2024 (9) TMI 779 - HC - Money Laundering

Money Laundering - breach of bank secrecy - collection of financial information of accounts, which were used for money laundering in benefit of a transnational criminal organization - proceedings under PMLA - Contracting state under PMLA - Effects of corruption in the economy of a country. Proceedings under PMLA - HELD THAT - An appeal against an Order U/s. 8(1) of the PMLA lies to the Appellate Tribunal, PMLA U/s. 26 of the PMLA and the same is to be filed within a period of 45 days from the date of receipt of the order. The Petitioner has also filed an appeal U/s. 26 of the PMLA in PMLA/FPA-PMLA No. 5322 of 2022 challenging the Order dated 21.10.2022 and that the same is pending before the Appellate Tribunal, PMLA. Contracting state under PMLA - HELD THAT - Chapter IX of the PMLA, titled 'Reciprocal Arrangements for Assistance in Certain Matters and Procedure of Attachment and Confiscation of property' deals with reciprocal arrangement with a contracting state. Effects of corruption in the economy of a country - HELD THAT - Businessmen often view corruption as a form of illegal tax due to the secrecy involved and the unpredictability of whether the bribe-taker will honour their part of the deal. This perception reduces their motivation to invest. This results in a significant reduction in investment and affects the economic growth of the nation in a serious way - Corruption results in the diversion of benevolent funds that are spent for the purpose of economic and social upliftment of the country and thus slows down the socio-economic growth of the country - When corruption takes the form of tax evasion or claiming improper tax exemptions, corruption brings about loss of tax revenue which further affects the economic growth of the country. All the three grounds raised by the petitioner fail and thus, there are no reason to interfere with the impugned order - petition dismissed.

Summary

Issues Involved:
1. Validity of the order under Section 17(1A) of the Prevention of Money Laundering Act, 2002 (PMLA).
2. Requirement of Government notification under Section 56 of PMLA.
3. Necessity of filing an Enforcement Case Information Report (ECIR) under Section 58 of PMLA.
4. Competence of the Assistant Director, Enforcement Directorate, to issue the order.
5. Proceedings under PMLA and the role of contracting states.
6. Effects of corruption on the economy.

Detailed Analysis:

I. Validity of the Order under Section 17(1A) of PMLA:
The judgment addresses the challenge to the order passed by the Directorate of Enforcement under Section 17(1A) of PMLA. The petitioner's accounts were frozen due to the alleged receipt of funds linked to corruption and money laundering activities in Brazil.

II. Requirement of Government Notification under Section 56 of PMLA:
The petitioner argued that no government notification was issued regarding an agreement between India and Brazil under Section 56 of PMLA, making the invocation of this section invalid. However, the court clarified that Section 56(2) uses the term "may" and not "shall," indicating that a notification is not mandatory if a reciprocal agreement exists. The court found that the existing agreement between India and Brazil under the United Nations Convention against Corruption (UNCAC) suffices for enforcing PMLA provisions.

III. Necessity of Filing an ECIR under Section 58 of PMLA:
The petitioner contended that no ECIR was filed, which is mandatory under Section 58 of PMLA. The court referred to the Supreme Court's ruling in *Vijay Madanlal Choudhary and Others Vs. Union of India and Others*, stating that filing an ECIR is not a statutory requirement for initiating actions under PMLA. The court emphasized that ECIR is an internal document and not a prerequisite for commencing investigations or freezing assets.

IV. Competence of the Assistant Director, Enforcement Directorate, to Issue the Order:
The petitioner challenged the competence of the Assistant Director, arguing that only the Deputy Director is authorized to issue such orders. The court did not find merit in this argument, as the actions taken were within the legal framework provided by PMLA, and the Assistant Director's role was validated by the subsequent confirmation from the Adjudicating Authority.

V. Proceedings under PMLA and the Role of Contracting States:
The judgment elaborates on the reciprocal arrangements under Chapter IX of PMLA, which facilitate cooperation between contracting states like India and Brazil. The court highlighted the binding nature of international treaties like UNCAC and the United Nations Convention against Transnational Organized Crime (Palermo Convention), which empower India to act on requests from Brazil.

VI. Effects of Corruption on the Economy:
The court discussed the detrimental impact of corruption on economic growth, investment, and tax revenue. Corruption is likened to an illegal tax that discourages investment and diverts funds meant for social and economic development, thereby hampering the nation's progress.

Conclusion:
The court dismissed the writ petition, rejecting all three grounds raised by the petitioner. The petitioner was advised to approach the Appellate Tribunal under Section 26 of PMLA for further recourse. The court emphasized that the observations made in the judgment should not influence the Tribunal's decision on merits.

Order:
The writ petition is dismissed with no costs, and the connected miscellaneous petitions are closed.