TaxTMI 
TaxTMI 
2025 (10) TMI 12
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....ACTS: 2. An FIR No. 416/2016 dated 29.11.2016 was registered by the Delhi Police under Sections 420 and 120B of the Indian Penal Code, 1860 [IPC], against several individuals, namely, Vineet Gupta, Shobhit Sinha, Devendra Kumar Jha, Mohit Garg, and Raj Kumar Sharma, for allegedly engaging in fraudulent conversion of demonetized currency notes of Rs. 1,000/- and Rs. 500/- into gold and diamonds by depositing the said currency into bank accounts of front companies maintained at Axis Bank, Kashmere Gate, Delhi. 3. During the course of investigation, additional offences under Sections 409, 419, 467, 468 and 471 of the IPC, along with Sections 7 and 13(1)(d) of the Prevention of Corruption Act, 1988, were also invoked. 4. Pursuant to the registration of the said FIR, the Enforcement Directorate [ED]/Respondent registered ECIR No. 11/DLZO/2016 on 30.11.2016 and initiated an investigation under the provisions of the PMLA. 5. In the course of the investigation and based on statements recorded under Section 50 of the PMLA, including that of the Appellant, a search was conducted on the Appellant's residential premises on 18.02.2017 under Section 17 of the PMLA. During the said se....
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....od of Its Retention) Rules, 2005, which mandates that the authorized officer must immediately pass a retention order and forward it along with supporting material in a sealed cover to the learned AA. 13. It would also be argued that this requirement is not discretionary but mandatory, and since, admittedly, the ED neither passed any such order nor forwarded the material to the learned AA, the retention is rendered unlawful and unsustainable. In support of this argument, he would place reliance on paragraph 22.7 of the judgment of the Telangana High Court in Pradeep Kumar and Ors. V. Dy. Director of Enforcement MANU/TL/1285/2023. 14. As another ground, the learned counsel for the Appellant would contend that although the Appellant's property was seized on 18.02.2017 and its retention was confirmed by the learned AA on 14.06.2017, such retention automatically lapsed immediately, since no proceedings were pending against the Appellant in relation to any scheduled offence or offence under the PMLA at that time. He would also submit that under Section 8(3)(a) of the PMLA, retention is legally sustainable only during the pendency of proceedings relating to an offence under the PMLA....
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....earned counsel for the ED would submit that prior to the enactment of Amendment Act 13 of 2018, Section 8(3) of the PMLA stipulated that once the learned AA confirmed the retention, the same could continue for as long as proceedings relating to "any offence" under the PMLA were pending before a competent court. He would further submit that the phrase "proceedings relating to any offence" is to be interpreted broadly and not limited to cases where the person whose property is retained is named as an accused in the prosecution complaint. 20. It would be further submitted by the learned counsel for the ED that once the learned AA has confirmed the retention under Section 8(3) of the PMLA, the property of any person, whether or not they are formally named as an accused, may continue to be retained so long as the prosecution for the offence under the PMLA remains pending. To bolster this argument, he would rely on the decision of the Hon'ble Supreme Court in Union of India v. J.P. Singh Criminal Appeal No. 1102/2025 (decided on 05.03.2025), wherein the Apex Court clarified that the validity of retention or attachment under Section 8(3) of the PMLA does not depend on whether the indiv....
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....lant further submits that the subsequent amendments to Section 8(3)(a) of the PMLA, which introduced the specific timelines of 90 days or 365 days "during investigation", came into force only later. Therefore, even assuming without admitting that the amended provision applied to his case, the prosecution complaint was filed beyond the statutory periods prescribed, rendering the continuation of seizure and retention legally untenable. 28. In view of admitted facts referred to hereinabove, at the outset, the contention of the Appellant deserves outright rejection in view of the binding precedent laid down by the Hon'ble Supreme Court in Union of India v. J.P. Singh (supra), wherein it was unequivocally held that for the application under Section 8(3)(a) of the PMLA, it is not essential for the individual to be specifically named as an accused in the complaint; rather, the statutory requirement stands fulfilled if a complaint alleging the commission of an offence under Section 3 of the PMLA is pending before the competent Court. The Relevant paragraphs of the said judgment are as follows: "9. Therefore, at the relevant time, in view of clause (a) of sub-section (3) of Sect....
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....eously incorporates stringent procedural safeguards to ensure fairness and prevent arbitrary action. 31. The statutory framework governing search, seizure, and subsequent retention of property, set out in Chapter V of the PMLA. Sections 17, 20, and 8 of the PMLA relate to such search and seizure and also incorporate therein a framework of safeguards in the exercise of the powers of search, seizure and retention. In our opinion, the scheme of the PMLA and in particular the Chapter and the Sections embodied therein provide for a graded manner in which property that is seized may be retained. In the first phase of such graded retention, Section 20 would play its part whereby the property may be retained for a period up to 180 days. The further retention beyond 180 days would fall within the province of Section 8 of the PMLA. 32. Section 17(1) of the PMLA empowers the ED to search premises and seize property if there is a "reason to believe", based on material in possession that such property is involved in money laundering. Significantly, this provision is limited to search and seizure and does not itself contemplate adjudication by the learned AA. The requirement under Section ....
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.... arbitrary executive action and ensures that property rights are protected until a full adjudication takes place under Section 8 of the PMLA. 37. The ED's contention that Section 17(4) alone suffices for retention of the property is untenable. Section 17(4) merely empowers the ED to approach the learned AA requesting for retention of the property, but the legal foundation for retention during the initial 180 days rests exclusively on Section 20 of the PMLA. 38. Section 8 governs the process of adjudication by the learned AA. Sub-section (1) thereof empowers the learned AA to issue a notice to the concerned person, calling upon them to indicate the source of the property in question. Sub-section (2) requires the learned AA to consider the reply, hear both parties, and evaluate the material on record. Sub-section (3) authorises the learned AA to pass a written order confirming the retention of the seized property if satisfied that the property is indeed involved in money laundering. Such confirmation permits continuation of the seized property beyond 180 days, up to 365 days during investigation, or until the learned Special Court concludes proceedings under the PMLA. 39. We....
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............ 41. We are of the view that the core issue for adjudication in the present matter pertains to the applicability of Section 20 of the PMLA, which governs the retention of property and records following search and seizure operations conducted by the ED under Section 17 of the PMLA. We are also of the view that the fact that, this point was not raised by the Appellant before the learned AA and was raised only before the learned AT, is of no significance since the same is a pure question of law relating to the statutory scheme of the Act, which can be raised at any point in time. The non-raising of the same before the learned AA does not prejudice the Respondent or vitiate the Judgment of the learned AT. 42. Section 17 of the PMLA lays down the procedure for search and seizure. Sub-section (1) permits the search and seizure of any record or property, after forming a "reason to believe", based on the material in his possession. This, in our opinion, is the first procedural safeguard provided to a person before his property or records are seized. 43. Sub-section (1A) of Section 17 provides an alternative where immediate search and seizure of the proper....
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....ty; (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: [***] (1-A) 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 otherwise dealt with, except with the prior permission of the officer making such order, 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 58-B or sub-section (2-A) 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 authorised under sub-section (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....
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....d such Adjudicating Authority shall keep such order and material for such period as may be prescribed. (3) On the expiry of the period specified in sub-section (1), the property shall be returned to the person from whom such property was seized or whose property was ordered to be frozen unless the Adjudicating Authority permits retention or continuation of freezing of such property beyond the said period. (4) The Adjudicating Authority, before authorising the retention or continuation of freezing of such property beyond the period specified in sub-section (1), shall satisfy himself that the property is prima facie involved in money- laundering and the property is required for the purposes of adjudication under section 8. (5) After passing the order of confiscation under sub-section (5) or sub-section (7) of section 8, Special Court, shall direct the release of all property other than the property involved in money-laundering to the person from whom such property was seized or the persons entitled to receive it. (6) Where an order releasing the property has been made by the Special Court under sub-section (6) of section 8 or by the Adjudicating Au....
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....of property that is either seized or frozen under Section 17 or 18, and in which event, the authorized officer, duly empowered by the Director of ED, based on the material in his possession, forms a reason to believe that that the said property is required for adjudication under Section 8 of the PMLA, and proceeds to pass an order for its retention/ continued freezing. 54. Sub-section (2) of Section 20 further mandates that the officer who passes the order for retention or continuation of freezing shall immediately forward a copy of such order, along with the material or evidence on which the order is based, to the learned AA in the manner prescribed under the Prevention of Money Laundering (the Manner of Forwarding a Copy of the Order of Retention of Seized Property along with the Material to the Adjudicating Authority and the Period of its Retention) Rules, 2005. 55. It is here that the Appellant sets up a two-pronged challenge: (a). The Appellant would contend that Sections 17(4) and 20 operate differently since the provision of Section 17(4) comes into play when the Appellant would decide to immediately retain the property, for which purpose he makes ....
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....ply, if any, to the notice issued under sub-section (1); (b). hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and (c). taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under subsection (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 subsection (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 ....
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....fiscation or release of the property, as the case may be, involved in the offence of money-laundering after having regard to the material before it. (8) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed, may also direct the Central Government to restore such confiscated property 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 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." 58. As is manifest, Section 8 is a provision for the purposes of "Adjudication". Section 8(3) does not deal with the act of simpliciter "Retention". In fact,....
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..... Section 17(1) provides for the officer authorised in that behalf, on the basis of information in his possession, formulating a reason to believe, in respect of any person regarding the various aspects related to money laundering as set out therein, either by himself or by authorising an officer subordinate to him, to seize any record or property and under Section 17(2), immediately after so doing, forward a copy of the reasons so recorded for the purpose of seizing, along with the material in his possession to the learned AA, who shall keep the same, for the period as prescribed. 66. Interestingly, Section 17(2) does not state that the material that is being sent to the learned AA is for the purpose of making any adjudication. It would appear that, it is the intent of the legislature, that the learned AA should have access to all relevant material for the purpose of adjudication. However, the fact that Section 8 is clearly for the purpose of adjudication and also the fact that Section 17 is completely silent on the aspect of adjudication, makes it apparent that Section 17, in fact, does not contemplate a procedure where immediately after a seizure or freezing being effec....
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....the said retention can only be for the purposes of an "adjudication" under Section 8. 71. Section 20(1) makes it evident that the authorised officer would, under it, pass an order for retention. 72. Section 20(2) clarifies that an Order for Retention is to be passed under Section 20(1) and further reiterates that the Order under Section 20(1) is for the purposes of adjudication under Section 8. 73. The provisions of Section 20(1) apply for the period from the day of seizure for a period upto 180 days. This is further clarified by the provisions of Section 20(3), which provides that in the event that the learned AA does not permit the retention or continuation of freezing, the goods would be returned. 74. Section 20(2) mandates that the copy of the order of retention passed under Section 20(1), along with the material in his possession, is to be sent to the learned AA, once again, for the purposes of adjudication under Section 8. 75. We also believe that the fact that Sub-section (3) of Section 20 stipulates that, upon the expiry of 180 days from the date of seizure or freezing, the property shall be returned to the person from whom it wa....
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....power the learned AA to examine witnesses, mark exhibits, issue commissions, and undertake other procedural steps necessary for a fair adjudication. Regulations 21 to 25 of the Adjudicating Authority (Procedure) Regulations, 2013 state as follows: "21. Examination of witness and the issue of commissions. The provisions of the Code of Civil Procedure, 1908 (5 of 1908) relating to the issuing of commissions for examination of witnesses and documents shall, as far as may be applicable, apply in the matters of summoning and enforcing attendance of any person as witness and issuing a commission for examination of such witness. 22. Recording of deposition. The deposition of the witness whenever necessary shall be recorded in Form 8. A Certificate of attendance, if requested for, will be issued in Form 9. 23. Numbering of witness. The witness called by the applicant shall be numbered consecutively as P.Ws and those by the defendant or any other persons not being applicants as D.Ws. and any witness examined at the instance of the complainants shall be numbered consequently as C.Ws, and the witness called by the Adjudicating Authority shall be numbered as A.Ws. ....
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....by the Director of ED must have in his possession, material leading to a reasonable belief that the continued retention is required for adjudication under Section 8. This belief must be based on tangible evidence and recorded in writing. Upon forming such a belief, the officer shall pass an order for such retention or continued freezing for a period not exceeding 180 days from the date of seizure or freezing. (h). Once such a belief is formed and recorded in an order, it must be communicated to the learned AA under Section 20(2). This communication becomes relevant as part of the record and basis for the learned AA's adjudication. (i). Under Section 20(4), the learned AA may allow continued retention or freezing only if it is satisfied that: (i) The property is prima facie involved in money laundering; and (ii) The property is required for adjudication under Section 8. (j). On the basis of the Application under Section 17(4), made within 30 days of the seizure, the learned AA, after satisfying itself on the foundational requirement under Section 20(4) of "prima facie" satisfaction, would thereafter, along with the relevant material and R....
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....ed over time, almost a dozen times, to address exigencies, close legal loopholes, and reinforce its enforcement architecture. The list of amendments, which underscores the evolving scope and rigor of the statute, includes: (a). The Prevention of Money Laundering (Amendment) Act, 2005 (20 of 2005). (b). The Prevention of Money Laundering (Amendment) Act, 2009 (21 of 2009). (c). The Prevention of Money Laundering (Amendment) Act, 2012 (2 of 2013). (d). The Finance Act, 2015 (20 of 2015). (e). The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of 2015). (f). The Finance Act, 2016 (28 of 2016). (g). The Finance Act, 2018 (13 of 2018). (h). The Prevention of Corruption (Amendment) Act, 2018 (16 of 2018). (i). The Finance Act, 2019 (7 of 2019). (j). The Aadhaar and Other Laws (Amendment) Act, 2019 (14 of 2019). 84. Section 20 of the PMLA was comprehensively amended by the Prevention of Money Laundering (Amendment) Act, 2012 (2 of 2013), reflecting the legislature's intent to introduce a more robust and clearly delineated procedure concerning the ....
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....the learned AA cannot cure initial procedural violations or validate unlawful retention carried out without adherence to statutory requirements. The relevant portion of the judgment states as follows: "Order bad in inception 37. It is a settled legal proposition that if an order is bad in its inception, it does not get sanctified at a later stage. A subsequent action/development cannot validate an action which was not lawful at its inception, for the reason that the illegality strikes at the root of the order. It would be beyond the competence of any authority to validate such an order. It would be ironic to permit a person to rely upon a law, in violation of which he has obtained the benefits. If an order at the initial stage is bad in law, then all further proceedings consequent thereto will be non-est and have to be necessarily set aside. A right in law exists only and only when it has a lawful origin. (Vide Upen Chandra Gogoi v. State of Assam [(1998) 3 SCC 381: 1998 SCC (L&S) 872: AIR 1998 SC 1289], Mangal Prasad Tamoli v. Narvadeshwar Mishra [(2005) 3 SCC 422: AIR 2005 SC 1964] and Ritesh Tewari v. State of U.P. [(2010) 10 SCC 677: (2010) 4 SCC (Civ) 315: AI....
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.... After forming an independent reason to believe, which would naturally have to form the basis for the order for retention, the order would be required to be forwarded along with the material in his possession, without delay, under Section 20(2). Such an order would draw sustenance from the reason to believe and would necessarily have to form a part of the order, as any order without the appurtenant reasoning would not be an order at all. This is all the more relevant since the said order effectively seeks to prolong the curtailment of the enjoyment of valuable rights of a party who has suffered any such seizure or freezing of property. 93. We are of the opinion that these provisions are not directory or mere procedural niceties but are substantive and mandatory in nature. The statutory text leaves no scope for discretion or implied exceptions for retaining property or records without following the prescribed procedure. Allowing retention of seized property without strict adherence to these provisions would amount to a violation of the legislative mandate and would undermine the very purpose of incorporating procedural safeguards in the PMLA. 94. This, all the more....
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.... law, that nobody can be deprived of liberty or property without due process, or authorisation of law. The recognition of this dates back to the 1700s to the decision of the King's Bench in Entick v. Carrington [Entick v. Carrington, 1765 EWHC (KB) J98 : 95 ER 807] and by this Court in Wazir Chand v. State of H.P. [Wazir Chand v. State of H.P., (1955) 1 SCR 408 : AIR 1954 SC 415] Further, in several judgments, this Court has repeatedly held that rather than enjoying a wider bandwidth of lenience, the State often has a higher responsibility in demonstrating that it has acted within the confines of legality, and therefore, not tarnished the basic principle of the rule of law. 15. When it comes to the subject of private property, this Court has upheld the high threshold of legality that must be met, to dispossess an individual of their property, and even more so when done by the State. In Bishan Das v. State of Punjab [Bishan Das v. State of Punjab, (1962) 2 SCR 69: AIR 1961 SC 1570] this Court rejected the contention that the petitioners in the case were trespassers and could be removed by an executive order, and instead concluded that the executive action taken by the S....
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....e PMLA is not optional, especially when individual rights are at stake. The relevant paragraphs of the said judgement are herein below: "8. A perusal of the above provision would indicate that the prerequisite is that the Director or such other authorised officer in order to exercise the power under Section 17 of the PMLA, should on the basis of information in his possession, have reason to believe that such person has committed acts relating to money-laundering and there is need to seize any record or property found in the search. Such belief of the officer should be recorded in writing. Sub-section (1-A) to Section 17 of the PMLA provides that the officer authorised under sub-section (1) may make an order to freeze such record or property where it is not practicable to seize such record or property. Sub-section (2) provides that after search and seizure or upon issuance of a freezing order the authorised officer shall forward a copy of the reasons recorded along with material in his possession to the adjudicating authority in a sealed envelope. Sub-section (4) provides that the authority seizing or freezing any record or property under sub-section (1) or (1-A) shall with....
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....e communication is issued and thereafter the requirement of Section 17(2) of the PMLA after the freezing is made is complied with. There is no other material placed before the Court to indicate compliance with Section 17 of the PMLA, more particularly recording the belief of commission of the act of money-laundering and placing it before the adjudicating authority or for filing application after securing the freezing of the account to be made. In that view, the freezing or the continuation thereof is without due compliance with the legal requirement and, therefore, not sustainable. 14. This Court has time and again emphasised that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner. Among others, in a matter relating to the presentation of an election petition, as per the procedure prescribed under the Patna High Court Rules, this Court had an occasion to consider the Rules to find out as to what would be a valid presentation of an election petition in Chandra Kishore Jha v. Mahavir Prasad [Chandra Kishore Jha v. Mahavir Prasad, (1999) 8 SCC 266] and in the course of consideration observed ....