2024 (12) TMI 951 - HC - Money Laundering

HC upholds PMLA Section 17 freezing orders against company linked to entity under investigation

M/s. Arissan Energy Limited Versus Enforcement Directorate & Ors.

The HC upheld freezing orders under Section 17 and 17(1-A) of PMLA, 2002 against a company linked to an entity under investigation. The court ... Legality of the freezing orders issued under Section 17 and Section 17(1-A) of the Prevention of Money Laundering Act, 2002 - proceeds of crime - reasons to believe - authority to conduct search and seizure under Section 17 of PMLA - HELD THAT:- In Reshmi Metaliks Limited [2022 (8) TMI 543 - CALCUTTA HIGH COURT] the Court was dealing with the factual circumstances in a case where the Hon’ble Supreme Court stayed the proceedings in respect of an affected party relating to the ECIR and consequently the freezing orders passed under Section 17 of the PMLA, 2002 by the Authorized Officer was dealt with by the Court. Thus, the factual circumstances of the present case is completely different from the case which has been referred to, as in the present case the investigation of the case is continuing and there has been no interference by any Court of law when the freezing order has been passed by the Authorised Officer. An appeal was preferred by the Directorate of Enforcement before the Hon’ble Division Bench, in respect of the aforesaid order, wherein the Appeal Court was prayed to interfere and modify the order directing the learned Single Judge to hear the writ petition after exchange of affidavits. As such, the findings of the learned Single Judge by the Hon’ble Division Bench cannot be considered as an authoritative finding in respect of Section 17 or Section 17(1-A) of the PMLA, 2002. Section 17(1-A) of the PMLA, 2002, postulate that where it is not possible to seize any record or property, the authorized officer may pass an order to freeze such property so that the property is not transferred or otherwise dealt with except without prior permission of the officer passing such freezing order and a copy of the order should be served upon the person concerned - Section 17(2) of PMLA, 2002 states that immediately after search, seizure or issuance of freezing order the authorized officer/authority referred to in Section 17(1) of the PMLA, 2002 shall forward a copy of the reasons so recorded along with material in his possession to the Adjudicating Authority in a sealed envelope. While Section 17(1-A) of the PMLA, 2002 is in the nature of intimation to the affected party/person on the other hand Section 17(2) of PMLA, 2002 is a mandate to assign the reasons for implication with regard to the property being freezed and which involves the power to maintain secrecy, otherwise the term ‘sealed envelope’ referred in Sub-section (2) of Section 17 of PMLA, 2002 would be futile. In light of the materials which have been placed by the investigating agency, especially the financial/monetary trail, which links the petitioner company with Corporate Power Limited, which is under investigation, it is held that the phrase ‘for the purposes of investigation’ in the notice under Section 17(1-A) of the PMLA, 2002 is sufficient and do justify the act of the Enforcement Directorate/Investigating Agency. As such no interference is called for in respect of the prayers advanced before this Court - application dismissed. Issues Involved:1. Legality of the freezing orders issued under Section 17 and Section 17(1-A) of the Prevention of Money Laundering Act, 2002 (PMLA).2. Whether the petitioner company was wrongfully implicated in the investigation by the Enforcement Directorate.3. Adequacy of the 'reason to believe' and procedural compliance by the Enforcement Directorate.4. The scope and ambit of judicial review in matters involving freezing orders under the PMLA.Issue-wise Detailed Analysis:1. Legality of the Freezing Orders:The petitioner challenged the freezing orders dated 13th and 14th August 2024, issued under Section 17 and Section 17(1-A) of the PMLA, arguing that these orders lacked legal justification. The petitioner contended that the Enforcement Directorate (ED) acted arbitrarily by freezing its bank accounts, DMAT accounts, and mutual funds without any legal basis. The petitioner argued that the orders failed to demonstrate how its properties were considered 'proceeds of crime' under Section 2(1)(u) of the PMLA. The Court examined the procedural requirements under Section 17, which mandates that the authorized officer must possess information and a reason to believe that a person is involved in money laundering or is in possession of proceeds of crime. The Court found that the ED had established a money trail linking the petitioner company to entities under investigation, thus justifying the freezing orders.2. Wrongful Implication of the Petitioner Company:The petitioner asserted that it was wrongfully implicated as it was not named in the FIR or the Panchnama and had no transactions with the accused entities. The petitioner emphasized that it was neither a subsidiary nor an associate of the accused company, M/s Corporate Power Limited. However, the ED presented evidence showing the transfer of funds from Corporate Power Limited to the petitioner company through a series of transactions involving other entities. The Court concluded that the financial trail provided a sufficient basis for the ED's actions, and the petitioner's involvement in the money trail warranted the freezing of its assets.3. Adequacy of 'Reason to Believe' and Procedural Compliance:The petitioner argued that the freezing orders lacked a valid 'reason to believe' as required under Section 17 of the PMLA. The Court referred to precedents, including the Supreme Court's judgment in Vijay Madanlal Choudhary, which emphasized the need for the authorized officer to have a written reason to believe based on information in possession. The Court found that the ED had referred to the ECIR number and the purpose of investigation in the freezing orders, satisfying the requirement of 'reason to believe.' The Court also noted that the ED had issued notices under Section 50 of the PMLA to the petitioner's responsible officers, providing them an opportunity to explain the transactions.4. Scope and Ambit of Judicial Review:The petitioner relied on various judgments to argue that the ED's actions were against settled legal principles. The Court distinguished the present case from the cited precedents, noting that the investigation was ongoing and no court had stayed the proceedings. The Court emphasized that judicial review in such matters is limited to examining whether the ED acted with reasonable belief and procedural compliance. The Court held that the ED's actions were justified based on the financial trail and the ongoing investigation, and thus, no interference was warranted.In conclusion, the Court dismissed the writ petition, upholding the freezing orders issued by the Enforcement Directorate. The Court found that the ED had acted within its powers under the PMLA, and the petitioner had the opportunity to present its case before the adjudicating authority.