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2025 (4) TMI 1398 - HC - Money LaunderingChallenge to direction issued by the Directorate of Enforcement (ED) to the HDFC Bank by invoking sub-section (4) of Section 8 of the Prevention of Money-Laundering Act 2002 - provisional attachment of the properties - power of Directorate of Enforcement (ED) to direct a bank to transfer the amounts held in Fixed Deposits (FDs) along with accrued interest - HELD THAT - Since the fixed FDRs which is a movable property and the power has been exercised by the Deputy Director an Officer subordinate to the Director of Enforcement who is bound by the procedure that is specifically set out in Chapter III of the PMLA in relation to the attachment adjudication and confiscation since the FDR s of the petitioners has already faced an attachment the direction issued to transfer the amount in the name of the Directorate of Enforcement to be unsustainable. The attempt on the part of the respondent to seek recourse to the provisions of the Prevention of Money-Laundering (Issuance of Provisional Attachment Order) Rules 2013 it is unable to trace any such power to direct transfer of the property while the proceedings are pending before the Special Court in the name of the Enforcement Director and we do not think that Rule 5 of the Rules of 2013 in any case permit such a course of action to be adopted. There are no justification for the aforesaid action and the learned Additional Public Prosecutor in addition has not been able to point out any power permitting the transfer of the amount in the Fixed Deposits along with the interest in the name of the Enforcement Directorate it is deemed appropriate to quash and set aside the said direction though it is made clear that in so far as the order of attachment which is already pending before the appellate Authority the final decision shall be taken by the Authority with all the remedies that are available to be invoked by the petitioner. Conclusion - i) The direction issued by the ED to the bank to transfer the FD amounts along with accrued interest to the Enforcement Directorate was quashed and set aside. ii) The attachment order confirmed by the Adjudicating Authority remains in force and the petitioner s appeal against it is pending with all remedies available. Petition allowed in part.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Power of ED under Section 8(4) PMLA and related Rules to direct transfer of FD amounts during pendency of proceedings Relevant legal framework and precedents: Section 8 of the PMLA, 2002, under Chapter III, governs attachment, adjudication, and confiscation of property involved in money laundering. Sub-section (1) empowers the Director or an officer not below the rank of Deputy Director to provisionally attach property believed to be proceeds of crime for a maximum of 180 days. The provisional attachment must be confirmed by the Adjudicating Authority under sub-section (3), after which the attachment continues during investigation or trial. Sub-section (4) mandates that upon confirmation of attachment, the Director or authorized officer shall "forthwith take possession" of the attached or frozen property in the prescribed manner. Sub-section (5) and (7) provide for confiscation orders by the Special Court after trial. The Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013, particularly Rules 4(4) and 4(5), prescribe the procedure for taking possession of attached or frozen properties. Court's interpretation and reasoning: The Court noted that the power to attach property provisionally and confirm such attachment is clearly delineated under Section 8. However, the phrase "take possession" under sub-section (4) does not explicitly authorize the ED to direct the transfer of the amounts held in Fixed Deposits to the Enforcement Directorate's name during the pendency of adjudication or trial. The Court emphasized that possession of movable property such as FDs does not necessarily mean transfer of title or ownership, especially before confiscation orders are passed by the Special Court. The Court further observed that the power exercised by the Deputy Director (a subordinate officer) must conform strictly to the procedure prescribed under Chapter III of the PMLA. The direction to the bank to transfer the FD amount along with accrued interest by way of a Demand Draft to the ED was found to exceed the statutory mandate. Key evidence and findings: The provisional attachment order dated 06.02.2024 was confirmed by the Adjudicating Authority on 30.07.2024. The ED issued a communication directing the bank to transfer the FD amounts. The petitioner challenged this direction, contending that the ED lacked power to effect such transfer during pendency of proceedings. Application of law to facts: The Court applied the statutory scheme of Section 8 and the relevant Rules to the facts and concluded that the ED's direction to transfer the FD amounts was not supported by the PMLA or the Rules. The attachment confirmed by the Adjudicating Authority only freezes the property and does not vest ownership or possession in the ED to the extent of transferring funds before final confiscation. Treatment of competing arguments: The ED relied on Section 8(4) and Rules 4(4), 4(5) of the 2013 Rules to justify the direction. The Court rejected this interpretation, noting the absence of any express power to transfer funds and the procedural safeguards embedded in the PMLA to protect the rights of the attached party pending final adjudication. Conclusion: The direction by the ED to transfer FD amounts along with interest to its name during pendency of the appeal and trial was held to be unsustainable and beyond the scope of statutory powers. Issue 2: Scope of attachment, adjudication, and confiscation under Section 8 and interplay with Special Court proceedings Relevant legal framework and precedents: Section 8(3)(b) provides that the order passed by the Adjudicating Authority becomes final only after an order of confiscation is passed by the Special Court under sub-section (5) or (7). The confiscation order is made only after trial and conviction for money laundering. Until then, the attachment remains provisional or confirmed but not final. Court's interpretation and reasoning: The Court emphasized the sequential process envisaged by the statute: provisional attachment -> confirmation by Adjudicating Authority -> trial and confiscation by Special Court. The Court underscored that the confirmed attachment order does not transfer ownership or possession rights to the ED but merely freezes the property to prevent its dissipation. Key evidence and findings: The petitioner had challenged the attachment order and had an appeal pending before the Appellate Tribunal. The Court acknowledged the ongoing appellate proceedings and the safeguards available to the petitioner. Application of law to facts: The Court held that the attachment order remains in force during investigation or trial but does not authorize the ED to dispose of or transfer the property before final confiscation. The procedural protections ensure that the petitioner's rights are preserved until the Special Court's determination. Treatment of competing arguments: The ED's attempt to expedite possession by transfer of funds was rejected as inconsistent with the statutory scheme and the principle of fair adjudication. Conclusion: The confirmed attachment order is effective to freeze the property but does not authorize transfer or disposal of the property before final confiscation by the Special Court. Issue 3: Validity of relying on the Prevention of Money-Laundering (Issuance of Provisional Attachment Order) Rules, 2013 to justify transfer of property Relevant legal framework and precedents: The Prevention of Money-Laundering (Issuance of Provisional Attachment Order) Rules, 2013, regulate the procedure for issuing provisional attachment orders under the PMLA. Rule 5 of these Rules was specifically considered. Court's interpretation and reasoning: The Court found no provision in these Rules that permits the ED to direct transfer of attached property amounts to itself during pendency of proceedings. The Rules focus on procedural aspects of attachment and do not confer substantive rights to possession or ownership before final confiscation. Key evidence and findings: The ED's reliance on Rule 5 to justify the transfer direction was not supported by the text or intent of the Rules. Application of law to facts: The Court held that the Rules cannot be interpreted to override the statutory safeguards and the scheme of Chapter III of the PMLA. Treatment of competing arguments: The ED's argument was rejected as lacking statutory foundation. Conclusion: The Rules do not empower the ED to transfer attached property amounts during ongoing adjudication or trial. 3. SIGNIFICANT HOLDINGS The Court held:
Core principles established include:
Final determinations on each issue:
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