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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 ..... ent authority under the Act to authorize a search and seizure of any premises is the Director or any other officer authorized by the Director, for the purposes of Section 17, provided such officer is not below the rank of Deputy Director. Therefore, the statute clearly limits the vesting of authority to record reasons to believe on the basis of material in possession with highest responsible authority to prevent the misuse of such provisions. Furthermore, the words "the Director" in sub-section (1) of Section 17 were substituted for the words "the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section" vide the Amendment Act 21 of 2009 (w.e.f. 1.06.2009). Where the Director has clearly authorised the Joint Director (an officer above the rank of Deputy Director) for purposes of Section 17 of PMLA, 2002 vide Circular No. Circular Order (Tech) No. 03/2011, dated 27.09.2011, the conduct of impugned search and seizure under Section 17 of PMLA, 2002 cannot be faulted for lack of jurisdiction. Whether the said impugned search and seizure and the statement recorded, is bad in law for lack of the requisite "reason to believe" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Whether the impugned summons/notices issued under Section 50 of PMLA, 2002 and the various statements recorded thereunder, be sustained under the law? - HELD THAT:- In the present case, summons under Section 50 were issued following the 'illegal' search and seizure conducted under Section 17 of the PMLA. However, as established in the preceding paragraphs, the reasons recorded for the search do not satisfy the essential elements required to establish the commission of an offence under Section 3 of the PMLA. As a result, the search and seizure lacked proper authority for there being no proper reason to warrant such a search. The respondent-Agency can summon any person to record a statement or produce a document or record only in cases where there is credible evidence that an offence under Section 3 of PMLA has been committed, and in such circumstances, the person who has been summoned cannot raise a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment recorded under Section 17 (1) (f) is ordered to be retracted. iii) The summons issued under Section 50 of the PMLA and the various statements recorded thereunder are quashed. iv) The petitioner is granted the liberty to initiate action under Section 62 of the PMLA against the concerned officer, as the matter of whether the search and seizure were vexatious is subject to trial.
Petition allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner, advanced the following submissions: 6.1. The initiation of inquiry or investigation culminating in the conduct of search and seizure under Section 17 of the Prevention of Money-Laundering Act, 2002 (hereinafter referred to as the PMLA, 2002), as well as the subsequent issuance of summons under Section 50 of the Act, is devoid of legal authority. The learned Counsel contended that the respondent agency lacked credible evidence to demonstrate that the "proceeds of crime" related to a predicate offence were either concealed or projected as untainted money, as required under Section 3 of the Act. Without such credible evidence to establish the offence of money laundering, the procedural safeguards under the Act have been violated, rendering the entire process unsustainable in law. 6.2. The learned Senior Counsel submitted that, as per Section 17 of the PMLA, 2002, the Director is the competent authority to authorize any officer not below the rank of Deputy Director to conduct search and seizure operations. However, in the present case, the Joint Director, who does not possess the requisite competence under the Act, authorized the Assistant Director to conduct the search a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 17.09.2024 in SLP (Crl) No. 12353/2024. x. S Martin v. Directorate of Enforcement - Interim Order dated 10.04.2024 in SLP(Crl) No. 4768/2024. xi. Pavana Dibbur v. Enforcement Directorate, (2023) 15 SCC 91 xii. Manish Sisodia v. CBI, 2023 SCC OnLine SC 1392 xiii. Parvez Ahmed v. DoE, High Court of Delhi xiv. Joti Parshad v. State of Haryana, 1993 Supp (2) SCC 497 xv. A.S. Krishnan v. State of Kerala, (2004) 11 SCC 576 7. Per contra, Shri K. Arvind Kamath, learned Additional Solicitor General, appearing on behalf of the respondent Agency, made the following submissions: 7.1. The present writ petition, challenging the summons issued under Section 50 of the PMLA, 2002, is premature and without merit. He argued that the summons merely calls upon the petitioner to produce records in his possession during the course of an ongoing investigation. The issuance of summons has not caused any prejudice to the petitioner, as it is procedural in nature and falls within the statutory framework of the Act. 7.2. The learned ASG emphasized that Section 50 of the Act explicitly empowers the competent authority to summon any person, compel their attendance, and require the production o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpetent authority. 7.7. The learned ASG argued that the recording of reasons under Section 17 (1) of the PMLA, 2002, which pertains to the power to conduct search and seizure, cannot be equated with the recording of reasons under Section 19 of the Act, which deals with the power to arrest a person guilty of an offence under the Act. While Section 17 (1) of PMLA deals with the investigation process to summon records, Section 19 of the Act deals with punitive action against an accused person. Therefore, reasons recorded satisfies the requirements of section 17. 7.8. The petitioner has suppressed material facts from the Court. He contended that the petitioner failed to disclose his involvement as the former Commissioner of MUDA, during which he allegedly allotted fourteen sites that now constitute the proceeds of crime. This deliberate suppression of facts, he argued, disentitles the petitioner from any relief in equity or law. 7.9. In the light of the above submissions, he contended that the petitioner's challenge to the summons issued under Section 50 of the PMLA, 2002, and the search and seizure conducted under Section 17 of the Act, lacks merit. He submitted that the competent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raghav Bahl v. Enforcement Directorate, High Court of Delhi, in W.P. (Crl) No. 2392/2021 : DD 23.01.2023 - Relevant Paras - 12-14 xvii. State of Gujarat v. Choodamani Parmeshwaran Iyer, in SLP (Crl) No. 4212/20219 - Relevant Paras - 11, 16 xviii. ED v. Tamil Nadu, Supreme Court of India, vide order dated 27.02.2024 - Relevant Para - 6 (All admissions are not confessions and in any case the same is a matter of trial) xix. Pakala Narayana Swami v. King Emperor 1939 SCC OnLine PC 1 - Page 481 xx. CBI v. Shukla (1998) 3 SCC 410 - Relevant Para - 45 xxi. Faddi v. State of MP, 1964 SCC OnLine SC 123, Relevant Paras - 15 xxii. Kanda Padayachi v. State of T.N. (1971) 2 SCC 641 - Relevant Paras - 11, 13 (Crime investigation and detection us a reasonable restriction on right to privacy) xxiii. KS Puttaswamy & Anr. v. Union of India, (2017) 10 SCC 1 - Relevant Paras - 200, 310 - 313, 328 xxiv. Vijay Madanlal Choudhary & Ors v. Union of India & Ors. (2022) SCC OnLine SC 929 - Relevant Paras - 263 - 284 xxv. Y Balaji v. Karthik Desari, (2023) SCC OnLine SC 645 - Relevant Paras - 96-100) (Summons issued by ED cannot be quashed merely because the relevant documents requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence". 9.3. Section 3 of PMLA, 2002 defines the Offence of money-laundering.-- "Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering. Explanation.--For the removal of doubts, it is hereby clarified that,-- (i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime namely:-- (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever; (ii) the process or activity connected with proceeds of crime is a continuing activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Station in relation to the predicate offences chargeable under Section 120-B and 420 of IPC, 1860 and Sections 9 and 13 of the Prevention of Corruption Act, 1988, against Shri Siddaramaiah, Smt Parvathi - wife of Shri Siddaramaiah, Shri Devaraju and Shri Mallikarjuna Swamy in relation to illegal de- notification and subsequent re-acquisition of a parcel of land measuring 3.16 acres located at Kesare Village from the acquisition proceedings initiated by MUDA for the purpose of forming Devaneru Badavane Layout, and illegal allotment of 14 alternate sites in an affluent neighbourhood of Vijaynagara Layout amounting to INR 56 Crores only, in consideration for an illegal claim for compensation made by Smt Paravathi, against the acquisition of above lands. 13. Subsequently, the respondent-ED registers an ECIR/BGZO/25/2024 on 01.10.2024 on the grounds that 14 sites (plots), including commercial plots were allotted to Smt Parvathi in gross violation of the Karnataka Urban Development Authorities (Allotment of Sites in lieu of Compensation for the Land Acquired) Rules, 2009, during the tenure of the petitioner as the Commissioner of MUDA. It is alleged that the petitioner himself had selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued to conduct the search and seizure was in contravention of the statutory provisions, and therefore, the impugned search and seizure was without jurisdiction. 18. A careful perusal of Section 17 of the Act, 2002, the relevant portion of which is extracted hereunder, reveals that the competent authority under the Act to authorize a search and seizure of any premises is the Director or any other officer authorized by the Director, for the purposes of Section 17, provided such officer is not below the rank of Deputy Director. Therefore, the statute clearly limits the vesting of authority to record reasons to believe on the basis of material in possession with highest responsible authority to prevent the misuse of such provisions. Furthermore, the words "the Director" in sub-section (1) of Section 17 were substituted for the words "the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section" vide the Amendment Act 21 of 2009 (w.e.f. 1.06.2009). "Section 17. Search and seizure.- (1) Where [the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section,] on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,2002 classifies the Joint Director as being above the Deputy Director in rank, a conjoint reading of the Circular dated 27.09.2011 and Section 48 of the Act justifies the authorization letter dated 27.10.2024 as being within the bounds of law. 20. A bare perusal of Section 48 of the Act, extracted hereunder, indicates that the Director is the foremost authority under the Act, and is placed in similarity with the rank of an Additional Director or Joint Director. The Deputy Director is immediately below the Director and the Joint Director, and further below down in the hierarchy is the Assistant Director. "Section 48. Authorities under the Act - There shall be the following classes of authorities for the purposes of this Act, namely:-- (a) Director or Additional Director or Joint Director, (b) Deputy Director, (c) Assistant Director, and (d) such other class of officers as may be appointed for the purposes of this Act." 21. Thus, where the Director has clearly authorised the Joint Director (an officer above the rank of Deputy Director) for purposes of Section 17 of PMLA, 2002 vide Circular No. Circular Order (Tech) No. 03/2011, dated 27.09.2011, and; * in pursuance the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fence itself. v. The PMLA, 2002, is a self-contained legislation. Section 17 of the Act provides in-built safeguards, including the requirement that the exercise of power be undertaken by high-ranking officials, such as the Director or Deputy Director authorized by the Director. It also mandates the recording of reasons for the belief formed based on the information in the official's possession about the commission of any act of money laundering and conscious possession of proceeds of crime. 24.2. In V. Senthil Balaji v. Deputy Director, Directorate of Enforcement, (2024) INSC 739, the Supreme Court addressed an appeal concerning the dismissal of a bail application by a petitioner who had been incarcerated under the PMLA for over 14 months. The Court opined that the existence of proceeds of crime is a precondition for an offence under Section 3 of the Act. 24.3. In Pankaj Bansal v. Union of India, (2023) INSC 866, the Apex Court dealt with an appeal seeking to quash an arrest and included a plea to "read down" or "read into" the provisions of Section 19 of the Act. The Court held that the material in possession must be limited to legally admissible and unimpeachable evidence, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the material relied upon to form such "reason to believe" must be adequate to make the conclusion probable. 24.5.4. The Court also referred to A.S. Krishnan and Ors. v. State of Kerala, (2004) 11 SCC 576, where it endorsed the ratio in Jyoti Prasad and held that "reason to believe" are derived from a chain of probable reasoning based on the circumstances, leading to a conclusion or inference about the matter. The requirements of 'knowledge' and "reason to believe" must be deduced from the various facts and circumstances of each case. 24.5.5. Concluding its observations in Arvind Kejriwal, the Supreme Court held that "reason to believe" must be distinguished from 'mere grave suspicion'. "It refers to the reason for the formation of belief which must have rational connection with or an element bearing on formation of belief." The reason must not be extraneous to the provision's purpose. The Court further held that "reason to believe" should be furnished to the arrestee at the time of arrest to enable them to challenge the arrest. It opined that any State action prejudicing personal liberty is subject to judicial review. The Court concluded that doubts arise only when the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competent agency. The Court also addressed whether such attachment could be based solely on the opinion that material gathered during an investigation evidences the commission of a predicate offence. 24.7.1 Relying on the ratio in Vijay Madanlal, the Court held that the authorities under the PMLA cannot initiate action against a person for money laundering based on mere assumptions regarding the commission of a scheduled offence. It concluded that any action under Section 5 of the PMLA must be premised on the competent authority having "reason to believe" that a person possesses proceeds of crime. The Court further clarified that property cannot be recognized as proceeds of crime unless preceded by criminal activity related to a scheduled offence. 24.8. In Pavana Dibbur v. Enforcement Directorate, (2023) 15 SCC 91, the Supreme Court held that a plain reading of Section 3 of the PMLA establishes that an offence under Section 3 can only arise after the commission of a scheduled offence. A person unconnected with the scheduled offence may, however, be held liable under Section 3 if they assist the accused in concealing the proceeds of crime arising from the scheduled offence. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, the petitioner cannot be attributed any role in possessing, concealing, or using the proceeds of crime to constitute an offence under Section 3 of the PMLA, 2002. 26. Furthermore, mere possession of a site that was allegedly illegally allotted to an accused in connection with a scheduled offence does not, by itself, constitute an offence under the Prevention of Money Laundering Act, 2002 (PMLA), unless the essential ingredients of the offence as defined under Section 3 of the Act are satisfied. 27. In light of the above precedents, it can be concluded that the existence of "reason to believe," as required under the Prevention of Money Laundering Act, 2002 (PMLA), mandates the presence of sufficient cause to indicate the commission of the offence of money laundering. Additionally, it necessitates a corresponding justification for the seizure of any records or proceeds of crime discovered during the search. Such a requirement ensures that the said property is not dissipated, layered, or integrated in a manner that renders it seemingly legitimate. 28. To satisfy this threshold, the authorized officer must demonstrate that they arrived at an informed and objective conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieve, as recorded in writing, is to be furnished along with the material in possession in a sealed envelope, so as to prevent any instance of tampering with the said reasons and to ensure the fairness of the procedure including accountability of the authority. 33. A perusal of the above furnished reasons adduced by the learned ASG in the sealed cover, indicates no specific allegation against the petitioner, except that of improper allotment of sites in favour of Smt B.M Parvathi, and that the petitioner is close to realtors. The reasons recorded do not in any manner, whatsoever, indicate the involvement of the petitioner in any act constituting money laundering or to be in possession of proceeds of crime involved in money-laundering, or to be in possession of any records or property related to money laundering or crime, respectively. The reasons do not contain any specific allegation/ remark against the petitioner having suspected to either received illegal gratification as against the allotment of sites, or having placed or layered any proceeds of crime, or having knowingly assisted in the same, much less any evidence to substantiate the suspicion. 34. It is now well settled tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an investigation for prosecution under the Act. There is no formal accusation brought against the summoned individual at this stage, to warrant invoking the constitutional guarantee under Article 20 (3). 38. In the case of Abhishek Banerjee v. Directorate of Enforcement (2024) INSC 668, the Supreme Court dealt with a challenge to the issuance of summons and reaffirmed the ratio enunciated in the case of Vijay Madanlal and held that summons can be issued even to witnesses during the inquiry. It further stated that the procedure under the Act and its rules require the officer issuing the summons to follow Rule 11 of the PMLA Rules, 2005 which mandates the issuance of summons in Form V. The summons must include details such as the name, designation, and address of the summoning officer. 39. The Supreme Court in the case of Mahabir Prasad Rungta v. Directorate of Enforcement, in SLP (Crl) No. 12353/2024, also followed the Vijay Madanlal case and stated that money laundering charges under the PMLA cannot be concluded until the trial for the predicate offence is completed. 40. In Sudarshan Ramesh v. Union of India (2023) SCC OnLine Kar 71, a coordinate Bench of this Court dealt with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of India & Ors. (2022) SCC OnLine SC 1929, where the Supreme Court observed that the provisions of the PMLA, 2002 aim not only to investigate money laundering but also to prevent money laundering and confiscate any property related to money laundering. The Court noted that the trifold objectives of the Act make it distinct from the process of investigating a scheduled offence. The Court further held that the authority conducting the search under Section 17 of the Act must forward a copy of the recorded reasons and material in its possession to the adjudicating authority in a sealed envelope immediately after the search and seizure. This procedure ensures that the contents are not tampered with, thereby guaranteeing procedural fairness and accountability. The Apex Court also noted that Section 62 of the Act provides punishment for officials conducting vexatious searches. 43.1. Relying on the above, in response to the allegation that the impugned search was arbitrary, the learned ASG argued that the PMLA has in-built safeguards against arbitrariness and misuse of power, and therefore, this Court should not be compelled to review the search and issuance of summons at this stage. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to have been illegally detained and tortured into making false statements, the High Court of Delhi ruled that enforcement officers have the authority to summon and examine any person for investigative purposes. The Court stated that a person summoned under Section 50 is not necessarily an accused at that time; they may become an accused later if arrested or prosecuted. It further held that no one can avoid responding to a summons simply because of the apprehension that they might be prosecuted in the future. 48. In the case of Raghav Bahl v. Enforcement Directorate (WP (Crl.) No.2392/2021), the Delhi High Court referred to the above case and also to case Kirit Shrimankar (supra). It concluded that there was no violation of the petitioner's fundamental or legal rights that would warrant intervention by the writ court at the summons stage. 49. In the case of State of Gujarat v. Choodamani Parmeshwaran Iyer, (2023) SCC OnLine SC 1043, the Hon'ble Supreme Court dealt with a challenge to summons under Section 145 of the Central Excise Act and Section 69 of the Goods and Services Tax Act. The petitioners argued that they were summoned due to suspected tax evasion and apprehended ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a document or record only in cases where there is credible evidence that an offence under Section 3 of PMLA has been committed, and in such circumstances, the person who has been summoned cannot raise any grievance against the issuance of summons. 54. Thus, in light of the circumstances of this case, where no prima facie case has been established showing that an offence has been committed under the PMLA, and no incriminating material has been elicited at the time of search and seizure, the issuance of summons to the petitioner lacks legal authority. The petitioners cannot be compelled to appear and record their statements or produce documents, as such actions would unjustly infringe upon their personal right to liberty. ISSUE NO. 4 55. The learned Senior Counsel appearing for the petitioner also contended that attachment of property under Section 5 of PMLA, which is intended to prevent the dissipation of the proceeds of the crime, must necessarily precede the conduct of search and seizure under Section 17 PMLA. The learned Senior Counsel contended that the same is forthcoming from the placement of the sections in the enactment. However, the same cannot be sustained as Section o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge its duties with fairness. The right to liberty and privacy under Article 21 of the Constitution vests a right against the conduct of arbitrary searches, and therefore, the search conducted on the premises of the petitioner under the garb of investigation, when there is no prima facie evidence to establish the offence under Section 3 is but an abuse of process of law. The Enforcement Directorate cannot give the elements of procedural fairness contained in the PMLA a go-by in the course of its administration. It is pertinent that the right to liberty and privacy of individuals cannot be trampled upon and that any curtailment of civil liberties is subject to the due process of law. Accordingly, I order the following: ORDER i. The instant petition is allowed. ii. The impugned search and seizure conducted at the residence of the petitioner on 28.10.2024 to 29.10.2024 and the subsequent statement recorded under Section 17 (1) (f) of PMLA, 2002 is vitiated on the grounds of absence of 'reason to believe', and is hereby declared invalid and illegal. iii. The statement recorded under Section 17 (1) (f) of PMLA, 2002, is hereby ordered to be retracted. iv. The impugned summons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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