TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 12
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....6 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 search, five gold bars (each weighing one kilogram) and....
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....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, and since the prosecution complaint was filed only on 30.03.2018, the c....
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....3 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 individual is arrayed in the prosecution complaint. ANALYSIS AND FINDING: 21. This Court h....
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....ines 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 Section 8, the order of the Adjudicating Authority continued during the pendency of the proceedings relating to an offence under the....
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....izure, 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 17(2) that material seized must be forwarded to the learned AA, to our mind, furthers the safeguard of a formulation of an opinion for such seizure, and a....
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....tion 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 are of the firm opinion that Section 8(3) of the PMLA only governs confirmation; it does not, of itself, authorize the retention of property, and therefore, a valid or....
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....ing 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 property or record is not practicable. In such cases, the authorized officer may pass an order to freeze the property. However, the officer retains the discretion to seize the frozen property later, provided it becomes practicable to d....
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.... 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, in the manner, as may be prescribed and such adjudicating authority shall keep such reasons and material for such period, as may be prescribed. (3) Where an authority, upon information obtained during survey under Section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, ente....
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....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 Authority under section 58B or sub-section (2A) of section 60, the Director or any officer authorised by him in this behalf may withhold the release of any such property for a period of ninety days from the date of receipt of such order, if he is of the opinion that such property is relevant for the appeal proceedings under this Act. (emphasis supplied) 49. Section 20 comprises six sub-sections, which prescribe a detailed mechanism concern....
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....ation 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 an application under the said provision and thereby seek an adjudication by the learned AA in this regard; meaning thereby that the Appellant can make an application for "Retention" of property, in respect of which the learned AA can pass an order under Section 8(3) and thereby retain the same. The concomitant to the same would be that the Respondent can directly seek an adjudication under Section 8(3) for "Retention" of seized goods/ property without resort to the provisions of Section 20 of the PMLA. ....
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....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 exceeding three hundred and sixty-five days or the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and (b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60 by the Special Court; Explanation. - For the purposes of computing the period of three hundred and sixty-five days under clause (a), the period during which the investigat....
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....th 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, a plain reading of Section 8(3) makes it evidently clear that it provides that the learned AA will "...by an order in writing confirm the attachment of the property made under sub-section (1) of Section 5 or retention of property or record seized or frozen under section 17 or section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property or record shall - (a) continue during investigation for a period not exceeding three hundred and sixty five days or the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent cour....
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....uld 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 effected, the adjudicatory powers of the learned AA could be resorted to. In the succeeding paragraphs, relating to Section 20, this aspect will be further elaborated upon. 67. Section 17(4) of the PMLA, which has been reproduced in the preceding paragraphs of this judgement, is what is sought to be relied upon by the Appellant to contend that the same allows the Appellant to file an application ".... requesting for retention of such record or property seized..." before the learned AA and upon the filing of such an application, the learned AA, without having an order of retention under Section 20(1) can proceed to pass an order permitting the retention of the same. 68. We are of the view that the same is clearly against the plain reading of the....
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....ion 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 was seized or whose property was frozen, unless the learned AA grants permission for continued retention or freezing, also clarifies the entire issue further. 76. A plain reading of this provision makes it evident that the learned AA exercises power only in respect of the retention of the seized property beyond the period of 180 days, meaning thereby that the power to retain the seized goods for a period of 180 days, was never conferred upon the learned AA. 77. Section 20(4), which has been reproduced in the preceding paragraphs of this judgment, fortifies our view even further, as a reading of the said provision clearly indicates that, this is the juncture from where the starting point of the exercise of powers of the learned AA, under Section 8, which power, it is reiterated, is exercisable only for t....
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....ed 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. 24. Witness expenses payable. The Adjudicating Authority may, if it considers necessary, direct the concerned party for the payment of expenses to the witness, as the case may be. 25. Marking of documents. Every document filed by the applicant shall be marked as Ex. A1 and the document filed by the complainant shall be marked as Ex. C1 and the documents filed by the defendants or other person not being applicant shall be marked as Ex. Dl and so on." 82. In light of the statutory provisions, the above discussion, and the scheme of the PMLA, the conclusions, as relevant for the present purposes, which, though not exhaustive, may be summarised as follows: (a). The ED initiates action under the PMLA by conducting search and seizure under Section 17(1). (b). Upon executing a search and seizure or passing a freezing order, the ED is statutorily obligated to immedia....
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.... 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 Reasons to believe under Sections 17(2) and 20(2) undertake the mandatory procedural requirements set out in Sections 8(1) and 8(2) and under 8(3), pass an order, in writing, confirming the retention, whereupon, the seizure would continue beyond 180 days and up to 365 days, during the investigation. (k). The learned AA, upon receiving such application, forms an opinion under Section 8(1), issues notice, and provides the concerned person an opportunity to respond with evidence and be heard under Section 8(2). Thereafter, based on the material on record, the learned AA determines whether the property in question is involved in money laundering. Based on the decision under Section 8(2), the learned AA, under Section 8(3), confirms the retention of property or records seized or frozen under Section 17 or 18 for a period beyond 180 days. (l). Before forming any such opinion, the learned AA must adhere to the procedural requirements of Sections 8(1) and (2), and in doing s....
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....roduce a more robust and clearly delineated procedure concerning the retention of seized or frozen property. The substantive nature of this amendment implies that these provisions are not merely directory or procedural but are mandatory and of critical legal consequence. If they were of lesser import, such comprehensive legislative substitution would have been unnecessary. Furthermore, the amendments to Section 20 triggered corollary changes across other provisions of the Act, reinforcing the view that the amended provisions form a central part of the scheme for lawful seizure and retention. 85. The Appellant's contention that once the learned AA confirms the seizure under Section 8 within the statutory period of 180 days, non-compliance with procedural safeguards, if any, under Sections 20 becomes inconsequential, is legally flawed and merits outright rejection. Such an argument, if accepted, would render the statutory safeguards illusory and undermine the checks instituted by Parliament against potential abuse of power by enforcement agencies. 86. Such an interpretation would, in our opinion, run contrary to the express mandate of the Statute, as resort to Section 17(4) witho....
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.... 4 SCC (Civ) 315: AIR 2010 SC 3823])." (emphasis supplied) 90. Similarly, in Ritesh Tewari v. State of U.P., the Apex Court reiterated that statutory compliance is not an empty formality and any deviation from express procedural mandates cannot be condoned under the pretext of subsequent validations. The relevant paragraphs of the said judgement observed as follows: "32. It is 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 ironical to permit a person to rely upon a law, in violation of which he has obtained the benefits. (Vide Upen Chandra Gogoi v. State of Assam [(1998) 3 SCC 381: 1998 SCC (L&S) 872]; Satchidananda Misra v. State of Orissa [(2004) 8 SCC 599: 2004 SCC (L&S) 1181] and SBI v. Rakesh Kumar Tewari [(2006) 1 SCC 530: 2006 SCC (L&S) 143].) 33. In C. Albert Morris v. K. Chandrasekaran [(2006) 1 SCC 228] this Court held that a right in law exists on....
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.... to property is no longer a fundamental right under the Constitution of India, it retains its status as a constitutional and legal right under Article 300A. No person can be divested of their property save by authority of law. This position was unequivocally reaffirmed by the Hon'ble Supreme Court in Laxman Lal v. State of Rajasthan as follows: "16. Article 300-A of the Constitution mandates that: "300-A. Persons not to be deprived of property save by authority of law. -No person shall be deprived of his property save by authority of law." Though the right to property is no longer a fundamental right but the constitutional protection continues inasmuch as without the authority of law, a person cannot be deprived of his property. Accordingly, if the State intends to appropriate the private property without the owners' consent by acting under the statutory provisions for compulsory acquisition, the procedure authorised by law has to be mandatorily and compulsorily followed. The power of urgency which takes away the right to file objections can only be exercised by the State Government for such public purpose of real urgency which cannot brook delay of few weeks or few month....
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....tate of U.P. v. Dharmander Prasad Singh [State of U.P. v. Dharmander Prasad Singh, (1989) 2 SCC 505: (1989) 1 SCR 176],held: (SCC p. 516, para 30) "30. A lessor, with the best of title, has no right to resume possession extra-judicially by use of force, from a lessee, even after the expiry or earlier termination of the lease by forfeiture or otherwise. The use of the expression "re-entry" in the lease deed does not authorise extra-judicial methods to resume possession. Under law, the possession of a lessee, even after the expiry or its earlier termination is juridical possession and forcible dispossession is prohibited; a lessee cannot be dispossessed otherwise than in due course of law. In the present case, the fact that the lessor is the State does not place it in any higher or better position. On the contrary, it is under an additional inhibition stemming from the requirement that all actions of Government and Governmental authorities should have a "legal pedigree"." (emphasis supplied) 96. We are of the opinion that the architecture of the PMLA is designed to strike a delicate balance between empowering enforcement agencies and protecting individual rights. The processes ....
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....n of such record or properties seized. 9. For the purpose of clarity, it is emphasised that the freezing of the account will also require the same procedure since a bank account having alleged "proceeds of crime" would fall both under the ambit "property" and "records". In that regard, it would be appropriate to take note of Sections 2(1)(v) and 2(1)(w) of the PMLA which defines "property" and "records". The same read as follows: "2. (1)(v) "property" means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located; *** 2. (1)(w) "records" include the records maintained in the form of books or stored in a computer or such other form as may be prescribed;" 10. The scheme of the PMLA is well intended. While it seeks to achieve the object of preventing money-laundering and bring to book the offenders, it also safeguards the rights of the persons who would be proceeded against under the Act by ensuring fairness in procedure. Hence a procedure, including timeline is provided so as to ensure that power....
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....er and in no other manner." Therefore, if the salutary principle is kept in perspective, in the instant case, though the authorised officer is vested with sufficient power; such power is circumscribed by a procedure laid down under the statute. As such the power is to be exercised in that manner alone, failing which it would fall foul of the requirement of complying with due process under law. We have found fault with the authorised officer and declared the action bad only insofar as not following the legal requirement before and after freezing the account. This shall not be construed as an opinion expressed on the merit of the allegation or any other aspect relating to the matter and the action initiated against the appellant and its Directors which is a matter to be taken note of in appropriate proceedings if at all any issue is raised by the aggrieved party." (Emphasis supplied) 99. As already elaborated upon earlier, the interpretation as sought to be canvassed by the Appellant effectively puts paid to the expressed timelines delineated in Sections 20 and 8(3) of the PMLA. The same is clearly impermissible in view of the determinative position of law as elaborated by the ....