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TMI Blog2025 (2) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... prays for orders directing the prosecution of the erring officials of the respondent, the Enforcement Directorate (ED), under Section 62 of the PMLA, 2002. 2. The Enforcement Case Information Report (ECIR) dated 01.10.2024 was registered by the respondent based on an FIR filed by the Lokayukta concerning a predicate offence related to the illegal allotment of sites by MUDA during the petitioner's tenure as Commissioner of MUDA. Pursuant to authorization by the Joint Director of the respondent agency, the Assistant Director conducted a search of the petitioner's residence under Section 17 of the PMLA, 2002 on 28.10.2024 and 29.10.2024. During the search, the petitioner's mobile phone was seized, and its data was transferred to a hard disk. Furthermore, the respondent examined the petitioner on oath under Section 17 (1) (f) of the Act. 3. On 29.10.2024.after the search was completed., the respondent served summons on the petitioner at 4.00 pm under Section 50 of the PMLA, 2002, directing him to appear before the Investigating Officer on the same day at 5:30 PM. Subsequently, the petitioner was served with another summons dated 07.11.2024, directing him to appear before the concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry out the search and seizure. Consequently, the entire exercise of search and seizure conducted by the respondent agency stands vitiated due to the lack of authority. 6.3. It was further argued that Section 17 of the PMLA, 2002 mandates that an officer authorized to conduct a search and seizure must have "reason to believe," based on material in his possession, that a person is involved in the offence of money laundering. This reason to believe must be recorded in writing prior to initiating such proceedings. However, in the instant case, the respondent agency conducted the search and seizure on the mere assumption that the petitioner, as the then Commissioner of MUDA, had illegally allotted sites. This assumption, according to the learned Senior Counsel, does not satisfy the statutory requirement of "reason to believe" under Section 17, thereby rendering the proceedings invalid and illegal. 6.4. He further contended that under Section 17 of the PMLA, 2002, a search and seizure can only be conducted subsequent to the attachment of property involved in money laundering, as provided under Section 5 of the Act. In the present case, no such attachment of property has been made prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be construed as arbitrary, illegal, or outside the scope of the powers vested in the respondent Agency. 7.3. The investigation initiated by the respondent Agency pertains to proceeds of crime derived or obtained in connection with a scheduled offence under the PMLA, 2002. He contended that the sites derived by the accused in the scheduled offence fall squarely within the ambit of "proceeds of crime" as defined under Section 2 (1) (u) of the Act. The competent authority, having recorded its "reason to believe" in writing, has rightly concluded that the petitioner, as the former Commissioner of MUDA, assisted the accused in the illegal allotment of sites and may be in possession or control of records or properties relevant to the investigation. 7.4. Addressing the petitioner's contention regarding the competence of the authorizing authority, the learned ASG submitted that the Joint Director is one of the authorities enumerated under Section 48 of the PMLA, 2002. He argued that Section 17 of the Act empowers the Joint Director, who is above the rank of Deputy Director, to authorize an Assistant Director to conduct search and seizure. In the instant case, the Joint Director ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investigation. He, therefore, prayed for the dismissal of the writ petition with costs. In support, reliance is placed on the following: (Sufficiency of reasons to believe cannot be gone into) i. DGIT v. Spacewood Furnishers (P) Ltd. (2015) 12 SCC 179 - Relevant Paras - 21-23 ii. CIT v. Rajesh Jhaveri, (2008) 14 SCC 2018 - Relevant Paras 19-20 (Money laundering is a standalone offence and once an ECIR is registered based on a scheduled offence, the umbilical chord between an FIR and an ECIR gets snapped) iii. Vijay Madanlal Choudhary & Ors v. Union of India & Ors. (2022) SCC OnLine SC 929 - Relevant Paras - 269, 295 iv. Pavana Dibbur v, Enforcement Directorate, (2023) SCC OnLine SC 1586 - Relevant Paras - 15, 17 v. Directorate of Enforcement v. Aditya Tripathi, (2023) SCC OnLine SC 619 - Relevant Paras - 13, 16 vi. Dr. Manik Bhattacharya v. Ramesh Malik & Ors., SLP (C) - 16325/2022 - Relevant Para - 7 vii. Vijayraj Surana v. Enforcement Directorate, Relevant Para - 27 (ED need not wait filing of the chargesheet by the predicate agency event to exercise the power to arrest under section 19 PMLA) viii. Vijay Madanlal Choudhary & Ors v. Union of India & Ors. (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Darvesh v. Directorate of Enforcement (2024) SCC OnLine Del 1811, Relevant Para- 12 (There is no necessity to refer to the summoned person as a witness or accused while issuing summons under Section 50 of PMLA) xxvii. Molay Ghatak v. Directorate of Enforcement, (2023) SCC OnLine Del 7443 - Relevant Paras - 26 -28 Issues 8. After considering the arguments of the learned counsel for the parties, the following issues emerge for consideration : i. Whether the authorisation issued to conduct the impugned search and seizure at the residence of the petitioner on 28.10.2024 and 29.10.2024, and the consequent statement recorded under Section 17 of PMLA, 2002 suffers from lack of jurisdiction? ii. Whether the said impugned search and seizure and the statement recorded, is bad in law for lack of the requisite "reason to believe" under section 17 (1) of PMLA, 2002, and is therefore, an abuse of process of law? iii. Whether the impugned summons/notices issued under Section 50 of PMLA, 2002 and the various statements recorded thereunder, be sustained under the law? iv. Whether, in the course of its administration and execution of the PMLA, 2002, the attachment of property under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever." 10. A cumulative reading of Sections 2 (1) (na), 2 (1) (u), and 3 of the Prevention of Money Laundering Act, 2002 (PMLA) establishes the following essential elements required to attract an offence under Section 3 thereof: 1) The existence of proceeds of crime in relation to a criminal activity relating to any scheduled offence, specified in the schedule; and 2) Evidence of actual involvement or animus/intention on part of the accused in the scheduled offence(s), or any other person, subsequent to the accomplishment of the scheduled offence, to assist in any process or activity connected with the proceeds of crime including, its - a) concealment, or b) possession, or c) acquisition, or d) use, or e) projecting or claiming the proceeds of the crime as untainted property. 3) Mere inadvertent possession or incidental handling of the property (proceeds of crime), without the requisite criminal intent, would not suffice to attract an offence under Section 3. 4) It is relevant to note that any process or activity connected with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 14. Therefore, the respondent-agency conducted the impugned search and seizure under Section 17 of the PMLA, 2002 at the residential premises of the petitioner, on 28.10.2024 and 29.10.2024, and the mobile phone belonging to the petitioner, along with one hard-disk in which the data extracted from the said mobile phone was transferred into and was seized. Subsequently, the respondent-agency has examined the petitioner on oath and has recorded the statement of the petitioner under Section 17 (1) (f) of the Act. The petitioner impugns the said search and seizure and the subsequent statement recorded, on the grounds that same are invalid and illegal for want of jurisdiction, and that there is no material evidence on record suggestive of the petitioner's involvement in any aspect related to the proceeds of crime. 15. Upon conclusion of the search and seizure operation, the petitioner was issued a summons under Section 50 of the said Act, 2002 at 4.30 PM on 29.10.2024 directing the petitioner to appear before the investigative authorities at 5.30 PM. Furthermore, it is the case of the petitioner that he was summoned yet again on 08.11.2024 and was interrogated by the respondent-age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g) that any person- (i) has committed any act which constitutes money-laundering, or (ii) is in possession of any proceeds of crime involved in money-laundering, or (iii) is in possession of any records relating to money-laundering, or (iv) is in possession of any property related to crime, then, subject to the rules made in this behalf, he may authorise 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; (e) make a note or an inventory of such records or property; (f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act: ... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions (1) and (1-A) thereof to conduct the search of the petitioner's premises, and; * subsequently, when the Joint Director had forwarded, upon completion of the search and seizure, a copy of the reasons so recorded on the basis of the material in his possession to the Adjudicating Authority under sub-section (2) of PMLA vide letter dated 05.11.2024; the conduct of impugned search and seizure under Section 17 of PMLA, 2002 cannot be faulted for lack of jurisdiction. ISSUE NO. 2 22. The petitioner further challenges the formation of "reason to believe" that led to the search and seizure under Section 17 of the Act, and contends that such reasons are conspicuously absent. The petitioner argues that no material exists to indicate any involvement in the commission of an act constituting money laundering, possession of proceeds of crime related to money laundering, or possession of records or property connected to money laundering. 23. The learned Senior Counsel appearing for the petitioner further brought to the attention of this Court the following decisions regarding the interpretation of "reason to believe" under Section 17 of the PMLA: 24.1. In Vijay Madanlal Choudhary v. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PMLA. The Court further emphasized that the standard of guilt must meet a higher threshold than mere suspicion. 24.4. In Opto-circuit India Pvt Ltd v. Axis Bank, (2021) 6 SCC 707, the Supreme Court observed, while dealing with the freezing of property under Section 17 of the PMLA, that what is necessary under Section 17 (1) is the recording of a belief regarding the commission of the act of money laundering. It also emphasized the need to seize any record or property found during the search and subsequently place it before the adjudicating authority. 24.5. In Arvind Kejriwal v. Directorate of Enforcement, (2024) INSC 512, the Supreme Court addressed an appeal challenging the validity of an arrest under Section 19 of the PMLA. While granting interim bail to the petitioner, who had been incarcerated for over 90 days, the Court employed the test of proportionality to evaluate the 'necessity to arrest'. The Court referred to a larger Bench the question of whether the "need and necessity to arrest" pertains to satisfaction of formal parameters for arrest or involves personal grounds and reasons arising from the facts and circumstances of the case. 24.5.1. The Court in Arvind Kejriwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "reason to believe." 24.6. In Rashmi Metaliks Ltd. v. Enforcement Directorate & Ors., WPA No. 17454/2022 : D.D.10.08.2022, the High Court of Calcutta addressed the necessity of providing adequate reasons for freezing accounts under Section 17 (1-A) of the PMLA. It further observed that an order merely stating that the property was frozen for investigation purposes and that it was not practicable to seize the same was insufficient. The Court stayed the order and emphasized, "search and seizure under Section 17 (1) must satisfy the defining characteristics of money laundering, proceeds of crime, and their respective procedural requirements as stipulated under the PMLA. The power to enter and search any premises or to seize records or property must be predicated upon satisfaction of all requirements under Section 17 (1), supported by a particularized statement in the written 'reasons to believe' by the authorized officer. Only upon fulfillment of these conditions, along with those in Sections 2 (1) (u) and 3, can the power to search and seize be lawfully exercised". 24.6.1. The Court further held that the authorized officer must come to an informed conclusion that: i. The exact l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. 24.8.1. The Court further observed that, if the prosecution for the scheduled offence results in acquittal, discharge, or quashing against all accused, the scheduled offence ceases to exist, and all proceedings under the PMLA must also come to an end, as the foundation-proceeds of crime-would no longer exist. However, where a person unconnected with the scheduled offence provides assistance in concealing or utilizing the proceeds of crime after the completion of the scheduled offence, such a person can still be prosecuted under Section 3 of the PMLA, provided the scheduled offence remains established. The Court concluded that it is not a legal requirement for a person accused under Section 3 of the PMLA to also be an accused in the scheduled offence. 24.9. In Manish Sisodia v. CBI, 2023 SCC OnLine 1393, the Supreme Court, while emphasizing the need for specificity in allegations against an accused in cases of money laundering, rejected the contention of the Directorate of Enforcement (DoE) that the generation of proceeds of crime alone constitutes possession or use of such proceeds. The Court held that possession of proceeds of crime is established only when the accused has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kely to be located at the premises sought to be searched. This procedural safeguard upholds the principles of fairness and legality, ensuring that the exercise of power under Section 17 of the PMLA is neither arbitrary nor speculative. 29. A review of the recorded "reason to believe" must show that the material available with the Director is sufficient to support the conclusion reached. These conclusions must be based on reasonable evidence and logical reasoning, not merely on suspicion. 30. For possession of proceeds of crime, the "reason to believe" must specifically show that the person being searched had control over and intent to use or manage the proceeds of crime. Simply holding the proceeds by chance or accident does not mean the person was involved in generating or hiding them as part of money laundering. There must be clear evidence of control or intent over the property to meet the requirements of the Prevention of Money Laundering Act, 2002. This ensures the law is applied fairly and prevents arbitrary actions. 31. The learned ASG contends that where the criminal activity in the predicate offence pertains to 'illegal allotment of 14 sites' by MUDA, during the tenure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch material as was in possession at the time of search, has been furnished to this Court to probablize the purported involvement of the petitioner. In absence of the same, any conclusion arrived at necessitating the search does not satisfy the threshold of "reason to believe", as envisaged under the PMLA, and is therefore, no more than a mere suspicion of involvement in the offence under the Act. Thus, this Court is of the opinion that the impugned search and seizure conducted at the residence of the petitioner was unwarranted and based on unfounded suspicion, and is therefore, an abuse of process of law. ISSUE NO. 3 35. The petitioner herein further challenges the repeated issuance of summons under Section 50 of the PMLA, arguing that these summons are vague because they do not specify whether the petitioner is being treated as an accused or a witness. This, according to the petitioner, violates the constitutional protection against self-incrimination under Article 20 (3) of the Constitution. 36. Section 50 of PMLA deals with Powers of authorities regarding summons, production of documents and to give evidence, etc. and the relevant portions thereof, reads thus - "Section 50. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in a scheduled offence under the PMLA. The Court noted that despite the petitioner cooperating, nothing incriminating had been found, and he had been summoned without any reasonable grounds other than his family connection. The Court held that the principle of probable cause or reasonable grounds is fundamental to the criminal justice system, and that a person cannot be repeatedly summoned without probable cause for convenience of the prosecution. 41. In response, the learned Additional Solicitor General of India, contended that Section 50 of the Act empowered the authorized officers to summon any person necessary to give necessary evidence or produce any record. In support of the same, the learned ASG drew the attention of the Court to various precedents, including the case of Director General of Income Tax (Investigation) v. Spacewood Furnishers Pvt. Ltd. (2015) 12 SCC 179, wherein the Hon'ble Supreme Court stated that while the reasons for search and seizure conducted under Income Tax Act, 1961 must be recorded, they do not need to be communicated to the person at that time. The Court also emphasized that judicial review cannot question the adequacy of the reasons for search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court observed in a challenge to the issuance of summons under Section 108 of the Customs Act, 1962 or Section 14 of the Central Excise Act, that seeking extraordinary constitutional relief under Article 32 of the Constitution was premature, where the same was sought on the grounds that petitioner had alleged that officers conducting a search at the residence of his ex-wife had threatened arrest unless the petitioner complied with their demands. The Court held that the petitioner should have pursued the remedy under law only when any positive action was taken to his prejudice. 44.1. Therefore, the learned ASG, relying on the above, argued that the petitioner herein cannot seek a similar relief under Article 226 of the Constitution, as no action prejudicial to the petitioner has yet been taken. The summons issued under Section 50 of the PMLA were lawful and aimed at gathering evidence and records for the investigation under the Act. Therefore, the petition should be dismissed as premature. 45. The High Court of Kerala in C M Raveendran v. Union of India (2020) SCC OnLine Ker 7335 reaffirmed the above ratio, stating that no cause of action arises merely because a pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction cannot be invoked at the summons stage to seek anticipatory bail. 50. In Directorate of Enforcement v. State of Tamil Nadu (SLP (Crl.) No.1959-1963/2024), the Supreme Court clarified that under Section 50 of PMLA, authorized officers have the power to summon anyone whose attendance is necessary to give evidence or produce records for investigation. Those summoned are required to comply with the same. 51. In Talib Hassan Darvesh v. Directorate of Enforcement, (2024) SCC OnLine Del 1811, the Delhi High Court rejected a challenge to summons issued by the Enforcement Directorate (ED) on the grounds that the summons were vague. The petitioner had argued that the summons did not specify their status as a witness or suspect and did not mention the documents required. The Court held that the ED could issue summons without specifying the exact documents, as they are authorized to investigate and issue summons under PMLA. It further ruled that protection from summons cannot be granted unless the petitioner is absolved in the predicate offence through discharge, acquittal, or quashing, in line with the statutory rigours of Section 45 of PMLA. 52. In Moloy Ghatak v. Directorate of En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r evidence or seize the property itself. 56. Section 5 of the PMLA can precede Section 17, if the ED has in its possession sufficient information of the existence of proceeds of crime so as to provisionally attach such property before conducting a search. Furthermore, a perusal of the definition of property contained in Section 2(v) of PMLA indicates that a movable property, such as currency notes or any other property, etc, is subject to attachment under Section 5, provided the Director is satisfied that such property is likely to be concealed, dissipated, or dealt with in such manner so as to frustrate the proceedings of the Act. In all practicality, an attachment of such movable property therefore, cannot be conceived without an incidental search. As such, an attachment under Section 5 cannot be mandated to precede search and seizure under Section 17. Furthermore, it is appropriate that the exercise of investigative tools under the law is left to the prudent exercise of discretion of the investigative agency, to be decided in consideration of the facts and circumstances of each case. Therefore, the submission that attachment must mandatorily precede search cannot be countenance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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