2022 (9) TMI 1287 - HC - Money Laundering

High Court overturns illegal attachment order, directs release of property under PMLA

Vanpic Projects Private Limited Versus The Deputy Director

Vanpic Projects Private Limited Versus The Deputy Director - TMI Issues Involved:1. Legality of the provisional attachment order under Section 5(1) of the PMLA.2. Compliance with statutory requirements for 'reason to believe.'3. Validity of the adjudicating authority's confirmation of the provisional attachment.4. Jurisdiction and findings of the Appellate Tribunal.5. Appropriate forum for seeking release of attached property.Issue-wise Detailed Analysis:1. Legality of the Provisional Attachment Order under Section 5(1) of the PMLA:The appeal challenges the provisional attachment order dated 04.03.2014, whereby 1416.91 acres of land was attached under Section 5(1) of the PMLA. The appellant argued that the attachment order lacked a valid 'reason to believe' as required by law, rendering it illegal. The High Court noted that the Joint Director of the Enforcement Directorate failed to record reasons in writing, which is a mandatory requirement under Section 5(1). The order merely paraphrased the statutory language without independent application of mind, thus failing to meet the legal standard for provisional attachment.2. Compliance with Statutory Requirements for 'Reason to Believe':The High Court emphasized that the 'reason to believe' must be recorded in writing and based on material evidence. The Joint Director's order lacked this essential element, as it did not provide a rational basis for believing that the appellant was in possession of proceeds of crime likely to be concealed. The court referred to the decision of the Delhi High Court in J.Sekhar v. Union of India, which held that failure to disclose reasons to the affected party vitiates the entire proceedings.3. Validity of the Adjudicating Authority's Confirmation of the Provisional Attachment:The adjudicating authority confirmed the provisional attachment without addressing the absence of 'reason to believe.' The High Court found that the adjudicating authority's order suffered from serious jurisdictional infirmities, including non-application of mind and violation of principles of natural justice. The show cause notice issued under Section 8(1) was mechanical and lacked valid reasons, further invalidating the adjudication process.4. Jurisdiction and Findings of the Appellate Tribunal:The Appellate Tribunal found that the provisional attachment order and the adjudicating authority's confirmation were flawed. However, it directed the continuation of the attachment and relegated the appellant to seek relief from the Special Court under Section 8(8) of the PMLA. The High Court criticized this approach, stating that the Appellate Tribunal abdicated its adjudicatory function by not declaring the attachment orders illegal and void, despite recognizing their illegality.5. Appropriate Forum for Seeking Release of Attached Property:The High Court held that the Appellate Tribunal erred in directing the appellant to approach the Special Court for release of the attached property. The court noted that the Special Court's jurisdiction under Section 8(8) pertains to post-trial scenarios, which was not applicable in the present case. The High Court concluded that the Appellate Tribunal should have ordered the release of the property based on its findings of illegality in the attachment orders.Conclusion:The High Court allowed the appeal, directing the respondent to release the attached property to the appellant. The court emphasized that the provisional attachment order and the adjudicating authority's confirmation were illegal due to the absence of a valid 'reason to believe.' The Appellate Tribunal's decision to continue the attachment and refer the matter to the Special Court was found to be an abdication of its authority. The High Court's decision underscores the importance of strict compliance with statutory requirements and procedural fairness in attachment proceedings under the PMLA.