2025 (1) TMI 607 - AT - Money Laundering

Obligation to provide the reasons to believe recorded under Section 17(1) of the Prevention of Money-Laundering Act, 2002 (PMLA) to the concerned parties - Adjudicating Authority has denied copy of the reasons to believe recorded under Section 17(1) of the Act of 2002 - HELD THAT - The appellant insisted for supply of copy of reason to believe recorded under section 17(1) of the Act of 2002. It is not mandated and otherwise according to the Adjudicating Authority, the reason to believe recorded under section 17 of the Act of 2002 by the ED was sent to the Adjudicating Authority in a sealed cover and in the proforma provided under the rules. It is for the perusal of the Adjudicating Authority along with other material to analyze whether any reason exist for causing show cause notice. The order of the Adjudicating Authority has been taken to mean that the reasons to believe recorded under section 17(1) of the Act of 2002 and send in the sealed cover cannot be opened, rather, it is kept in the sealed cover itself. In fact, no such finding has been recorded or direction has been given for it. Conclusion - The ED is not obligated to provide the reasons to believe recorded under Section 17(1) to the appellant. Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are as follows:

Whether the Enforcement Directorate (ED) is obligated to provide the "reasons to believe" recorded under Section 17(1) of the Prevention of Money-Laundering Act, 2002 (PMLA) to the concerned parties.
What is the procedure for the ED and the Adjudicating Authority in handling documents and "reasons to believe" under Sections 17 and 8 of the PMLA?
Whether the Adjudicating Authority is required to supply all relied upon documents (RUDs), including the "reasons to believe" recorded by the ED, to the parties concerned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Obligation to Provide "Reasons to Believe"

Relevant Legal Framework and Precedents: The appellant relied heavily on the Delhi High Court's judgment in the case of J.K. Tyre and Industries Ltd. v. Directorate of Enforcement, which discussed the procedural obligations of the ED and the Adjudicating Authority under the PMLA.
Court's Interpretation and Reasoning: The court noted that the Delhi High Court had not definitively ruled that the ED must provide the "reasons to believe" recorded under Section 17(1) to the concerned parties. The issue was pending before the Supreme Court.
Key Evidence and Findings: The court found no mandate in the existing legal framework requiring the ED to supply the "reasons to believe" to the appellant.
Application of Law to Facts: The court observed that the Adjudicating Authority had provided all necessary RUDs under Section 8(1), but the "reasons to believe" under Section 17(1) were not included as they were not mandated to be shared.
Treatment of Competing Arguments: The appellant's argument that the "reasons to believe" should be part of the RUDs was not supported by the Delhi High Court's judgment, as the issue was deferred pending Supreme Court consideration.
Conclusions: The court concluded that the ED is not required to provide the "reasons to believe" recorded under Section 17(1) to the appellant, as per the current legal framework and pending judicial clarification.

Issue 2: Procedure for Handling Documents and "Reasons to Believe"

Relevant Legal Framework and Precedents: The Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the manner of forwarding the reasons and material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005, and the Adjudicating Authority (Procedure) Regulations, 2013, were referenced.
Court's Interpretation and Reasoning: The court emphasized the two-tier process involving independent satisfaction by the ED and the Adjudicating Authority, as outlined in the Delhi High Court's judgment.
Key Evidence and Findings: The Adjudicating Authority is required to independently record its "reason to believe" under Section 8(1), separate from the ED's reasoning under Section 17(1).
Application of Law to Facts: The court noted that the Adjudicating Authority had complied with the procedural requirements by providing the RUDs under Section 8(1) but was not obligated to share the ED's "reasons to believe."
Treatment of Competing Arguments: The appellant's insistence on receiving the ED's "reasons to believe" was deemed an attempt to delay proceedings, as the legal framework did not support this demand.
Conclusions: The court upheld the procedural integrity of the Adjudicating Authority's actions and dismissed the appellant's claims for additional documents.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The Adjudicating Authority cannot mechanically go by the reasons recorded by the ED, and has to have separate and independent grounds to believe that such an offence has been committed."
"The obvious consequence is to supply all the relied upon documents (RUDs) which formed the basis for reasons to believe for retention of the documents (RUDs) seized by the respondent."

Core Principles Established:

The Adjudicating Authority must independently assess and record its "reason to believe" under Section 8(1), distinct from the ED's reasoning under Section 17(1).
The legal framework does not mandate the sharing of the ED's "reasons to believe" with the concerned parties, pending further judicial clarification.

Final Determinations on Each Issue:

The appeals were dismissed, affirming that the ED is not obligated to provide the "reasons to believe" recorded under Section 17(1) to the appellant.
The procedural actions of the Adjudicating Authority were upheld as compliant with the PMLA and associated regulations.

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