2025 (11) TMI 1711 - HC - Money Laundering

Writs against PMLA provisional attachment and SCN dismissed; alternative remedy, Section 5 and Article 226 bar relief

Naresh Bansal And Ors, Mukesh Kumar & Anr, Umesh Bhai Chautaliya & Ors., Ghanshyambhai B. Patel, Harshad Mala Versus Adjudicating Authority And Anr, Union of India & Ors, Adjudicating Authority (Under The Prevention of Money Laundering Act) & Anr.

HC held that the writ petitions challenging the Provisional Attachment Order (PAO) and show cause notice (SCN) under the PMLA were not maintainable in ... Maintainability of petition - availability of alternative remedy of appeal - Money Laundering - proceeds of crime - large scale hawala transactions and illegal international cricket betting operations - lack of proper reason to believe - validity of issuance of the Provisional Attachment Order (PAO) passed u/s 5(1) of the Prevention of Money Laundering Act, 2002 - HELD THAT:- Having regard to the fact that the present matter mirrors, in material respects, the procedural substratum considered in ED v. Prakash Industries [2025 (11) TMI 257 - DELHI HIGH COURT], this Court finds no compelling cause to re-examine the facts or circumstances in the present case, more so, since the argument on maintainability has not been responded to. Nevertheless, this Court is of the view that neither of the three contingencies, stands attracted in the present case. Accordingly, this Court is of the considered view that it would be wholly inappropriate, both in law and in principle, to intercede in the present proceedings under Article 226 of the COI. The constitutional jurisdiction of this Court, though wide and potent, is not intended to supplant the specialised statutory mechanism envisaged under the PMLA and must yield to the legislative framework when none of the exceptional circumstances warranting its invocation are demonstrated. Both Section 5(1) and Section 8(1) of the PMLA, provides for a foundational pre-condition of ‘reason to believe’ for the D/AO and the AA, respectively, to exercise their powers under these provisions. This statutory requirement acts as a crucial safeguard against arbitrary exercise of power and ensures accountability in the enforcement of the PMLA. This Court now adverts to the material on record to see whether the D/AO and the AA had sufficient ‘reason to believe’ before the issuance of PAO and SCN under Sections 5(1) and 8(1) of the PMLA, respectively. Before adverting to the material on record, it is deemed appropriate to clarify that, this Court is conscious of the fact that its jurisdiction in the present matter is inherently circumscribed, since this Court cannot, in exercise of writ jurisdiction, travel in leaps and bounds beyond the procedural limitations imposed by law, particularly when an alternative efficacious statutory remedy exists within the contours of the PMLA. Consequently, the observations in the succeeding paragraphs is confined merely to a prima facie assessment of the existence of jurisdiction pre-requisites, and shall not be construed as a final adjudication on the merits, which falls under the exclusive domain of the statutory authorities, which upon an exhaustive scrutiny of the evidence produced thereof, shall either confirm or reject the powers exercised by the D/AO under the provisions of the PMLA. Having regard to the material relied upon in the PAO and the discussion therein, this Court is of the view, that the D/AO possessed sufficient and cogent material to form the requisite reason to believe and the formation of such belief under Section 5(1) of the PMLA was not mechanical or predicated on mere suspicion. Further, the PAO also indicates the existence of a clear nexus between the material collected and the inference drawn regarding the involvement of the Petitioner in process of money-laundering. In the aforesaid circumstances, and in view of the limited scope of judicial review at this stage, this Court finds no infirmity in the issuance of the PAO or the consequential SCN. Whether the properties attached under PAO constitute “proceeds of crime” particularly in light of the argument that cricket betting is not a scheduled offence? - HELD THAT:- In the present case, the act of the Petitioner to procure and distribute these IDs, without any KYC verification or lawful documentation amounts to forgery, cheating, identity fraud and criminal conspiracy, all of which constitute as a scheduled offence. Moreover, the conduct of the Petitioner was not merely incidental; rather, it was a deliberate act undertaken in furtherance of a larger criminal conspiracy aimed at facilitating the running of an illegal betting racket. Therefore, any benefit indirectly derived by the usage of Super Master Login IDs, would constitute proceeds of crime - In the present case, MA, through utilisation and continuous use of the Super Master Login IDs, generated approximately Rs. 2400 crores as proceeds of crime, from the Int’l Cricket Betting Racket. Out of the said amount Rs. 60 Crores were transferred to the Petitioner, as such the active role of the Petitioner in procuring and distributing Super Master IDs, which were an indispensable requirement for continuation of the Int’l Cricket Betting Racket, clearly amounts to participation in the generation of proceeds of crime arising from scheduled offences. Whether the SCN issued by AA is valid in view of the AA allegedly acting coram non judice under Section 6 of the PMLA? - HELD THAT:- Section 6 (2) of the PMLA provides that AA shall comprise of a Chairperson and two other members; whereas, Section 6(5)(b) authorizes the Chairperson to constitute Benches with either one or two members, as deemed necessary, thereby enabling functional flexibility of the AA. Section 6(7) of the PMLA, also enables the Chairperson to formulate a two-member Bench, wherein she/he is of a view that the matter is of such a nature which needs to be heard by a Bench consisting of two members - this Court is of the view that the SCN issued by a Bench, comprising of a technical member, was valid. Consequently, the contention that the AA was acting coram non judice is founded on a misinterpretation or ignorance of the statutory framework. Thus, in the view of this Court, the issuance of the SCN is well within the contours of the PMLA, and as such, the first limb of argument advanced by the Petitioners, in furtherance of validity of SCN, is devoid of merit. Whether an SCN can be issued even in the absence of prior attachment of properties by the Directorate? - HELD THAT:- Section 8(1) of the PMLA, enables the AA to issue a SCN to a concerned person “if” the AA, on receipt of a complaint under Section 5(5) of the PMLA or application made under Sections 17(4) or Section 18(10) of the PMLA, has a reason to believe that such person is either in possession of proceeds of crime or has committed an offence of money laundering - The quasi-judicial functions exercised by AA must not be conflated with the attachment order passed under Section 5(1) of the PMLA, which is a precautionary and emergent measure undertaken by the Directorate to prevent dissipation or concealment of proceeds of crime. While the SCN initiates the adjudicatory process, attachment under Section 5(1) of the PMLA is provisional in nature and is aimed at safeguarding the assets pending determination, reflecting the deliberate legislative distinction between protective measures and the procedural onset of adjudication. The absence of attachment under Section 5 of the PMLA cannot invalidate the SCN, since it is not a jurisdictional pre-requisite, absence of which will disable the AA to issue such notice in contravention of the provisions of the Act - Accordingly, in view of the aforesaid, the second limb of the argument advanced by the Petitioner also fails. This Court finds no merit in the present Petitions - Petition dismissed. 1. ISSUES PRESENTED AND CONSIDERED A. Maintainability of the writ petitions under Article 226 of the Constitution in the face of the statutory remedy under the Prevention of Money Laundering Act, 2002 (PMLA) and objection as to territorial jurisdiction. B. Validity of the Provisional Attachment Order (PAO) under Section 5(1) PMLA and consequential Show Cause Notice (SCN) under Section 8(1) PMLA on the ground of absence of a proper 'reason to believe'. C. Whether the properties attached under the PAO constitute 'proceeds of crime' under Section 2(1)(u) PMLA when the underlying activity of cricket betting is not itself a scheduled offence. D. Validity of the SCN under Section 8 PMLA in light of (i) the Adjudicating Authority allegedly acting coram non judice as a single-member Bench under Section 6 PMLA, and (ii) the contention that an SCN cannot be issued where no prior attachment of the noticee's property exists. 2. ISSUE-WISE DETAILED ANALYSIS A. Maintainability of the writ petitions under Article 226 Legal framework (as discussed) 1. Article 226(1)-(2) of the Constitution: power of High Courts to issue writs where the cause of action wholly or in part arises within its territorial jurisdiction. 2. Scheme of PMLA: PAO under Section 5; complaint before Adjudicating Authority under Section 5(5); adjudication and notice under Section 8; appeal to Appellate Tribunal under Section 26; further appeal to High Court under Section 42. 3. Principles in Whirlpool Corporation v. Registrar of Trademarks on exceptions to the rule of alternate remedy: (i) violation of fundamental rights; (ii) violation of principles of natural justice; (iii) lack of jurisdiction or challenge to vires. Interpretation and reasoning 2. On territorial jurisdiction, the Court held that though the betting racket and predicate proceedings originated in Gujarat, a substantial part of the cause of action arose within Delhi because the petitioner's acts of procuring and distributing Super Master Login IDs were carried out in Delhi. This sufficed under Article 226(2) to confer territorial jurisdiction. After nearly a decade of pendency, it would not be just or expedient to relegate the parties to another High Court. 3. On the objection of alternative remedy, the Court relied on its own recent judgment in an appeal under PMLA, which applied Whirlpool. It reiterated that: (a) PMLA is a comprehensive, self-contained statute providing a full adjudicatory hierarchy including Adjudicating Authority, Appellate Tribunal and appeal to the High Court. (b) The statutory process under Sections 5 and 8 PMLA incorporates audi alteram partem at multiple stages, ensuring no inherent violation of natural justice. (c) A PAO is only a provisional, precautionary measure pending adjudication, and not a final determination of rights. 4. Applying Whirlpool, the Court found: (a) No plea or proof of violation of fundamental rights. (b) No violation of principles of natural justice, given the multi-tiered safeguards built into PMLA. (c) No challenge to the jurisdiction or competence of the Directorate to pass a PAO, nor any challenge to the vires of PMLA. The issues raised involved disputed facts relating to scheduled offences and proceeds of crime, which are inappropriate for writ adjudication. 5. The Court strongly disapproved the 'recurring practice' of using Article 226 to challenge PAOs as a forum of first instance, observing that when a special statute provides a detailed mechanism, bypassing it amounts to abuse of process and defeats legislative intent. Conclusions 6. The Court held that it had territorial jurisdiction under Article 226(2), but that the writ petitions were not maintainable in view of the efficacious alternative statutory remedies under PMLA and the absence of any of the Whirlpool contingencies. It was, therefore, inappropriate in law and principle to interfere under Article 226. B. Validity of PAO and SCN for want of 'reason to believe' under Sections 5(1) and 8(1) PMLA Legal framework (as discussed) 7. Section 5(1) PMLA: the Director or authorised officer may provisionally attach property where he has 'reason to believe', based on material in his possession and recorded in writing, that (a) any person is in possession of proceeds of crime; and (b) such proceeds are likely to be concealed, transferred or dealt with so as to frustrate confiscation proceedings. The earlier requirement that the person be charged with a scheduled offence (deleted clause (b)) has been omitted by the 2013 amendment, so filing of a chargesheet in the predicate offence is no longer a condition precedent to attachment. 8. Section 8(1) PMLA: upon receipt of a complaint under Section 5(5) or applications under Sections 17(4) or 18(10), the Adjudicating Authority may issue notice if it has 'reason to believe' that a person has committed an offence under Section 3 or is in possession of proceeds of crime. 9. The Court referred to its own decision, applying the Supreme Court's exposition in Radhika Agarwal, that 'reason to believe' is an objective, evidence-based satisfaction founded on tangible material, not mere suspicion. Interpretation and reasoning 10. The Court emphasised that both Sections 5(1) and 8(1) impose a foundational pre-condition of 'reason to believe' on the Directorate and the Adjudicating Authority, serving as a safeguard against arbitrary exercise of power. 11. Recognising the limited scope of judicial review at the writ stage, the Court confined itself to a prima facie assessment of whether jurisdictional pre-conditions existed, without undertaking a detailed evaluation of evidence reserved for the statutory authorities. 12. The PAO disclosed reliance on specific material, including: (a) FIR No. 85/2015, Vadodara; (b) Final report under Section 173 CrPC by DCB, Mumbai; (c) Bank statements and ledgers; (d) Statements recorded under Section 50 PMLA and documents produced therein; (e) Other documents collected during investigation. 13. The PAO recorded that: (a) The petitioner, identified as 'Mukesh Delhi', procured Super Master Login IDs from 'Betfair.com' for persons active in India and admitted to having transferred Rs. 40-50 crores in the last three years for that purpose. (b) 'Maruti Ahmedabad' generated a turnover of approximately Rs. 2469.99 crores from bets placed by bookies and punters across multiple jurisdictions between 04.12.2014 and 19.03.2015. (c) Out of this settlement amount, Rs. 60,71,75,090/- were settled between the petitioner and 'Maruti Ahmedabad' during 01.12.2014 to 16.03.2015. 14. On this basis, the Court held that the Director/authorised officer had cogent material to form the statutory 'reason to believe' that the petitioner was in possession of proceeds of crime and that emergency attachment was necessary. The belief was not mechanical nor based on mere suspicion, and the PAO showed a clear nexus between the material collected and the inference regarding money-laundering. Conclusions 15. The Court found no infirmity in the existence or recording of 'reason to believe' under Sections 5(1) and 8(1) and held that the PAO dated 10.09.2015 and the consequential SCN dated 14.10.2015 were not vitiated on this ground. C. Whether attached properties constitute 'proceeds of crime' under Section 2(1)(u) PMLA when cricket betting is not a scheduled offence Legal framework (as discussed) 16. Section 2(1)(v) PMLA defines 'property' broadly to include all kinds of assets, movable or immovable, tangible or intangible, corporeal or incorporeal, wherever located, and clarifies that it includes property used in the commission of an offence under PMLA or any scheduled offence. 17. Section 2(1)(u) PMLA defines 'proceeds of crime' as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence, or the value thereof, including the clarification that it covers property directly or indirectly derived from any criminal activity relatable to the scheduled offence. 18. Section 3 PMLA (referred to) covers the process or activity connected with the proceeds of crime, including its concealment, possession, acquisition, use or projection as untainted. 19. The Court referred to its earlier decision interpreting 'property' to cover intangible and digital assets, such as rights or access credentials having exchangeable value, and to its earlier exposition that 'proceeds of crime' includes indirectly derived properties and subsequent layers or transformations of tainted assets. Interpretation and reasoning 20. On 'property': The Super Master Login IDs were held to be 'property' under Section 2(1)(v), being intangible digital assets conferring valuable and operative access rights to the betting platform, enabling betting operations and thereby having distinct economic value. 21. On 'proceeds of crime': The Court emphasised that Section 2(1)(u) is wide and not confined to the immediate gains from the scheduled offence. It extends to any property derived indirectly from criminal activity relating to the scheduled offence, including profits from downstream activities which are traceable to property tainted at inception by such criminal activity. 22. The Court reasoned that even if cricket betting per se is not a scheduled offence, the chain of criminality underlying the operation-comprising forgery, cheating, identity fraud and criminal conspiracy for procuring and using Super Master Login IDs and SIM cards-constitutes scheduled offences. Those offences created the initial tainted property (the IDs and related infrastructure), and the subsequent betting operations were the final manifestation of this criminal chain. 23. The Court held that the petitioner's role in procuring and distributing Super Master Login IDs without KYC or lawful documentation amounted to participation in criminal acts such as forgery, cheating, identity fraud and criminal conspiracy, which are scheduled offences. His conduct was not incidental but integral to facilitating and sustaining the illegal betting racket. 24. The Court analogised that where an immovable property is acquired using forgery and cheating and later used for a non-scheduled downstream business, the profits from that business remain 'proceeds of crime' because the property was tainted at inception; the taint persists through subsequent use ('fruit of a poisoned tree'). 25. Applying this to the facts, the Court noted that: (a) 'Maruti Ahmedabad' generated approximately Rs. 2400 crores using the Super Master Login IDs. (b) About Rs. 60 crores were settled with the petitioner. (c) The Super Master Login IDs were indispensable to the operation of the betting racket; without them, the racket would have been non-functional. 26. Accordingly, the property and funds settled with and held by the petitioner, derived from the use of IDs procured and distributed through criminal activity relating to scheduled offences, qualified as 'proceeds of crime' notwithstanding that betting itself is not listed as a scheduled offence. Conclusions 27. The Court rejected the contention that no 'proceeds of crime' existed due to cricket betting not being a scheduled offence. It held that the attached properties and funds, traceable to criminal activity relating to scheduled offences (forgery, cheating, identity fraud, criminal conspiracy) and used to facilitate the betting racket, squarely fell within Section 2(1)(u) PMLA. D. Validity of SCN and composition/jurisdiction of the Adjudicating Authority under Section 6 PMLA (i) Whether the SCN was invalid because the Adjudicating Authority acted coram non judice as a single-member Bench Legal framework (as discussed) 28. Section 6(1)-(2) PMLA: appointment of the Adjudicating Authority, consisting of a Chairperson and two Members, with one Member each having experience in law, administration, finance or accountancy. 29. Section 6(5)(a)-(b) PMLA: jurisdiction of the Adjudicating Authority may be exercised by Benches constituted by the Chairperson, with one or two Members, as the Chairperson may deem fit. 30. Section 6(7) PMLA: Chairperson or Member may transfer a matter to a two-Member Bench where the nature of the case so requires. Interpretation and reasoning 31. The Court held that Sections 6(2), 6(5)(b) and 6(7) must be read harmoniously. While Section 6(2) prescribes that the Adjudicating Authority 'shall consist of' a Chairperson and two Members, Section 6(5)(b) expressly authorises constitution of Benches with one or two Members, and Section 6(7) allows transfer to a two-Member Bench when necessary. 32. Applying the canon ut res magis valeat quam pereat, the Court reasoned that interpreting Section 6(2) to mandate that the Authority can function only as a three-Member body would render Section 6(5)(b) and 6(7) otiose. Hence, the statute contemplates three permissible configurations: (a) full three-Member Authority, (b) two-Member Bench, and (c) single-Member Bench, as required for functional expediency. 33. The Court noted that the Adjudicating Authority, though performing quasi-judicial functions, is not a tribunal under Articles 323A/323B, nor does it exercise jurisdiction transferred from traditional courts. It can validly exercise powers under Section 8 PMLA through a single-Member Bench, including a technical Member, especially as its orders are appealable to an Appellate Tribunal presided over by a retired Chief Justice, thereby providing sufficient checks and balances. 34. In this backdrop, the contention that a single-Member Bench renders the Authority coram non judice was held to rest on a misreading of the statutory scheme. Stays or pending challenges in other matters did not alter the clear text of Section 6 PMLA as interpreted by the Court. Conclusions 35. The Court held that the Adjudicating Authority acting as a single-Member Bench (including a technical Member) was competent under Section 6 PMLA. The SCN issued by such a Bench was valid, and the plea of coram non judice was rejected. (ii) Whether an SCN under Section 8 PMLA requires prior attachment of the noticee's properties Legal framework (as discussed) 36. Section 8(1) PMLA authorises the Adjudicating Authority to issue notice 'on receipt of' (i) a complaint under Section 5(5) (post-attachment), or (ii) an application under Section 17(4) (search and seizure), or (iii) an application under Section 18(10) (search of persons), if it has 'reason to believe' that a person has committed an offence under Section 3 or is in possession of proceeds of crime. Interpretation and reasoning 37. The Court held that, by the express use of the disjunctive 'or' in Section 8(1), the three statutory triggers (complaint under Section 5(5), application under Section 17(4), or application under Section 18(10)) are alternative preconditions. They need not co-exist, nor is prior attachment under Section 5(1) a jurisdictional prerequisite for issuance of an SCN. 38. The Court distinguished between: (a) attachment under Section 5(1), which is a provisional, protective, and emergent measure aimed at preventing dissipation or concealment of suspected proceeds of crime; and (b) SCN under Section 8(1), which is the first step in the quasi-judicial adjudicatory process, ensuring that the person concerned is heard in accordance with audi alteram partem. 39. It held that the validity of the SCN is not conditioned on prior attachment of the noticee's property. Even in the specific writ petitions where the argument was raised that no property had been attached, the Court noted that, in fact, the petitioners' properties stood attached by the impugned PAO. Conclusions 40. The Court held that an SCN under Section 8(1) PMLA does not depend on prior attachment of the properties of the noticee; absence of such attachment does not vitiate the SCN. In any event, in the concerned petitions, the petitioners' properties had been attached, rendering the objection meritless. Overall Disposition 41. On the combined analysis of maintainability, existence of 'reason to believe', the nature of 'proceeds of crime', and the validity of the Adjudicating Authority's composition and SCN, the Court found no merit in the challenges raised. All writ petitions and pending applications were dismissed, with observations confined to the limited scope necessary for deciding these petitions and not to prejudice future adjudications under the PMLA framework.