2019 (8) TMI 1912 - AT - Money Laundering

Appellate Tribunal quashes bank account freezing order under Section 17 PMLA citing lack of jurisdiction and procedural violations

GLS Films Industries (P.) Ltd. Versus Deputy Director, Directorate of Enforcement, Patna

The Appellate Tribunal allowed the appeal against bank account freezing under PMLA. The appellant's transactions predated 8.11.2016, involved Delhi ... Freezing of appellant's bank accounts - Money Laundering - scheduled offences - proceeds of crime - rejection of application u/s 17(4) on the ground that pre-conditions for invoking Section 17 of PMLA have not been complied with - Jurisdiction of the Enforcement Directorate in the current proceedings - HELD THAT:- All transactions are prior to 8.11.2016 and all transactions are with Delhi parties and through bank accounts of respective parties against the goods supplied. The documents speak from itself for the Para 11 at page 4 a specific contention was taken that all transactions of Appellant are prior to 8.11.2016 which in response was not refuted in counter in reply to corresponding paragraphs of appeal. Para 27 in PAO, the Attaching Officer asserted that bank accounts of Appellant and others were freezed 'to preserve property suspected to be involved in money laundering as evidence' which is contrary to the scheme of statute. The Appellant is not involved in any scheduled offence. He is not charge sheeted. The freeze of bank account was made on 17.02.2017 which he claimed to be doing again on 20.09.2017 and name of the Appellant is figuring at Sl.No.39. Now, recently the Respondent, ED has filed a complaint u/s. 3 of PMLA at Patna, Bihar after expiry of statutory period. In the absence of any search u/s. 17 of PMLA, the bank accounts could not have been freezed and no extension or retention could be allowed. The said account can be treated illegal unless valid reasons to belief are recorded such reasons to belief in the light of the facts involved in the present case are missing. The Appellant is not involved in scheduled offence. There is no report u/s. 173 Cr.PC in the absence of which there cannot be an attachment u/s. 5. The second proviso of Section 5(1) can only invoke in the special circumstances in emergency cases and separate of reason to believe is to be recorded in writing and if all conditions are to be fulfilled strictly as per provisions, than only the second proviso can be invoked. The same has not been happened in the present case as no reason to believe within the meaning of second proviso of Section 5(1) are filed or produced nor any copy was served to the appellant. The case of the Respondent is that one Motilal misused the account of persons by depositing cash from which cheques were issued and thereby according to them black money was converted to white. The Respondents have given a chart in respect of flow of money from deposit of cash in Patna and travelling through several bank accounts to reach Appellant Company, how the appellant company would come to know whether the payment transaction against the goods were proceed of crime or not. The business relation between the appellant and traders have been many years prior to the date of 8.11.2008. There is not mechanism by any order to find out from his bank-account as to whether deposit amount was clean money or not. The Respondents did not at all investigate the appellant due diligently above the transactions and against specific contention in the appeal. The Respondent in his counter at Para 32 of reply have not denied the receipt but have disputed that these interregnum parties on the scrutiny of the bank accounts from which money has travelled to Appellant, the Respondent has claimed that they were fake parties because allegedly the summons sent to them was received back - The accounts of known businessmen can be freezed merely on the basis of presumption and assumption and no criminal liabilities can be imposed without proper investigation and reasons to believe. The Appellant has been able to demonstrate in his submissions in appeal and grounds that the order of freeze passed against the Appellant is without application of mind and against the facts available on record. The appellant is not involved in the money-laundering of any kind. The impugned order dated 19th September, 2018 is set-aside against the appellant so as Provisional Attachment Order dated 31.03.2018 which is quashed. The accounts are defreezed forthwith - Appeal allowed. Issues Involved:1. Validity of the freeze order on the appellant's bank accounts.2. Compliance with procedural requirements under the Prevention of Money Laundering Act (PMLA).3. Legitimacy of the provisional attachment order.4. Involvement of the appellant in money laundering activities.5. Jurisdiction of the Enforcement Directorate in the current proceedings.Issue-wise Detailed Analysis:1. Validity of the Freeze Order:The Tribunal examined the legality of the freeze order imposed on the appellant's bank accounts. The initial freeze was directed via email on 17.02.2017 by the Deputy Director of the Directorate of Enforcement, which the appellant contended was done without adhering to the mandatory provisions of Section 17 of the PMLA. Despite the Adjudicating Authority rejecting the initial application for continuation of the freeze order on 17.07.2017, the freeze remained in effect due to non-compliance by the bank. A subsequent formal freeze order was issued on 20.09.2017. The Tribunal found that the freeze order was ab initio void and illegal, as it was not supported by a report under Section 157 Cr.PC or compliance with other statutory requirements.2. Compliance with Procedural Requirements:The Tribunal scrutinized the procedural adherence under the PMLA, particularly Sections 17 and 21. It was noted that the Enforcement Directorate failed to comply with the statutory requirement of recording reasons to believe in writing before authorizing the freeze. The Tribunal emphasized that the procedural safeguards under the PMLA are crucial, and any deviation renders the actions void. The Tribunal highlighted the lack of a valid report under Section 157 Cr.PC, which is essential for freezing actions under Section 17 of the PMLA.3. Legitimacy of the Provisional Attachment Order:The Tribunal assessed the legitimacy of the Provisional Attachment Order (PAO) issued under Section 5(1) of the PMLA. It was argued that the PAO was based on allegations of depositing demonetized currency, which was not substantiated with evidence linking the appellant to money laundering activities. The Tribunal found that the PAO was issued without fulfilling the statutory conditions, such as the existence of a report under Section 173 Cr.PC. Consequently, the PAO dated 31.03.2018 was quashed.4. Involvement of the Appellant in Money Laundering Activities:The Tribunal evaluated whether the appellant was involved in money laundering activities. The appellant demonstrated that all transactions were legitimate business dealings, supported by statutory records and compliance with tax regulations. The Tribunal noted that the respondent did not refute the authenticity of these documents. Furthermore, the Tribunal observed that the appellant was not named in any FIRs or charge sheets related to scheduled offences under the PMLA. Hence, the Tribunal concluded that the appellant was not involved in money laundering.5. Jurisdiction of the Enforcement Directorate:The Tribunal questioned the jurisdiction of the Enforcement Directorate in the proceedings, particularly in the absence of a scheduled offence. It was highlighted that the conversion of black money to white falls within the domain of Income Tax authorities, not the Enforcement Directorate. The Tribunal emphasized that the Enforcement Directorate lacked jurisdiction to assume control based on mere apprehensions without valid reasons in writing. The proceedings initiated were deemed void ab initio.Conclusion:The Tribunal set aside the impugned order dated 19th September 2018 and quashed the Provisional Attachment Order dated 31.03.2018, directing the immediate defreezing of the appellant's bank accounts. The Tribunal concluded that the appellant was not involved in money laundering, and the actions taken by the Enforcement Directorate were procedurally flawed and beyond its jurisdiction. No costs were awarded.