2023 (4) TMI 13 - HC - Money Laundering

Bank account freeze upheld under Money-Laundering Act; Petitioners must provide bank guarantee.

Vivo Mobile India Pvt. Ltd. And M/s. Grand Prospect International Communication Pvt. Ltd. Versus Directorate Of Enforcement and Anr.

The case involved challenging debit freeze orders on bank accounts under the Prevention of Money-Laundering Act. The court upheld the freeze orders, ... Money Laundering - Freezing of Bank Accounts of petitioner - Section 26 of the Prevention of Money Laundering Act, 2002 - HELD THAT:- The appeal has been filed before the Appellate Tribunal under the PMLA in February, 2023 and is now pending in the Appellate Tribunal. Insofar as the Petitioner in W.P.(C) 12650/2022 is concerned, ld. Counsel for the Petitioner submits that the appeal is in the process of being filed. Considering the fact that the writ petitions itself were directed against the initial debit freeze orders, which have now merged with the final order passed on 21st December, 2022 and the Petitioner has already availed of the appellate remedy, it is deemed appropriate to relegate both the Petitioners to pursue their appellate remedies before the Appellate Tribunal, under the PMLA, in accordance with law. The Petitioners in both the writ petitions shall, along with their appeals, prefer interim applications before the Appellate Tribunal. The said interim applications, if not already listed, may be taken up by the Appellate Tribunal within 4 weeks and shall be adjudicated expeditiously - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether debit-freeze orders issued under Section 17(1A) of the Prevention of Money-Laundering Act (PMLA) are sustainable where the bank-account details were already known to investigating authorities before search and seizure. 2. The proper scope and ambit of Section 17(1A) PMLA vis-à-vis powers under Section 132 of the Income-tax Act - specifically, whether precedents construing seizure/freeze under Section 132 are determinative for PMLA powers. 3. Whether material recovered during search that indicates proceeds of crime were 'secreted' in particular accounts can justify freezing those accounts under Section 17(1A). 4. Whether interim measures (maintenance of specified minimum credit balances, periodic account statements, and furnishing of a bank guarantee) are appropriate to balance investigative interest and the affected persons' commercial functioning pending adjudication. 5. Whether challenges to initial debit-freeze orders, later subsumed in an Adjudicating Authority's confirmation under Section 8(3) PMLA, should be relegated to the appellate remedy under the PMLA and what interim directions should govern until the Appellate Tribunal decides. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of freezing accounts under Section 17(1A) where account details were already known Legal framework: Section 17(1A) PMLA empowers freezing of bank accounts where the Enforcement Directorate has reasons to believe that proceeds of crime are involved; powers are exercised in aid of investigation and preservation of assets. Precedent treatment: Petitioners relied on decisions interpreting seizure powers under Section 132 Income-tax Act (cited authorities in hearings). The Court noted these precedents were invoked to contend that known account details could not be subjected to a freeze. Interpretation and reasoning: The Court distinguished the Income-tax Act precedents on factual and statutory grounds, holding that the scope of Section 17(1A) PMLA differs from Section 132 and that PMLA's object of preventing dissipation of proceeds of crime supports freezing accounts even if account details were already in possession of authorities, provided there is material indicating proceeds are secreted therein. The Court accepted respondent's submission that the impugned freeze was based on material found during search indicating secreted proceeds, thus falling squarely within Section 17(1A)'s ambit. Ratio vs. Obiter: Ratio - Section 17(1A) may be validly invoked to freeze accounts identified during the course of search or investigation, even if account particulars were previously known, where material establishes that proceeds of crime are secreted in those accounts. Distinguishing Section 132 authorities is part of the binding reasoning. Obiter - factual comments about volume of data and need for time to analyse were incidental. Conclusion: The Court treated the freeze as justifiable in principle under Section 17(1A) given the seized material indicating proceeds of crime; prior knowledge of account details does not automatically invalidate a Section 17(1A) freeze. Issue 2 - Relationship between PMLA powers and Section 132 Income-tax Act precedents Legal framework: Statutory construction requires comparing objects and scheme of distinct statutes; enforcement powers must be read in context of PMLA's purpose to prevent laundering and preserve assets. Precedent treatment: Petitioners relied on judicial pronouncements construing Section 132; the Court considered those decisions but did not follow them as determinative for PMLA powers. Interpretation and reasoning: The Court held the ambit and purpose of PMLA differ materially from Income-tax Act provisions. Hence, precedents under Section 132 cannot be automatically applied to limit PMLA powers. Where PMLA investigation yields material showing concealment of proceeds, Section 17(1A) operates to restrain dissipation notwithstanding distinctions drawn in income-tax jurisprudence. Ratio vs. Obiter: Ratio - Precedents under Section 132 are distinguishable and not binding to curtail Section 17(1A) PMLA actions; this is a central legal determination. Obiter - references to specific earlier cases as factual analogies are ancillary. Conclusion: Section 17(1A) must be interpreted on its own statutory terms; reliance on Section 132 authorities does not negate PMLA freezing power where statutory criteria are met. Issue 3 - Sufficiency of material recovered during search to justify freezing (proceeds 'secreted' in accounts) Legal framework: Freezing under Section 17(1A) requires satisfaction that proceeds of crime are involved and preservation is necessary for investigation and adjudication. Precedent treatment: The Adjudicating Authority's confirmation under Section 8(3) and the Court's consideration of the seized material bear on sufficiency. Interpretation and reasoning: The Adjudicating Authority found that seized material and the investigation prima facie established involvement of proceeds of crime and the necessity for retention of seized items and bank accounts for adjudication. The Court noted those findings and considered that the Authority's satisfaction, grounded in the material placed on record, justified continuation of the freeze. The Court did not substitute its own appraisal of the merits but recognized the material as sufficient for prima facie retention. Ratio vs. Obiter: Ratio - Prima facie material recovered during search indicating secreted proceeds can justify freezes; the Adjudicating Authority's affirmative satisfaction on this point supports continuation of retention. Obiter - granular factual assessments of each seized item beyond prima facie sufficiency are supplementary. Conclusion: The presence of seized material tending to show that proceeds of crime were secreted in specified accounts constitutes sufficient ground for freezing under Section 17(1A) pending adjudication. Issue 4 - Appropriateness and contours of interim measures balancing investigative interest and commercial functioning Legal framework: Courts may craft interim arrangements to protect both investigatory interest and the affected parties' rights, including directions for maintenance of minimum balances, periodic disclosures, and bank guarantees. Precedent treatment: Interim directions in earlier orders required maintenance of specified credit balances, periodic furnishing of statements, and submission of a bank guarantee; the Adjudicating Authority expressly made its order subject to those High Court directions. Interpretation and reasoning: The Court found the bank guarantee plus maintenance of the frozen accounts' credited amounts adequately safeguarded the investigating agency's interest while permitting limited operation of accounts for commercial exigencies. The directions for furnishing account statements every 48 hours were accepted as reasonable monitoring measures. The Court treated these arrangements as protective interim mechanisms not affecting ultimate adjudication on merits. Ratio vs. Obiter: Ratio - Interim measures of bank guarantees, specified minimum balances and regular disclosure are appropriate and may continue pending appellate adjudication to balance competing interests. Obiter - specific monetary thresholds fixed in these facts are case-specific and not meant as general formulae. Conclusion: The Court endorsed the interim safeguards (bank guarantee, maintenance of minimum credit balances, frequent account disclosures) as proportionate measures to protect investigative interests while allowing limited commercial activity. Issue 5 - Relegation to appellate remedy under the PMLA and interim directions pending Tribunal adjudication Legal framework: PMLA provides an appellate remedy to challenge Adjudicating Authority orders; principles of judicial restraint and forum appropriateness counsel relegation to statutory appellate process where adequate remedy exists. Precedent treatment: The Court observed that the initial writ challenges merged into the Adjudicating Authority's confirmed order and that the petitioners had, or could, avail the appellate remedy before the Appellate Tribunal under PMLA. Interpretation and reasoning: Given the availability of a specific appellate remedy and the Adjudicating Authority's confirmation, the Court held it appropriate to direct petitioners to pursue appeals and to file interim applications before the Appellate Tribunal. The Court ordered expeditious listing and adjudication by the Tribunal and directed continuation of the Court's interim arrangements until the Tribunal decides interim applications or the appeals finally, thus preserving consistency between fora and preventing duplicative adjudication. Ratio vs. Obiter: Ratio - Where a statutory appellate remedy is available against an Adjudicating Authority's order under PMLA, constitutional writs challenging the same may be relegated to that remedy; interim judicial directions may continue until the appellate forum determines interim relief. Obiter - observations on limitation and maintainability of any belated appeal are procedural questions to be decided by the Tribunal. Conclusion: The Court directed petitioners to pursue appeals under PMLA and to seek interim relief before the Appellate Tribunal, ordered expeditious adjudication by the Tribunal, and preserved the existing interim protections until the Tribunal's decision; questions of limitation for any unfiled appeal are left to the Tribunal.