2014 (6) TMI 993 - HC - Money Laundering

Validity of Show cause notice against alleged fraud and money laundering - ingredients necessary for the attachment order - whether show cause notice does not contain any reason for the Adjudicating Authority to believe that the petitioner has committed an offence under section 3 or is in possession of proceeds of crime as required by section 8 of The Prevention of Money Laundering Act, 2002? Held that - The contention that the show cause notice does not state that the Adjudicating Authority has reason to believe that the petitioner has committed an offence under section 3 of the Act or is in possession of proceeds of crime is not well founded. The notice has, for all practical purposes, adopted, incorporated the complaint in toto. The notice, fairly read, indicates that the Adjudicating Authority, on the basis of the material in the complaint had reason to believe that the ingredients necessary for the attachment order existed. So read, it follows that the Adjudicating Authority stated in the show cause notice that he had reason to believe that there existed the factors necessary to serve the notice. The reasons, in turn, stand incorporated in the notice from the complaint. It is apparent that the notice has been issued based on the reasons to be found in the complaint and the documents which have been expressly referred to in the contention. The complaint itself expressly sets out the reason to believe. If, on the basis of the facts disclosed in the enclosures, the Adjudicating Authority had formed the opinion that there was no reason to believe the existence of the factors mentioned in section 8, he would not have issued the show cause notice. That he did indicates that he had reason to believe the existence of the said factors. In the facts and circumstances of the case this is sufficient compliance. The above show cause notice was served upon the petitioner on its name as the said property is reflected in the complaint and attachment order. The final order on the show cause notice will determine the rights in the property qua the various persons concerned, including Aastha, the said Mohit Agarwal and the petitioner. The hearing on the show cause notice has proceeded. The petitioner has been heard. There is, any event, no warrant for exercising our extraordinary jurisdiction in setting aside the attachment order before the final orders which are due to be passed shortly.

Issues Involved:
1. Provisional attachment order dated 31.01.2014.
2. Show cause notice dated 29.04.2014.
3. Public notice dated 26.11.2013.
4. Compliance with Section 8 of the Prevention of Money Laundering Act, 2002.
5. Validity of the reasons to believe in the show cause notice.
6. Jurisdiction and extraordinary relief.

Detailed Analysis:

1. Provisional Attachment Order Dated 31.01.2014:
The Petitioner sought to quash the provisional attachment order dated 31.01.2014 issued by the Directorate of Enforcement. The property in question was attached based on allegations of money laundering involving M/s. Aastha Minmet India Pvt. Ltd. and its director. The attachment was linked to an FIR against National Spot Exchange Ltd. (NSEL) and its key officials. The order detailed the money trail from NSEL to various entities, including Aastha, and concluded that the properties were obtained using proceeds of crime. The attachment was justified under Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA).

2. Show Cause Notice Dated 29.04.2014:
The Petitioner contended that the show cause notice did not provide reasons for the Adjudicating Authority's belief that an offence under Section 3 was committed or that the Petitioner possessed proceeds of crime. The court held that the notice, by incorporating the complaint and documents, sufficiently indicated the Adjudicating Authority's reasons to believe the necessary factors for issuing the notice. The notice was deemed compliant with Section 8 of PMLA.

3. Public Notice Dated 26.11.2013:
The Petitioner also sought to quash the public notice issued by the Senior Inspector of Police, Economic Offence Wing. The court did not specifically address this issue in detail, focusing primarily on the provisional attachment and show cause notice.

4. Compliance with Section 8 of PMLA:
Section 8 outlines the procedure for adjudication, including issuing a notice, considering replies, and hearing the aggrieved person. The Petitioner argued that the show cause notice lacked reasons to believe as required by Section 8. The court found that the reasons were incorporated by reference to the complaint and documents, thus meeting the requirements of Section 8.

5. Validity of the Reasons to Believe in the Show Cause Notice:
The Petitioner cited judgments to argue that the reasons to believe must be explicitly stated in the notice. The court distinguished these cases, noting that in the present case, the reasons were communicated through the complaint and annexures. The court held that this was sufficient compliance with the legal requirements.

6. Jurisdiction and Extraordinary Relief:
The court was not inclined to exercise its extraordinary jurisdiction to quash the show cause notice or provisional attachment order. The court emphasized that the final order on the show cause notice would determine the rights concerning the property. The court also noted that further investigation into the acquisition of the property was necessary.

Conclusion:
The writ petition was disposed of without quashing the show cause notice or the provisional attachment order. The court allowed the Petitioner to file any application before the Respondents and clarified that no final order would be passed against the Petitioner until 28th July 2014. The court expressed no opinion on the merits of the Petitioner's case, noting that various aspects regarding the property acquisition required further investigation.

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