2022 (9) TMI 1287 - HC - Money Laundering

Money Laundering - continuation of attachment of the property of the appellant - seeking direction to the respondent to release the said property from attachment - validity of SCN - Non-application of mind - HELD THAT - It is evident that Appellate Tribunal found that the notice under Section 8(1) was not in conformity with the requirement of the statute and that the adjudicating authority did not form any reason to believe that the noticee had committed an offence under Section 3 or is in possession of proceeds of crime. Therefore, the very foundation for issuance of notice under Section 8(1) was absent. Various other flaws vitiating the order of the adjudicating authority were pointed out by the Appellate Tribunal observing that the same reflected non-application of mind. Appellate Tribunal opined that no purpose would be served by continuing with the attachment. Since the trial before the Special Court may take a number of years, therefore, the State Government may take a stand about the project. However, despite saying so Appellate Tribunal adverted to Section 8(8) of PMLA including the second proviso and relegated the appellant to the Special Court to seek release of the attached property holding that till such time attachment would continue. Though Appellate Tribunal extracted Section 8(8) of PMLA, it did not say that it had passed the order of relegation on the basis of the aforesaid provision. On going through the findings returned by the Appellate Tribunal vis- -vis the provisional attachment order and the order of the adjudicating authority on one hand and the conclusions of the Appellate Authority on the other hand, it is evident that the conclusions are not consistent with the findings returned by the Appellate Tribunal; rather wholly inconsistent. Appellate Tribunal has held that while carrying out the provisional attachment, the attaching authority did not record reason to believe that the petitioner is in possession of any proceeds of crime and that such proceeds of crime were likely to be concealed, transferred etc., which may frustrate any proceedings relating to confiscation of such proceeds as is the mandatory requirement under Section 5(1) of PMLA. Appellate Tribunal also found fault with the approach adopted by the adjudicating authority in overlooking the above conditions. The show cause notice under Section 8(1) of PMLA was issued in a mechanical manner without application of mind and without forming any reason to believe that the noticee had committed an offence under Section 3 or was in possession of proceeds of crime. The adjudicating authority did not record any reason that the provisional attachment should continue. While the Appellate Tribunal is correct in holding that the provisional attachment order and the order of the adjudicating authority confirming attachment suffered from fundamental flaws, thus being without jurisdiction, it fell short of declaring such orders as illegal; it further fell in error in relegating the appellant to the forum of Special Court to seek release of the attached property as it amounts to abdicating its authority and allowing an illegality to continue. The respondent are directed to release the attached property i.e., 855.7130 acres of land in Prakasham and Guntur districts of Andhra Pradesh as per Annexure L2 enclosed with the provisional attachment order, to the appellant - appeal allowed.

Issues Involved:
1. Legality of the provisional attachment order under Section 5(1) of the PMLA.
2. Compliance with statutory requirements for "reason to believe."
3. Validity of the adjudicating authority's confirmation of the provisional attachment.
4. Jurisdiction and findings of the Appellate Tribunal.
5. Appropriate forum for seeking release of attached property.

Issue-wise Detailed Analysis:

1. Legality of the Provisional Attachment Order under Section 5(1) of the PMLA:
The appeal challenges the provisional attachment order dated 04.03.2014, whereby 1416.91 acres of land was attached under Section 5(1) of the PMLA. The appellant argued that the attachment order lacked a valid "reason to believe" as required by law, rendering it illegal. The High Court noted that the Joint Director of the Enforcement Directorate failed to record reasons in writing, which is a mandatory requirement under Section 5(1). The order merely paraphrased the statutory language without independent application of mind, thus failing to meet the legal standard for provisional attachment.

2. Compliance with Statutory Requirements for "Reason to Believe":
The High Court emphasized that the "reason to believe" must be recorded in writing and based on material evidence. The Joint Director's order lacked this essential element, as it did not provide a rational basis for believing that the appellant was in possession of proceeds of crime likely to be concealed. The court referred to the decision of the Delhi High Court in J.Sekhar v. Union of India, which held that failure to disclose reasons to the affected party vitiates the entire proceedings.

3. Validity of the Adjudicating Authority's Confirmation of the Provisional Attachment:
The adjudicating authority confirmed the provisional attachment without addressing the absence of "reason to believe." The High Court found that the adjudicating authority's order suffered from serious jurisdictional infirmities, including non-application of mind and violation of principles of natural justice. The show cause notice issued under Section 8(1) was mechanical and lacked valid reasons, further invalidating the adjudication process.

4. Jurisdiction and Findings of the Appellate Tribunal:
The Appellate Tribunal found that the provisional attachment order and the adjudicating authority's confirmation were flawed. However, it directed the continuation of the attachment and relegated the appellant to seek relief from the Special Court under Section 8(8) of the PMLA. The High Court criticized this approach, stating that the Appellate Tribunal abdicated its adjudicatory function by not declaring the attachment orders illegal and void, despite recognizing their illegality.

5. Appropriate Forum for Seeking Release of Attached Property:
The High Court held that the Appellate Tribunal erred in directing the appellant to approach the Special Court for release of the attached property. The court noted that the Special Court's jurisdiction under Section 8(8) pertains to post-trial scenarios, which was not applicable in the present case. The High Court concluded that the Appellate Tribunal should have ordered the release of the property based on its findings of illegality in the attachment orders.

Conclusion:
The High Court allowed the appeal, directing the respondent to release the attached property to the appellant. The court emphasized that the provisional attachment order and the adjudicating authority's confirmation were illegal due to the absence of a valid "reason to believe." The Appellate Tribunal's decision to continue the attachment and refer the matter to the Special Court was found to be an abdication of its authority. The High Court's decision underscores the importance of strict compliance with statutory requirements and procedural fairness in attachment proceedings under the PMLA.

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