2025 (11) TMI 1103 - HC - Money Laundering

Appeal dismissed; provisional attachment under PMLA upheld as justified, s.5(1) proviso not sole prerequisite; PAO tentative safeguard

Gautam Khaitan & Anr. Versus Union of India & Anr.

The HC dismissed the appeal and refused to interfere with the Single Judge's judgment upholding the Provisional Attachment Order under PMLA. The court ... Money Laundering - seeking quashing of the Provisional Attachment Order - attachment of property only upon the filing of a final report u/s 173 of CrPC in respect of the scheduled offence - HELD THAT:- This Court deems it appropriate to state that the scope of exercise of jurisdiction under Article 226 of the COI, particularly when an alternative efficacious remedy exists, must be undertaken with due care and caution. The indiscriminate filing of writ petitions challenging the issuance of a PAO not only risks circumventing the legislative scheme envisaged under PMLA but also results in multiplicity of proceedings and unwarranted consumption of judicial time and resources. It is, therefore, imperative that the writ jurisdiction must be invoked sparingly and only in cases where there is a clear demonstration of mala fide exercise of power, patent arbitrariness, or a manifest lack of jurisdiction. While the first proviso to Section 5(1) of the PMLA constitutes a statutory pre-requisite for initiating an attachment, it is not to be construed that the compliance of the said proviso is a sole pre-requisite for issuance of PAO, which if not complied with would render the attachment proceedings invalid or ineffectual. The LSJ has rightly observed that a PAO, by its nature, is a tentative measure undertaken to safeguard the integrity of future proceedings under the PMLA. The LSJ also meticulously examined the relevant portions of the PAO, which detailed the quantification and subsequent investment of the proceeds of crime. It was further noted by the LSJ that the ED attached only those properties acquired by the Appellant No.1 between 2009 and 2014, coinciding with the period of incorporation of AISL, thereby demonstrating that the designated officer had cogent material on the basis of which it formed a reason to believe leading to issuance of the PAO. This Court does not deem it appropriate to interfere with the Impugned Judgment passed by the learned Single Judge - Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a Provisional Attachment Order (PAO) under Section 5(1) of the PMLA can be issued in absence of a charge-sheet/report under Section 173 CrPC. 2. Whether the authorised/designated officer had 'reason to believe' on the basis of material in possession to provisionally attach the properties - i.e., sufficiency and nature of material required to form such belief. 3. Whether issuance of PAO without prior notice/hearing to affected persons violated principles of natural justice. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Power to issue PAO in absence of charge-sheet under Section 173 CrPC Legal framework: Section 5(1) PMLA (pre-2013, post-2013 and post-2015 amendments) as construed: original clause (b) requiring person to be charged; first proviso requiring a report under Section 173 CrPC (or complaint) for attachment; second proviso creating an exception permitting attachment where AO has reason to believe immediate attachment is necessary. Precedent Treatment: Bench relied upon treatment in earlier decisions interpreting the effect of the omission of clause (b) and the operation of provisos. A line of authority treating the second proviso as operative to permit attachment against 'any person' irrespective of charge was noted and affirmed in later higher authority. Interpretation and reasoning: The Court examined legislative history and concluded that the 2013 amendment omitted the requirement that the person be charged; the first proviso and the second proviso operate in independent domains. The first proviso provides one statutory route (triggered by a Section 173 report/complaint) but does not exhaustively circumscribe the AO's power; the second proviso, being non obstante in effect, permits immediate attachment where reasons to believe that non-attachment would frustrate proceedings exist. Amendment by later legislation increasing attachment period does not render the proviso inoperative for inter-amendment periods. Ratio vs. Obiter: Ratio - The AO may issue PAO without a prior Section 173 report where the second proviso conditions are met; omission of clause (b) is decisive. Obiter - observations on retrospective operation of certain amendments and comparative scope of reports under Section 173 as a 'gateway' for one mode of attachment. Conclusions: PAO can be lawfully issued even in absence of a Section 173 CrPC report provided the AO has recorded reasons to believe, on material in possession, that non-attachment would frustrate proceedings under the PMLA. The LSJ's finding that clause (b) is no longer mandatory is upheld. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Sufficiency of material to form 'reason to believe' Legal framework: Section 5(1) PMLA requires the AO to have 'reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession' that proceeds of crime are likely to be concealed or transferred. Precedent Treatment: The Court relied on the LSJ's detailed examination of the PAO and supporting material, and on the principle that the sufficiency of reasons at provisional attachment stage is tentatively assessed and is subject to adjudication under the three-tier PMLA mechanism (Adjudicating Authority and appellate fora). Interpretation and reasoning: The Court treated PAO as a tentative, protective measure whose purpose is to prevent frustration of future proceedings. The AO's belief must be grounded in cogent material, but the standard at the provisional stage is prima facie; detailed adjudication of taint is for the Adjudicating Authority. In the present facts the AO relied on FIR, recorded statements under PMLA and financial records showing receipts and transfers coinciding with periods of alleged illicit flow, and selective attachment of properties acquired during that period. The Court found the AO's belief to be reasoned and not arbitrary. Ratio vs. Obiter: Ratio - At the provisional attachment stage the AO's recorded 'reason to believe' need only be supported by cogent material forming a prima facie basis; detailed determinative inquiry is deferred to statutory adjudicatory stages. Obiter - Emphasis that writ courts should not ordinarily substitute their assessment for the statutory adjudicatory mechanism absent manifest arbitrariness. Conclusions: The impugned PAO was supported by sufficient material to constitute a reasoned belief for provisional attachment; the LSJ's factual-appreciation and conclusion that the AO acted on cogent material is sustained. Challenges to sufficiency are primarily triable before the Adjudicating Authority and appellate remedies under the PMLA. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Principle of natural justice - requirement of prior notice/hearing Legal framework: Principles of natural justice (audi alteram partem) vis-à-vis statutory scheme of PMLA: Section 5(1) confers emergent/protective power to attach; Section 8 and subsequent provisions provide post-attachment adjudicatory remedies and hearings. Precedent Treatment: The LSJ held that the PMLA implicitly excludes prior notice/hearing at the provisional attachment stage because of the emergency/preventive nature of the power; post-attachment opportunity before the Adjudicating Authority and appellate remedies suffice. The Court adopted this analysis. Interpretation and reasoning: The Court reasoned that a pre-decisional hearing would defeat the object of immediate protective attachment where there is a real risk of concealment or transfer. The statutory scheme explicitly affords subsequent opportunities for hearing and challenge (Adjudicating Authority, appeals), and the legislature, by necessary implication, did not intend a pre-decisional hearing prior to a PAO. The Court reiterated that writ jurisdiction should be exercised sparingly where alternative efficacious statutory remedies exist. Ratio vs. Obiter: Ratio - Provisional attachment under Section 5(1) does not require prior notice/hearing as a matter of statutory scheme and object; post-attachment adjudicatory safeguards are the appropriate forum for contesting attachment. Obiter - Caveat that manifest arbitrariness or mala fide exercise could still attract writ intervention. Conclusions: No breach of principles of natural justice in issuing the PAO without prior notice/hearing; availability of post-attachment remedies under PMLA precludes warrant for writ interference in absence of patent arbitrariness or mala fides. ADDITIONAL COURT OBSERVATIONS AND DISPOSITION 1. The Court emphasised limited scope of writ jurisdiction under Article 226 where efficacious statutory remedies exist and declined to interfere with provisional attachment in absence of manifest arbitrariness or lack of jurisdiction. 2. The LSJ's merits examination was considered permissible because the appellants had sought the Court's assessment of material; the present Court found no error in that approach and upheld the findings. 3. Conclusion: The impugned judgment dismissing the writ petition was affirmed; the appeal was dismissed, without prejudice to full adjudication of contested claims and defenses before the statutory fora envisaged by the PMLA.