2015 (9) TMI 1573 - HC - Money Laundering

Appointment of the Judicial Member of the Adjudicating Authority - Prevention of Money-Laundering - principal ground seeking to quash the impugned show cause notice issued under Section 8 of the PMLA that it was issued by a Bench of the Adjudicating Authority which did not have a Judicial Member - Held that - In a case where serious questions of law and fact arise, as in the present case, it is essential that one of the Members of the Bench constituted under Clause (b) of Sub-Section (5) of Section 6 of PMLA by the Chairperson of the Adjudicating Authority should be a Judicial Member as he with his judicial experience would, by virtue of his specialised knowledge, would be better equipped to dispense with speedy and efficient justice . This appears to be import of the words as the Chairperson of the Adjudicating Authority may deem fit . It is an admitted position that the post of a Judicial Member under Respondent No.3 is still lying vacant and that the impugned show cause notice was issued and the order under challenge passed in the absence of such a Member. Apart from what have been observed earlier, in a proceeding of the present kind, where orders were passed ex parte by the Adjudicating Authority in the absence of the Petitioner- University, it would have been essential for a Judicial Member to be part of the Bench considering the nature of the lis before it to ensure that the orders are passed in satisfaction of all the principles relevant and acceptable in law. The Petitioner-University, apart from showing technical flaws in the constitution of the Bench, concededly has been unable to place anything before this Court to indicate that they have been prejudiced in any manner. It is also conceded that the Petitioner- University has not yet responded to the show cause notice. It is of the considered opinion that it would be appropriate for the Petitioner-University to approach the Adjudicating Authority first and place all his grievances before it. In order to allay the apprehensions expressed by the Petitioner-University, it would be sufficient to direct the Respondent No.1 to first take up with the appropriate Ministry for appointment of a Judicial Member under Clause (a) of Sub-Section (3) of Section 6.

Issues Involved:
1. Validity of the show cause notice issued under the Prevention of Money-Laundering Act (PMLA) without a Judicial Member in the Adjudicating Authority.
2. Compliance with the statutory provisions of the PMLA in the constitution of the Adjudicating Authority.
3. The necessity of a Judicial Member in the Adjudicating Authority for proceedings involving serious legal and factual questions.
4. The impact of the absence of a Judicial Member on the validity of ex parte orders.
5. Appropriate relief and directions for the appointment of a Judicial Member.

Detailed Analysis:

1. Validity of the Show Cause Notice:
The Petitioner, Eastern Institute for Integrated Learning in Management University, sought to quash the show cause notice dated 03-02-2015 issued under Section 8 of the PMLA by the Respondent No.3. The primary ground was that the notice was issued by a Bench of the Adjudicating Authority that did not include a Judicial Member. The Petitioner argued that the absence of a Judicial Member rendered the notice and subsequent proceedings invalid, as the Respondent No.3 exercises judicial powers and functions, necessitating the presence of a Judicial Member for legitimacy.

2. Compliance with PMLA Provisions:
The Petitioner contended that Sections 6, 8, and 11 of the PMLA, read with Regulations 21 and 22, indicate that the Adjudicating Authority must include a Judicial Member. The Petitioner emphasized that the Adjudicating Authority's powers are akin to those of a Civil Court, and its proceedings are deemed judicial, thus requiring the presence of a Judicial Member to ensure proper judicial consideration.

3. Necessity of a Judicial Member:
The Petitioner argued that given the serious nature of the charges by the Enforcement Directorate and the far-reaching consequences of the adjudication, the presence of a Judicial Member was essential. The Petitioner referred to precedents such as L. Chandra Kumar vs. Union of India and others, and Tamil Nadu Generation and Distribution Corporation Limited vs. PPN Power Generating Company Private Limited, to support the argument that adjudicating bodies with judicial functions must include Judicial Members.

4. Impact of Absence of a Judicial Member:
The Court acknowledged the Petitioner's concerns but noted that the PMLA does not expressly mandate the inclusion of a Judicial Member in every Bench of the Adjudicating Authority. The Court found substance in the Central Government Counsel's argument that the composition of the Adjudicating Authority, as per Section 6, does not require a Judicial Member in every instance. However, the Court also recognized that for cases involving serious legal and factual questions, the presence of a Judicial Member is crucial for ensuring proper judicial scrutiny and adherence to legal principles.

5. Appropriate Relief and Directions:
The Court concluded that while the absence of a Judicial Member raised valid concerns, quashing the proceedings at this stage was not warranted. The Petitioner was advised to present its grievances before the Adjudicating Authority. To address the Petitioner's apprehensions, the Court directed the Respondent No.1 to expedite the appointment of a Judicial Member within three months. Upon appointment, the Chairperson of the Adjudicating Authority was instructed to constitute a Bench including a Judicial Member to hear the Petitioner's case. The Court also extended the period of attachment under Section 5(1) of the PMLA, excluding the time spent during the case's pendency.

Conclusion:
The Writ Petition was allowed in part, with directions for the urgent appointment of a Judicial Member and the constitution of a Bench to hear the Petitioner's grievances. The Court emphasized the importance of judicial scrutiny in proceedings involving significant legal and factual issues, ensuring that the Petitioner's concerns were addressed while maintaining the integrity of the adjudicative process. No order as to costs was made.

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