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TMI Blog2019 (4) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings under the provisions of PMLA for securing “proceeds of crime” does not arise at all and the present proceedings are completely abuse of process of law. The continuation of proceedings are just for harassment and nothing else. The complainant has already deposed her statement who raised no-objection to quash the said F.I.R. before the Hon’ble Delhi High Court. She has settled the disputes prior to registering the ECIR, search and seizure, on the date of filing of application under Section 17(4) for retaining the records In the present case, the statutory obligations laid down in section 20 (1), 20(2), 20 (4) and 21(4) of PMLA have not been complied with. An attempt has been made to retain the records without recording any ‘reason to believe’. The provisions of section 8 (3) (a) provides that the attachment or retention of property or record seized shall continue during the investigation for a period not exceeding ninety days. The said prescribed period has already been expired as more than a year has already elapsed but the properties and records have not been returned so far which is in clear violation of the provisions of PMLA. No prosecution complaint has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the producers of sound recordings (i.e. by commissioning or in furtherance of an employment contract), under section17 of the Copyright Act and in all such cases, the first owner of copyright in such underlying works was the producer of the sound recordings (whether film or non-film). Thus, the producers of sound recordings, being the first owners of copyright in the underlying works, there was no requirement for an assignment of any rights in the underlying works from the original authors or composers to the producers. As the appellant in-turn acquired rights in the underlying literary and musical works from the producers of sound recordings and not directly from authors / composers of the underlying literary and musical works, there is no privity of contract between the appellant and such authors/composers. e. Once the rights in sound recordings and underlying literary and musical works are acquired, the same are monetized by the appellant by further transferring interests in these rights (as outlined below) to third parties through various agreements, pursuant to which the appellant acquires the right to receive contractual royalty and/or licence fees. f. Every copyrigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollecting royalties for the works of authors and not distributing such royalties to the authors. The Shubha Mudgal FIR further alleges that music companies have nominated common directors on the boards of IPRS and PPL, and such common directors have used this position to siphon off the money of the music composers and lyricists to third party entities associated with PPL. 11. The complaint was subsequently withdrawn by Ms. Shubha Mudgal on 29.5.2017 and accordingly a petition was filed on behalf of IPRS and its officers before the Delhi High Court, seeking to quash the criminal proceedings. The Shubha Mudgal FIR has been withdrawn, the Respondent despite of the same has still continued investigations based on theShubha Mudgal FIR and corresponding ECIR, including against the appellant. 12. On the basis of Shubha Mudgal FIR, investigations were initiated by the Respondent against IPRS under the provisions of the PMLA. Pursuant to the same, summons dated 29.10.2017 were served on Mr. Devraj Sanyal on 3.11.2017 in the capacity as Managing Director of the appellant, to tender evidence. 13. On 3.11.2017, a search and seizure was conducted by the Respondent under Section 17 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication is made under Section17(4) of the PMLA. The order states that the nature of the investigation warrants it just and proper that the document be retained in terms of Section 8(3) of the PMLA. 18. In the Impugned Order, the Adjudicating Authority has recorded that the retention of the Seized Documents does not affect the substantial rights of the appellant. The Adjudicating Authority was aware that the Shubha Mudgal FIR was withdrawn. Despite of that, it was observed that the commission of scheduled offence and involvement of proceeds of crime. 19. There is no denial that the Economic Offence Wing (EOW), Delhi registered F.I.R. No. 167 of 2016 dated 26.10.2016 ( 2nd FIR or present FIR ) at the instance of Ms. Shubha Mudgal invoking Sections 406, 409 and 120 (B) of Indian Penal Code, 1860 against a Copyright Society namely Indian Performing Rights Society ( IPRS ) and PPL. Ms. Shubha Mudgal had addressed several letters to the Investigating Officer stating that she desires to withdraw her allegations/complaint. However, despite being aware of the fact that she was not desirous of proceeding with case, the Respondent still proceeded to register the 2nd ECIR bearing no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld fall within the purview of the Act. The Enforcement Directorate must disclose in how many cheque bouncing cases, nearly all of which involve section 420 IPC, have they registered an ECIR. 59. Therefore, it cannot be the Scheme of t Act whereby bona fide person without having any direct/indirect involvement in the proceeds of the crime or its dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere suspicion when the element of mens rea or knowledge is missing. 63. It is evident from the record that the appellant has been following the international standards and norms of collection and distribution of royalty. The amounts of the royalty collected and pending distribution could in no manner be construed as cheating. The appellant had been filing all the statutory returns under the Income Tax Act and the Companies Act on time and never ever an iota of suspicion has ever been raised by any of the Statutory Authority in respect of the working of the Appellant or with regard to its financial statements and returns. 64. The balance amount of royalty lying in the investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the said F.I.R. on the basis of which the present ECIR is registered, nothing survives in the matter any further. 26. It is a matter of fact that the Appellant has not been arrayed as an Accused in the said F.I.R. and the subsequent ECIR which was registered on the basis of the aforesaid 2nd F.I.R. No FIR or Charge-sheet has been filed against the Appellant anywhere in India in connection with the dispute which forms the subject matter of the aforesaid 2nd F.I.R. Even the allegations which are against third parties by Ms. Shubha Mudgal essentially is private in nature. The dispute between the said parties were personal and civil in nature. 27. When the IPRS has approached the Hon ble Bombay High Court by filing Criminal Writ Petition No. 5083 of 2017, inter alia, praying for the Hon ble Court to quash the 1st ECIR., in the aforesaid Criminal Writ Petition, the Hon ble Bombay High Court has passed an order dated February 27, 2018 wherein it has been categorically observed that: In any event, we find that on the basis of solitary complaint by one of the members of the Petitioner society against the erstwhile office bearers of the society, a drastic step of initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer not below the rank of Deputy Director authorised by him for the purposes of this section,] on the basis of information in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person - (i) has committed any act which constitutes moneylaundering, or (ii) is in possession of any proceeds of crime involved in money-laundering, or (iii) is in possession of any records relating to moneylaundering, (or) (iv) is in possession of any property related to crime then, subject to the rules made in this behalf, he may authorize any officer subordinate to him to - (a) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept; (b) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available; (c) seize any record or property found as a result of such search; (d) place marks of identification on such record or [property, if required or] make or cause to be made extracts or copies therefrom; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence. Provided that no authorization referred to in subsection (1) shall be required for search under this sub-section. (4) The authority seizing any record or property under sub- Section (1) or freezing any record or property under sub- Section (1A) shall, within a period of thirty days from such seizure or freezing, as the case may be, file an application, requesting for retention of such record or property seized under sub-Section (1) or for continuation of the order of freezing served under sub-Section (1A), before the Adjudicating Authority.]. 34. Section 18 of PMLA, 2002 reads as under: 18. Search of persons. - (1) If an authority, authorised in this behalf by the Central Government by general or special order, has reason to believe (the reason for such belief to be recorded in writing) that any person has secreted about his person or in anything under his possession, ownership or control, any record or proceeds of crime which may be useful for or relevant to any proceedings under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty seized in the course of the search and obtain the signatures of the witnesses on the list. (8) No female shall be searched by any one except a female. (9) The Authority shall record the statement of the person searched under sub-section (1) or sub-section (5) in respect of the records or proceeds of crime found or seized in the course of the search:18 [***] (10) The authority seizing any record or property under subsection (1) shall, within a period of thirty days from such seizure, file an applicationrequesting for retention of such record or property, before the Adjudicating Authority. 35. Sub-section (1), (2) and (3) of Section 20 read as under:- 20. Retention of property. - (1) Where any property has been seized under section 17 or section 18 or frozen under sub-Section (1A) of Section 17 and the officer authorised by the Director in this behalf has, on the basis of material in his possession, reason to believe (the reason for such belief to be recorded by him in writing) that such property is required to be retained for the purposes of adjudication under section 8, such property may, if seized be retained or if frozen, may continue to remain fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (2A) of section 60] , the Adjudicating Authority shall direct the release of the records to the person from whom such records were seized. (6) Where an order releasing the records has been made by the Court [Adjudicating Authority under section (5) of section 21] the Director or any other officer authorised by him in this behalf may withhold the release of any such record for a period of ninety days from the date of (receipt of] such order, if he is of the opinion that such record is relevant for the appeal proceedings under this Act. ] 37. It is settled law that a particular thing is to be done in a particular manner, it must be done in that way and none other. Reliance in this regard is also placed on a judgements of Hon ble Supreme Court in the cases of Dipak Babaria and another vs. State of Gujarat 2014 (3) SCC 502 and J. Jayalalitha Anr vs State of Karnataka Ors 2014 (2) SCC 401. 38. Sub-section (1) of Section 17 provides that the authorised officer has to record the reason to believe in writing. In the such reason to believe, he has also to record the basis of information which is in his possession before conducting the search and seizure. 39. It stipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, can make such order that the person concerned shall not transfer or deal with the said property prior to the permission of the officer authorised. A copy of the said order shall be served upon the person concerned. Section 17, Sub-section (2) stipulates that after search and seizure, the authorised officer shall immediately forward a copy of the reason so recorded along with the material in his possession to the Adjudicating Authority in a sealed cover. 41. The authorised officer is to follow the following steps after search and seizure or frozen of any property, any action taken under Section 17(2) or 17(1A) i) the first one is that in case the authority seizes any record or material under sub-section (1) or sub-section (1A) of Section- 17, the authorized officer shall within a period of thirty days from the date of seizure or frozen can file the application requesting for retention of such property. ii) Secondly, sub-section (1) of Section 20 mandates that where any property has been seized under Section 17 or Section 18 or frozen under sub-section (1A) of Section17, the officer authorised on the basis of material in his possession has chosen to retain the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 8, PMLA reasons to believe have to be recorded in writing by the Respondent and the Adjudicating Authority at three stages, which are as follows:- i) The officer carrying out the freezing action under Section 17(1),17(1A) and 18(1) has to record his reasons to believe in writing in terms of Section 17(1) (i) to (iv), PMLA. ii) After the property is frozen, the officer authorized has to record his reasons to believe in writing and pass an Order for continuation of freezing of the property in terms of Section 20(1) read with 20(2), PMLA. A copy of order along with the material is to be delivered to Adjudicating Authority in sealed envelope in the prescribed manner. iii) The Adjudicating Authority has to record its reasons to believe in writing under Section 8(1) at the stage of adjudication. 46. If the records seized or frozen within the meaning of Section 21, the officer authorised has to record the reason to believe . It can only be retained not exceeding one hundred and eighty days and further retention can only to continue, subject to the condition to the satisfaction of Adjudicating Authority. Under Section (2) of Section 21 of the Act, the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on behalf of the respondent. If the person concerned are more than one, the officer authorized is to record the independent/separate, reasons to believe for each person concerned . 50. If no valid reasons to believe are recorded, the issuance of notice to the person concerned or without going into the material and non-application of mind, the same would be considered as valid notice. It is settled law that if the Show-Cause notice fails to fulfil the basic ingredients as laid down by a Constitutional Bench of the Hon ble Supreme Court in Khem Chand v. Union of India [AIR 1958 SC 300], the Show-Cause Notice itself is bad in law. Thus, it is vitiating the proceedings. Also see another judgement in the case of Aslam Mohammad Merchant v. Competent Authority [2008 (14) SCC 186] in this regard. Communication of order(s) or supply copy of reason to believe 51. It is argued on behalf of respondent that in the absence of specific provision, copy of order of reason to believe or any order passed as stipulated under sections 20 and 21 of the Act is not to be served to any person concerned/aggrieved party at any stage even in the appeal proceedings.Let me now discuss the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations. f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. g. Reasons facilitate the process of judicial review by superior Courts. h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. j. Insistence on reason is a requirement for both judicial accountability and transparency. k. If a Judge or a quasi-judicial authority is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rials produced before him. Such materials must have been gathered during the investigation carried out in terms of Section 68-E or otherwise. Indisputably therefore, he must have some materials before him. If no such material had been placed before him, he cannot initiate a proceeding. He cannot issue a show cause notice on his own ipse dixit. A roving enquiry is not contemplated under the said Act as properties sought to be forfeited must have a direct nexus with the properties illegally acquired. 29. It is now a trite law that whenever a statute provides for `reason to believe', either the reasons should appear on the face of the notice or they must be available on the materials which had been placed before him. We have noticed hereinbefore that when the authority was called upon to disclose the reasons, it was stated that all the reasons were contained in the show cause notices themselves. They, however, in our opinion, do not contain any reason so as to satisfy the requirements of sub-section (1) of Section 68H of the Act. c) In Joti Parshad Vs. State of Haryana [1993 Supp (2) SCC 497], the Hon ble Supreme Court observed that suspicion and reason to believe are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch complaint accompanied by the reasons, as found in the file, must be served by the AA upon the person affected by such attachment after the AA adds its own reasons why he prima facie thinks that the provisional attachment should continue. 75. There are two reasons to believe. One recorded by the officer passing the order under Section 5(1) PMLA and the other recorded by the AA under Section 8(1) PMLA. Both these reasons to believe should be made available to the person to whom notice is issued by the AA under Section 8(1) PMLA. The failure to disclose, right at the beginning, the aforementioned reasons to believe to the noticee under section 8(1) PMLA would not be a mere irregularity but an illegality. A violation thereof would vitiate the entire proceedings and cause the order of provisional attachment to be rendered illegal. 76. The Court disagrees with the learned counsel for the Union of India that there is no mandatory requirement, under section 8(1) PMLA, to communicate to the noticee the reason to believe. On a collective reading of Section 5(1) PMLA and Section 8(1) PMLA, such an interpretation is contraindicated and cannot satisfy the requirement of what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide by the Superior Court, the said decision remains effective as a precedent though may not be binding upon the parties to the proceeding where the superior Court has granted interim order. 20. Therefore, the effect of the order of stay in a pending appeal before the Apex Court does not amount to any declaration of law but is only binding upon the parties to the said proceedings and at the same time, such interim order does not destroy the binding effect of the judgment of the High Court as a precedent because while granting the interim order, the Apex Court had no occasion to lay down any proposition of law inconsistent with the one declared by the High Court which is impugned. [Emphasis Supplied] 56. Therefore, it is wrong to allege on behalf of respondent ED that the said judgement rendered by the Hon ble Division Bench of the Delhi High Court cannot be relied upon or not applicable. Unless it is set-aside by the Supreme Court, the same remained effective. The same may not be binding upon between the parties, but it has a binding effect to this Tribunal. It is also mentioned, it is one of the many judgements. 57. In the present case, admittedly the name of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all matters relevant for the purposes of any investigation under this Act: [Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such [(1A) Where it is not practicable to seize such record or property, the officer authorised under sub-section (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned: Provided that if, at any time before its confiscation under subsection (5) or sub-section (7) of Section 8 or Section 58B or sub- Section (2A) of Section 60, it becomes practical to seize a frozen property, the officer authorised under sub-Section (1) may seize such property.] (2) The auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, which shall not be ordinarily less than thirty days, to indicate the sources of his income, earnings or assets, out of which or by means of which he has acquired such property, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties, as the case may be, should not be declared to be illegally acquired properties and forfeited to the Central Government under this Act. (2) Where a notice under sub-section (1) to any specifies any property as being held on behalf of such person by any other person. a copy of the notice shall also be served upon such other person. 60. The Hon ble Supreme Court in the case of P.P. Abdulla v. Competent Authority , (2007) 2 SCC 510, while considering an order of confiscation under the SMUGGLERS AND FOREIGN EXCHANGE MANIPULATORS (FORFEITURE OF PROPERTY) ACT, 1976 has held: 7. Learned counsel submitted that it has been expressly stated in Section 6(1) that the reason to believe of the competent authority must be recorded in writing. In the counter-affidavit it has also been stated in para 8 that the reasons in the notice under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that that the law declared by the Supreme Court shall be binding on all Courts within the territory of India. The Apex Court interpreted that all courts includes Tribunal and even the authorities. It is immaterial whether the law declared by the Hon ble Supreme Court is in one enactment or the other enactment, but the ratio of that judgment, whether passed in any of the enactments is binding. Hence, the material aspect is the declaration of the law on a particular point or issue, and not the enactment in which the law was declared. 65. If the Legislature incorporated identical language in the analogous provisions of statutes, the law declared by the Supreme Court on such language would be binding on the Court and authority where such point/ issues were raised and argued. Therefore, there is no force in the submission made on behalf of respondent. 66. From the impugned order, it appears that there is no discussion at all with regard to retention the property or any valid reasons are given for retention of property, merely stating that no solid objection is there, therefore the order of retention of property is passed without application of mind. The case on merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Authorized Officer 4. Rule 4 of Retention Rules, 2005: Acknowledgment of Order by the Adjudicating Authority Rule 5 of Attachment Rules, 2005: Acknowledgment of Order by the Adjudicating Authority 5. S.20(1): Outer limit of 180 days S.5(1): Outer limit of 180 days 6. S.8(3): Order by the Adjudicating Authority S. 8(3): Order by the Adjudicating Authority 7. S.8(3)(a): Retention restricted to 90 days during investigation. S.8(3)(a): Attachment restricted to 90 days during investigation. 70. In the present case, the statutory obligations laid down in section 20 (1), 20(2), 20 (4) and 21(4) of PMLA have not been complied with. An attempt has been made to retain the records without recording any reason to believe . In this regard, reliance is placed upon the following judgment: (i) B. Rama Raju v. Union of India and other [2011 SCC OnLine AP 152] 76. Section 20 enjoins that where a property has been seized under Section 17 or 18 and the authorize ..... X X X X Extracts X X X X X X X X Extracts X X X X
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