TaxTMI 
TaxTMI 
2024 (7) TMI 1044
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....628, 35630 of 2023 Hon'ble Mr. Justice M.S.Ramesh And Hon'ble Mr. Justice Sunder Mohan For the Petitioners WP.Nos. 35656 & 35668 of 2023 and 1689 , 1765, 2935, 2995, 3047, 3048, 3381, 4416, 4578, 4583, 8871, 9327, 9333, 9379, 9383, 9391 & 9395 of 2024 : Mr.Vikram Chaudhri, Senior Advocate for M/s.S.Elambharathi For the Petitioners WP.No.35515 of 2023 and WP.Nos.1655, 1711, 3389, 3411, 3481, 3607, 3648, 3678, 4412, 4421, 4463, 4629, 4657, 4661, 4891, 5402, 5439, 5444, 5449, 5450, 5645, 5652, 8435, 8563, 8568, 8689, 8697 & 9312 of 2024 : M/s.Abdul Saleem, Senior Advocate for M/s. M.Vijayamehanath For the Respondents in all WPs : Mr.AR.L.Sundaresan, Addl.Solicitor General assisted by M/s.N.Ramesh Spl.Public Prosecutor (ED) and Mr.Zoheb Hussain Spl. Counsel for (ED) COMMON ORDER M.S. RAMESH, J. AND SUNDER MOHAN, J. The above Writ Petitions challenge the various actions initiated by the respondents herein against the petitioners. (i) Twenty-four out of the captioned Writ Petitions challenge the ECIR bearing reference No. ECIR/CEZO-II/22/2023 dated 11.09.2023. (ii) Thirteen Writ Petitions challenge the Provisional Attachment Order in No.1/2024 dated 31.01.2024, passed in respect....
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....39;ble Supreme Court challenging the interim orders passed by this Court in the Writ Petitions filed by the State of Tamil Nadu and the Collectors. The Hon'ble Supreme in Special Leave to Appeal (Crl.) No(s).1959 - 1963/2024 was pleased to pass an order of stay on the execution of the orders passed by this Court in those Writ Petitions. The Hon'ble Supreme Court had also observed that since the respondents are conducting the investigation in the ECIR, the Collectors are bound to respond to the summons. Consequently, the District Collectors were directed to appear and respond to the summons issued by the respondents. (h) The respondents also challenged the interim orders passed by this Court in W.P.No.35515 of 2023 in Special Leave to Appeal (Crl.) No(s). 3358 - 3360/2024 before the Hon'ble Supreme Court. The Hon'ble Supreme Court had observed that the proceedings before this Court would continue and directed the respondents herein to file their counter. Though the respondents herein prayed for the stay of the order, the Hon'ble Supreme Court made the above observations. It is also conceded by the respondents that the Hon'ble Supreme Court made the above obs....
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....d Senior Counsel further submitted that the investigation sought to be conducted by the respondents is actually an investigation of a possible scheduled offence under the garb of investigating money laundering offence; (e) that none of the petitioners are either suspects or accused in the scheduled offences or suspects in the ECIR recorded by the respondents. Since the respondents were unable to ascertain the proceeds of crime, the attachment of property without any causal link between those properties and the proceeds of crime relating to any scheduled offence, the attachment of properties would be illegal. (f) The learned counsel further submitted that knowledge and awareness are the mental states required for proceeding under the Prevention of Money Laundering Act, 2002, and none of the petitioners can be said to have any involvement or the requisite mens rea. 4. M/s.Abdul Saleem, the learned Senior Counsel, reiterated the submissions made by Mr.Vikram Chaudhri, and submitted that the company employed by the Enforcement Directorate to ascertain, if there is any illegal sand mining is a private company, and their report would be of no consequence in the absence of any other pr....
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....rector, Directorate of Enforcement and another reported in (2010) 4 SCC 772. (iv) United Bank of India Vs. Satyawati Tondon and others reported in (2010) 8 SCC 110. (v). South Indian Bank Ltd., and others Vs. Naveen Mathew Philip and another reported in 2023 SCC Online SC 435. (vi) Neeharika Infrastructure Pvt. Ltd Vs. State of Maharashtra and others reported in 2021 SCC OnLine SC 315. (vii) Enforcement Directorate Vs. Niraj Tyagi and others in Criminal Appeal No.843 of 2024 @ Special Leave Petition (Crl.) No.10913 of 2023. (viii) Central Bureau of Investigation Vs. Aryan Singh reported in 2023 SCC Online SC 379. (f) that the interim orders passed by this Court in the Writ Petitions filed by the State of Tamil Nadu challenging the summons issued to the Collectors were stayed by the Hon'ble Supreme Court with the direction to the Collectors to appear and cooperate in the investigation; that the Hon'ble Supreme Court held that the Collectors were bound to obey the summons as the Enforcement Directorate is investigating the offence under the Prevention of Money Laundering Act, 2002. The learned Additional Solicitor General therefore submitted that the order of the ....
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....ports and another reported in (2010) 15 SCC 647. (iii) C.M.Raveendran Vs. Union of India, reported in 2020 SCC Online Ker 7555 . (iv) Virbhadra Singh and another Vs. Enforcement Directorate, reported in 2017 SCC Online Del 8930. (v) State of Gujarat etc. Vs. Choodamani Parmeshwaran Iyer and another reported in 2023 SCC Online SC 1043. 6. (a) Mr.Vikram Chaudhri, learned Senior Counsel, in response, submitted that the respondents chose to commence investigation only on the basis of four First Information Reports, which have nothing to do with the petitioners and in any case do not suggest any generation of proceeds of crime; that without any basis, they had referred to information gathered through open resources relating to sand mining; and that the fact that they have taken the assistance of a private agency would show that they had subdelegated their powers of investigation conferred under "Section 54 of the Prevention of Money Laundering Act, 2002," which is impermissible. (b) The learned Senior Counsel submitted that this Court may decide issues that were not decided by the Hon'ble Supreme Court in Vijay Madhanlal Choudhary's case, (cited supra) as there are many ....
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.... and that the letter only reiterates the report of the private company dated 17.10.2003 and there are no other materials. 7. (i) The learned Additional Solicitor General, in response to the learned Senior Counsel's reply, submitted that mere obtaining a report from a company would not amount to sub-delegation that it would only amount to obtaining expert opinion and collecting evidence during the investigation, and that the said company is an incubated company of IIT Kanpur. (ii) He has also submitted that there are statements from the suppliers of machines and equipment that would confirm that there was illegal sand mining by the petitioners and that there were proceeds of crime. (iii) He reiterated that the ECIR is an internal document, and it cannot be said that they cannot proceed with information received besides what they have recorded in the ECIR and that the respondents have more than sufficient material to proceed with the investigation, and the investigation cannot be curtailed. (iv) He further submitted that the letter issued under Section 66(2) of the PMLA, is a statutory requirement and cannot be taken as a violation of orders of this Court, and it could only b....
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.... the premise of registration of above. mentioned FIRS and on perceiving that prima-facie an offence of Money Laundering under Section 3 of the Act is made out which is punishable under Section 4 of the Act, the investigation under PMLA, 2002, was commenced. 6.2 During investigation under PMLA, 2002, the Respondent No.2 engaged the services of M/s.Terraqua UAV Solutions Private Limited (a Company incubated at IIT Kanpur and the team comprising Profession of IIT, Kanpur), to conduct a technical study of all the mining sites using Drone and LIDAR Surveys, Bathymetric suryeys, satellite imagery processing etc. in the 28 sites and nearby areas. The report on the technical study establishes that there has been excessive mining in the mining sites and there has been illegal sand mining in the nearby areas as well. It is revealed from the Expert Report submitted by M/s Terraqua UAV Solutions Private Limited, that there are violations in terms of area and depth of excavation which has resulted in excessive volume of sand excavation. Even at 4 sand quarries, there is estimate of excessive & illegal sand mining up to 10-30 times of the actual permitted quantity and as against the permitted ....
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....and IWS JCB India Limited revealed that multiple excavators were working simultaneously on a single sand mining site whereas as per the terms & conditions put forth by the Govt., only 2 machines are allowed to work on a single quarry. 6.7 The bank account analysis of the Petitioner, his family members and his firms/companies has shown substantial cash deposits in the accounts. The cash deposited so, has been subjected to continuous transfers through different accounts to hide the source of the funds. 6.8 Thus, it is revealed that the Petitioner herein has indulged in illegal sand mining and generated proceeds of crime and dealt with the proceeds from the criminal activity." (b) In support of the said allegations, the respondents have relied upon the statements of some witnesses, which are referred to in paragraph Nos. 11 to 16 of the said counter and the same are reproduced below: "11. Mr. Ashokan Muthaiah, the then Engineerin- Chief in Water Resources Department, Govt. of Tamil Nadu, in his statement under Section 50 of PMLA, 2002, has inter-alia stated that the private contractors are supposed to quarry the sand only within the permissible limit around 4.5 hectares approve....
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....2002, have unambiguously admitted that illegal sand mining is happening at huge level in the State but no action is being taken against the offenders/ private contractors. 14. The bank account analysis of the Petitioner herein has revealed that substantial cash deposits were made in the account which was further used for repayment of loans availed for purchase of excavators. Further, the bank account analysis also revealed that the Petitioner herein and his related/associated entities/ individuals have sizeable with other inter-connected transactions suspected entities/ individuals. 15. That, it is implied that from the comprehensive assessment of the data provided by WRD, Govt. of Tamil Nadu; M/s.Kobelco India / M/s.JCB India; and the inspection report of M/s.Terraqua UAV Solutions Private Limited, that illegal and excessive sand mining has been done by Mr.S.Ramachandran, Mr.K.Rethinam, Mr.P.Karikaran and their associates. 16. In the course of the investigation under PMLA, 208, it has surfaced that illicitly extracted sand is being circulated in, the market through cash transactions, avoiding any traceable entries in the government or private contractors' books. Therefor....
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..../s.Kobelco Construction Equipment India Private Limited have submitted the information which reveals that they have sold around 200 excavating machines in last 3-4 years to15-16 entities only and all of them belonging to Mr S Ramachandran, Mr. K. Rethinam, Mr. P. Karikalan and their associates and all such machines are being used for sand mining. The data submitted by M/s JCB India Limited also disclosed that they have sold 32 excavating machines to Mr.S. Ramachandran, Mr. K. Rethinam, Mr. P Karikalan and their associates out of which 21 are engaged in sand mining activity. The Geolocation data provided by M/s Kobelco India clearly showed that multiple excavator machines have been deployed at each quarries whereas as per the terms & conditions put forth by the Govt. only 2 machines are allowed to work on a single quarry. The Geofencing analysis report provided by M/s JCB India Limited has proved that the excavators were not working inside the approved GPS Coordinates of the sand quarries instead the machines were deployed outside/ adjacent to the legalized sand quarries which again points out that the illicit sand mining has occurred. 14.4 The inspection report submitted by M/s T....
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....proceedings under PMLA, 2002. 14.9 Apart from the excavators, the balance amount lying in the bank accounts as mentioned in the Table - 28 above are also liable to be attached as equivalent value of such proceeds or benefits derived as the same are liable to be speedily transferred, considering regular transactions being in such bank accounts which will lead to frustrate proceedings under this Act. 14.10 Thus, I have reasons to believe that the properties mentioned in Schedule-1 & Schedule- II to this Provisional Attachment Order are likely to be concealed, transferred, or dealt with in such a manner may result in frustrating proceedings under this Act. Besides these, the excavators are being continuously used as a tool for commission of offence of money laundering. In the present circumstances, if no provisional attachment order is passed in this case at this stage, it may result in frustrating proceedings under the Prevention of Money Laundering Act, 2002." 11. The reading of the counter affidavits and the Provisional Attachment Order reveals the following: (a) that an ECIR was recorded on 11.09.2023 on the basis of four FIRs, which disclose scheduled offences; (b) that ....
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....h were used for the repayment of loans for purchasing the excavator; that in order to obscure the original source of funds, cash deposits have been made in different bank accounts and then a sequence of funds transfers has been made before ultimately making the repayment of loans; 12. The question involved in the instant Writ Petitions in our view is not whether there is illegal sand mining in the State. The question is whether, even assuming that the respondents have material to show that there was illegal sand mining and it had generated huge proceeds, they would be entitled to initiate action under PMLA, in the absence of a scheduled offence investigated by any other investigation agency and determination of proceeds of crime. 13. Before we answer the said question, we would like to deal with the other submission of the learned Additional Solicitor General. 14. The learned Additional Solicitor General submitted that when the interim order was passed by this Court in a connected Writ Petition filed by the State and the Collectors of some of the Districts in the State, challenging the summons issued to them, the respondents had challenged the said order before the Hon'ble S....
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....rsons to whom the summons are issued under Section 50 (2) of the Act are obliged to respect and respond to the said summons." 7. The Writ Petitions filed, at the instance of the State Government, challenging such summons issued to the District Collectors prima facie appears to be thoroughly misconceived, and the impugned order passed by the High Court also being under utter misconception of law, we are inclined to stay the operation of the impugned order." 15. After the interim orders passed by this Court, which were impugned in the above Special Leave to Appeal and before the above said order was passed by the Hon'ble Supreme Court, this Court had passed interim orders on the Writ Petitions filed by some of the petitioners and granted stay of the summons issued to them. Even after this Court had passed the orders of interim stay of the summons, it was represented by some of the petitioners that their properties were attached by Provisional Attachment Order and in some cases, after attachment, Original Applications, were filed before the adjudicating authority for confirmation and Writ Petitions were filed challenging the same. We had granted interim orders in those Writ Pet....
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....rime. There may be cases where the property involved in the commission of scheduled offence attached by the investigating agency dealing with that offence, cannot be wholly or partly regarded as proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act - so long as the whole or some portion of the property has been derived or obtained by any person "as a result of" criminal activity relating to the stated scheduled offence. To be proceeds of crime, therefore, the property must be derived or obtained, directly or indirectly, "as a result of" criminal activity relating to a scheduled offence. To put it differently, the vehicle used in commission of scheduled offence may be attached as property in the concerned case (crime), it may still not be proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act. Similarly, possession of unaccounted property acquired by legal means may be actionable for tax violation and yet, will not be regarded as proceeds of crime unless the concerned tax legislation prescribes such violation as an offence and such offence is included in the Schedule of the 2002 Act For being regarded as proceeds of crime, the property associated w....
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....t. 253. Tersely put, it is only such property which is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence can be regarded as proceeds of crime. The authorities under the 2002 Act cannot resort to action against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed, unless the same is registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum For, the expression "derived or obtained" is indicative of criminal activity relating to a scheduled offence already accomplished. Similarly, in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to an order of discharge, acquittal or because of quashing of the criminal case (scheduled offence) against him/her, there can be no action for money-laundering against such a person or person claiming through him in relation to the property linked to the stated scheduled offence. This interpretation alone can be countenanced on the basis of the p....
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....cheduled offence. It is possible that in a given case after the discovery of huge volume of undisclosed property, the authorised officer may be advised to send information to the jurisdictional police (under Section 66(2) of the 2002 Act) for registration of a scheduled offence case, contemporaneously, including for further investigation in a pending case, if any. On receipt of such information, the jurisdictional police would be obliged to register the case by way of FIR if it is a cognizable offence or as a non-cognizable offence (NC case), as the case may be. If the offence so reported is a scheduled offence, only in that eventuality, the property recovered by the authorised officer would partake the colour of proceeds of crime under Section 2(1)(u) of the 2002 Act, enabling him to take further action under the Act in that regård. 283. Even though, the 2002 Act is a complete Code in itself, it is only in respect of matters connected with offence of money-laundering, and for that, existence of proceeds of crime within the meaning of Section 2(1)(u) of the Act is quintessential. Absent existence of proceeds of crime, as aforesaid, the authorities under the 2002 Act cannot ....
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....gainst any person on the assumption that the property acquired from them must be the proceeds of crime and that a scheduled offence has been committed unless the same is registered by the jurisdictions police or pending enquiry by way of a complaint before the competent forum. 19. The above observations made by the Hon'ble Supreme Court are self-explanatory and answer the issues involved in the instant Writ Petitions. However, the learned Additional Solicitor General submitted that the Act contemplated two types of action and is an amalgam of similar criminal proceedings; and that in order to initiate civil proceedings, registration of FIR is always not necessary and relied upon the second proviso to Section 5 (2) (b) of the PMLA, and the observations made by the Hon'ble Supreme Court in paragraph 290 in Vijay Madhanlal Choudhary's case (cited supra) is extracted hereunder for better understanding. "290. As a matter of fact, prior to amendment of 2015, the first proviso acted as an impediment for taking such urgent measure even by the authorised officer, who is no less than the rank of Deputy Director. We must hasten to add that the nuanced distinction must be kept i....
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.... for initiating proceedings under PMLA warrant an emergent action. We may note here that though the Provisional Attachment Orders were passed as early as in January 2024, the respondents have not taken any action to inform the concerned jurisdictional Police about the commission of any scheduled offence by the petitioners or any other person through whom the petitioners are dealing with the proceeds of crime. Strangely, the respondents have chosen to write a letter purporting to be communication under Section 66 (2) of the PMLA, on 13.06.2024, to the Director General of Police. In the said letter, the materials that were available to the respondents as early as January 2024 were reiterated. There was no reason as to why the respondents had suddenly discovered the need to send a letter on 13.06.2024, when the matters were heard by this Court on 12.06.2024. 21. Be that as it may. We find that the delayed letter only suggests that there were no urgent measures required to be taken by the respondents so as to warrant action even before the registration of the FIR. The letter also suggests that there is no FIR registered for the scheduled offences that had generated proceeds of crime. ....
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....he redress of any grievance, has to consider the nature and extent of the breach and pass appropriate orders as may be called for without leaving the citizens to the mercy of police echelons since human dignity is a dear value of our Constitution. It needs no emphasis that no one can demand absolute immunity even if he is wrong and claim unquestionable right and unlimited powers exercisable up to unfathomable cosmos. Any recognition of such power will be tantamount to recognition of 'Divine Power' which no authority on earth can enjoy." Therefore, while we agree with the submissions made by the learned Additional Solicitor General that this Court should not ordinarily interfere with the investigation, but, whenever we find that the investigation/inqury is proceeding beyond the circumscribed limits, we have a duty to interfere. To borrow the words of the Hon'ble Supreme Court, we cannot allow the citizens to be at the mercy of such investigating officers. Since the very action to initiate proceedings under the PMLA is without any basis, we are not impressed with the submissions made by the Additional Solicitor General that this Court would not interfere in proceedings when ther....