2024 (12) TMI 473 - HC - Money Laundering

Money Laundering - proceeds of crime - challenge to orders of freezing - reasons to believe - justificatioon for search and seizure operations - HELD THAT - It would be worthwhile to deal with the decisions relied upon by the petitioner in the background of the facts of the present case. In Reshmi Metaliks Limited 2022 (8) TMI 543 - CALCUTTA HIGH COURT the Court was dealing with the factual circumstances in a case where the Hon ble Supreme Court stayed the proceedings in respect of an affected party relating to the ECIR and consequently the freezing orders passed under Section 17 of the PMLA, 2002 by the Authorized Officer was dealt with by the Court. Thus, the factual circumstances of the present case is completely different from the case which has been referred to, as in the present case the investigation of the case is continuing and there has been no interference by any Court of law when the freezing order has been passed by the Authorised Officer. An appeal was preferred by the Directorate of Enforcement before the Hon ble Division Bench, in respect of the aforesaid order, wherein the Appeal Court was prayed to interfere and modify the order directing the learned Single Judge to hear the writ petition after exchange of affidavits. As such, the findings of the learned Single Judge by the Hon ble Division Bench cannot be considered as an authoritative finding in respect of Section 17 or Section 17 (1-A) of the PMLA, 2002. In M/s. Kedia Fintrade Pvt. Limited Ors. 2024 (5) TMI 725 - CALCUTTA HIGH COURT in fact, the question which was raised related to the authority of the Assistant Director in issuing the freezing orders and the same was approved by the Hon ble Court, as such there is no dispute regarding the authorization of Assistant Director in issuing the freezing orders under Section 17 and Section 17 (1-A) of the PMLA, 2002. The documents submitted by the investigating agency reflect that notices under Section 50 of the PMLA, 2002 have been issued to the persons responsible for the day-to-day activities of the company. It would therefore be the responsibility of the persons who have been called to explain in respect of the proceeds which they have acquired in regular course of their business transactions. The petitioner is also not without any option as they are entitled to take up their plea before the adjudicating authority. There is a difference in the implementation of the provisions of Section 17 (1-A) and Section 17(2) of the PMLA, 2002, otherwise the phrase reasons so recorded along with material in his possession referred to in that Sub-section, to the Adjudicating Authority in a sealed envelope, in the manner. would be redundant. What follows therefore is that while Section 17 (1-A) of the PMLA, 2002 is in the nature of intimation to the affected party/person on the other hand Section 17(2) of PMLA, 2002 is a mandate to assign the reasons for implication with regard to the property being freezed and which involves the power to maintain secrecy, otherwise the term sealed envelope referred in Sub-section (2) of Section 17 of PMLA, 2002 would be futile. In light of the materials which have been placed by the investigating agency, especially the financial/monetary trail, which links the petitioner company with Corporate Power Limited, which is under investigation, it is required to hold that the phrase for the purposes of investigation in the notice under Section 17 (1-A) of the PMLA, 2002 is sufficient and do justify the act of the Enforcement Directorate/Investigating Agency. As such no interference is called for in respect of the prayers advanced before this Court. Application dismissed.

Summary

Issues Involved:

1. Legality of the freezing orders under Section 17 of the Prevention of Money Laundering Act, 2002 (PMLA).
2. Authority and justification for search and seizure operations.
3. Compliance with procedural requirements under PMLA.
4. Validity of the reasons provided for freezing assets.
5. Availability of alternative remedies for the petitioner.

Detailed Analysis:

1. Legality of the Freezing Orders:

The writ petition challenged the freezing orders issued by the Enforcement Directorate (ED) under Section 17 of the PMLA, arguing that the orders lacked legal justification. The petitioner claimed that their assets were wrongfully treated as "proceeds of crime" without any evidence or reasoning provided in the orders or the accompanying Panchnama. The petitioner emphasized that the freezing orders did not explain why their properties were considered proceeds of crime under Section 2(1)(u) of the PMLA.

The court examined the petitioner's reliance on previous judgments, including Reshmi Metaliks Limited, where the court had questioned the basis of ED's actions under similar circumstances. However, the court found the present case distinct, as the investigation was ongoing, and no court had yet intervened in the freezing orders.

2. Authority and Justification for Search and Seizure Operations:

The petitioner argued that the search and seizure operations conducted at their premises were unauthorized, as they were not named in the Panchnama, nor were the officers authorized to conduct such operations under Section 17 of the PMLA. The petitioner further contended that they were neither named in the FIR nor linked to the accused entities mentioned therein.

In response, the ED justified their actions by outlining a money trail that allegedly connected the petitioner to proceeds of crime. The ED argued that funds were transferred through various entities, ultimately reaching the petitioner, thereby necessitating the freezing orders for further investigation.

3. Compliance with Procedural Requirements under PMLA:

The petitioner challenged the procedural compliance of the ED, particularly the absence of a "reason to believe" in the freezing orders. The court referred to the requirement under Section 17 of the PMLA, which mandates that an authorized officer must have information and a reason to believe, recorded in writing, that a person is involved in money laundering or possesses proceeds of crime.

The court noted that the ED had referenced the ECIR number and the purpose of investigation in the freezing orders, which was deemed sufficient for procedural compliance. The court emphasized that the detailed reasoning would be examined by the adjudicating authority, and the petitioner could present their case there.

4. Validity of the Reasons Provided for Freezing Assets:

The petitioner argued that the reasons provided in the freezing orders were insufficient and lacked specificity. The court, however, found that the phrase "for the purposes of investigation" in the freezing orders, along with the reference to the ECIR, was adequate to justify the ED's actions. The court highlighted that the petitioner had the opportunity to explain the circumstances of the funds received from the alleged proceeds of crime during the adjudication process.

5. Availability of Alternative Remedies for the Petitioner:

The court considered the availability of alternative remedies for the petitioner, such as approaching the adjudicating authority under the PMLA. The court referenced the judgment of the Bombay High Court in Herald Commerce Ltd., which emphasized the efficacy of such remedies and the appropriateness of the adjudicating authority in resolving disputes related to freezing orders.

Ultimately, the court dismissed the writ petition, concluding that the ED's actions were justified based on the materials presented, including the financial trail linking the petitioner to the proceeds of crime. The court held that the phrase "for the purposes of investigation" in the freezing orders was sufficient and did not warrant interference.