TaxTMI 
TaxTMI 
2026 (9) TMI 299
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....ban Bank Limited, Hyderabad (Mahesh Bank) during the period from 2014 to 2023 for the purpose of their business activities and that all such loans were repaid regularly together with interest and other charges. 1.1. It is the case of petitioners that officers of the 2nd Respondent conducted search proceedings on 31.07.2024 at the residential premises of Petitioners 1, 2, 3 and 5 and at the maternal house of Petitioner No.4 on the allegation that one Purshottamdas Mandhana, who was Vice-Chairman of Andhra Pradesh Mahesh Cooperative Urban Bank Limited, was involved in offences of money laundering and that Petitioner No.1 was allegedly associated with him. During the course of the said search proceedings, the officers seized gold ornaments weighing 6309.09 grams valued at Rs. 4,27,24,300/-, Indian currency of Rs. 14,50,000/-and foreign currency of USD 3256 from the residences of Petitioners 1, 2, 3 and 5 and from the maternal house of Petitioner No.4 along with property documents, locker keys of two lockers and a mobile phone under Panchanama dated 31.07.2024. 1.2. Petitioner No.1 has no business transactions with Purshottamdas Mandhana except availing loans from Mahesh Bank and....
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....existed between Petitioner No.1 and Purshottamdas Mandhana, that loans granted to M/s Hive Space were diverted to Petitioner No.1's account and remitted to Mainland Digital Technologies and Profound Builders and that Petitioner No.1 may have acted as a proxy for the business interests of Purshottamdas Mandhana. According to petitioners, the Original Application merely contained bald allegations and suspicion without any cogent material to establish that the seized jewellery, Indian currency or foreign currency constituted proceeds of crime. 1.5. Original Application filed by the 2nd Respondent before the Adjudicating Authority specifically referred to suspicious transactions between borrowers of APMCU Bank and family members of Purshottamdas Mandhana and also alleged circuitous transactions between entities related to Petitioner No.1 such as Intercity Transport Logistics, Indian Auto Services, Ease on Wheels Logistics and Hivespace. However, in support of the said claims/allegations 2nd respondent had failed to place any material establishing that any illegal transaction took place between Petitioner No.1 and the office bearers of Mahesh Bank or that any proceeds of crime we....
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....ion regarding diversion of loan sanctioned to M/s. Hive Space, a sole proprietorship concern of Petitioner No.3, was false and contrary to the record and that the entire loan amount was utilized for the purpose for which it was sanctioned, namely creation of infrastructure for leasing premises, and the entire amount was repaid to the bank. 1.9. Further, seizure of Indian currency amounting to Rs. 14,50,000/- was illegal as the source of the said amount was duly demonstrated through bank withdrawal statements. So also is the case with the seizure of foreign currency amounting to USD 3256, as the said currency belonged to petitioners and represented leftover foreign exchange retained after foreign travel. Petitioners relied upon RBI Master Circular No.6/2015-16 dated 01.07.2015 to contend that every traveller is entitled to retain USD 2000 per visit. Petitioners further contended that under Section 20(4) of the PMLA, the Adjudicating Authority is required to satisfy itself that the property sought to be retained is prima facie involved in money laundering and required for adjudication under the Act. Investigating officer failed to produce any evidence whatsoever demonstrating that....
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....vement of proceeds derived from illicit activities. 1.13. Petitioners specifically assail paragraph 5(III) of the impugned order wherein the only allegation recorded against Petitioner No. I is that he was "suspected to have paid commissions to Sh. Purshotamdas Mandhana in return of the loans sanctioned to him or his entities." It is contended that except for the aforesaid observation based purely on suspicion, there is no finding whatsoever in the impugned order linking petitioners or their properties with any offence of money laundering. Impugned order was passed without examining the documentary evidence filed by them and therefore suffers from non-application of mind, violation of principles of natural justice and predetermined bias. That apart, no opportunity whatsoever was afforded to Petitioners 2 to 5 though their jewellery was also seized and retained. 1.14. It is stated, Purshottamdas Mandhana himself informed petitioner No.1 that his statement before the Enforcement Directorate was obtained under coercion and that he denied being a partner in M/s Profound Infra. Even in the reply filed by Purshottamdas Mandhana before the Adjudicating Authority, no allegation whats....
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....ney laundering activity, retention of the seized properties is wholly illegal. 1.17. Apart from the decision of Patna High Court in HDFC Bank Limited Chotisaraiya ganj vs. Government of India (2021 SCC OnLine Pat 4222), petitioners have relied upon the following decisions in support of the contention that "reasons to believe" cannot be founded upon mere suspicion and must be based on cogent material: (i) Income Tax Officer, Calcutta & Ors. vs. Lakhmani Mewal Das (1976) 3 SCC 757; (ii) Opto Circuit India Ltd. vs. Axis Bank 2021 (2) TMI 117-Supreme Court; (iii) Shobha Woollen Pvt. Ltd. vs. Union of India 2021 (3) TMI 1132-Andhra Pradesh High Court; (iv) Sony Music Entertainment India Pvt. Ltd. vs. Assistant Director, Directorate of Enforcement, Mumbai; MANU/ML/0026/2019 (v) Universal Music India Pvt. Ltd. vs. Deputy Director, Directorate of Enforcement, Mumbai (MANU/ML/0024/2019) (vi) Yash Raj Films Pvt. Ltd. vs. Deputy Director, Directorate of Enforcement Mumbai (MANU/ML/0022/2019) 1.18 Petitioners further contend that seizure of property cannot be sustained merely on the basis of suspicion. According to the Petitioners, de....
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....late Tribunal for SAFEMA, New Delhi was available within 45 days from the date of receipt of the impugned order, the present writ petition was filed since the impugned order was passed without jurisdiction, without authority of law, in violation of principles of natural justice and without considering the documentary evidence produced by petitioners. It is stated that the impugned order was received by Petitioner No.1 on 13.01.2025 and the appeal period was to expire on 27.02.2025. 2. Respondent No.2 filed counter contending that Respondent Directorate of Enforcement is an investigating agency functioning under the Government of India, Ministry of Finance and is empowered to investigate offences under the Act and the Foreign Exchange Management Act, 1999. Respondents specifically contend that the Directorate of Enforcement is the only competent authority authorized to investigate offences under the PMLA and FEMA. The writ petition is premature and reflects the insecurity of petitioners, who according to respondents rushed to this Court without any genuine apprehension despite the statutory mechanism available under the PMLA. Searches were conducted on 31.07.2024 at seven residen....
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....and 10%. It is further alleged that Rs. 20.73 crores was illegally distributed to persons and entities related to Board Members, Directors and major shareholders through falsification of records and forged loan documentation and that the accused persons inflated the cost of construction of the Head Office Building and siphoned off Rs. 18.30 crores from the Bank. 2.4. During the course of investigation, complaints dated 17.03.2021 and 19.04.2021 submitted by one Omprakash Modani were received alleging that several entities and individuals paid hefty commissions to the accused persons in exchange for favours such as restructuring of loans, One Time Settlements and dilution of eligibility criteria. The Respondents specifically refer to the following entities and loan amounts: (i) Maa Tripura Sundari, Khammam - Rs. 6 crores; (ii) Vaishnavi Service Station, Charminar - Rs. 5 crores; (iii) Arjun Solvent, Guntur - Rs. 20 crores; (iv) Classic Convention of Krishna Reddy - Rs. 9 crores; (v) M/s. Indian Auto Services Centre - Rs. 6 crores; (vi) Intercity Transport Logistic - Rs. 12.50 crores; (vii) East of Wheels - Rs. 4 crore....
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....ounts were diverted to the personal account of Petitioner No.1 and thereafter, remitted to Mainland Digital Technologies and Profound Builders in violation of the designated purpose for which the sanctioned loan and credit facilities were granted. From the pattern of transactions observed in the accounts of Petitioner No.1 and entities related to him, Respondents suspected that the loans disbursed to such entities had been beneficially used by Purshottamdas Mandhana and Petitioner No.1 was acting as a proxy for the business interests of Purshottamdas Mandhana. 2.8. On the basis of credible information and reasons to believe recorded in writing, search proceedings were conducted on 31.07.2024 at seven residential premises including the premises of petitioners herein. During the search proceedings, jewellery, cash, foreign currency, mobile phones and other electronic devices containing incriminating information were seized and the same were duly recorded in the Panchanama drawn at the premises of the Petitioner. Consequent to the seizure of the subject properties, Respondent Directorate filed Original Application No.1305/2024 dated 27.08.2024 before the learned Adjudicating Author....
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....sions paid in return for sanction of loans. Since investigation is still underway, the seized properties, documents and devices are necessary for establishing the Petitioners 'involvement in money laundering and their retention is therefore sine qua non for effective investigation. 2.12. The jewellery seized appears to have been purchased during the period from 2011 to 2022 and is largely held in the names of the wife and daughter of Petitioner No.1 and there exists mismatch between the jewellery seized and the descriptions furnished subsequently. The Respondents further contend that the claim regarding necessity of jewellery for marriage ceremonies is not sufficient ground for release of the seized jewellery. Plea regarding marriage of Petitioner No.5 and necessity of jewellery for engagement and wedding ceremonies was not properly raised before Respondent No.1 during the adjudication proceedings. Oral arguments before the Respondent No.1 concluded on 21.12.2024 whereas the communication regarding the engagement ceremony was sent only on 11.12.2024. It is further contended that once adjudication proceedings are pending before the Adjudicating Authority, the Investigating Of....
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....the high-handed attitude adopted by Respondents. It is contended that such averments themselves demonstrate scant regard on the part of Respondents 1 and 2 towards statutory safeguards under the 2002 Act and towards their constitutional rights. It is specifically contended that Respondents have illegally and arbitrarily retained Petitioners' properties beyond the statutory limit prescribed under Section 20(4) of the Act without satisfying the mandatory requirements contemplated under law. 3.1. Petitioners are not accused in any of the scheduled offences registered against the office bearers of Andhra Pradesh Mahesh Cooperative Urban Bank Limited, therefore, the allegations relating to the affairs of the said Bank have no nexus or relevance to petitioners. It is specifically contended that despite making allegations regarding payment of commissions to accused persons in relation to restructuring of loans and sanction of credit facilities, Respondents have not placed even a single piece of evidence on record demonstrating that petitioners paid any commission or that any alleged commission constituted "proceeds of crime" so as to attract the provisions of the Act. 3.2. Petit....
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....idavits. Thus, respondents cannot now improve upon the deficiencies in the Original Application and the impugned order by introducing altogether new allegations in the counter affidavit before this Court. It is further contended that even assuming, without admitting, that Purshottamdas Mandhana was a partner along with Petitioner No.1 in a partnership concern, such relationship, by itself, does not constitute evidence of money laundering nor does it establish receipt of any proceeds of crime by petitioners. Petitioners specifically contend that M/s Profound Developers never availed any loan from APMCU Bank and respondents failed to produce any transaction linking the said entity to the alleged offence of money laundering. Petitioner No.1 had no business transactions whatsoever with Purshottamdas Mandhana in his individual capacity and had no connection with the alleged money laundering offences attributed to him. Respondents 1 and 2 failed to establish existence of any proceeds of crime in the hands of the Petitioners so as to justify invocation of jurisdiction under the PMLA and seizure of the assets belonging to the Petitioners. 3.5. Petitioners reiterate that the loan obtaine....
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....ically confirmed retention of the jewellery. It is the further case of petitioners, Respondents 1 and 2 have acted with a predetermined mindset and without application of mind while seizing and retaining the properties belonging to petitioners. 3.8. That apart, there is no rebuttal made by Respondents inter alia the specific contention of petitioners that all loans availed from Mahesh Bank had already been repaid in full. This aspect itself demolishes the allegation that any illegal financial benefit was derived by petitioners from the accused persons connected with APMCU Bank. Even otherwise, for the purpose of mere retention of seized properties under Section 20 of the Act, Respondents are legally-obligated to establish that the seized properties constitute "proceeds of crime" within the meaning of Section 2(1)(u) of the Act. Neither Respondents nor the Adjudicating Authority have produced any material whatsoever to demonstrate that the seized jewellery, cash or documents were derived from criminal activity. 3.9. The jewellery seized from the residential premises of Petitioner No.1 belongs not merely to Petitioner No.1 but also to Petitioners 2 to 5, which fact stands estab....
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....zed properties without explaining how the properties constituted proceeds of crime. 3.11. The show cause notice supplied by Respondents merely stated that a copy of the "recorded reasons" was enclosed. However, the document styled as "recording of reasons" annexed as Annexure-P-8 to the writ petition contains merely a heading and does not disclose how Petitioner No.1 is connected to any scheduled offence or how the seized properties constitute proceeds of crime. According to petitioners, respondents have acted in complete disregard of the mandatory provisions of Section 17 of the Act. In support of the aforesaid contention, petitioners place reliance upon the judgment of the Hon'ble Supreme Court in Opto Circuit India Ltd. vs. Axis Bank 2021 (2) TMI 117-SC wherein it was held that when a statute prescribes a particular manner in which a thing is required to be done, it must necessarily be done in that manner alone and failure to comply with the prescribed procedure would vitiate the action. 16 Petitioners contend that respondents failed to comply with the mandatory safeguards prescribed under Section 17 of the Act and therefore, the entire search and seizure proceedings a....
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....ny person for an initial period of 180 days by the Director or any other Officer not below the rank of Deputy Director authorized by the Director, for the purposes of Section 5 of the Act. Section 5 stipulates the process of attachment and Section 3 defines 'Money Laundering'. As per the language of Section 5, attachment can be made only when the said officer records, in writing, his reason to believe that such a person is in possession of any proceeds of carrying in that such proceeds of crime are likely to be concealed or transferred or debited in any manner which may result in frustration of any proceedings relating to confiscation of such proceedings of the crime. After such provisional attachment is made, the same order of attachment along with the material in possession of the said officer shall be forwarded to the adjudicating authority in a sealed envelope for further proceedings. Upon receipt of such provisional attachment order the adjudicating authority after due notice to such a person, shall, under Section 8, adjudicate on the question whether the property under attachment is involved in Money Laundering and direct the confiscation of such property or direct th....
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....ronic devices were seized under Panchanama dated 31.07.2024. It is also not in dispute that the basis for initiation of investigation by the Directorate of Enforcement was ECIR/HYZO/09/2021 registered pursuant to FIR Nos.218/2021 and 222/2021 registered by Police Station Banjara Hills, Hyderabad relating to alleged irregularities in Andhra Pradesh Mahesh Cooperative Urban Bank Limited. 10. A careful examination of the record further reveals that Petitioner No.1 is admittedly not arrayed as an accused in the predicate FIRs forming the basis for the ECIR proceedings. Equally, Petitioners 2 to 5 are not accused in the scheduled offences nor are they shown to be accused in any proceedings under the PMLA. This factual position assumes significance in view of the contention of the Respondents that the seized properties are required to be retained on the premise that the Petitioners are allegedly connected with transactions involving Purshottamdas Mandhana, one of the accused in the scheduled offences. Thus, it is apparent as on the date of the search and seizure there is no material evidence either direct or indirect, to connect the Petitioners to the Crimes registered as against the ....
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....he resulting order must disclose due application of mind and reasons supported by the evidence in arriving at the conclusion reached. The requirement of recording reasons is an integral component of fairness in administrative and quasi-judicial action. A reasoned order alone enables judicial review and assures the affected party that its submissions were duly considered. In the present case, the impugned order merely reproduces allegations and concludes that prima facie allegations of money laundering exist without analyzing the material relied upon by either side. Such an approach falls short of the statutory obligation cast upon the Adjudicating Authority under Section 20(4) of the Act. 14. The only substantive allegation recorded in the impugned order against Petitioner No.1 is that he was "suspected to have paid commissions" to Purshottamdas Mandhana in return for loans sanctioned to him or entities related to him. Respondents themselves repeatedly employ expressions such as "suspicious transactions", "suspected commissions", "possible diversion of loans" and "likely beneficial use". Suspicion, however grave, cannot, by itself, constitute legal proof or substitute the mandat....
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....eds or retirement documents placed on record by the Petitioners. The aforesaid lapses by Respondent No.1/Adjudicating Authority in passing the impugned order are good enough to set aside the impugned order. 17. This Court also finds merit in the submission of petitioners that Respondents cannot improve upon deficiencies made in the impugned order by introducing altogether new allegations in the counter affidavit filed before this Court. The law laid down by the Hon'ble Supreme Court in Mohinder Singh Gill vs. Chief Election Commissioner is well-settled that validity of a statutory order must be judged on the reasons stated in the order itself and not on fresh grounds subsequently introduced through affidavits. The impugned order dated 06.01.2025 therefore, cannot be sustained on the basis of explanations subsequently furnished in the counter affidavit before this Court. 18. Further, this Court is considering the judgment in Shobha Woollens Pvt. Ltd v. Union of India (2021 SCC Online AP 423) (W.P.No.2737 of 2021). The facts of the said case are similar to the present case. In the said order, the applicability of law and procedure to be followed by the investigating agency ....
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.... below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act. (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the 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 order and material for such period as may be prescribed. (3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (2) of section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section....
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....e such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorised to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorised by the Central Government, by notification, for this purpose. (LA) Where it is not practicable to seize such record or property, the officer authorised under subsection (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 58B or subsection (2A) of section 60, it becomes practical to seize a frozen property, the officer authorised under subsection (1) may seize such property. (2) The authority, who has been authorised under subsection (1) shall, immediately after search and se....
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....erty or direct the release of the said attachment. 17. Similarly, where the authority has, recorded in writing, his reason to believe, that any person is in possession of the proceeds of crime involved in Money Laundering. may authorize any officer subordinate to him to search and seize such property. Upon such seizure, the adjudicating authority is again informed and the adjudicating authority would have to further confirm the said seizure of the property. 18. It is clear from the above that, the sine qua non for exercise of the powers under either section 5 or section 17 of the Act is the formation of an opinion, by a competent officer, that the conditions set out in these sections are found to exist. In the absence of such a finding, the exercise of power under these Sections would be without basis and cannot survive in the absence of these requirements. There are no such reasons recorded in the order dated 6.11.2020. 19. The Hon'ble Supreme Court in OPTO Circuit India Limited v. Axis Bank, dated 03.02.2021 passed in Criminal Appeal No. 102 of 2021, had considered a similar situation. In this case, the concerned authority, without any findings eith....
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....e Supreme Court would not apply to the present case, has to be rejected. A perusal of the judgment would show that the judgment is on the interpretation and meaning of the provisions of the Act, and is not restricted in the manner set out by Sri. Josyula Bhaskar Rao. The Hon'ble High Court at Calcutta had held, in a similar situation, that such orders of freezing the bank accounts of the persons under investigation, is permissible and should be treated as ancillary to the investigation under progress. However, in view of the judgment of the Hon'ble Supreme Court, it would not be appropriate to follow the Judgment of the Hon'ble High Court at Calcutta. 23. In view of the above observations of the Hon'ble Supreme Court, the action of the 3rd respondent in the present case in issuing similar orders of debit-freeze/stop operations, cannot be sustained. 24. In the circumstances, the said order dated 06.11.2020 of the 3rd respondent directing the 4th respondent to freeze the accounts of the petitioners is not valid and has to be set aside. 25. Accordingly, the Writ Petitions are allowed, setting aside the order of the 3rd respondent bearing F.No....
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....ma facie indicates that no conclusive material exists linking the jewellery, etcetera with proceeds of crime. The statute, undoubtedly, permits investigation into suspected money laundering activities; however, exercise of such investigative powers must nevertheless remain within the limits prescribed by law. In the instant case there is complete failure on the part of Respondents in meeting the legal requirements in warranting the retention of the seizure of the property of petitioners. The constitutional guarantee prohibits deprivation of property save by authority of law and such authority must necessarily be exercised in a fair, reasonable and non-arbitrary manner. 23. The objection raised by respondents regarding maintainability of Writ Petition on the ground of availability of alternative remedy under Section 26 of the PMLA also cannot be accepted in the peculiar facts and circumstances of the present case. Availability of alternative remedy does not operate as an absolute bar where proceedings are alleged to be without jurisdiction, violative of principles of natural justice or contrary to mandatory statutory provisions. The challenge in the present writ petition is essen....