AI Drafter 
TaxTMI 
TaxTMI 
2025 (11) TMI 10
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....turns on the investment. However, they did not fulfil the promise as a result of which the investors filed FIRs against them in various Police Stations. 3. Since the FIRs mentioned above disclosed offences comprising 'scheduled offences' under the PMLA, the Enforcement Directorate (ED) registered an ECIR bearing number ECIR/KCZO/19/2024 and initiated investigations against the said Moosa Haji and others under the PMLA. 4. During the course of Investigation, search operations were conducted on 07.10.2024 under section 17(1) of the PMLA 2002 at various business and residential premises pertaining to the accused. During the search operation, the following properties/records relating to the present appellant were also seized/frozen: i. Cash S. No. Description of item Denomination Number of currencies Amount (Rs.) 1. Cash 500 800 4,00,000/- 2. Cash 500 71 35,500/- 3. Cash 200 47 9,400/- 4. Cash 100 15 1500/- 5. Cash 50 35 1750/- 6. Cash 20 37 740/- 7. Cash 10 37 370/- ii. Electronic Devices S. No. Owner Name Description of item IMEI ....
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.... issues have also been raised including the validity of the grounds for formation of the 'reason to believe'. 9. With regard to the first of the above-mentioned grounds, it is contended that the Respondent has not demonstrated a clear nexus between the funds of the Appellant company and the proceeds of crime purportedly derived by Moosa Haji or the scheduled offence allegedly committed by him. It is submitted that the offences under Section 420 and 406 of IPC alleged against Moosa Haji are entirely extraneous to the legitimate business operations of the Appellant. There is no allegation that the business operations of the Appellant are linked to the scheduled offences committed by Moosa Haji, or that they were carried out using the proceeds of crime generated by Moosa Haji. As such, there is no link connecting the legitimate funds of the Appellant and the scheduled offence or the proceeds of crime generated therefrom. The OA clearly identifies M/s Apollo Gold and M/s Zella Diamonds as two entities on whose behalf deposit certificates were issued by the accused for collecting investments from depositors. Hence, it is not even alleged that Moosa Haji fraudulently collected monies ....
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....s further contended that Moosa Haji acquired all shares in the Appellant company prior to 2014. The period of the commission of scheduled offence is unknown. Hence, the Respondent has failed to establish a nexus between the acquisition of shares by Moosa Haji in the Appellant and the proceeds of crime generated out of the alleged commission of the scheduled offence. 12. It is further argued that the Ld. AA failed to consider that merely on the basis of shareholding of Moosa Haji in the Appellant company, the Respondent could not have proceeded to characterize the assets of the Appellant company as "proceeds of crime." It is trite law that the shareholders, irrespective of the size of their shareholding, have no rights whatsoever in the company's assets. Therefore, since Moosa Haji lacked rights over the assets of the Appellant, the Respondent cannot make assumptions and take coercive actions against the Appellant's assets. In this regard, the Adjudicating Authority failed to consider the decision of Hon'ble Calcutta High Court in Shree Hanuman Cotton Mills Ltd. v. Union of India, 2022 SCC OnLine Cal 4604 cited by the Appellant, where, in similar factual scenario, the....
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....uled offences by Moosa Haji. 15. In addition to the above, it is also argued that the Adjudicating Authority failed to consider that the Respondent has relied upon no material whatsoever in forming his reasons to believe under Section 17 that the unsecured loans were out of the fraudulently obtained investments by Moosa Haji as alleged. The Respondent has failed to establish a trail of fund flow, through banking channels or otherwise, indicating that the alleged investments obtained by Moosa Haji travelled to the Appellant's bank accounts in the form of unsecured loans. As such, again, there was no basis for the Respondent to freeze the entirety of INR 52,34,556.87/- lying in Appellant's bank accounts and seize cash totalling INR 4,49,260/-. 16. Coming to the next set of arguments, i.e., failure to provide RUDs to the appellant, it is argued that the Ld. AA failed to consider that the Appellant was not provided with the documents expressly relied upon in the OA and the SCN in support of allegations against the Appellant. These documents, included, inter alia crucial material such as FIRs filed against Moosa Haji. Deposit Certificates, balance sheets and I-T returns an....
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....s, and Retention Order, not the actual documents forming the basis of the SCN. A further request on 06.01.2025 also went unanswered. This non-supply violates the statutory mandate under the PMLA, which requires disclosure of the material relied upon. 21. The Adjudicating Authority failed to note that there is no allegation, either in the OA or SCN, that the Appellant was involved in or connected to the commission of the scheduled offences by Moosa Haji or any other accused. To the Appellant's knowledge, and based on the available material, it is not named as an accused in any FIR. The scheduled offence under Section 420 IPC appears to be attributed solely to Moosa Haji, with no reference to the Appellant at all. 22. The Adjudicating Authority failed to consider that despite repeatedly asserting in its Rejoinder dated 07.03.2025 that its actions were based on "material in possession", such as FIRs, statements, and financial records, the Respondent failed to furnish these to the Appellant. This omission is significant, especially since the Respondent relied on such material to establish a purported nexus between Hotel Dimora and the scheduled offence. Having invoked this ma....
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....ions, including unsecured loans and investments, significantly exceed disclosed amounts. Forensic analysis of the Appellant's financial records reveals that these funds were used to construct and operate Hotel Dimora, linking them to proceeds of crime. The repayment of loans prior to 2014 does not absolve the Appellant, as proceeds of crime can predate FIRs, as clarified in Vijay Madanlal Choudhary. 27. So far as the issue of non-supply of RUDs is concerned, it is submitted that the Appellant's contention that RUDs were not supplied is factually incorrect. On 20.12.2024, the Respondent provided the OA, freezing orders, retention order, and relevant Panchanamas. The Appellant's further request on 06.01.2025 was addressed during the adjudication process, and all material documents were made available, as required under Section 8(2) of the PMLA and J.K. Tyre and Industries Ltd. v. Directorate of Enforcement (2021 SCC OnLine Del 4836). It is submitted that non-supply of certain ancillary documents, such as specific FIRs, does not vitiate the proceedings, as the SCN and OA sufficiently disclose the basis of the Respondent's actions. 28. As regards non-involvement o....
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....le Delhi High Court in JK Tyre and Industries Ltd. and Ors. Vs. Directorate of Enforcement and Ors. 2021 SCC OnLine Del 4836 (Order dated 27.10.2021) in support of the contention that the respondent directorate ought to have supplied all the RUDs to the appellant along with the Show Cause Notice and failure to do so renders the order unlawful. On perusal of the judgement cited by the appellant it is seen that the Hon'ble Delhi High Court in the aforesaid case has held as follows: "73. This clearly shows that the Director ED or the person authorized has to transmit all the material in his possession, at this stage, in accordance with the procedure mentioned under Rule 8 of the 2005 Rules, extracted above. It would not be permissible for the ED to retain some part of the material, and send partial documents to the Adjudicating Authority, at this stage, in as much as the statute contemplates sending of 'the material in possession of the authority' and NOT 'material forming the basis of the 'reasons to believe''. *** "85. A conjoint reading of Section 8(1) of the PMLA and Regulation 13(2) of the Adjudicating Authority (Procedure) Regulations, 2013, leaves no doubt ....
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....of service. In their reply, the respondent directorate has stated that on 20.12.2024, the respondent provided the O.A, the freezing orders, the retention orders and the relevant Panchanamas, further in response to the further request on 06.01.2025 all the material documents were made available during the adjudication process. At the same time, it is also stated that non-supply of certain "ancillary documents" such as specific FIRs does not vitiate the proceedings as the SCN and the O.A sufficiently disclosed the basis of the respondent's actions. 34. The above reply of the respondent makes it clear firstly, that the RUDs were not supplied to the appellant along with the SCN as required by the law, and, secondly, that at least some of the RUDs were never supplied to the appellant, including the FIRs. Upon perusal of the reasons to believe recorded in this case, it is seen: • That the ECIR was recorded by the directorate based on FIR No. 2980/2023 and several other FIRs registered against the accused; • That in the Reasons to Believe notice was taken of the fact that as per the FIRs, Moosa Haji and others collected large sums of money from the public on t....