of Section 5 of PMLA, more particularly to sub-section (1) thereof, it is evident that the requirement of the law is that the competent attaching authority must have reason to believe, which must be recorded in writing, on the basis of material in his possession that any person is in possession of any proceeds of crime and such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime, before he provisionally attaches such property for the limited period not exceeding 180 days. The sine qua non for exercising power under sub- section (1) of Section 5 is that the attaching authority must have reason to believe, which must be recorded in writing. Such reason to believe must be formed on the basis of material(s) in his possession that any person is in possession of proceeds of crime and that such proceeds of crime are likely to be concealed etc. Therefore the material in possession of the attaching authority must pertain to the above two aspects and on the basis of such materials he must form the reason to believe. In other words, the reason to believe must have a direct nexus or live link with the materials in possession pertaining to the above aspects. The expression reason to believe has been subjected to numerous judicial pronouncements. It is an expression of considerable import and finds place in a number of statutes - fiscal, penal etc. However, the expression reason to believe is not defined in the PMLA. But this expression is explained in Section 26 IPC as per which a person may be said to have reason to believe a thing, if he has sufficient cause to believe that thing but not otherwise. In the context of Customs Act, 1962, it confers jurisdiction upon the proper officer to seize goods liable to confiscation under sub-section (1) of Section 110 of the said Act. The offence of money laundering is not an independent or autonomous offence but is dependent on commission of a predicate offence. In other words an offence under the PMLA is not a standalone offence. It is relatable to commission or an offshoot of a scheduled offence. In so far the petitioner is concerned, as noticed above, there is no charge of scheduled offence against him - it is trite that for allegation of money laundering against one person, property belonging to another person cannot be attached. On a thorough consideration of all aspects of the matter, it can be held that respondents had clearly exceeded their jurisdiction in issuing the impugned summons and passing the impugned Provisional Attachment Order against the petitioner. Those are wholly unsustainable in law being without jurisdiction. Therefore question of relegating the petitioner to the adjudicating authority would not arise - when the impugned summons and the impugned Provisional Attachment Order are without jurisdiction, question of Section 24 of PMLA coming into play does not arise. Petition allowed. Issues Involved:1. Legality of the summons issued under Section 50 of the Prevention of Money Laundering Act, 2002 (PMLA).2. Validity of the Provisional Attachment Order under Section 5 of the PMLA.3. Impact of previous court judgments quashing proceedings against the petitioner on the current case.4. Application of the concept of 'reason to believe' in the context of provisional attachment under the PMLA.5. Jurisdictional overreach by the Enforcement Directorate (ED) in issuing the summons and provisional attachment order.Issue-wise Detailed Analysis:1. Legality of the Summons Issued under Section 50 of the PMLA:The petitioner challenged the summons dated 11.11.2021 issued by Respondent No.2, which required the petitioner to furnish details of his insurance policies and the source of funds for the premiums. The petitioner contended that the ECIR under which the summons were issued was already quashed by the High Court, and thus, the summons were contrary to the judgments of the Court in Crl.P.Nos.3935 of 2016 and 4130 of 2019. The Court noted that the summons were issued despite the quashing of the proceedings against the petitioner, indicating an overreach of judicial orders.2. Validity of the Provisional Attachment Order under Section 5 of the PMLA:The Provisional Attachment Order dated 25.11.2021 was issued by Respondent No.3, attaching the petitioner's insurance policies. The Court examined whether the order was based on a valid 'reason to believe' that the attached properties were proceeds of crime. The Court found that the attachment was based on suspicion rather than concrete evidence, which is insufficient under the PMLA. The Court reiterated that 'reason to believe' must be based on material evidence and not mere suspicion.3. Impact of Previous Court Judgments Quashing Proceedings Against the Petitioner:The Court highlighted that the proceedings against the petitioner had been quashed in two separate instances, both under the IPC and the PMLA. Despite this, the ED issued the summons and provisional attachment order, which the Court deemed as an abuse of the process of law. The Court emphasized that there was no ongoing predicate or scheduled offence against the petitioner, making the actions of the ED unjustifiable.4. Application of the Concept of 'Reason to Believe' in the Context of Provisional Attachment under the PMLA:The Court elaborated on the legal interpretation of 'reason to believe,' stating that it must be based on objective material and not subjective satisfaction or mere suspicion. The Court cited various judgments, including those of the Supreme Court, to underline that 'reason to believe' requires a direct nexus with the material evidence. The Court found that the ED's actions did not meet this standard, as the attachment was based on assumptions without material evidence linking the insurance policies to proceeds of crime.5. Jurisdictional Overreach by the ED in Issuing the Summons and Provisional Attachment Order:The Court concluded that the ED had exceeded its jurisdiction by issuing the summons and provisional attachment order against the petitioner. The Court held that the actions of the ED were without jurisdiction and thus unsustainable in law. The Court also noted that the explanation provided by the respondents in their affidavit was an afterthought and could not validate the initial lack of jurisdiction.Conclusion:The Court set aside and quashed the summons dated 11.11.2021 and the Provisional Attachment Order dated 25.11.2021. The writ petition was allowed, and the Court emphasized that the ED's actions were an abuse of the process of law and without jurisdiction. The Court also noted that the burden of proof under Section 24 of the PMLA did not come into play as the initial actions themselves were without jurisdiction.