TaxTMI 
TaxTMI 
2025 (2) TMI 216
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....PMLA, 2002. Additionally, the petitioner prays for orders directing the prosecution of the erring officials of the respondent, the Enforcement Directorate (ED), under Section 62 of the PMLA, 2002. 2. The Enforcement Case Information Report (ECIR) dated 01.10.2024 was registered by the respondent based on an FIR filed by the Lokayukta concerning a predicate offence related to the illegal allotment of sites by MUDA during the petitioner's tenure as Commissioner of MUDA. Pursuant to authorization by the Joint Director of the respondent agency, the Assistant Director conducted a search of the petitioner's residence under Section 17 of the PMLA, 2002 on 28.10.2024 and 29.10.2024. During the search, the petitioner's mobile phone was seized, and its data was transferred to a hard disk. Furthermore, the respondent examined the petitioner on oath under Section 17 (1) (f) of the Act. 3. On 29.10.2024.after the search was completed., the respondent served summons on the petitioner at 4.00 pm under Section 50 of the PMLA, 2002, directing him to appear before the Investigating Officer on the same day at 5:30 PM. Subsequently, the petitioner was served with another summons dated 07.11.2024....
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....ank of Deputy Director, was not legally empowered to carry out the search and seizure. Consequently, the entire exercise of search and seizure conducted by the respondent agency stands vitiated due to the lack of authority. 6.3. It was further argued that Section 17 of the PMLA, 2002 mandates that an officer authorized to conduct a search and seizure must have "reason to believe," based on material in his possession, that a person is involved in the offence of money laundering. This reason to believe must be recorded in writing prior to initiating such proceedings. However, in the instant case, the respondent agency conducted the search and seizure on the mere assumption that the petitioner, as the then Commissioner of MUDA, had illegally allotted sites. This assumption, according to the learned Senior Counsel, does not satisfy the statutory requirement of "reason to believe" under Section 17, thereby rendering the proceedings invalid and illegal. 6.4. He further contended that under Section 17 of the PMLA, 2002, a search and seizure can only be conducted subsequent to the attachment of property involved in money laundering, as provided under Section 5 of the Act. In the pres....
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....ny person, compel their attendance, and require the production of records or evidence during the course of an investigation. Therefore, the summons issued to the petitioner cannot be construed as arbitrary, illegal, or outside the scope of the powers vested in the respondent Agency. 7.3. The investigation initiated by the respondent Agency pertains to proceeds of crime derived or obtained in connection with a scheduled offence under the PMLA, 2002. He contended that the sites derived by the accused in the scheduled offence fall squarely within the ambit of "proceeds of crime" as defined under Section 2 (1) (u) of the Act. The competent authority, having recorded its "reason to believe" in writing, has rightly concluded that the petitioner, as the former Commissioner of MUDA, assisted the accused in the illegal allotment of sites and may be in possession or control of records or properties relevant to the investigation. 7.4. Addressing the petitioner's contention regarding the competence of the authorizing authority, the learned ASG submitted that the Joint Director is one of the authorities enumerated under Section 48 of the PMLA, 2002. He argued that Section 17 of the Act em....
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....ted under Section 17 of the Act, lacks merit. He submitted that the competent authority has acted in accordance with the provisions of the Act, and there is no procedural infirmity in the investigation. He, therefore, prayed for the dismissal of the writ petition with costs. In support, reliance is placed on the following: (Sufficiency of reasons to believe cannot be gone into) i. DGIT v. Spacewood Furnishers (P) Ltd. (2015) 12 SCC 179 - Relevant Paras - 21-23 ii. CIT v. Rajesh Jhaveri, (2008) 14 SCC 2018 - Relevant Paras 19-20 (Money laundering is a standalone offence and once an ECIR is registered based on a scheduled offence, the umbilical chord between an FIR and an ECIR gets snapped) iii. Vijay Madanlal Choudhary & Ors v. Union of India & Ors. (2022) SCC OnLine SC 929 - Relevant Paras - 269, 295 iv. Pavana Dibbur v, Enforcement Directorate, (2023) SCC OnLine SC 1586 - Relevant Paras - 15, 17 v. Directorate of Enforcement v. Aditya Tripathi, (2023) SCC OnLine SC 619 - Relevant Paras - 13, 16 vi. Dr. Manik Bhattacharya v. Ramesh Malik & Ors., SLP (C) - 16325/2022 - Relevant Para - 7 vii. Vijayraj....
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...., 328 xxiv. Vijay Madanlal Choudhary & Ors v. Union of India & Ors. (2022) SCC OnLine SC 929 - Relevant Paras - 263 - 284 xxv. Y Balaji v. Karthik Desari, (2023) SCC OnLine SC 645 - Relevant Paras - 96-100) (Summons issued by ED cannot be quashed merely because the relevant documents required for the purpose of investigation or confrontation have not specified in the summons) xxvi. Talib Hassan Darvesh v. Directorate of Enforcement (2024) SCC OnLine Del 1811, Relevant Para- 12 (There is no necessity to refer to the summoned person as a witness or accused while issuing summons under Section 50 of PMLA) xxvii. Molay Ghatak v. Directorate of Enforcement, (2023) SCC OnLine Del 7443 - Relevant Paras - 26 -28 Issues 8. After considering the arguments of the learned counsel for the parties, the following issues emerge for consideration : i. Whether the authorisation issued to conduct the impugned search and seizure at the residence of the petitioner on 28.10.2024 and 29.10.2024, and the consequent statement recorded under Section 17 of PMLA, 2002 suffers from lack of jurisdiction? ii. Whether the said impugned s....
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.... or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime namely:- (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever; (ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever." 10. A cumulative reading of Sections 2 (1) (na), 2 (1) (u), and 3 of the Prevention of Money Laundering Act, 2002 (PMLA) establishes the following essential elements required to attract an offence under Section 3 thereof: 1) The existence of proceeds of crime in relation to a criminal activity relating to any scheduled offence, specified in the schedule; and 2) Evidence of actual involvement or animus/intention on part of the accused in the scheduled ....
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.... 56 Crores only, in consideration for an illegal claim for compensation made by Smt Paravathi, against the acquisition of above lands. 13. Subsequently, the respondent-ED registers an ECIR/BGZO/25/2024 on 01.10.2024 on the grounds that 14 sites (plots), including commercial plots were allotted to Smt Parvathi in gross violation of the Karnataka Urban Development Authorities (Allotment of Sites in lieu of Compensation for the Land Acquired) Rules, 2009, during the tenure of the petitioner as the Commissioner of MUDA. It is alleged that the petitioner himself had selected the sites to be allotted and that the proposal for site allocation was not put up by the Site Allotment Section. 14. Therefore, the respondent-agency conducted the impugned search and seizure under Section 17 of the PMLA, 2002 at the residential premises of the petitioner, on 28.10.2024 and 29.10.2024, and the mobile phone belonging to the petitioner, along with one hard-disk in which the data extracted from the said mobile phone was transferred into and was seized. Subsequently, the respondent-agency has examined the petitioner on oath and has recorded the statement of the petitioner under Section 17 (1) (f) ....
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....o believe on the basis of material in possession with highest responsible authority to prevent the misuse of such provisions. Furthermore, the words "the Director" in sub-section (1) of Section 17 were substituted for the words "the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section" vide the Amendment Act 21 of 2009 (w.e.f. 1.06.2009). "Section 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 recorded in writing) that any person- (i) has committed any act which constitutes money-laundering, or (ii) is in possession of any proceeds of crime involved in money-laundering, or (iii) is in possession of any records relating to money-laundering, or (iv) is in possession of any property related to crime, then, subject to the rules made in this behalf, he may authorise any officer subordinate to him to- (a) enter and search any building, place, vesse....
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....he Director and the Joint Director, and further below down in the hierarchy is the Assistant Director. "Section 48. Authorities under the Act - There shall be the following classes of authorities for the purposes of this Act, namely:- (a) Director or Additional Director or Joint Director, (b) Deputy Director, (c) Assistant Director, and (d) such other class of officers as may be appointed for the purposes of this Act." 21. Thus, where the Director has clearly authorised the Joint Director (an officer above the rank of Deputy Director) for purposes of Section 17 of PMLA, 2002 vide Circular No. Circular Order (Tech) No. 03/2011, dated 27.09.2011, and; • in pursuance thereof, the Joint Director had issued authorisation letter dated 27.10.2024 authorising the Assistant Director under sub-sections (1) and (1-A) thereof to conduct the search of the petitioner's premises, and; • subsequently, when the Joint Director had forwarded, upon completion of the search and seizure, a copy of the reasons so recorded on the basis of the material in his possession to the Adjudicating Authority under sub-section (2) of PMLA vide....
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....he commission of any act of money laundering and conscious possession of proceeds of crime. 24.2. In V. Senthil Balaji v. Deputy Director, Directorate of Enforcement, (2024) INSC 739, the Supreme Court addressed an appeal concerning the dismissal of a bail application by a petitioner who had been incarcerated under the PMLA for over 14 months. The Court opined that the existence of proceeds of crime is a precondition for an offence under Section 3 of the Act. 24.3. In Pankaj Bansal v. Union of India, (2023) INSC 866, the Apex Court dealt with an appeal seeking to quash an arrest and included a plea to "read down" or "read into" the provisions of Section 19 of the Act. The Court held that the material in possession must be limited to legally admissible and unimpeachable evidence, based on which "reason to believe" can be recorded in writing that the arrestee is guilty of an offence under Section 4 of PMLA. The Court further emphasized that the standard of guilt must meet a higher threshold than mere suspicion. 24.4. In Opto-circuit India Pvt Ltd v. Axis Bank, (2021) 6 SCC 707, the Supreme Court observed, while dealing with the freezing of property under Section 17 of the PM....
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....erence about the matter. The requirements of 'knowledge' and "reason to believe" must be deduced from the various facts and circumstances of each case. 24.5.5. Concluding its observations in Arvind Kejriwal, the Supreme Court held that "reason to believe" must be distinguished from 'mere grave suspicion'. "It refers to the reason for the formation of belief which must have rational connection with or an element bearing on formation of belief." The reason must not be extraneous to the provision's purpose. The Court further held that "reason to believe" should be furnished to the arrestee at the time of arrest to enable them to challenge the arrest. It opined that any State action prejudicing personal liberty is subject to judicial review. The Court concluded that doubts arise only when the reasons recorded by the authority are unclear or ambiguous, thereby necessitating deeper scrutiny to determine the validity of the "reason to believe." 24.6. In Rashmi Metaliks Ltd. v. Enforcement Directorate & Ors., WPA No. 17454/2022 : D.D.10.08.2022, the High Court of Calcutta addressed the necessity of providing adequate reasons for freezing accounts under Section 17 (1-A) of the PMLA. I....
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....d on mere assumptions regarding the commission of a scheduled offence. It concluded that any action under Section 5 of the PMLA must be premised on the competent authority having "reason to believe" that a person possesses proceeds of crime. The Court further clarified that property cannot be recognized as proceeds of crime unless preceded by criminal activity related to a scheduled offence. 24.8. In Pavana Dibbur v. Enforcement Directorate, (2023) 15 SCC 91, the Supreme Court held that a plain reading of Section 3 of the PMLA establishes that an offence under Section 3 can only arise after the commission of a scheduled offence. A person unconnected with the scheduled offence may, however, be held liable under Section 3 if they assist the accused in concealing the proceeds of crime arising from the scheduled offence. Thus, it is not necessary for a person charged under Section 3 of the PMLA to also be named as an accused in the scheduled offence. 24.8.1. The Court further observed that, if the prosecution for the scheduled offence results in acquittal, discharge, or quashing against all accused, the scheduled offence ceases to exist, and all proceedings under the PMLA must al....
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....the Prevention of Money Laundering Act, 2002 (PMLA), unless the essential ingredients of the offence as defined under Section 3 of the Act are satisfied. 27. In light of the above precedents, it can be concluded that the existence of "reason to believe," as required under the Prevention of Money Laundering Act, 2002 (PMLA), mandates the presence of sufficient cause to indicate the commission of the offence of money laundering. Additionally, it necessitates a corresponding justification for the seizure of any records or proceeds of crime discovered during the search. Such a requirement ensures that the said property is not dissipated, layered, or integrated in a manner that renders it seemingly legitimate. 28. To satisfy this threshold, the authorized officer must demonstrate that they arrived at an informed and objective conclusion, based on credible material in their possession, that the proceeds of crime or documents related to money laundering are likely to be located at the premises sought to be searched. This procedural safeguard upholds the principles of fairness and legality, ensuring that the exercise of power under Section 17 of the PMLA is neither arbitrary nor spec....
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....sealed cover, indicates no specific allegation against the petitioner, except that of improper allotment of sites in favour of Smt B.M Parvathi, and that the petitioner is close to realtors. The reasons recorded do not in any manner, whatsoever, indicate the involvement of the petitioner in any act constituting money laundering or to be in possession of proceeds of crime involved in money-laundering, or to be in possession of any records or property related to money laundering or crime, respectively. The reasons do not contain any specific allegation/ remark against the petitioner having suspected to either received illegal gratification as against the allotment of sites, or having placed or layered any proceeds of crime, or having knowingly assisted in the same, much less any evidence to substantiate the suspicion. 34. It is now well settled that reason to believe must exist on the basis of evidence regarding the existence of certain facts. In the instant case, no such material as was in possession at the time of search, has been furnished to this Court to probablize the purported involvement of the petitioner. In absence of the same, any conclusion arrived at necessitating the....
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....eme Court dealt with a challenge to the issuance of summons and reaffirmed the ratio enunciated in the case of Vijay Madanlal and held that summons can be issued even to witnesses during the inquiry. It further stated that the procedure under the Act and its rules require the officer issuing the summons to follow Rule 11 of the PMLA Rules, 2005 which mandates the issuance of summons in Form V. The summons must include details such as the name, designation, and address of the summoning officer. 39. The Supreme Court in the case of Mahabir Prasad Rungta v. Directorate of Enforcement, in SLP (Crl) No. 12353/2024, also followed the Vijay Madanlal case and stated that money laundering charges under the PMLA cannot be concluded until the trial for the predicate offence is completed. 40. In Sudarshan Ramesh v. Union of India (2023) SCC OnLine Kar 71, a coordinate Bench of this Court dealt with a case, where the petitioner was repeatedly summoned in connection with an investigation involving his brother, who was implicated in a scheduled offence under the PMLA. The Court noted that despite the petitioner cooperating, nothing incriminating had been found, and he had been summoned with....
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....bjectives of the Act make it distinct from the process of investigating a scheduled offence. The Court further held that the authority conducting the search under Section 17 of the Act must forward a copy of the recorded reasons and material in its possession to the adjudicating authority in a sealed envelope immediately after the search and seizure. This procedure ensures that the contents are not tampered with, thereby guaranteeing procedural fairness and accountability. The Apex Court also noted that Section 62 of the Act provides punishment for officials conducting vexatious searches. 43.1. Relying on the above, in response to the allegation that the impugned search was arbitrary, the learned ASG argued that the PMLA has in-built safeguards against arbitrariness and misuse of power, and therefore, this Court should not be compelled to review the search and issuance of summons at this stage. 44. In the case of Kirit Shrimankar v. Union of India & Ors., WP (Crl.) No. 109/2013, DD 20.11.2014, and connected matters, the Hon'ble Supreme Court observed in a challenge to the issuance of summons under Section 108 of the Customs Act, 1962 or Section 14 of the Central Excise Act, t....
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....t necessarily an accused at that time; they may become an accused later if arrested or prosecuted. It further held that no one can avoid responding to a summons simply because of the apprehension that they might be prosecuted in the future. 48. In the case of Raghav Bahl v. Enforcement Directorate (WP (Crl.) No.2392/2021), the Delhi High Court referred to the above case and also to case Kirit Shrimankar (supra). It concluded that there was no violation of the petitioner's fundamental or legal rights that would warrant intervention by the writ court at the summons stage. 49. In the case of State of Gujarat v. Choodamani Parmeshwaran Iyer, (2023) SCC OnLine SC 1043, the Hon'ble Supreme Court dealt with a challenge to summons under Section 145 of the Central Excise Act and Section 69 of the Goods and Services Tax Act. The petitioners argued that they were summoned due to suspected tax evasion and apprehended arrest. The Court held that those summoned must appear before the authorities for questioning and that the High Court's writ jurisdiction cannot be invoked at the summons stage to seek anticipatory bail. 50. In Directorate of Enforcement v. State of Tamil Nadu (SLP (Crl.)....
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....light of the circumstances of this case, where no prima facie case has been established showing that an offence has been committed under the PMLA, and no incriminating material has been elicited at the time of search and seizure, the issuance of summons to the petitioner lacks legal authority. The petitioners cannot be compelled to appear and record their statements or produce documents, as such actions would unjustly infringe upon their personal right to liberty. ISSUE NO. 4 55. The learned Senior Counsel appearing for the petitioner also contended that attachment of property under Section 5 of PMLA, which is intended to prevent the dissipation of the proceeds of the crime, must necessarily precede the conduct of search and seizure under Section 17 PMLA. The learned Senior Counsel contended that the same is forthcoming from the placement of the sections in the enactment. However, the same cannot be sustained as Section of the Act empowering the Director of the respondent-ED to conduct the search and seizure is merely an investigative tool to gather evidence or seize the property itself. 56. Section 5 of the PMLA can precede Section 17, if the ED has in its possession suff....