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TaxTMI 
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2019 (4) TMI 34
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....gh Mr. Vinit Thakkar, who is the Director of the appellant. 3. The facts of the case are stated hereunder:- a. The appellant is part of the Universal Music Group and is primarily engaged in the business of acquiring, marketing and distribution of sound recordings in India. As part of its business,t he appellant also acquires underlying literary and musical works forming part of such sound recordings. b. The business of the appellant in relation to the exploitation of sound recordings and underlying literary and musical works in the music industry is primarily governed by the provisions of the Indian Copyright Act, 1957 ("Copyright Act") as amended by the Copyright (Amendment) Act, 2012 ("2012 Amendment"). c. This appellant's practice is to acquire rights in sound recordings and the underlying literary and musical works by way of assignment of such rights from the producers of sound recordings (both film and non-film). d. Prior to Copyright (Amendment) Act, 2012, the literary and musical works underlying the sound recordings were created on a work-forhire basis by the producers of sound recordings (i.e. by commissioning or in furtherance of an employment contract), under se....
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....which orders were later overturned by this Appellate Authority (by setting aside the order of the Adjudicating Authority in relation to PPL). 7. By order dated 27.2.2018, the Hon'ble High Court of Bombay has further stated that initiation of proceedings under the PMLA based on a single complaint is an abuse of process of law. 8. Another complaint was separately filed by Mrs. Shubha Mudgal with the Economic Offences Wing, New Delhi on 26.`10.2016 against IPRS, PPL and certain named officers of IPRS and PPL ("Shubha Mudgal FIR"). Shubha Mudgal FIR did not name the appellant, or any of its officers, as an accused. 9. On the basis of Shubha Mudgal FIR, the ED had filed the ECIR bearing No. ECIR/HQ/01/HU/2017 dated 23.01.2017 (ECIR) for investigation into the offence of money laundering, with only Section 120B of the IPC (i.e. criminal conspiracy) being a scheduled offence under the PMLA. 10. Shubha Mudgal FIR has been filed inter alia stating the IPRS and PPL had entered into a criminal conspiracy to commit the offence of criminal breach of trust by collecting royalties for the works of authors and not distributing such royalties to the authors. The Shubha Mudgal FIR further allege....
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....e relied upon documents. The appellant filed its reply to the Original Application on 15.1.2018 ("Reply"). 16. On 11.4.2018, the matter was heard by the Adjudicating Authority when both the parties made their submissions. 17. On 20.4.2018, the Adjudicating Authority passed the Impugned Order allowing the above Original Application and granting the retention of the Seized Records. In the Impugned Order, the Adjudicating Authority has inter alia observed that the Seized Records are shown to be relevant for the investigationby the respondent and the records are thus, involved in relationto the activities of money laundering. Further the Adjudicating Authority has held that under Section 8 of the PMLA, a prima facie opinion is required to be formed as to the records being involved in money laundering and has accordingly held that the Seized Records are involved in money laundering. The Adjudicating Authority has recorded that Section 8 of the PMLA can be invoked even while investigations are ongoing as Section 8(1) comes into pay when an application is made under Section17(4) of the PMLA. The order states that the nature of the investigation warrants it just and proper that the docum....
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....puty Director, Directorate of Enforcement Vs M/s Phonographic Performance Limited (PPL) &Ors" vide order dated 28.06.2017 qua ECIR NO MBZO/05/2015 dated 31.03.2015. 22. In both the Appeals, it was inter alia held by this Tribunal that the money sought to be attached vide ECIR NO MBZO/05/2015 dated 31.03.2015 had been generated through legal commercial transactions entered into by IPRS and PPL. Infact, whilst adjudicating upon the aforesaid Appeal No FPAPMLA- 1302/MUM/2016, this Tribunal vide its order dated 22.06.2017 has categorically held that: "40. It is apparent that the assets attached have been generated from legal activities - namely licensing of copyrighted material. They have not been generated from any criminal activity. Therefore, they cannot be proceeds of crime with the meaning of the Act. Any other interpretation would make the Act completely unworkable. If mere wrongful retention of money owed to another person was to be considered as proceeds of crime, every recovery suit, cheque bouncing case etc. would fall within the purview of the Act. The Enforcement Directorate must disclose in how many cheque bouncing cases, nearly all of which involve section 420 IPC, h....
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.... filing Writ Petition (Criminal) No. 1965 of 2017. The hearing in the said quashing petition is ongoing and the matter is on the verge of being decided. The said Ms. Shubha Mudgal filed an Affidavit as far back as on 13.06.2017 swearing on Oath that her dispute between IPRS, PPL and its Managing Committee is settled and stated as under: "3. That I state that I have gone through the contents of Petition under Article 226,227 of the Constitution of India read with Section 482 of the Code of Criminal Procedure and further state that I have no objection if the FIR No. 167 of 2016 is quashed" (emphasis supplied) 25. Despite of above that she was not desirous of proceeding with case for similar fact and same cause of action, the Respondent still proceeded to register the 2ndECIR. She herself has accepted in court that the dispute with the original accused (in the F.I.R.) is settled and she is not desirous of proceedings further with the matter and also since the First Informant has herself consented to quashing of the said F.I.R. on the basis of which the present ECIR is registered, nothing survives in the matter any further. 26. It is a matter of fact that the Appellant has not be....
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....possession of proceeds of crime". Admittedly, no prosecution complaint is pending against the appellant. 31. Mr. Nitish Rana, appearing on behalf of respondent has admitted that the recordral of reason to believe is mandatory before initiating any proceedings of Section-17 of the Act, however, he submits that copy thereof is not required to be served to the person concerned at any stage of the proceedings in the absence of any rule. Even, the question of communication of reason to believe does not arise. 32. In view of such controversy, it is become necessary to decide this issue in view of plea raised by the appellant to the effect that the respondent has deliberately filed multiple ECIRs for the same cause of action without there being valid reason to believe. No copy of reasons are supplied to the aggrieved party. Thus, the said issue raised is being decided. 33. Section 17 of PMLA, 2002 reads as under: ―17 Search and seizure. -(1) Where [the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section,] on the basis of information in his possession, has reason to believe (the reason for such belief to be recor....
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.... and a copy of such order shall be served on the person concerned: Provided that if, at any time before its confiscation under sub-section (5) or sub-section (7) of Section 8 or Section 58B or sub-Section (2A) of Section 60, it becomes practical to seize a frozen property, the officer authorised under sub-Section (1) may seize such property.] (2) The authority, who has been authorized under subsection( 1) shall, immediately after search and seizure [or upon issuance of a freezing order] forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reason and material for such period, as may be prescribed. (3) Where an authority upon information obtained during survey under section 16, is satisfied that an evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence. Provided that no authorization referred to in subsection (1) shall be required for....
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....shall not detain the person for more than twenty-four hours prior to taking him before the Gazetted Officer superior in rank to him, or the Magistrate referred to in that sub-section: Provided that the period of twenty-four hours shall exclude the time necessary for the journey from the place of detention to the office of the Gazetted Officer, superior in rank to him, or the Magistrate's Court. (5) The Gazetted Officer or the Magistrate before whom any such person is brought shall, if he sees no reasonable ground for search, forthwith discharge such person but otherwise shall direct that search be made. (6) Before making the search under sub-section (1) or subsection (5) the authority shall call upon two or more persons to attend and witness the search, and the search shall be made in the presence of such persons. (7) The authority shall prepare a list of record or property seized in the course of the search and obtain the signatures of the witnesses on the list. (8) No female shall be searched by any one except a female. (9) The Authority shall record the statement of the person searched under sub-section (1) or sub-section (5) in respect of the records or proceeds....
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...., as the case may be. (2) The person, from whom records seized or frozen, shall be entitled to obtain copies of records. (3) On the expiry of the period specified under sub-section (1), the records shall be returned to the person from whom such records were seized or whose records were ordered to be frozen unless the Adjudicating Authority permits retention or continuation of freezing of such records beyond the said period. (4) The Adjudicating Authority, before authorising the retention or continuation of freezing of such records beyond the period specified in sub-section (1), shall satisfy himself that the records are required for the purposes of adjudication under section 8. (5) After passing of an order of confiscation [or release under sub-section (5) or sub-section (6) or sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60] , the Adjudicating Authority shall direct the release of the records to the person from whom such records were seized. (6) Where an order releasing the records has been made by the Court [Adjudicating Authority under section (5) of section 21] the Director or any other officer authorised by him in this behalf may withhol....
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....lar report of information received or otherwise has been submitted by an officer authorized to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or unit, as the case may be, or any other officer who may be authorised by the Central Government, by notification, for this purpose. In the present case, no report against the appellant has been forwarded to the Magistrate. No complaint against the appellant was filed before a Magistrate. No cognizance of schedule offence was taken by any authority or Additional Secretary to the Government of India. 40. Under Section17(1) (A), it is the duty of the officer authorised if where it is found that it is not practicable to seize such property, can make such order that the person concerned shall not transfer or deal with the said property prior to the permission of the officer authorised. A copy of the said order shall be served upon the person concerned. Section 17, Sub-section (2) stipulates that after search and seizure, the authorised officer shall immediately forward a copy of the reason so recorded along with....
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....e appellant Tribunal shall pass the order either to confirm the order of retention or to modify or setting aside the same. 44. As already mentioned, where the Adjudicating Authority decides by an order confirm the retention under Sub-section (1) of Section 17 or Section 18 for the purpose of continuation during investigation for a period not exceeding ninety days under this Act before the Competent Court, or under the correspondence law of any other countries as the case may be under Subsection (3) (a) of Section 8 may take necessary action within the time prescribed. In failure to do so under this Act, all the proceedings, seizures/frozen under Section 17 would be lapsed ipso facto. 45. Thus, it is evident from the Scheme of Chapter-V that the proceedings pertaining to freezing of properties under Section 8, PMLA "reasons to believe" have to be recorded in writing by the Respondent and the Adjudicating Authority at three stages, which are as follows:- i) The officer carrying out the freezing action under Section 17(1),17(1A) and 18(1) has to record his reasons to believe in writing in terms of Section 17(1) (i) to (iv), PMLA. ii) After the property is frozen, the officer aut....
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....ere suspicion or the allegations mentioned in the FIR or charge-sheet so that the same can be scrutinized in order to verify whether they are relevant and germane or not. Reasons in support of decisions must be cogent, clear and succinct. Under Sub-section (1) of Section 17, the officer authorized must give the details of basis of information in his possession while recording the reason to believe. He cannot proceed further on the basis of opinion already formed by someone else. The officer who is supposed to write down his reasons to believe independently applying his mind in every case. It should not be merely a mechanical reproduction of the words mentioned in the statute in order to complete the formality as PMLA cases (being independent proceeding) as submitted on behalf of the respondent. If the person concerned are more than one, the officer authorized is to record the independent/separate, reasons to believe for each 'person concerned'. 50. If no valid reasons to believe are recorded, the issuance of notice to the 'person concerned' or without going into the material and non-application of mind, the same would be considered as valid notice. It is settled law that if the....
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....the Hon'ble Supreme Court of India in subsequent decisions. 53. a) In Kranti Associates v. Masood Ahmed Khan (2010) 9 SCC 496, the legal position was summarized as under:- a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. b. A quasi-judicial authority must record reasons in support of its conclusions. c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations. f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. g. Reasons facilitate the process of judicial review by superior Courts. h. The ongoing judicial trend in all countries c....
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....t income had escaped assessment. More recently, in Aslam Mohd Merchant v. Competent Authority (2008) 14 SCC 186, the entire legal position has been explained elaborately by the Supreme Court as under: 28. It is, however, beyond any doubt or dispute that a proper application of mind on the part of the competent authority is imperative before a show cause notice is issued. Section 68-H of the Act provides for two statutory requirements on the part of the authority viz: (i) he has to form an opinion in regard to his `reason to believe'; and (ii) he must record reasons therefor. Both the statutory elements, namely, `reason to believe' and `recording of reasons' must be premised on the materials produced before him. Such materials must have been gathered during the investigation carried out in terms of Section 68-E or otherwise. Indisputably therefore, he must have some materials before him. If no such material had been placed before him, he cannot initiate a proceeding. He cannot issue a show cause notice on his own ipse dixit. A roving enquiry is not contemplated under the said Act as properties sought to be forfeited must have a direct nexus with the properties illega....
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....the definition in Section 3 PMLA is read with Section 2(1)(v) and the Explanation thereto, it becomes clear that the property which constitutes 'proceeds of crime' is the property involved in money-laundering. (ii) The reasons to believe at every stage must be noted down by the officer in the file. (iii) While the reasons to believe recorded at the stage of passing the order of provisional attachment under Section 5(1) PMLA may not be forthwith at that stage communicated to the person adversely affected thereby, the reasons as recorded in the file have to accompany the complaint filed by such officer within 30 days before the AA under Section 5(5) PMLA. (iv) A copy of such complaint accompanied by the reasons, as found in the file, must be served by the AA upon the person affected by such attachment after the AA adds its own reasons why he prima facie thinks that the provisional attachment should continue. 75. There are two reasons to believe. One recorded by the officer passing the order under Section 5(1) PMLA and the other recorded by the AA under Section 8(1) PMLA. Both these reasons to believe should be made available to the person to whom notice is issued by the AA un....
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....ion of the order of the Division Bench of this Court by directing the parties to maintain status quo but at the same time, has even restrained the State from inducting the third parties on the lands which were the subject matters before the Apex Court. Such interim order is binding upon the parties to the proceedings but the law is equally settled that by mere passing of an interim order staying the operation of a judgment with certain further conditions, the existence of the said judgment is not wiped out and at the same time, for such interim order inter parties, the authority of a decision as a precedent is never undermined. Unless a decision is set aside by the Superior Court, the said decision remains effective as a precedent though may not be binding upon the parties to the proceeding where the superior Court has granted interim order. 20. Therefore, the effect of the order of stay in a pending appeal before the Apex Court does not amount to "any declaration of law" but is only binding upon the parties to the said proceedings and at the same time, such interim order does not destroy the binding effect of the judgment of the High Court as a precedent because while granting t....
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....ptacle for exercising the powers conferred by clause (a) where the keys thereof are not available; (c) seize any record or property found as a result of such search; (d) place marks of identification on such record or [property, if required or] make or cause to be made extracts or copies therefrom; (e) make a note or an inventory of such record or property; (f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act: [Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such [(1A) Where it is not practicable to seize such record or property, the officer authorised under sub-section (1), may make an order to freeze such property whereupon the property shall not be transferred or ot....
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.... result of action taken under section 18 or otherwise, the competent authority has reason to believe (the reasons for such belief to be recorded in writing) that all or any of such properties are illegally acquired properties. it may serve a notice upon such person (hereinafter referred to as the person affected) calling upon him within such time as may be specified in the notice, which shall not be ordinarily less than thirty days, to indicate the sources of his income, earnings or assets, out of which or by means of which he has acquired such property, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties, as the case may be, should not be declared to be illegally acquired properties and forfeited to the Central Government under this Act. * (2) Where a notice under sub-section (1) to any specifies any property as being held on behalf of such person by any other person. a copy of the notice shall also be served upon such other person. 60. The Hon'ble Supreme Court in the case of'P.P. Abdulla v. Competent Authority', (2007) 2 SCC 510, while considering an order of confiscation under the SMUGGLE....
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....ng authority within the meaning of Section 6 of the SAFEMA and it is rightly held by the Supreme Court in the case of Abdulla (Supra) how to serve the copy, so that the aggrieved party must have the awareness and knowledge about the allegations mentioned in the reason to believe. 64. The Article 141 of the Constitution of India provides that that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. The Apex Court interpreted that "all courts" includes Tribunal and even the authorities. It is immaterial whether the law declared by the Hon'ble Supreme Court is in one enactment or the other enactment, but the ratio of that judgment, whether passed in any of the enactments is binding. Hence, the material aspect is the declaration of the law on a particular point or issue, and not the enactment in which the law was declared. 65. If the Legislature incorporated identical language in the analogous provisions of statutes, the law declared by the Supreme Court on such language would be binding on the Court and authority where such point/ issues were raised and argued. Therefore, there is no force in the submission made on behalf of responden....
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.... S.17(4): OA within 30 days S. 5(5): OC within 30 days 3. S. 20(2): Order by the Authorized Officer S. 5(1): Order by the Authorized Officer 4. Rule 4 of Retention Rules, 2005: Acknowledgment of Order by the Adjudicating Authority Rule 5 of Attachment Rules, 2005: Acknowledgment of Order by the Adjudicating Authority 5. S.20(1): Outer limit of 180 days S.5(1): Outer limit of 180 days 6. S.8(3): Order by the Adjudicating Authority S. 8(3): Order by the Adjudicating Authority 7. S.8(3)(a): Retention restricted to 90 days during investigation. S.8(3)(a): Attachment restricted to 90 days during investigation. 70. In the present case, the statutory obligations laid down in section 20 (1), 20(2), 20 (4) and 21(4) of PMLA have not been complied with. An attempt has been made to retain the records without recording any 'reason to believe'. In this regard, reliance is placed upon the following judgment: (i) B. Rama Raju v. Union of India and other [2011 SCC OnLine AP 152] "76. Section 20 enjoins that where a property has been seized under Section 17 or 18 and the authorized Officer, on the basis of material in his possession, has a reason to believe (the reason to be re....