2022 (8) TMI 543 - HC - Money Laundering

Seeking stay of orders of freezing of the accounts of the petitioner - Money laundering - location of proceeds of crime - Section 17(1) of PMLA - HELD THAT - Section 17(1-A) is an alternative to Section 17(1) for facilitating the measures which are required to be taken in the event search and seizure is not practicable. Section 17(1-A) starts with the opening of an alternative avenue to an authorised officer under Section 17(1) to make an order of freezing a property where it is not practicable to seize the property. The word (used four times) in Section 17(1-A), is the word such . The word such precedes record/property and order whereever used in Section 17(1-A). The qualification of property and records by use of such fixes the sequence of steps which may be initiated by the authorised officer under Section 17(1) followed by Section 17(1-A). Before reaching the power conferred under Section 17(1-A), the authorised officer must also come to an informed finding that the exact location of proceeds of crime or the documents relating to money-laundering cannot be ascertained and hence the requirement to enter and search the premises on a reason to believe (based on material in his possession) that the proceeds of crime/documents may be located in the place of search. Second, the finding must also include the apprehension of resistance on the part of the person whose place is proposed to be entered into and searched. This would be evident from Section 17(1)(b) which includes forcible entry into the premises and breaking open of the receptacle for exercising the power conferred by Section 17(1-A). The singular absence of statements of reasons or the basis of an apprehension, factual or otherwise, for freezing the properties of the petitioners is apparent from the impugned orders. The requirement of satisfaction of the conditions stated in Section 17(1) before proceeding to Section 17(1-A) do not contemplate parroting the words used in the sections but a precise statement, in writing, reflecting the factors which form the basis of the conclusion arrived at - the impugned orders fall short at all levels of the statutory requirements. The defence that the freezing orders were passed only upon incriminating material being found in the three premises of the first petitioner cannot redeem the situation since the impugned orders do not contain any reason to believe which is a mandate for search and seizure under Section 17(1) and for freezing orders under Section 17(1-A). The PMLA cannot resort to action against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime unless the same is registered with the jurisdictional police or pending enquiry in a competent forum. More important, Vijay Madanlal Choudhary carved out a further area of exception for a person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to an order of discharge, acquittal or quashing of the criminal case against the person. An analogy can be drawn to the present facts where the stay of proceedings ordered by the Supreme Court on 14th December, 2015 is continuing till date. The impugned orders cannot be sustained either in law or in fact - Application disposed off.

Summary

Issues Involved:
1. Legality of the freezing orders dated 13th July, 2022, under Section 17(1-A) of The Prevention of Money-Laundering Act, 2002 (PMLA).
2. Compliance with procedural safeguards under Sections 17 and 17(1-A) of The PMLA.
3. Impact of the Supreme Court's stay order dated 14th December, 2015, on the actions of the Enforcement Directorate (ED).

Issue-wise Detailed Analysis:

1. Legality of the Freezing Orders:
The petitioners challenged the freezing of their bank accounts by the ED, arguing that the orders were issued without proper basis. The freezing orders, dated 13th July, 2022, were made under Section 17(1-A) of The PMLA, affecting six accounts with SBI and one with ICICI Bank. The Court noted that these orders were linked to an ECIR case from 2012 and were part of a broader context involving a 2009 Rates Circular and subsequent legal challenges. The Court found that the ED's action was not justified, given the ongoing stay by the Supreme Court on related proceedings since 14th December, 2015.

2. Compliance with Procedural Safeguards:
The Court emphasized the procedural requirements under Sections 17 and 17(1-A) of The PMLA. Section 17(1) necessitates that an authorized officer must have information and a reason to believe, in writing, that a person is involved in money-laundering or possesses proceeds of crime. The Court found that the ED failed to satisfy these prerequisites. The orders lacked specific reasons or a factual basis for the freezing action, merely parroting statutory language without detailed justification. The Court highlighted that the transition from Section 17(1) to 17(1-A) requires a clear sequence of steps, including the impracticability of seizing the property and the necessity of freezing to prevent its transfer.

3. Impact of the Supreme Court's Stay Order:
The Court noted that the Supreme Court's stay order from 2015, which halted all related proceedings, was still in effect. This stay order covered various legal challenges, including those against the 2009 Rates Circular. The Court concluded that the ED could not initiate any action against the petitioners during the subsistence of this stay. The ED's reliance on incriminating material found in the petitioner's premises did not justify the freezing orders, as there was no new ECIR case or show-cause notices post-2012.

Conclusion:
The Court held that the ED's freezing orders dated 13th July, 2022, were unsustainable in law and fact. The orders lacked the necessary procedural and factual basis required under Sections 17 and 17(1-A) of The PMLA. The Court stayed the impugned freezing orders and directed the ED not to act on them. The prayer for stay by the ED was refused, reinforcing the Court's findings and observations.

Final Orders:
The impugned freezing orders dated 13th July, 2022, were stayed, and the ED was directed not to act on these orders. The petition was disposed of accordingly, and the request for stay by the ED was denied. Urgent certified copies of the judgment were ordered to be supplied to the parties upon fulfilling requisite formalities.