2026 (3) TMI 106 - AT - Money Laundering

Reason to Believe under PMLA must be formed by the Adjudicating Authority, but recording and service are not statutorily required.

The article addresses whether Section 8(1) PMLA requires the Adjudicating Authority to record and serve its 'reason to believe' when issuing a show-cause ... Statutory requirement u/s 8(1) - commission of predicate offence - Recording of reason to believe for issuance of show cause notice - two-tier process, followed before the issuance of the show-cause notice - independence of Adjudicating Authority's satisfaction - provisional attachment and reasons to believe u/s 5(1) - misappropriating the funds of the investors. Recording of reason to believe for issuance of show cause notice - provisional attachment and reasons to believe under Section 5(1) - Whether the Adjudicating Authority was required to record reasons to believe in writing and serve a copy when issuing a notice under Section 8(1). - HELD THAT: - The Tribunal held that Section 8(1) does not mandate that the Adjudicating Authority record its reason to believe in writing and serve that record to the noticee. By contrast, Section 5(1) expressly requires reasons to be recorded in writing at the provisional attachment stage. The Tribunal observed that the show cause notice in the present record stated that the reasons to believe were recorded and made available, with an arrangement for the noticee to obtain a certified copy from the Registry. Reliance on judgments was considered: the Vanpic [2022 (9) TMI 1287 - TELANGANA HIGH COURT] (that the Adjudicating Authority must form its own reason to believe independent of the attaching authority) was accepted in principle, but the High Court of Delhi's broader direction requiring written reasons to be recorded and supplied at the Section 8(1) stage was not followed. The Tribunal emphasised that courts cannot rewrite statutory language to import procedural requirements not found in the statute, and that any initial statutory infraction at the provisional attachment stage can be addressed during adjudication under Section 8. The Tribunal therefore found no procedural illegality in the issuance of the notice and no prejudice shown from the manner in which reasons were made available on the record. [Paras 16, 22, 24, 28, 30] The requirement to record and serve written reasons is not compelled by Section 8(1); the notice as issued and the arrangement to obtain a certified copy did not vitiate the proceedings. Independence of Adjudicating Authority's satisfaction - Whether the Adjudicating Authority acted without independent satisfaction and whether the appellants could raise new factual matters and tender documents outside the pleadings before this Tribunal. - HELD THAT: - The Tribunal accepted that the Adjudicating Authority must have its own reason to believe (independent satisfaction) when issuing a notice under Section 8(1), in line with the Vanpic. On the facts, however, the appellants did not press a contention of innocence or demonstrate that the Adjudicating Authority failed to form its own satisfaction; the appeals were prosecuted primarily on the ground of non provision of reasons. Further, the Tribunal refused the appellants' belated attempt to rely upon additional documents not filed with the appeal, holding that the appeal must be decided on the pleadings and material placed before the Tribunal. The appellants were afforded opportunities but did not raise other substantive arguments; consequently the Tribunal did not permit expansion of issues by production of fresh documents at the hearing stage. [Paras 11, 12, 13, 15, 31] No failure of independent satisfaction by the Adjudicating Authority was shown on the record and the appellants cannot rely on documents or factual matters not pleaded; the appeals therefore fail on the raised grounds. Final Conclusion: The appeals are dismissed on the ground that Section 8(1) does not require written reasons to be recorded and served, the Adjudicating Authority's process in the record did not vitiate the proceedings, and the appellants failed to establish prejudice or place requisite documents/pleadings before the Tribunal. Issues: (i) Whether the Adjudicating Authority erred in confirming the Provisional Attachment Order by failing to record or serve its 'reason to believe' under Section 8(1) of the Prevention of Money Laundering Act, 2002.Analysis: The issue revolves around the statutory requirement under Section 8(1) of the Prevention of Money Laundering Act, 2002 that the Adjudicating Authority must have a reason to believe before issuing a show-cause notice. The Tribunal examined whether Section 8(1) mandates that such reason to believe be recorded in writing and served on the noticee, and considered contrasting High Court authorities (including J.K. Tyre and Vanpic) and Supreme Court dicta prohibiting courts from rewriting statutes. The Tribunal found that Section 8(1) does require the Adjudicating Authority to form its own reason to believe (a two-tier satisfaction distinct from the attaching authority under Section 5(1)), but the provision does not itself mandate that the reason to believe be recorded in writing and served with the notice. The record showed that the notice indicated that reasons to believe were recorded and that a certified copy could be obtained from the Adjudicating Authority's registry. The Tribunal further noted authorities holding that non-recording at the provisional attachment stage is a curable statutory infraction subject to full adjudication under Section 8 and that courts cannot add procedural requirements absent in the statute.Conclusion: The Tribunal concluded that there was no substance in the appellants' contention that Section 8(1) required the Adjudicating Authority to record and serve the reasons to believe in writing; the Adjudicating Authority had satisfied the statutory requirement and provided for access to the recorded reasons. Accordingly, the appeals challenging confirmation of the Provisional Attachment Order were dismissed.