2023 (4) TMI 264 - HC - Money Laundering

Validity of search - Money Laundering - scheduled offences - purchase of gold bullion under the Buyer s Credit Scheme which resulted in wrongful loss to MMTC - reasons to believe - Section 120-B read with Section 420 IPC and Section 13 of the PC Act - HELD THAT - Sub-section (1) of Section 17 of PMLA deals with two stages one is at the stage of pre-authorisation and the next is the stage of post-authorisation. In the first stage, the Director or any other officer authorised by him not below the rank of Deputy Director must have in his possession certain information; on the basis of such information in his possession, he must form reason to believe which must be recorded in writing that any person has committed any act of money laundering etc. Therefore, the information in his possession must have a causal relation with the recording of reasons which in turn must be the basis for forming the belief that any person has committed an act which constitutes money laundering - possession of information, derivation of reason from such information and thereafter formation of belief on the basis of the reasons that any person has committed an act which constitutes money laundering etc., are the sine qua non or conditions precedent for invoking the power under sub-section (1) of Section 17 of PMLA. Insofar the second stage is concerned, once the Director or the authorised officer has come to the above conclusion, he may authorise any officer subordinate to him to enter and search any building etc., where he has reason to suspect that records or proceeds of crime are kept; break open the lock of any door etc; seize any record or property found as a result of such search etc. Insofar the second stage is concerned, the authorised officer must have reason to suspect that in any building etc., records relating to money laundering or proceeds of crime are kept etc.; he can enter and search such building and seize any record or property found as a result of such search - It is recorded that there is suspicion that the accused persons are in possession of documents and properties related to the scheduled offence. It is likely that if summoned, the suspects would not disclose the documents and may take steps to further conceal the trail of documents and other evidence. Therefore, it was necessary to conduct search under Section 17 of PMLA in the premises mentioned in the note; to identify and seize available incriminating record/documents relating to the predicate offence and to the offence of money laundering; relating to the whereabouts of the proceeds of crime; to identify and trace the proceeds of crime; to recover incriminating documents relating to commission of the offence of money laundering. The learned Single Judge had erred in holding that no reasons to believe were recorded by the Additional Director which vitiated the search action carried out in the premises of respondents No.1 to 4 on 17.10.2022 and in setting aside the search action including the search warrant/ authorisation dated 17.10.2022, further directing the appellants to release the seized jewellery, cash etc., to respondents No.1 to 4. Appeal allowed.

Summary

Issues Involved:
1. Legality of the search and seizure conducted under Section 17 of the Prevention of Money Laundering Act, 2002 (PMLA).
2. Maintainability of the writ petition given the alternative remedy under Section 8(1) of PMLA.
3. Compliance with procedural requirements under Section 17 of PMLA.

Summary:

Legality of Search and Seizure:
The respondents filed a writ petition challenging the search and seizure conducted on their premises by the appellants on 17.10.2022, claiming it was contrary to Section 17 of PMLA. The respondents contended that the search warrant was not served, and the search was conducted without proper notice or hearing. They argued that the search and seizure were arbitrary and violated PMLA provisions, asserting that the seized items were part of their business stock and secured assets.

Maintainability of Writ Petition:
The appellants contested the writ petition, arguing it was not maintainable as the respondents had an alternative remedy under Section 8(1) of PMLA. They highlighted the background of the case, including an FIR and charge sheet filed by CBI against other entities, and provisional attachment orders issued by the Enforcement Directorate.

Compliance with Procedural Requirements:
The respondents argued that the search and seizure were conducted without recording reasons to believe in writing as mandated by Section 17(1) of PMLA. The learned Single Judge directed the appellants to produce the relevant records, which revealed discrepancies in the recording of reasons to believe. The Judge held that the Additional Director did not record the reasons, and the Deputy Director recorded them without date and time, thus violating Section 17(1) of PMLA. Consequently, the learned Single Judge set aside the search and seizure and directed the release of the seized items.

Appeal and Final Judgment:
The appellants filed an appeal against the Single Judge's order. They submitted affidavits explaining that the reasons to believe were recorded on 16.10.2022 by the Additional Director, and the search warrant was issued on 17.10.2022. The Court found that the reasons to believe were indeed recorded as required by Section 17(1) of PMLA. The Court concluded that the learned Single Judge erred in holding that no reasons to believe were recorded, which vitiated the search action. Consequently, the Court set aside the Single Judge's order and allowed the appeal, affirming the legality of the search and seizure conducted on 17.10.2022.