2021 (12) TMI 431 - HC - Money Laundering

Money Laundering - Validity of search operation held in the premises of the petitioner - pendency of investigation relating to the proceedings - main grievance projected by the petitioners is that the motive behind the search of their premises is to implicate them in some false case under the provisions of the Prevention of Money Laundering Act, 2002 - HELD THAT - The FEMA Act, which is a legislation for regulating the economic aspect, has been passed to consolidate and maintain law relating to foreign exchange, external trade and payments and for promoting orderly development of foreign exchange. Concededly, the petitioners have knocked the doors of this court by filing these writ petitions, against the proceedings initiated under section 37 of the FEMA Act and consequential action of investigation conducted by the third respondent. As regards the allegation of violating the fundamental rights, etc, it is the categorical stand of the respondents that on the basis of credible information, summons were issued to the petitioners and the same were followed by search of their premises. The petitioners were neither arrested nor taken into custody by the respondents. Therefore, the question of infringement of their rights under any provision of law, will not arise - The Supreme Court in C.Sampath Kumar v. Enforcement Officer 1997 (9) TMI 458 - SUPREME COURT , while deciding the case in respect of Section 40 of the FERA, held that when a person is summoned and examined under Section 40, it cannot be presumed that a statement will be obtained under pressure or duress and such a statement obtained does not infringe the constitutional guarantee of protection against self-incrimination under Article 20(3) of the Constitution. Therefore, the concept of applying the theory of self-incrimination even at the stage of investigation in case of violation of FEMA Act cannot be raised to the level of an investigation of a criminal offence protected by Articles 20(3) and 21 of the Constitution. It is settled law that the summons issued under Section 37 of the FEMA Act, by the officers of the Enforcement Directorate, cannot be questioned by way of a writ. When there is suspicion with regard to the involvement of the petitioners in any of the transactions which are prohibited under the FEMA Act, it is open to the respondent authorities to summon them for enquiry. Since the documents are pertaining to them, it cannot be said that the investigation has no nexus with the documents called for from the petitioners. When an investigation is commenced, it is not possible for the authorities to come to the conclusion with regard to the involvement or the non-involvement of any person until the enquiry is completed - According to the petitioners, they were ill-treated and humiliated an subjected to harassment; and the statements obtained from them during the course of search, were under threat and coercion and the same would be used as material evidence, in the proceedings initiated against them; and hence, they have come up with these writ petitions for the larger reliefs as stated supra. However, it is reiterated on the side of the respondents that the entire search operations conducted in the premises of the petitioners on 02.09.2021 and 03.09.2021 were recorded and the statements were obtained from the petitioners without any threat or coercion; and in connection with the said proceedings, the petitioners were neither arrested nor taken into the custody by the respondent officials. Therefore, this court is of the opinion that the submissions so made on the side of the respondents would be sufficient enough to meet the grievance expressed by the petitioners. Having regard to the settled legal proposition that 'fair and just investigation is a hall mark of any investigation and it is not the duty of the investigating officer to strengthen the case of the prosecution by withholding the evidence collected by him; and an impartial and fair opportunity in the proceedings initiated, is the legal right of the accused and justice can be ensured only if the rules of procedure are diligently adhered to'. Petition disposed off.

Issues Involved:
1. Legality of the search operation and statements recorded on 02.09.2021 and 03.09.2021.
2. Allegations of harassment and violation of fundamental rights during the search.
3. Right to have legal representation during the investigation.
4. Validity of the summons issued under Section 37 of the FEMA Act.
5. Request for transfer of investigation to another officer.

Issue-wise Detailed Analysis:

1. Legality of the Search Operation and Statements Recorded:
The first writ petition sought a declaration that the search operation and statements recorded on 02.09.2021 and 03.09.2021 were null and void, being violative of Article 21 of the Constitution of India. The respondents argued that the search was conducted based on credible information and in accordance with Section 37 of the FEMA Act, which allows officers to exercise powers similar to those conferred on income-tax authorities under the Income-tax Act, 1961. The court observed that the Enforcement Directorate has the power to issue summons and conduct searches under Section 37 of the FEMA Act, akin to the powers under the Income Tax Act. The court found no merit in the petitioners' challenge to the legality of the search operation and the statements recorded.

2. Allegations of Harassment and Violation of Fundamental Rights:
The petitioners alleged that they were harassed, humiliated, and subjected to third-degree methods during the search, which violated Article 21 of the Constitution. The respondents denied these allegations, stating that the petitioners were treated in a dignified and humanitarian manner. The court noted that the Enforcement Directorate must conduct searches and investigations in a fair and just manner, ensuring that individuals are treated with dignity. However, the court did not find sufficient evidence to substantiate the petitioners' claims of harassment and violation of fundamental rights.

3. Right to Have Legal Representation During the Investigation:
The petitioners argued that they should be allowed to have legal representation during the investigation, citing the Supreme Court's order in Vijay Sajnani v. Union of India and this court's order in B. Narayanaswamy v. Deputy Director, Enforcement Directorate. The respondents contended that the proceedings under Section 37 of the FEMA Act are not judicial proceedings and do not require the presence of a lawyer during the investigation, relying on the Supreme Court's decision in Poolpandi v. Superintendent, Central Excise. The court agreed with the respondents, stating that the presence of a lawyer during the initial and preliminary investigation is not required under the FEMA Act.

4. Validity of the Summons Issued Under Section 37 of the FEMA Act:
The second and third writ petitions sought to quash the summons issued under Section 37 of the FEMA Act. The court held that the Enforcement Directorate has the power to issue summons for preliminary investigation and production of documents. The court referenced the Supreme Court's decision in Standard Chartered Bank v. Directorate of Enforcement, which stated that a writ of prohibition against adjudication proceedings cannot be issued unless the notice is palpably without authority of law. The court found that the summons issued to the petitioners were valid and within the authority of the Enforcement Directorate.

5. Request for Transfer of Investigation to Another Officer:
The first writ petition sought a direction to transfer the investigation to another officer, alleging bias and lack of impartiality. The court noted that the petitioners must cooperate with the investigation and that the Enforcement Directorate should conduct the investigation strictly in accordance with the law. The court did not find sufficient grounds to transfer the investigation to another officer.

Conclusion:
The court disposed of the writ petitions with the following directions:
1. The copies of the statements obtained from the petitioners during the search on 02.09.2021 and 03.09.2021 should be furnished to the petitioners within two weeks.
2. The petitioners should file their versions to the third respondent within two weeks after receiving the statements.
3. The third respondent should consider the petitioners' versions on merits.
4. The petitioners are directed to cooperate with the respondent officials for the enquiry.
5. The respondent authorities are free to proceed further, but strictly in accordance with the law.

The writ petitions were disposed of with no costs, and the connected miscellaneous petitions were closed.

← Previous Next →