2025 (4) TMI 1601 - HC - Money Laundering

Money Laundering - scheduled/predicate offence - reasons to believe - legality of search and seizure proceedings conducted under Section 17 of Prevention of Money Laundering Act 2002 - Whether the preconditions set out in Section 17 has been complied with or not? - HELD THAT - This Court finds it unfortunate that women officers and employees are used as shields to prevent investigations from proceeding. Courts have time and again stressed on gender equality in public service. Women are far more empowered and are more proactive nowadays especially in public service. We see women progressing across different fields. It is the duty of public officials to aid and assist in investigations and it is also the responsibility of both the investigation agencies and State Government officials in-charge to protect and ensure the safety of women. In spite of that if the woman as an individual feels that her right has been infringed she is fully within her rights to approach the competent court of law. But let not a government try to discourage a woman from moving towards the path of empowerment - No allegations of violation of fundamental rights or coercion was raised by them in those letters to Directorate of Enforcement. Hence the Directorate of Enforcement contended that this entire petition filed on behalf of TASMAC company is an abuse of process of law. This Court feels that there is a strong disconnection between the averments and the relief sought for in the writ petition. It is imperative that a broader view of the issue needs to be taken at times where the rights of people at large will be affected. It is without doubt that the prima facie allegations and complaints against the Tamil Nadu State Marketing Corporation (TASMAC) are grave in nature. It definitely warrants deeper investigation. But these present writ petitions are filed challenging the very initial step of search conducted based on certain information on record - How can a State Government would file a writ petition stating that an Investigating Agency cannot enter and conduct a search in a Government Company that too when allegations are so serious in nature. In fact it is the Tamil Nadu Directorate of Vigilance and Anti-Corruption which has registered multiple First Information Reports (F.I.Rs) regarding malpractices of corruption ongoing in TASMAC. A raid or a search by an investigating agency must be discreetly planned and executed to ensure that the offenders are caught off guard. In the present case it is argued that the petitioner employees were asked to stay and that their mobile phones were seized and hence they were unable to contact their family. But that is how normally a surprise check is conducted - How can such a petition even be maintainable. If there are charges of harassment how can one file a petition to state that a search must be declared illegal and that in essence prohibits any future searches as well. This is highly alarming and such petitions ought to be dismissed at threshold. It raises pertinent question as to the intention behind filing such writ petitions whether is it a strategy to prolong and protract the investigation is a legitimate query that arises. The arguments of officers being detained for hours during search and that the employees being sent home at odd hours when a search is in progress is inadequate and highly disproportional when compared to the rights of millions of people of our Great Nation. The search conducted is for the interest and benefit of this Nation. Can a few inconveniences which is product of procedure established by law as embedded in Article 21 be equated against the economic rights of the people of this country. It is the mandate of the Constitution to secure to all its citizens Economic Justice. And legislations such as PMLA serve this object by ensuring that offences which jeopardise our National economic growth is dealt with strictly in accordance with law. Conclusion - The judicial review powers of the Courts is limited only to the extent as to whether the reasons to believe is recorded in writing before conducting search. The scope of Judicial review is limited to this alone and cannot go beyond or examine the subjective satisfaction of the investigating officer. Petition dismissed. The Directorate of Enforcement is at liberty to proceed with all further actions under PMLA - petition dismissed.

Summary

The core legal questions considered by the Court in these writ petitions revolve around the validity and legality of search and seizure operations conducted under Section 17 of the Prevention of Money Laundering Act, 2002 (PMLA), particularly as applied to a State Government-owned company. The issues include whether the Enforcement Directorate (ED) had jurisdiction and complied with procedural safeguards in conducting searches at TASMAC premises; the scope and extent of judicial review over the "reasons to believe" required under Section 17; the applicability of PMLA provisions to a government company; whether the search and seizure infringed fundamental rights, including right to privacy and personal liberty; the necessity of prior consent from the State Government for such investigations; the disclosure obligations regarding FIRs and Enforcement Case Information Reports (ECIR); and the legitimacy of allegations of harassment and coercion during the search operations.

Regarding the legal framework and precedents, the Court extensively analyzed Section 17 of PMLA, which empowers authorized officers to conduct search and seizure upon recording "reasons to believe" in writing that a person has committed money laundering or is in possession of proceeds or records related to such offence. The Court relied on the Supreme Court's decision in Vijay Madanlal Choudhary v. Union of India, which upheld the vires of Section 17 and clarified that ECIR is an internal document not mandatorily disclosed to the accused. The Court also referred to Arvind Kejriwal v. Directorate of Enforcement to distinguish the procedural rigor between search under Section 17 and arrest under Section 19 of PMLA, emphasizing that the higher threshold applicable to arrest cannot be transposed to search operations. The judgment in Radhika Agarwal v. Union of India was cited to elucidate the contours of "reasons to believe," concluding that judicial review is limited to verifying whether reasons were recorded in writing and formed on some information in possession, without delving into the sufficiency or adequacy of materials at the preliminary stage.

Applying these principles, the Court found that the ED had valid "reasons to believe" supported by multiple FIRs registered by the Tamil Nadu Department of Vigilance and Anti-Corruption alleging corruption and illegal gratification within TASMAC, which constitute scheduled offences under PMLA. The reasons were recorded in writing and submitted in sealed cover, satisfying the procedural requirement of Section 17. The Court rejected the petitioner's contention that the FIR or ECIR must be disclosed, reiterating the established position that such documents are internal investigative records whose premature disclosure could jeopardize investigations. The Court also noted that the deletion of the proviso in Section 17 (post-2019 amendment) removed the requirement of prior FIR registration or Magistrate's report for conducting searches under PMLA.

On the question of jurisdiction and consent, the Court held that PMLA is a special, self-contained legislation applicable throughout India, and the concept of federalism cannot be invoked to restrict the ED's powers to investigate offences of money laundering even within State Government entities. The Court rejected the argument that the ED must obtain consent from the State Government or limit its investigation to officers notified under Section 54(1)(j). It clarified that Section 54 imposes a duty on State authorities to assist the ED but does not restrict the ED's independent powers under Sections 17 and 50. The Court underscored that requiring prior consent would defeat the very purpose of surprise searches essential to effective investigation.

Regarding the applicability of PMLA to TASMAC, the Court observed that TASMAC is a company incorporated under the Companies Act and wholly owned by the State Government. Since Section 2(1)(s)(iii) of PMLA includes companies within the definition of "person," the statute applies to TASMAC without any need for reading down. Moreover, Section 70 of PMLA provides for prosecution of companies and persons in charge thereof for offences committed under the Act, reinforcing applicability.

The Court addressed allegations of harassment, illegal detention, denial of food and rest, and infringement of fundamental rights during the search. It found no credible material or complaints substantiating these claims. The Panchnama, signed by independent witnesses, recorded that the search was conducted peacefully without coercion or damage. The Court emphasized that detaining employees temporarily inside premises during search is a normal and necessary procedure to prevent evidence tampering or destruction and does not amount to unlawful detention or arrest. It rejected the petitioners' attempt to equate detention during search with arrest, citing authoritative distinctions between custody, detention, and arrest as clarified in Supreme Court precedents. The Court also highlighted that some employees voluntarily remained on premises and that adequate rest and medical accommodations were provided. Allegations of harassment were deemed vague and unsupported, and the Court noted that individual aggrieved persons are free to approach courts separately if fundamental rights are violated.

On the right to privacy, the Court reiterated that privacy is not absolute and is subject to reasonable restrictions under law, particularly for crime detection. It relied on the Supreme Court's landmark judgment in K.S. Puttaswamy v. Union of India, which recognized privacy as an intrinsic part of Article 21 but allowed lawful intrusions for legitimate State aims under fair, just, and reasonable procedures. The seizure of mobile phones and digital evidence was held to be a reasonable restriction directly connected to investigation of money laundering offences. The Court rejected the petitioner's argument that seizure violated freedom of speech or movement, analogizing it to lawful impounding of vehicles under other statutes.

Regarding procedural safeguards, the Court noted that Section 17 and the Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the Manner of Forwarding the Reasons and Materials to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005, prescribe the manner of conducting searches, including production of authorization and cooperation by persons in charge. The Court found that the ED complied with these requirements, including showing and explaining the search authorization to TASMAC officials and independent witnesses, who signed the documents. The petitioners' claim that officials were forced to acknowledge the search warrant was rejected as it is the duty of public servants to cooperate with lawful investigations.

The Court also addressed the petitioners' contention that the search and seizure operation was politically motivated or intended to harass. It held that courts are not forums to adjudicate political motives and must focus on the materials and offences alleged. The Court underscored the importance of upholding the rule of law and ensuring that investigations into serious economic offences like money laundering are not obstructed by frivolous litigation or baseless allegations.

In conclusion, the Court dismissed all three writ petitions, holding that the search and seizure under Section 17 of PMLA were lawful, valid, and conducted in accordance with procedural safeguards. The Court affirmed the ED's jurisdiction and powers to investigate money laundering offences in a State Government company without prior consent of the State. It rejected claims of harassment, illegal detention, and violation of fundamental rights due to lack of evidence and procedural compliance. The Court emphasized the necessity of cooperation by public servants in investigations and cautioned against attempts to derail the criminal justice process through unsubstantiated allegations. The ED was permitted to proceed with further actions under PMLA.

Significant holdings include the following verbatim excerpts and principles:

"Section 17 in explicit terms has clearly mentioned under clause (a), that on authorisation, the concerned officer can enter and search any building based on adequate reasons of suspicion that such records or documents are kept... The vires of this provision is not the point of contention in the present case."

"The comparison as submitted by the learned Senior counsel for the petitioner between Section 17 and Section 19 in no terms can be entertained as the grounds and powers of arrest is completely different from search and seizure as contemplated under Section 17 of the Act."

"The judicial review powers of the Courts is limited only to the extent as to whether the reasons to believe is recorded in writing before conducting search. The scope of Judicial review is limited to this alone and cannot go beyond or examine the subjective satisfaction of the investigating officer."

"The Court did not go into the merits of the reasons but merely verified whether the reasons to believe authorising the search is recorded in writing and after being satisfied with the same returned the sealed cover to the Learned Special Public Prosecutor."

"The concept of federalism cannot be applied here. Our Constitution is quasi federal in nature but the traces of federalism is applied only for the benefit of the people and not to their detriment. PMLA are legislation to prevent crimes affecting National economic growth."

"Detaining employees temporarily inside premises during search is a normal and necessary procedure to prevent evidence tampering or destruction and does not amount to unlawful detention or arrest."

"Right to privacy under Article 21 is not absolute and would be subject to reasonable restrictions under the law, one such reasonable restriction being crime detection."

"The seizure of mobile phone is directly and inextricably related to the investigation and search under PMLA for the purpose of collection of evidence for gathering material to unearth the offence of money laundering and prosecute the offenders."

"The Court cannot entertain vague and unsupported allegations of harassment or coercion during lawful search operations."

"The ED is at liberty to proceed with all further actions under PMLA."