2025 (10) TMI 69 - AT - Money Laundering

Retention of seized gold violated natural justice for failing to serve mandatory 30-day notice under section 8(1)

M/s Sanghavi Bullion Pvt. Ltd. Versus The Deputy Director Directorate of Enforcement, Mumbai

AT found that retention of seized articles, including gold, violated natural justice because the Adjudicating Authority failed to issue the mandatory ... Money Laundering - retention of the seized articles which includes the gold in the hands of the appellant - Failure to issue notice to the appellant of not less than 30 days to call upon to disclose the source of the income, earning or asset or by means of which noticee has acquired the property - violation of principle of natural justice - HELD THAT:- In the instant case, the property under seizure was not indicated in the name of other party or person but was shown in the name of the appellant itself as is reflected from the statement of property. The appellant Company is a Private Limited Company. It was having shareholders other than to whom the notice was caused. One of the shareholder may be Jigar Sanghavi and Director of the said company, but it does not imply that without a notice otherwise required under section 8(1) of the Act of 2002, the order can be passed despite knowing it that property under seizure is of appellant Company. It was not of one of the shareholder or Director who could have been asked to file reply on behalf of the Company without showing their authority and resolution to the Board - the arguments by the respondent is nothing but to cover up a serious default of the Adjudicating Authority which cannot be endorsed. The matter is remanded back to the Adjudicating Authority who may cause notice under section 8(1) of the Act of 2002 to the appellant Company and proceed further as per the provisions of law - Appeal disposed off by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority's confirmation of provisional attachment/seizure of property without issuing a notice of not less than thirty days to the person in whose name the property is shown violates section 8(1) of the Prevention of Money Laundering Act, 2002 and principles of natural justice. 2. Whether the proviso to section 8(2) (opportunity to a person claiming the property where notice has been issued to another) can cure the failure to issue the statutory notice under section 8(1) when the seized property is shown in the name of the person who did not receive the notice. 3. Whether representation by certain partners/shareholders or counsel for related persons before the Adjudicating Authority can substitute for issuance of the statutory notice to the person in whose name the property is shown, without formal proof of authority. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Failure to issue statutory notice under section 8(1) Legal framework: Section 8(1) mandates that on specified receipt of complaint/applications, if the Adjudicating Authority has reason to believe a person has committed an offence under section 3 or is in possession of proceeds of crime, it 'may serve a notice of not less than thirty days' on such person calling upon him to indicate sources of income/assets and to show cause why properties should not be declared involved in money-laundering and confiscated. The provision includes provisos addressing notice where property is held on behalf of another or jointly. Precedent Treatment: No judicial precedents were invoked in the text; the Tribunal assessed statutory text and procedural compliance directly. Interpretation and reasoning: The Tribunal finds that the statement of seized properties explicitly identified the seized gold in the name of the affected person. Given that explicit identification, the Adjudicating Authority's failure to serve the statutory notice of not less than thirty days as mandated by section 8(1) is a clear procedural non-compliance. The statutory notice is intended to secure an opportunity to explain sources of acquisition and to adduce evidence before a finding is recorded under section 8(2). The omission therefore infringes both the statutory requirement and the principle of audi alteram partem. Ratio vs. Obiter: Ratio - The mandatory nature of issuing the section 8(1) notice where property is shown in the person's name; failure to do so vitiates the impugned confirmation of seizure and warrants interference and remand for fresh adjudication. Conclusion: The Tribunal sets aside the part of the impugned order confirming retention of the seized property insofar as it was passed without serving the section 8(1) notice, and remands the matter for issuance of the notice and fresh adjudication. Issue 2 - Applicability of proviso to section 8(2) as a cure for non-service of section 8(1) notice Legal framework: Section 8(2) prescribes that after considering any reply and hearing the aggrieved person and the Director (or authorized officer), the Adjudicating Authority shall record a finding whether properties are involved in money-laundering. Its proviso requires that if property is claimed by a person other than the addressee of the notice, that person shall be given an opportunity of being heard. Precedent Treatment: No precedents cited; Tribunal applied text and purposive construction. Interpretation and reasoning: The Tribunal distinguishes the proviso to section 8(2) as applicable where notice has been given to one person but the property is claimed by another; it does not operate to validate the omission of issuing the primary notice under section 8(1) to the person shown as the owner. The proviso presupposes service of the initial notice to some person; it cannot be retrofitted to justify non-service when the property is shown in the name of the person who received no notice. Hence the respondent's reliance on section 8(2) proviso cannot cure the statutory breach. Ratio vs. Obiter: Ratio - The proviso to section 8(2) cannot be invoked to excuse non-compliance with the mandatory notice requirement of section 8(1) where the property is identified in the name of the person who was not served. Conclusion: The proviso to section 8(2) does not validate the adjudicatory process when section 8(1) notice was not served to the person in whose name the property was recorded; remand is required for proper notice and opportunity. Issue 3 - Whether representation by partners/shareholders or counsel can substitute for statutory notice without formal authority Legal framework: Procedural fairness and statutory notice obligations require notice to the person identified under section 8(1). Representation by others may be relevant but cannot replace service of statutory notice unless authority and procedural prerequisites are satisfied. Precedent Treatment: No authority relied upon; analysis based on statutory text and fundamentals of agency/authority and natural justice. Interpretation and reasoning: The Adjudicating Authority's record indicates offers to permit partners/shareholders to apply under section 8(2) and instances where representatives appeared or were invited to file replies. The Tribunal observes that a private company's property shown in the company's name cannot be conclusively treated as having been effectively noticed by notice to individual partners/shareholders or by their oral participation unless formal proof of authority or board resolution is placed on record authorizing such representation. Allowing representation without demonstrating authority does not meet the specific requirement of serving the 30-day notice on the person named in the record. Reliance on partners'/shareholders' presence therefore does not rectify the statutory defect. Ratio vs. Obiter: Ratio - Representation by related persons or counsel without demonstrated authority does not substitute for compliance with section 8(1)'s notice requirement where the property is shown in the name of the entity/person who was not served. Conclusion: The Adjudicating Authority could not lawfully proceed to confirm seizure based on informal or unverified representation; the matter requires remand for notice to the named person and fresh adjudication. Remedial and consequential points Legal framework and reasoning: In light of the statutory breach, the Tribunal orders remand to the Adjudicating Authority to issue the section 8(1) notice and conduct proceedings afresh, observing that any period of 180 days prescribed shall be counted from the date of service of the section 8(1) notice after receipt of the Tribunal's order. The Adjudicating Authority is directed to pass an independent order without being influenced by its earlier order. Ratio vs. Obiter: Ratio - Remand with directions for fresh notice and independent adjudication; computing statutory timelines from fresh notice. Conclusion: The impugned confirmation is interfered with and set aside insofar as it relates to the person in whose name the property was shown without serving the statutory notice; the case is remanded for compliance with section 8(1) and further proceedings strictly in accordance with law and fair hearing principles.