2023 (12) TMI 1354 - AT - Money Laundering

Money Laundering - obtaining huge loans from financial institutions with outstanding liabilities - siphoning off of funds - reasons to believe - search and seizure conducted under Section 17 of the Prevention of Money Laundering Act, 2002 - HELD THAT - The reason for search and seizure is to be based on the information that person has committed an act of money laundering or is in possession of proceeds of crime involved therein and so on. The authorized officers then enter and search any building, place and vessel etc. and seize the records and the property etc. The authorized officer may even examine a person on oath which is found to in control of any record or property relevant to the case. The retention of the property would not be beyond a period of 180 days from the date of seizure and freezing. Its continuance would be subject to confirmation of retention by the Adjudicating Authority within the period given above and unless the Adjudicating Authority permits retention of property and documents etc. beyond the period of 180 days, it would be returned to the person concern. The show cause notice otherwise discloses all the relevant materials to seek retention of the seized material. In the instant case, ECIR was recorded in the year 2019 itself and the search was conducted in the year 2023. The relevant documents are now part of the show cause notice. In the background aforesaid, we do not find that any prejudice is caused to the Appellant on non-service of the copy of the reasons to belief recorded in writing for search and seizure under Section 17(1) of the Act of 2002. In case of J. Sekar v/s. Union of India Ors. 2018 (1) TMI 535 - DELHI HIGH COURT , the Division Bench of Delhi High Court has not addressed the issue in reference to Section 17(1) of the Act of 2002 but was in reference in Section 5(1) of the Act of 2002. The provisions may be similar but purpose of the proceedings under two provisions are altogether different. One pertains to the attachment of the property till conclusion of the trial, if the attachment order is confirmed by the Adjudicating Authority. The retention of the documents or property would remain for the period given by the Adjudicating Authority and infact if the investigation is completed followed by the prosecution complaint, justification of retention of documents subsequent to it may require to be addressed by the Adjudicating Authority on merits. It is looking to the facts that if the materials seized became part of the prosecution complaint with a copy thereupon to the Appellant then an appropriate order can be passed by the Adjudicating Authority. It is not found that copy of reason to believe under Section 20 and 21 of the Act of 2002 was prayed before the Adjudicating Authority thus prayer for it cannot be made for the first time in the Appeal. There are no reason to cause interference in the impugned order - appeal dismissed.

Issues Involved:
1. Legality of the search and seizure conducted under Section 17 of the Prevention of Money Laundering Act, 2002 (PMLA).
2. Requirement to supply a copy of the "reasons to believe" recorded under Section 17(1) of the PMLA to the appellant.
3. Validity of the retention of seized materials and documents.
4. Compliance with procedural requirements under the PMLA and related judicial precedents.

Issue-wise Detailed Analysis:

1. Legality of the Search and Seizure Conducted Under Section 17 of the PMLA:
The search and seizure were conducted at the residential premises of Neeraj Singal on 09.06.2023 under Section 17 of the PMLA. The authorized officer carried out the search based on information in possession and having reasons to believe that an act of money laundering was committed. The search and seizure involved the confiscation of two mobile phones, 15 Fixed Deposit Receipts (FDRs) amounting to Rs. 2.4 Crore, and some loose documents. The search was conducted following the procedure outlined in Section 17, including drawing up a Panchnama and forwarding a copy of the reasons to believe to the Adjudicating Authority in a sealed envelope.

2. Requirement to Supply a Copy of the "Reasons to Believe" Recorded Under Section 17(1) of the PMLA to the Appellant:
The appellant argued that the non-supply of the reasons to believe recorded under Section 17(1) deprived them of the ability to contest the matter effectively before the Adjudicating Authority. The appellant relied on judicial precedents, including the Delhi High Court's judgment in J. Sekar v/s. Union of India and the Supreme Court's judgment in CIT, West Bengal v/s. Oriental Rubber Works. However, the tribunal found that the reasons to believe were conveyed to the appellant through the show cause notice issued by the Adjudicating Authority under Section 8(1) of the PMLA, which sufficed the purpose and compliance with the judicial precedents cited. The tribunal noted that the stage prior to the initiation of Section 8(1) proceedings is administrative in nature and does not require the supply of reasons to believe recorded under Section 17(1).

3. Validity of the Retention of Seized Materials and Documents:
The tribunal examined whether the retention of the seized materials and documents was valid. Under Section 17(4) of the PMLA, the retention of property or seized material beyond 30 days requires confirmation by the Adjudicating Authority. The Adjudicating Authority issued a show cause notice along with the reasons to believe, thereby fulfilling the requirement to provide the appellant with an opportunity to contest the retention. The tribunal found that the reasons to believe were adequately conveyed to the appellant, and the retention of the seized materials was in compliance with the procedural requirements under the PMLA.

4. Compliance with Procedural Requirements Under the PMLA and Related Judicial Precedents:
The tribunal reviewed the procedural compliance with the PMLA and relevant judicial precedents. It referred to the Supreme Court's judgments in Narayanyappa v/s. Commissioner of Income Tax and Biswanath Bhattacharya v/s. Union of India, which held that the process of recording reasons for search and seizure is administrative in nature and does not require communication to the affected party at the initial stage. The tribunal also noted that the judgment in J. Sekar v/s. Union of India is pending consideration before the Supreme Court, and its operation has been stayed. The tribunal found that the procedural requirements under the PMLA were met, and the non-supply of reasons to believe recorded under Section 17(1) did not cause any prejudice to the appellant.

Conclusion:
The tribunal dismissed the appeal, finding no illegality in the order denying the copy of the reasons to believe recorded under Section 17(1) of the PMLA. The tribunal held that the reasons to believe were adequately conveyed through the show cause notice issued by the Adjudicating Authority, and the retention of the seized materials was in compliance with the procedural requirements under the PMLA. The appeal was dismissed, and the impugned order was upheld.

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