2024 (9) TMI 1667 - HC - Money Laundering

Money Laundering - predicated crime - proceeds of crime - Propriety in passing interim order in the nature of staying the provisional freezing order - It is alleged that the borrower has manipulated project cost statements and also diverted the bank funds to its subsidiaries - Compliance with procedural requirements under Section 17 of the PML Act - HELD THAT - The reasons stated in the order under Section 17(1) of the PML Act indicates that the accused of predicated offence carried out diversion and layering of the POC through related parties and dummy entities for the accumulation of the assets. It is not in dispute that the parties are related with the Directors of M/s Corporate Power Limited as well as registered office is one of the same. In this background by resorting the powers under Section 17 of the PML Act the Assistant Director Enforcement Directorate has passed freezing orders and by the time the matter has been referred to the Adjudicating Authority. The Authority on receipt of an application under Section 17(4) of the PML Act has already issued summons to the petitioners seeking their explanation. Preliminary investigation paper indicates that during search various property documents electronic record were recovered on the same registered premises. It was primarily revealed that the seized assets were diversion of proceeds of crime of the accused company in dummy entities of the relatives of accused. Primary search indicates that crores of rupees have been transferred from accused company to the faulty companies. Prima facie there are no deficiency to invoke writ jurisdiction in either of the petitions. The Magnitude of the investigation is quite vast as allegedly huge sum to the extent of Rs. 4037.87 crores has been siphoned through various shell entities. In the wake of above position the petitioners have to satisfy the Adjudicating Authority which is the mechanism set up for its redressal. Apparently an effective efficacious remedy is available for the petitioners. In view of above at this stage there are no propriety in passing interim order. The Authority to expedite the proceeding contemplated under Section 8(2) of the PML Act. Place the matter for further consideration after six weeks for filing a reply.

Summary

Issues:
1. Provisional freezing order under the Prevention of Money-Laundering Act, 2002.
2. Allegations of mala fides, arbitrariness, and violation of fundamental rights in freezing the accounts.
3. Compliance with procedural requirements under Section 17 of the PML Act.
4. Jurisdiction and powers of the Adjudicating Authority under the PML Act.
5. Nexus between the petitioners and the alleged criminal activities.
6. Request for interim relief to operate frozen accounts.

Analysis:

The judgment by the High Court of Bombay addresses several crucial issues arising from the provisional freezing order under the Prevention of Money-Laundering Act, 2002. The lead petitioner, a Company involved in share investment, challenged the freezing of its accounts under Section 17(1-A) of the PML Act following allegations of criminal activities by another entity. The petitioners argued that the freezing action lacked proper reasoning and unfairly impacted their business operations, violating their fundamental rights.

The petitioners contended that the freezing order was arbitrary and lacked a nexus between their activities and the alleged offenses. They emphasized the need for the Authority to establish both the characteristics of money laundering and the proceeds of crime before freezing accounts, citing relevant case laws such as Rashmi Metaliks Limited and others v. Enforcement Directorate. Additionally, they relied on the Supreme Court decision in Vijay Madanlal Choudhary v. Union of India to highlight the obligations on the Authority during search and seizure actions under the PML Act.

On the other hand, the Deputy Solicitor General of India argued that the PML Act provides a specific mechanism for seizure and adjudication, with the Adjudicating Authority empowered to hear claims of wrongful attachment. The DSGI highlighted statutory presumptions under the PML Act and asserted that the petitioners, characterized as shell companies facilitating fund siphoning, would have the opportunity to present their case before the Adjudicating Authority.

The Court considered the nature of the alleged offenses, including criminal conspiracy and fund diversion, and the substantial sums involved in the case. It opined that the petitioners should address their concerns through the Adjudicating Authority, which was already seized with the matter. The Court found no basis to grant interim relief at that stage, emphasizing the availability of an effective remedy through the statutory process outlined in the PML Act.

In conclusion, the Court deferred further consideration of the matter for six weeks to allow the parties to file their replies, highlighting the importance of engaging with the Adjudicating Authority for redressal under the PML Act.