TaxTMI 
TaxTMI 
2025 (5) TMI 2105
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....t the companies related to loan default/diversion due to which the accounts of the concerns turned NPA and the banks suffered huge wrongful losses. 3. Since, Sections 120-B read with 420 of the erstwhile IPC and Sections 13(1)(d) the P.C. Act, 1998 are scheduled offences under the PMLA, 2002, the ED, Ahmedabad took up the investigation by registering an Enforcement Case Information Report ('ECIR') vide No. ECIR/AMZO/08/2020 dated 20.03.2020. Investigation by ED revealed that Shri Bharat Shah, Shri Fenil Shah and Smt. Geetaben Shah, Directors of the Ardor group companies, had indulged in circular routing of funds received out of the credit limit sanctioned by the consortium of banks to inflate the financials of the companies and to extend/increase the credit facilities from the consortium of the banks, with the Bank of India as the lead bank, and obtained loans in the names of three groups companies. They also diverted/misutilized the funds received from the banks for purposes other than those for which the same had been sanctioned. They also used other Ardor group companies and properties by mortgaging the same as security to avail higher credit limits. Further, the directors ....
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....order passed the Ld. AA is against the mandate of the PMLA, 2002 and, therefore, deserves to be set aside. 7. In this regard, it is firstly contended that the Ld. AA failed to consider the legal position that search warrants are issued for conducting search of premises, vessels, etc. under section 17(1) of PMLA and the same were strictly adhered to in the present matter; that the incriminating documents and materials had been recovered and seized by the authorized officers as contemplated under section 17(1) of PMLA, 2002. 8. It is pointed out that the Ld. AA allowed the impleadment of Respondents no. 7 to 15 herein as interested parties ignoring that the said applications were filed by Respondent No. 5 only; that the Ld. AA failed to consider the fact that the Respondent No.6 and Respondent No.7 to 15 are using the same premises, and during the search the entire premises was searched under valid search warrant issued by the authorized officer, but no documents/books of accounts of the Respondent no. 7 to 15 were at all recovered; that the Ld. AA failed to consider that as per the OA as well as the RUDs filed by the department, no one came forward to give any valid explanation qu....
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....ons for not forwarding copy of reasons to believe recorded along with the relevant material/order of retention to the Ld. AA as required u/s 17(2)/20(2) of PMLA, 2002 was that the postal authorities had stopped accepting any posts on account of Covid-19 pandemic. The OA was also filed digitally and not as per the laid down procedure given under the Adjudicating Authority (Procedure) Regulations, 2013, The Ld. AA has erred gravely in not appreciating these facts and blindly relying on the decision of the Hon'ble Supreme Court in the case of Opto Circuit India Ltd v. Axis Bank & Ors. It is contended that even otherwise, the reliance of the Ld. AA on the order of the Hon'ble Supreme Court (supra) is misplaced for the following reasons: (a) Because the facts in the case of OPTO Circuit India Ltd v. Axis Bark & Ors are different from the facts in the present case. In the case of OPTO Circuit India Ltd., the Authorised Officer had failed to follow any procedure after freezing the account, i.e., reasons to believe was never produced, freezing order was not forwarded to the Ld. AA and most importantly no OA was filed. However, in the present case, reasons to believe for carrying ....
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....establishing the offence of money laundering. Therefore, such reasoning of the Ld. AA was devoid of any merits. 15. Based on the above stated contentions, it is prayed on behalf of the appellant that the present appeal be allowed. Arguments on behalf of the Respondents 16. The respondents have strongly opposed the submissions made on behalf of the appellant Directorate. It is pointed out that the findings of Ld. AA as emerging from pages 278 to 308 of the impugned order, are on three grounds: (a) Statutory provisions of S.17, 20 and 21 of the PMLA Act have not been followed. Reference is made to Pg. Nos. 292-297 (Para 6), of the impugned order; (b) Authority seizing the record/property u/s 17(1) of the Act has not followed Section 17(2) of the Act (Reference is made to Pgs. No. 297-299 (Para 7) of the impugned order; (c) On merits, it was held that seized cash is cash-on-hand available with the Defendant and his family members/business concerns which is duly reflected in audited books of account and is duly shown in the Income Tax Returns which has not been disputed. Reference is made to Pgs. 299-308 (Para 8-14) of the impugned order. 17. Firstly, with regard to (a) abov....
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.... a Copy of the Order of Retention of Seized Property Along with the Material to the Adjudicating Authority was required to be verified by this Authority. When inquired with the Registry of Adjudicating Authority, PMLA and upon verification of the records forwarded to the Adjudicating Authority, it was noticed that no such forwarding of Reasons and Material to the Adjudicating Authority and forwarding of a Copy of the Order of Retention of Seized Property Along with the Material to the Adjudicating Authority is made / done by the Enforcement Directorate, Ahmedabad." 21. As per S.17(2) of the Act, the authority immediately after the search shall forward a copy of the reasons so recorded along with material in his possession, to the adjudicating authority in a sealed envelope, in the manner as may be prescribed. 22. In the present case, admittedly nothing has been forwarded to the Ld. AA and accordingly, the statutory provisions as mandated u/s 17(2) has been violated. 23. As per S.20(1) of the Act, where any property has been seized u/s 17 of the Act and the officer authorized, on the basis of material in his possession, reason to believe (the reason for such belief to be recorded....
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....done in that manner alone and in no other manner. 28. Thus, the respondents contends that the Ld. AA has rightly rejected the application filed u/s 17(4) of the Act after following the decision of the Supreme Court in OPTO (supra) and holding that non-compliance of the statutory provisions, the seizure and retention of the seized property and records including the cash currency, cannot be sustained. The Ld. AA after referring to Para 8 of the decision of Supreme Court in OPTO Circuit (supra), has rightly rejected the submission of the Appellant herein that the filing of OA at the subsequent stage would waive the requirement laid down under the provisions of section and the rules of the Act. 29. Reliance is also placed by the respondents on the judgement of the Hon'ble Supreme Court in Vijay Madanlal Choudhary and Others v. UOI 2022 SCC OnLine SC 929 regarding emphasis on compliance of provisions of S.17(2) of the Act and Rules regarding forwarding recorded reasons along with material in sealed envelope to the adjudicating authority. 30. It is further submitted that during the course of the proceedings before the Ld. Adjudicating Authority in OA No.429/2020, the Appellant had....
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....llant had never recorded the reasons and passed any order of the retention order u/s 17(2) and 20(2) of the Act or forwarded a copy of the same along with material in possession to the Ld. AA. It is further contended that the communication dated 16.06.2020 to support their contention that post department had stopped booking article due to Covid-19 which has been placed on record by the Appellant for the first time through rejoinder is an afterthought. In any case, the position therein is as of June, 2020 whereas the search in this case took place on 29/30.10.2020. The Respondent has placed on record the RTI letter which clearly shows that the Post Department never stopped working since the first day of Covid-19 pandemic. Further there are number of communications exchanged in this case through postal department only which clearly shows that the Post Department was working. 35. The Respondent has further sought to rely on various Unlock Guidelines such Unlock-1 dated 30.05.2021, Unlock 2 dated 29.06.2020, Unlock -3 dated 29.06.2020, Unlock 4 dated 29.08.2020 and Reopening Guideline dated 30.09.2020. It is contended that these guidelines clearly show that by the time of date of sear....
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..../assorted foreign currency with the criminal activities of Sh. Bharat Shah/Sh. Fenil Shah and their Ardor group of companies as envisaged under 2(1)(u) of the Act. The same cannot be treated as Proceeds of crime. 40. Regarding seized documents, it is contended that the Respondent has explained each and every page of it, which is nothing but their own Bank Book, bank diaries and investment details, not pertaining to Sh. Bharat shah/Fenil Shah and their Ardor group companies. They are also not incriminating documents. 41. It is further submitted that during the course of search proceedings on 29/30.10.2020, cash amounting to Rs. 37,00,000/-, foreign currency equivalent to 2000 USD and certain documents were seized. During the course of search, statement of the Respondent No.1 was recorded on 30.10.2020, wherein Respondent No.1 had given an explanation of assorted foreign currency equivalent to USD 2000. Further, vide Annexure E to the Reply filed before the Ld. Adj. Authority, Respondent No.1 submitted his detailed explanation with regard to the assorted foreign currency equivalent to USD 2000. The same is as follows: S. No. Name- Relation Amount (Rs.) Documents pg. Ref. No. 1....
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....cordingly, the same cannot be treated as Proceeds of Crime. 44. As regards the seized documents, the Respondent has explained each and every page of it, which is nothing but their own Bank Book, bank diaries and investment details, not pertaining to Sh. Bharat Shah / Sh. Fenil Shah and their Ardor Group of Companies. They are not incriminating documents. 45. It is contended that the Appellants have violated the provisions of S. 20 and 21 of the Act. The Ld. AA, while rejecting the OA No.429/2020 dated 12.02.2021 of the order on ground of non-compliance of statutory provisions of S.17, 20 and 21 of the Act, has categorically noted (on page no.292) as under: "The empathetic submission made by the Defendants regarding noncompliance of the provisions was required to be scrutinized by the Adjudicating Authority. Accordingly, the fact concerned forwarding of the Reasons and Material to the Adjudicating Authority and forwarding of a Copy of the Order of Retention of Seized Property Along with the Material to the Adjudicating Authority was required to be verified by this Authority. When inquired with the Registry of Adjudicating Authority, PMLA and upon verification of the records forw....
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....the FIRs registered by CBI against Ardor Group of Companies / ECIR registered by the Appellant. The Appellant has completed its investigation and has already filed Prosecution Complaint on 04.01.2022, wherein, none of the Respondents is named as accused. The retention is in aid of confiscation on finding of guilty by PMLA Special Court. There is no complaint against the Respondent. Even otherwise no case for seizure / retention is made out. The maximum time for which attachment can continue is 365 days during investigation as per S.8(3) of PMLA Act which also has expired. Thus, continued retention of cash and document is wholly impermissible in the law. 50. It is also submitted that the Appellant through Paragraph 15 of the Rejoinder has tried to prejudice this Hon'ble Tribunal by narrating the case of the Ardor Group of Companies with respect to the alleged fraud committed by them and somehow / anyhow connecting the case of Ardor Group of Companies with the present appeal filed by the Appellant. The Appellant has been charge-sheeted by the CBI in one of the FIRs with regard to allegation on selling of immovable property by the Appellant and his wife to Ardor Structure Pvt. Lt....
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....Sh. Fenil Shah/Ardor Group of Companies, and therefore, there is no case for the retention of these documents. Reference is made to Pg. No. 305 of the impugned order. Respondent No.6 (True Value Management Consultant Pvt. Ltd.) 55. No cash has been seized. Documents seized are the documents of sanction letters of Ardor Group of Companies. The Respondent No.6 was engaged in providing management consultancy services to number of clients, one of which was Ardor group of companies. Records maintained in the normal course of rendering professional services. Reference is made to Pg. No. 305 of the impugned order. Respondent Nos. 7 to 15 (interested/impleaded parties) 56. Cash of Rs. 5,33,49,000/- seized from the premises of True Value House was belonging to the Real Estate Companies/LLPs and the source of the same has also been explained by Sh. Pranav G. Shah manager and authorized signatory; the appellant has not brought on record any evidence to prove that such seized cash was belonging to M/s Vipul & Manish Associates and/or M/s True Value Management Consultancy Pvt. Ltd.; laptops seized by the search team were belonging to one of the interested parties, i.e., M/s True Value Bui....
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....filed the Prosecution Complaint before the Hon'ble Special Court for PMLA Cases which is numbered as PMLA SC No.01 of 2022, wherein, none of the Respondents herein has been named as accused. Further, it is an admitted fact that none of the seized documents have been made part of the Relied-upon Documents (RuDs) in the said Prosecution Complaint. Further, the cash seized in not shown as POC in the Prosecution Compliant. 60. Based on the detailed contentions as above, the respondents have prayed that the present appeal filed by the Directorate be dismissed and a direction be given to the appellant to release the seized cash alongwith simple interest of 8% from the date of the seizure and seized documents / laptops / pendrive to the respective Respondents herein. Analysis & Findings 61. I have given careful consideration to the facts on record and the rival contentions of the parties. I find that a legal issue going to the root of the matter has been arisen for consideration in the present case in relation to the procedure for retention of seized properties and records prescribed under the PMLA, 2002 which needs to be dealt with first and foremost. In this context, the relevan....
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....he period specified in sub-section (1), shall satisfy itself that the property is prima facie involved in money-laundering and the property is required for the purposes of adjudication under section 8. (vii) Adjudication by the AA U/s 8, on receipt of the application (OA) referred to at Sl. No.3 above, if the AA has reason to believe that any person has committed the offence u/s of the Act or is in possession of proceeds of crime, it may serve a notice of not less than 30 days and conduct adjudication proceedings in the same manner as are to be done in respect of properties attached u/s 5. In other words, the AA is required to call upon such person to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property which has been seized, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government; consider the reply; hear the aggrieved person as well as the Directorate; take into account all relevant materials placed on record before him; an....
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....in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed." 64. Further, Rule-8 of the aforesaid PMLA (Forms, Search and Seizure or Freezing & the Manner of Forwarding the Reasons & Material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005 reads as below: "8. Manner of forwarding of a copy of the reasons and the material relating to search, seizure and freezing under sub-section (2) of section 17 and subsection (1A) of section 17 of the Act and search of persons under sub-section (2) of section 18 and sub-section (2) of section 20 of the Act to the Adjudicating Authority.- (1) The authority, as the case may be, shall prepare an index of a copy of the reasons recorded along with the material in his possession and sign each page of such index and shall also write a letter while forwarding copy of reasons and material to the Adjudicating Authority in a sealed envelope. (2) The authority, as the case may be, shall place an acknowledgement slip in Form III appended to these rules inside the envelope before sealing it. (3) The authority, a....
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....lines issued from time to time by the Government of India, but also to a specific RTI query they had filed and the reply received thereto from the Post Office, Ahmedabad, that they were operational and working during the month October/November 2020. 66. In the above context, I have perused the Covid-19 Guidelines available on the website of the Ministry of Home Affairs (MHA) and find that even in the initial order, i.e., Order No. 40-3/2020-D dated 24.03.2020 vide which all offices of the Government of India, its autonomous/subordinate offices and public corporations were ordered to remain closed, a specific exception was made for post offices. The subsequent guidelines issued from time to time only diluted the lockdown further by allowing more and more offices/establishments to open, either partially or fully. Moreover, perusal of the email correspondence relied upon by the appellant Directorate, even assuming that it was addressed to the I.O. concerned in the Directorate, reveals that the contents of the same do not categorically state that the postal department had stopped accepting packages for delivery. The body of the email merely repeats the text in the subject box, namely,....
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.... the fact that there are in-built safeguards provided in the Act. Immediately after the search and seizure, the Authority conducting the search is obliged to forward a copy of the reasons recorded and materials in his possession to the Adjudicating Authority in a sealed envelope. This sealed envelope is required to be preserved for period as specified under the Rules framed in that regard so that it is not tampered with in any manner and to ensure fairness of the procedure including accountability of the Authority. Based on these observations among others, the Apex Court repelled the challenge to the constitutionality of Section 17. It, therefore, stands to reason that the aforementioned safeguards provided in the Act were to be strictly adhered to by the respondent Directorate. 68. Furthermore, records reveal that in the present case, the appellant Directorate did not pass any orders under of retention under section 20(1) and 21(1) of the Act in respect of seized property and seized records respectively, which were mandatory steps to be followed as already discussed in paragraphs 61 and 62 above 69. Thus, there is nothing on record in the present case to indicate that the respon....