2025 (4) TMI 250 - AT - Money Laundering

Appellate Tribunal sets aside provisional attachment order under PMLA Section 8(1) for failing to supply reasons with notice

Vijay Chaudhary and M/s Zoom Reality Projects Pvt. Ltd. Versus The Deputy Director, Directorate of Enforcement, Indore

The Appellate Tribunal under SAFEMA set aside the Adjudicating Authority's provisional attachment order under PMLA Section 8(1) for failure to supply ... Money Laundering - Provisional Attachment Order - failure to supply reasons to believe with the notice - Section 8(1) of PMLA - HELD THAT:- The perusal of Section 8(1) shows that it does not require to record reasons to believe by the Adjudicating Authority before causing notice. What is required is that if the Adjudicating Authority has reasons to believe that any person has committed offence under Section 3 or is in possession of the proceeds of crime, he may serve a notice of not less than 30 days on such person calling him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached by the ED. While giving interpretation to the provision aforesaid, the Delhi High Court gave judgment in the case of J. Sekar [2018 (1) TMI 535 - DELHI HIGH COURT] where the issue in reference to the various provisions of the Act of 2002 has been dealt with. It is, however, a fact that the operation of the order of Delhi High Court has been stayed by the Apex Court but the ratio propounded therein has been applied. The impugned order of the Adjudicating Authority is set aside and the case remanded to the Adjudicating Authority for proceeding a fresh after supplying of reasons to believe for causing notice under Section 8(1) of the Act of 2002. Appeal disposed off. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment was whether the Adjudicating Authority under the Prevention of Money Laundering Act, 2002 (PMLA) was required to provide 'reasons to believe' when issuing a notice under Section 8(1) of the Act. The appellants challenged the confirmation of the Provisional Attachment Order on the grounds that the notice served did not include these reasons, as purportedly required by the precedent set in the Delhi High Court's judgment in J. Sekar Vs. Union of India & Ors.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsSection 8(1) of the PMLA outlines the procedure for adjudication when a complaint is received regarding money laundering offenses. It allows the Adjudicating Authority to serve a notice to the accused, calling upon them to explain the sources of their income and assets, and to show cause why the property should not be declared as involved in money laundering. The appellants argued that this notice must include 'reasons to believe' as per the Delhi High Court's interpretation in J. Sekar Vs. Union of India & Ors., which mandated that such reasons should accompany the notice to ensure transparency and fairness.Court's Interpretation and ReasoningThe Tribunal analyzed Section 8(1) and noted that the provision does not explicitly require the Adjudicating Authority to record 'reasons to believe' in writing when issuing a notice. The Tribunal acknowledged the Delhi High Court's judgment, which interpreted the provision to imply such a requirement, but also noted that the Supreme Court had stayed the operation of this judgment. Despite the stay, the Tribunal observed that the practice of including reasons had been adopted following the Delhi High Court's decision.Key Evidence and FindingsThe Tribunal found that the notice issued by the Adjudicating Authority lacked the 'reasons to believe,' aligning with the appellants' contention. The Tribunal noted that the appellants did not challenge the factual basis of the case but focused solely on this procedural aspect.Application of Law to FactsIn applying the law, the Tribunal considered the existing legal framework under the PMLA and the impact of the Delhi High Court's judgment. It emphasized that while the High Court's decision was stayed, the rationale behind requiring 'reasons to believe' was to ensure that the accused were adequately informed and could prepare a defense. The Tribunal decided to remand the case to the Adjudicating Authority to comply with this procedural requirement, subject to the final outcome of the pending appeal in the Supreme Court.Treatment of Competing ArgumentsThe appellants argued that the absence of 'reasons to believe' invalidated the notice under Section 8(1), while the respondents contended that the law did not mandate such inclusion. The Tribunal acknowledged both positions but leaned towards ensuring procedural fairness by remanding the case for compliance with the interpretation provided by the Delhi High Court, albeit subject to the Supreme Court's final decision.ConclusionsThe Tribunal concluded that the absence of 'reasons to believe' in the notice constituted a procedural lapse. It set aside the impugned order and remanded the case to the Adjudicating Authority, directing it to issue a fresh notice with the requisite reasons, thereby allowing the appellants an opportunity to respond adequately.SIGNIFICANT HOLDINGSThe Tribunal held that:'The perusal of Section 8(1) shows that it does not require to record reasons to believe by the Adjudicating Authority before causing notice. What is required is that if the Adjudicating Authority has reasons to believe that any person has committed an offence under Section 3 or is in possession of the proceeds of crime, he may serve a notice of not less than 30 days on such person.'This holding underscores the Tribunal's interpretation that while the statutory text does not mandate written reasons, procedural fairness as interpreted by the Delhi High Court necessitates their inclusion.Core Principles EstablishedThe judgment reinforces the principle that procedural fairness in adjudication under the PMLA requires transparency, particularly in informing the accused of the basis for proceedings against them. This principle is subject to the final determination by the Supreme Court regarding the necessity of recording 'reasons to believe.'Final Determinations on Each IssueThe Tribunal determined that the impugned order was procedurally flawed due to the absence of 'reasons to believe' in the notice under Section 8(1). It remanded the case to the Adjudicating Authority for reissuance of the notice with the requisite reasons, emphasizing that this decision is provisional and contingent on the Supreme Court's ruling on the matter.