2025 (9) TMI 758 - AT - Money Laundering

Appellant entitled to notice under Section 8(2) PMLA; persons with legitimate interest must get chance to contest seizure

Shrenik Suresh Seth Versus The Deputy Director Directorate of Enforcement, Kolkata

The AT allowed the appeal and directed the Adjudicating Authority to issue a notice under Section 8(2) PMLA and permit the appellant to participate in ... Money Laundering - stage of making a “claim” as provided under the Proviso to Section 8(2) of PMLA - HELD THAT:- Nothing is mentioned as to what should be the nature of right, title or interest of the person making such a “claim”. Had the legislature intended that the person should be an undisputed owner of the property, it could have said so. Even the word “owner” has not been used. While it cannot be anyone's case that any random person with no connection whatsoever to the land can legitimately make a “claim” and the Adjudicating Authority would be obliged to issue a notice to him and give him an opportunity of being heard, equally, it also cannot be seen to imply that no claim under the provision can be made unless the person has proved a perfect and undisputed title to the property. There is nothing in the language of the statute to convey that impression. As regards the case of Directorate of Enforcement v. Axis Bank [2019 (4) TMI 250 - DELHI HIGH COURT], the appellant has pointed out that the Hon’ble Delhi High Court in the said case has categorically held that the adjudicating authority is obliged by the proviso to sub-Section (2) of Section 8 to give opportunity of being heard and prove that the property is 'not involved in money laundering' even to such third parties as to whom notice may not have been issued but may have 'claimed' the same. The Hon’ble Court further observed that such third parties may include a benamidar, transferee, lessee, mortgagee, hypothecatee, manager, agent, trustee, etc. Under the circumstances, it is not seen how a party who stands in such a position as the present appellant would not be entitled to the said notice and can be excluded from the adjudication proceedings at the very threshold. The appellant did have a “legitimate interest” in the property for the purposes of issue of notice under section 8(2). For the same reason, there are no merit in the contention of the counsel for the respondent that if the appellant’s claim were to be allowed, the Ld. AA would be flooded with such applications. This appeal is allowed and the Adjudicating Authority is directed to issue a notice to the appellant as provided under section 8(2), and to allow him to participate in the adjudication proceedings. ISSUES PRESENTED AND CONSIDERED 1. Whether a person who 'claims' a property pursuant to the proviso to Section 8(2) of the Prevention of Money Laundering Act, 2002 is entitled to a notice and opportunity of being heard from the Adjudicating Authority without having to establish a perfect or undisputed title. 2. Whether the Adjudicating Authority was justified in refusing impleadment/notice to a claimant at the threshold where the investigating agency contends prior transactions were cancelled and a civil court found against certain heirs. 3. The extent to which revenue entries and ancillary administrative actions (e.g., access granted under Section 143 of the Maharashtra Land Revenue Code, issuance of entry/access cards) constitute or support a 'claim' or a 'legitimate interest' for the purposes of Section 8(2). 4. The proper application of precedents concerning the meaning of 'claim' and the class of third parties entitled to notice under Section 8(2), and whether those precedents mandate dismissal of threshold claims absent conclusive proof of title. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to Notice under Proviso to Section 8(2) without Perfect Title Legal framework: Section 8(2) PMLA requires the Adjudicating Authority, after considering replies and hearing parties and the Director, to record findings whether properties are involved in money-laundering, with the proviso that if the property is claimed by a person other than a person to whom notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering. Precedent treatment: The Tribunal considered and contrasted authorities cited by parties including (i) Axis Bank (Delhi High Court) recognizing that third parties with 'legitimate interest' must be afforded opportunity under Section 8; (ii) earlier Tribunal authority holding mandatory nature of notice under Section 8(2); and (iii) Hameedia (on statutory meaning of 'claim') which was held inapplicable by reason of differing statutory context. Interpretation and reasoning: The Court examined the plain language of the proviso - the statute requires notice where 'the property is claimed by a person' and does not stipulate the nature or perfection of the claimed right. The Legislature's use of different formulations in Section 8(2) (proviso) and Section 8(8) (restoration requiring 'legitimate interest') indicates different thresholds for notice and for restoration. The Court held that while not every random person may claim, the proviso cannot be read to demand proof of perfect and undisputed title at the initial notice-stage. Ratio vs. Obiter: Ratio - where a claimant establishes a prima facie claim (possession, purchase chain, due diligence, access rights), the Adjudicating Authority must issue notice under Section 8(2) and afford hearing; the claimant need not prove a perfect title at that stage. Obiter - observations on legislative drafting contrasts between subsections and broader policy comments on due process. Conclusion: The claimant's averments (chain of transactions, possession, cultivation, public notices, searches, Section 143 access order, and post-purchase confirmation deed) sufficiently constituted a 'claim' to attract the proviso to Section 8(2) and thus entitlement to notice and an opportunity to be heard. Issue 2 - Validity of AA's Rejection of Impleadment at Threshold Given Allegations of Cancelled Prior Transfers and Civil Findings Legal framework: The Adjudicating Authority's powers under Section 8 are limited to determining whether property is involved in money-laundering; issues of title/ownership in general fall within civil courts. Nonetheless, Section 8(2) mandates hearing claimants. Precedent treatment: Axis Bank was relied upon by both sides; the Court accepted its thrust that third parties with legitimate interest must be afforded opportunity, but read it as not requiring conclusive title to obtain notice. The Tribunal authority relied upon by respondent was found distinguishable on facts. Interpretation and reasoning: The Court considered the AA's reliance on a civil court order dismissing a suit for cancellation of a 1991 sale deed and the Divisional Commissioner's earlier cancellation order. The Court held such civil findings do not absolve the AA from following the statutory process of issuing notice to an identified claimant who is not a stranger to the property. The proviso to Section 8(2) requires procedural opportunity irrespective of what the eventual merits might show; denial of notice was a failure of due process. Ratio vs. Obiter: Ratio - Adjudicating Authority cannot shut out a non-trivial claimant at the threshold where sufficient factual material supports a claim; must issue notice and hear the claimant before determining involvement in money-laundering. Obiter - remarks that final resolution of ownership belongs to civil courts and that following process does not predetermine outcome. Conclusion: The AA erred in rejecting impleadment without issuing notice; the existence of prior cancellations or adverse civil orders does not dispense with the duty to afford the claimant an opportunity under the proviso to Section 8(2). Issue 3 - Role of Revenue Records and Administrative Acts in Establishing a 'Claim' or 'Legitimate Interest' Legal framework: Title under Transfer of Property Act and effect of revenue records are distinct; revenue entries do not per se confer title. Possession, transactional chain, and administrative rights may, however, support a prima facie claim for notice. Precedent treatment: Respondent cited authorities (including Supreme Court authority on limited value of revenue records) to argue that revenue entries are not conclusive; the Court accepted that principle but held claimant's case did not rest solely on revenue entries. Interpretation and reasoning: The Court differentiated between (a) evidentiary worth of revenue entries for establishing title, and (b) the sufficiency of factual material to constitute a 'claim' under the proviso. Administrative acts (Section 143 access order, issuance of access cards) and possession/cultivation were relevant indicia that the applicant was not a stranger and had a claim meriting a hearing. Ratio vs. Obiter: Ratio - revenue records alone do not satisfy title, but administrative rights and possession combined with transactional documents can constitute a claim triggering statutory notice. Obiter - observations on the non-determinative character of access cards or administrative permissions vis-à-vis ownership. Conclusion: While revenue records are not conclusive of title, they are part of the factual matrix; the claimant's combined evidentiary showing (transactional deeds, possession, access order) constituted sufficient material to require issuance of notice under Section 8(2). Issue 4 - Application of Authorities on Meaning of 'Claim' and Scope of Third-Party Protection Legal framework: Statutory text of Section 8 must be read as a whole; the proviso protects persons who 'claim' property and affords hearing rights to third parties with interests that may be adversely affected. Precedent treatment: The Tribunal evaluated Hameedia (statutory meaning of 'claim' in a different Act) and Axis Bank (third-party notice under Section 8), and distinguished or applied them appropriately: Hameedia inapplicable by reason of different statute; Axis Bank supportive of the principle that bona fide third parties/claimants deserve notice but does not mandate proof of perfect title at the notice-stage. Interpretation and reasoning: The Court reconciled precedents by holding that the protective purpose of Section 8(2) extends to third parties who make a real claim; Axis Bank's recognition of categories of third parties (benamidar, transferee, lessee, mortgagee, etc.) supports a liberal approach to who may be heard. However, this does not immunize frivolous or unrelated claimants; the threshold is prima facie material showing connection to the property. Ratio vs. Obiter: Ratio - precedents confirm that third parties with a bona fide claim are entitled to notice under Section 8(2); they do not require adjudication of perfected title before notice. Obiter - cautionary remarks about preventing frivolous flooding of proceedings. Conclusion: Authorities cited support issuance of notice to bona fide claimants; the AA's concern about multiplicity of claims does not justify denying statutory hearing where a claimant presents a plausible factual basis. Final Disposition and Practical Directions Conclusion: The appeal is allowed to the extent that the Adjudicating Authority is directed to issue notice to the appellant under Section 8(2) and permit participation in adjudication. The order clarifies that this determination is procedural and does not express any view on ultimate ownership or on confirmation of attachment, matters reserved for the civil court/AA on merits.