2019 (7) TMI 961 - AT - Money Laundering

Money Laundering - retention of documents and jewellery recovered during the search - Section 17(4) of the Prevention Money Laundering Act, 2002 - HELD THAT - Sub-section (1) of Section 17 provides that the authorised officer has to record the reason to believe in writing. In the such reason to believe, he has also to record the basis of information which is in his possession before conducting the search and seizure. It stipulates that if person concerned has committed any act which constitutes money-laundering, or is in possession of any proceeds of crime involved in money-laundering, or is in possession of any records relating to money-laundering, then any authorised officer can enter and search any building, place, vessel, vehicle or aircraft where that such records or proceeds of crime are kept, who is also empowered to break open the lock of any door, box, locker, safe, almirah or other receptacle where the keys thereof are not available and seize any record or property found as a result of such search, place marks of identification on such record or make or cause to be made extracts or copies therefrom; make a note of an inventory or such record or property and to examine on oath any person who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation. In the present case, no report against the appellant has been forwarded to the Magistrate. No complaint against the appellant was filed before a Magistrate. No cognizance of schedule offence was taken by any authority or Additional Secretary to the Government of India. ' It was admitted in the impugned order that the gold jewellery may not be in any way related to the manipulation in share price or may not have any linkage but Adjudicating Authority wishes to retain the same for the purposes of investigation as there would not be any harm cause to the appellant. As a matter of fact, the Adjudicating Authority is duty bound on the basis of material to give the reasons that the party is involved in money laundering and property is acquired from proceed of crime - There is no specifically reference about the investigation about the jewellery and gold as to whether those are acquired from proceeds of crime or not despite of ninety days period provided under section 8(3)(a) of the Act. It is therefore evident that the gold and jewellery is not the part of alleged proceeds of crime or any linkage. It is a matter of shocking when we read the findings of Adjudicated Authority that no harm will cause if retention may continue. The impugned order is set aside as far as gold and jewellery is concerned - With regards to documents, the Appellant is entitled to take the copies under sub section (2)of Section 21 of the Act. Appeal allowed in part.

Summary

Issues Involved:
1. Legality of the retention of documents and jewellery seized.
2. Validity of the ECIR based on a closed FIR.
3. Compliance with procedural requirements under PMLA, 2002.
4. Justification for retention of seized items.

Issue-Wise Detailed Analysis:

1. Legality of the Retention of Documents and Jewellery Seized:
The appellants challenged the retention of documents and jewellery seized during a search conducted by the Directorate of Enforcement (ED). The Adjudicating Authority had allowed the ED to retain these items. The appellants argued that the jewellery and documents were owned by them prior to the alleged period of the offense and thus could not be considered "proceeds of crime" under section 2(1)(u) of the PMLA. The Tribunal noted that the Adjudicating Authority failed to provide a valid reason linking the jewellery to the alleged crime, and therefore, set aside the order concerning the retention of gold and jewellery.

2. Validity of the ECIR Based on a Closed FIR:
The ECIR was registered based on FIR No. RC 219 2014 E0002 dated 26.03.2014, which was filed by the CBI alleging criminal conspiracy, cheating, and misconduct. However, the CBI later filed a closure report stating that no offense was made out, and the FIR was lodged due to a "mistake of fact." The Tribunal observed that since the FIR was the basis of the ECIR and was sought to be closed, the continuation of proceedings based on such an ECIR was questionable.

3. Compliance with Procedural Requirements Under PMLA, 2002:
The Tribunal scrutinized the compliance with sections 17, 18, 20, and 21 of the PMLA. Section 17(1) requires the authorized officer to record reasons to believe in writing before conducting a search and seizure. The Tribunal found that no such reasons were produced, and the seizures were made based on apprehension and presumption. Additionally, the Tribunal highlighted that no report against the appellant was forwarded to a Magistrate, no complaint was filed, and no cognizance of the scheduled offense was taken by any authority, thus failing to meet the procedural requirements.

4. Justification for Retention of Seized Items:
The Tribunal examined the justification provided by the Adjudicating Authority for retaining the seized items. The Authority had stated that the value of the company's shares might rise, making it a matter of investigation. However, it was admitted that the gold jewellery might not be related to the manipulation in share prices or have any linkage to the alleged crime. The Tribunal criticized the reasoning that no harm would be caused by continuing retention, emphasizing that the Adjudicating Authority must provide material evidence that the party is involved in money laundering and that the property is acquired from the proceeds of crime.

Conclusion:
The Tribunal set aside the impugned order concerning the retention of gold and jewellery, stating that there was no evidence linking these items to the proceeds of crime. The appellants were entitled to obtain copies of the documents under section 21(2) of the PMLA. The appeal was partly allowed, modifying the impugned orders.