2025 (1) TMI 1097 - HC - Money Laundering

Seeking direction to the Enforcement Department (ED) to produce all the records as regards purported inquiry being conducted under the Foreign Exchange Management Act 1999 - challenge to search and seizure proceedings - quashing of the illegal act of freezing of the bank account of the petitioner company - reasons to believe - HELD THAT - Though the jurisdiction under Article 226 of the Constitution of India is plenary however there are self imposed limitations which are required to be followed before exercising the power of judicial review. Ordinarily interference at the stage of investigation carried out by the law enforcement agencies is not advisable because the law enforcement investigation techniques include coercive as well as covert techniques. The method of search and seizure is coercive as it is used to carry out the investigation/inquiry into the affairs if violation of a statutory provision is suspected. The search and seizure is a well known tool in the investigation which enables the law enforcement agencies to come to a conclusion. Though the Constitutional Courts are the sentinels of justice however this power is required to be exercised with due care and caution and interference at the stage of investigation is made in rare and exceptional cases. It is evident that while carrying out search proper information was supplied to the petitioner. Moreover the petitioner has not attached the ECIR. The petitioner has attached the search and seizure memos and freezing orders sent by the ED to the various banks. In the freezing orders it has been stated that the Assistant Director Unit-III (2) ED has reasons to believe from the documents in his possession that the proceeds of crime might have been diverted to the above said bank account maintained with that particular bank. Moreover as already noticed these orders were passed on 26.11.2024 whereas on the date when the arguments are heard 30 days are yet to be completed. Section 5 (5) of the 2002 Act mandates the ED to file a complaint stating the facts of such attachment before the Adjudicating Authority within a period of 30 days. The Adjudicating Authority is entitled to adjudicate the matter on receipt of a complaint. Before the Adjudicating Authority all the stakeholders are entitled to participate and explain their position. The Adjudicating Authority is required to decide the matter in a time bound manner. Against the final order of confirmation of attachment the appeal is maintainable before the Appellate Tribunal. Once the 2002 Act itself provides for sufficient safeguards it is not found appropriate for this Court to interfere at this stage. Conclusion - The legal authority of the ED to conduct search and seizure operations and freeze bank accounts without prior notice affirmed. The petitioners are provided with the opportunity to present their case before the Adjudicating Authority under the 1999 Act and the 2002 Act. Petition disposed off.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment include:

Whether the Enforcement Department (ED) followed the proper procedure during the search and seizure operations under the Foreign Exchange Management Act, 1999 (the 1999 Act) and the Prevention of Money Laundering Act, 2002 (the 2002 Act).
Whether the ED's actions, including the freezing of bank accounts, were justified and legally permissible without prior notice to the petitioners.
Whether the petitioners are entitled to the relief of quashing the Enforcement Case Information Report (ECIR) and the search and seizure operations conducted by the ED.
Whether the principles of "reading down" or "reading into" statutory provisions apply to the interpretation of Sections 37 of the 1999 Act and relevant provisions of the 2002 Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Procedure Followed by the ED

Relevant Legal Framework and Precedents: The court examined Sections 37 of the 1999 Act and Sections 5 and 17 of the 2002 Act, which outline the powers of search, seizure, and attachment without prior notice. The court referenced previous judgments, including Opto Circuits (India) Limited v. Axis Bank and Radha Krishan Industries v. State of Himachal Pradesh, to evaluate procedural compliance.
Court's Interpretation and Reasoning: The court held that the ED's actions were within the legal framework as neither the 1999 Act nor the 2002 Act requires prior notice before conducting search and seizure operations.
Key Evidence and Findings: The court noted that the ED had reasons to believe contraventions of the 1999 Act and suspected money laundering activities, justifying the search and seizure actions.
Application of Law to Facts: The court applied the statutory provisions and found that the ED's actions were based on substantial evidence and legal authority.
Treatment of Competing Arguments: The court rejected the petitioners' argument that prior notice was necessary, emphasizing that the statutory provisions do not mandate such notice.
Conclusions: The court concluded that the ED followed the correct procedure, and the petitioners' claims of procedural impropriety were unfounded.

Issue 2: Legality of Freezing Bank Accounts

Relevant Legal Framework and Precedents: The court analyzed Section 17(1A) of the 2002 Act, which permits the freezing of bank accounts if proceeds of crime are suspected.
Court's Interpretation and Reasoning: The court found that the freezing orders were justified as the ED had reasons to believe that the bank accounts contained proceeds of crime.
Key Evidence and Findings: Evidence indicated that the companies involved had received substantial sums suspected to be proceeds of crime, warranting the freezing of accounts.
Application of Law to Facts: The court applied the statutory provisions and upheld the freezing orders as a necessary measure to prevent the concealment or transfer of proceeds of crime.
Treatment of Competing Arguments: The court dismissed the petitioners' contention that the freezing orders were illegal due to a lack of prior notice, reiterating the statutory provisions allowing such actions without notice.
Conclusions: The court concluded that the freezing of bank accounts was legally permissible and necessary under the circumstances.

Issue 3: Quashing of ECIR and Search and Seizure Operations

Relevant Legal Framework and Precedents: The court considered the statutory provisions governing the issuance of ECIR and the conduct of search and seizure operations.
Court's Interpretation and Reasoning: The court held that the ECIR and search and seizure operations were legally justified based on the ED's investigation and evidence of suspected contraventions.
Key Evidence and Findings: The court noted that the ED had gathered substantial evidence indicating contraventions of the 1999 Act and suspected money laundering activities.
Application of Law to Facts: The court applied the legal framework and found that the ED's actions were supported by evidence and legal authority.
Treatment of Competing Arguments: The court rejected the petitioners' request to quash the ECIR and search and seizure operations, emphasizing the ongoing investigation and legal basis for the ED's actions.
Conclusions: The court concluded that the petitioners were not entitled to the relief sought, as the ED's actions were legally justified.

Issue 4: Interpretation of Statutory Provisions

Relevant Legal Framework and Precedents: The court examined the principles of "reading down" or "reading into" statutory provisions and their applicability to the case.
Court's Interpretation and Reasoning: The court held that these interpretive tools are not applicable in abstract but must be applied based on specific facts and circumstances.
Key Evidence and Findings: The court found that the statutory provisions were clear and did not require reinterpretation through reading down or reading into.
Application of Law to Facts: The court applied the principles of statutory interpretation and found no basis for altering the clear language of the statutory provisions.
Treatment of Competing Arguments: The court dismissed the petitioners' argument for reinterpretation, emphasizing the clarity and intent of the statutory provisions.
Conclusions: The court concluded that the statutory provisions should be applied as written, without reinterpretation.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The principles of reading down or reading into a statutory provision are interpretive tools that must be applied based on specific facts and circumstances of the present case. They cannot be invoked as abstract propositions of law."
Core principles established: The court reaffirmed the legal authority of the ED to conduct search and seizure operations and freeze bank accounts without prior notice, provided there is substantial evidence and legal basis for such actions.
Final determinations on each issue: The court dismissed the writ petitions, upholding the ED's actions and providing the petitioners with the opportunity to present their case before the Adjudicating Authority under the 1999 Act and the 2002 Act.

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