AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 1026
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....ction for issuance of show‐cause notice under Section 8(1) of the PMLA, to the petitioner and other persons accused in the said Original Complaint. 4. On February 15, 2018, a show‐cause notice under Section 8 of the PMLA was issued. 5. The writ petition has been filed, challenging primarily the POA dated December 29, 2017 and the order of the Adjudicating Authority (AA) directing issuance of show‐cause notice under Section 8(1) of the PMLA, dated February 9, 2018. 6. Learned counsel for the petitioner argues that both Sections 5 and 8 of the PMLA envisage independent "reasons to believe" at two separate stages. It is argued that the "reasons to believe" under Section 8(1) was a necessary pre‐requisite of the notice and had to be disclosed to the petitioner for the latter to effectively give a reply. 7. Learned counsel for the petitioner places reliance on a division bench judgment of the Delhi High Court rendered in J. Sekar and Ors. Vs. Union of India and Ors., reported at MANU/DE/0075/2018. In the said judgment, the division bench observed, inter alia, that the reasons to believe at every stage must be noted down by the officer in the file. While reaso....
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....spondent no.2 to indicate that, although there was no necessity to do so, the reasons to believe for sending the notice under Section 5(1) of the PMLA were communicated by e‐mail to the petitioner. It is argued that since the AA adopted such reasons, there could not be any grievance on the part of the petitioner as to not being aware of the allegations the petitioner had to meet at the hearing before the AA. 12. Next placing reliance upon Section 68 of the PMLA, learned counsel for the respondents submits that no notice, summons, order, document or other proceeding, furnished or made or issued or taken or purported to have so done in pursuance of any of the provisions of the PMLA shall be invalid, or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such notice, summons etc., if such notice, summons etc. is in substance and effect in conformity with or according to the intent and purpose of the PMLA. 13. As such, it is argued that even if no reasons to believe arrived at by the AA were communicated to the petitioner, since no such notice is contemplated in Section 8(1), the mere omission to include the reasons could not vitiate the notice ....
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....tice under Section 6 of the Act. Secondly, the reasons, though not initially supplied along with the notice dated 4‐3‐1977, were subsequently supplied thereby enabling the appellant to effectively meet the case of the respondents. Thirdly, we are of the opinion that the case on hand is squarely covered by the ratio of Narayanappa case. The appellant could have effectively convinced the respondents by producing the appropriate material that further steps in furtherance to the notice under Section 6 need not be taken. Apart from that, an order of forfeiture is an appealable order where the correctness of the decision under Section 7 to forfeit the properties could be examined. We do not see anything in the ratio of Ajantha Industries case which lays down a universal principle that whenever a statute requires some reasons to be recorded before initiating action, the reasons must necessarily be communicated." 19. Learned counsel for the respondents next relies on an unreported order dated April 8, 2019 passed by a co‐ordinate bench of this court in W.P. No.7624(W) of 2019 [Sri Mritunjay Singh vs. The Director, Enforcement Directorate (Eastern Region), Government of....
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....to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money‐laundering is not attached immediately under this Chapter, the non‐attachment of the property is likely to frustrate any proceeding under this Act. Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted. (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub‐section (1), forward a copy of the order, along with the 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 order and material for such period as may be prescribed. (3) Every order of attachment made under sub‐section (1) shall cease to have effect after the expiry of the peri....
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.... finding whether all or any of the properties referred to in the notice issued under sub‐section (1) are involved in money‐laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money‐laundering. (3) Where the Adjudicating Authority decides under sub‐section (2) that any property is involved in money‐laundering, he shall, by an order in writing, confirm the attachment of the property made under sub‐section (1) of Section 5 or retention of property or record seized or frozen under Section 17 or Section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property or record shall- (a) continue during investigation for a period not exceeding ninety days or the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and (b) become final alter an o....
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.... loss as a result of the offence of money‐laundering: Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money‐laundering: Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed." 21. Although Section 5 specifically mentions that the reason for such belief is to be recorded in writing, such requirement is absent in Section 8. Section 8 stipulates that if the AA has reason to believe that any 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 the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub‐section (1) of Section 5 or seized or frozen under Section 17 or Section 18, the evidence on which he relies and other rel....
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....aring. 27. As such, although it is not specifically engrafted in Section 8(1) of the PMLA as to there being any requirement of communicating the reasons to believe arrived at by the AA to the noticee, such requirement has to be read into the provision to attribute a proper meaning to the same. A meaningful and complete show‐cause and consequentially hearing, cannot take place without the noticee having a clear idea as to what were the reasons for believing the allegations against him. 28. As far as Section 68 is concerned, the same contemplates mistakes, defects or omissions in the notice and provides that those would not ipso facto render a notice invalid, if such notice is in substance and effect in conformity with or according to the intent and purpose of the PMLA. 29. However, as discussed above, the substance and effect of the notice cannot be in conformity with or according to the intent and purpose of the Act, which incorporates the well established principle of natural justice, audi alteram partem, which gives the noticee a right to contest the notice, its basis as well as the contents of the notice elaborately, if the basis of the notice under Section 8(1), that i....
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....r legally, which would hit at the very root of the proceeding and vitiate the same in the eye of law. Thus, the ratio laid down in J. Sekar and others (supra) by the division bench of the Delhi High Court is, with due respect, absolutely correct in law and this court concurs fully with such ratio. As per the said judgment, at least at the stage of issuance of notice under Section 8(1), PMLA, the reasons to believe of the AA, as well as the authority issuing the notice under Section 5(1), have to be mandatorily communicated to the noticee to give rise to a proper show‐cause and a hearing on the matter. Such a requirement, although not enumerated in so many words in the statute, has to be read into Section 8(1) to attribute a meaningful interpretation to the said provision. 34. In order to satisfy the criterion of Section 68, the intent and purpose of the Act has to be seen. Absence of communication of the reasons to believe at both the stages would violate the intent and purpose of the Act and the norms of natural justice recognized in every civilized society where the Rule of Law prevails. Hence, such an omission would not be a mere irregularity but an illegality vitiating ....
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.... of Section 8 of the PMLA, also quoted above, indicates that the noticee has no remedy against any illegality in the notice itself. Only upon the trial being concluded upon hearing taking place on the notice and the cause shown, if the special court finds that the offence of money‐laundering has not taken place or the property is not involved in money‐laundering, it shall, under sub‐section (6) of Section 8 of the PMLA, order release of such property to the person entitled to receive it. Under sub‐section (8) of Section 8, the special court may also direct the Central Government to restore property confiscated under sub‐section (5) of Section 8 or part thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of moneylaundering. 42. Section 9 of the PMLA provides that upon an order of confiscation being made, all the rights and title in such property shall vest absolutely in the Central Government, free from all encumbrances. The subsequent provisions of the Act deal with management of the properties confiscated under the aforesaid provisions. Section 14 provides that, save a....
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.... same opinion as the proposition laid down in J. Sekar (supra). 49. Under such circumstances, since nothing has come before the court to prove that the notice given to the petitioner under Section 8(1) of the PMLA disclosed the reasons to believe as contemplated in such section, which was a prerequisite of the notice and had to be arrived at by the AA independently, the notice itself was illegal, being bad in law. 50. That apart, even as argued by the respondents themselves, the AA apparently adopted the reasons to believe recorded while passing the POA, without arriving at any independent findings on such reason to believe, let alone communicate the same to the noticee/petitioner. The said inaction on the part of the AA vitiates the notice under Section 8(1) as well. 51. In such view of the matter, no proceeding could be initiated on the basis of the notice under Section 8(1) issued to the present petitioner, thereby rendering the notice under Section 5(1) infructuous, post facto, since the notice under Section 5(1) ultimately merged in the notice under Section 8(1) as the latter was a continuation of the process initiated by the former. 52. Hence, the entire proceeding, comme....