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2025 (5) TMI 79 - HC - Money LaunderingMoney Laundering - validity of search and seizure conducted under Section 17 of the Prevention of Money Laundering Act 2002 (PMLA) at the residence of the petitioner - reasons to believe - legality of statements recorded under Section 17(1)(f) and summons issued under Section 50 of the PMLA - HELD THAT - While the legality and correctness of the impugned judgment and order is under consideration in the appeal already admitted and slated to be listed on the next date in the mean time it would not be proper to interject the process of investigation by the applicant-Directorate of Enforcement. The investigation into crime is something which should not be allowed to be halted. Having regard to the peculiar fact situation the Enforcement Directorate has to be permitted to proceed with the investigation. While therefore investigation under the PML Act is not to be hampered or put on hold nor would stand affected adversely for its continuance in relation to the alleged scam. The investigating authority-the applicant-Directorate of Enforcement notwithstanding the judgment and order of learned Single Judge impugned in this appeal is allowed to investigate into the matter. While the prayer for stay of the impugned judgment and order in totality as advanced by the applicant cannot be accepted the Court herewith clarifies observes and provides that the impugned judgment and order shall not bar the applicant-investigating agency from proceeding with the inquiry and investigation in accordance with law in respect of other accused and other persons who may be needed to be enquired or investigated in connection with the case notwithstanding the impugned judgment and directions in case of the petitioner. As the Court has permitted the inquiry and investigation to be continued against the other accused as well as other persons as may be required the applicant-Enforcement Directorate-the investigating agency shall be at liberty to utilize all the documents and materials which may have been gathered recovered and secured in course of the search and seizure at the place of the petitioner as well as to utilize the statement recorded for the purpose of rest of the investigation in accordance with law. This would not prejudice the respondent-petitioner as his case is pending consideration on merits. Whether petitioner s statement recorded under 17 (1) (f) of the PML Act 2002 can be ordered to be retracted by the court is also an issue at large to be considered in appeal. All investigations under the PML Act are needed to be permitted to be carried on in accordance with law notwithstanding the directions in the operative order of learned Single Judge impugned in the appeal. The applicant-investigating agency therefore is entitled to proceed and to carry on the investigation in respect of other persons or accused in accordance with law. Conclusion - The investigation under the PMLA is a continuous process and courts should refrain from interfering with it at the nascent stage except in cases of clear abuse of process. Application disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court include:
2. ISSUE-WISE DETAILED ANALYSIS Validity of Search and Seizure under Section 17 of PMLA and 'Reason to Believe' The Court examined the legal framework under Section 17 of the PMLA, which permits search and seizure if the officer has 'reason to believe' that any person is in possession of proceeds of crime. The learned Single Judge had held that the impugned search and seizure and subsequent statements were invalid for absence of 'reason to believe'. The appellant-agency contended that the learned Single Judge erred by applying the principles of Section 19 (which relates to attachment of property) at the investigation stage under Section 17. It was submitted that at the investigation stage, the threshold is lower and 'information' in possession suffices to constitute 'reason to believe'; judicial review should not demand 'reasonable evidence' or proof beyond prima facie material. The Court noted reliance on Supreme Court precedents, particularly the decision in Vijay Madanlal Choudhary, which clarified that the 'reason to believe' is a subjective satisfaction based on material in possession and that its sufficiency or adequacy is not subject to detailed judicial scrutiny at the nascent investigation stage. The Court also referred to Radhika Agarwal, which emphasized that judicial review of subjective satisfaction in special Acts like PMLA is limited and should not hinder early investigation steps. Applying these principles, the Court found that the learned Single Judge misdirected himself by requiring a higher standard of evidence and by reading into the statute words not present. The existence of prima facie material and information sufficed to constitute 'reason to believe' for initiating search and seizure. Validity of Statements Recorded under Sections 17(1)(f) and 50 of PMLA and Summons Issuance The learned Single Judge had ordered retraction of statements recorded under Section 17(1)(f) and quashed summons and statements under Section 50. The appellant argued that the summons under Section 50 can be issued to any person, accused or witness, for collection of information and evidence, and do not require credible evidence of commission of offence at the stage of inquiry. The Court referred to Supreme Court observations in Vijay Madanlal that summons under Section 50 are issued in aid of inquiry and are not formal accusations, and the person summoned does not acquire the status of accused at that stage. The Court also relied on a Division Bench decision of this High Court which held that the expression 'any person' in Section 50(2) is wide and includes persons who may not be accused but are relevant to the investigation. Therefore, the learned Single Judge erred in quashing the summons and statements on the ground that credible evidence was lacking. Application of Law to Facts and Treatment of Competing Arguments The appellant-agency submitted that the investigation involved serious allegations of large-scale illegal allotment of sites by Mysore Urban Development Authority officials, amounting to proceeds of crime exceeding Rs. 5000 crores. The petitioner was a former Commissioner of MUDA during whose tenure the illegal allotments occurred. The agency had sufficient reasons to believe that the petitioner was in possession of proceeds of crime, justifying search and seizure and recording of statements. The respondent-petitioner and his counsel argued that the allegations were baseless, that allotment of sites was made pursuant to policy decisions and did not involve criminality, and that the PMLA was being misused to harass innocent persons. They supported the learned Single Judge's order and contended that the 'reason to believe' was not established, and that the investigation lacked foundation. The Court observed that while these contentions go to the merits of the case, the present proceedings were focused on the question of stay of the impugned order and not on merits. The Court refrained from expressing any opinion on the correctness of the learned Single Judge's judgment. Impact of the Impugned Judgment on Other Investigations and Principle of Uninterrupted Investigation The appellant highlighted that the impugned judgment had a cascading effect, leading to multiple courts staying summons and investigations in at least seven other cases connected to the alleged scam. This had resulted in a halt of investigations and impeded the enforcement agency's ability to discharge its statutory duties. The Court noted that the impugned order was an inter-partes judgment and could not be treated as a judgment in rem binding on other investigations or persons. It emphasized the settled principle that investigation into alleged criminal activity must be permitted to proceed uninterrupted under the rule of law. The Court held that the enforcement agency must be allowed to continue investigations against other accused and persons, notwithstanding the impugned order. The Court clarified that the agency could utilize all documents, materials, and statements gathered during the search and seizure at the petitioner's residence for the purpose of ongoing investigations, without prejudice to the petitioner's rights in the appeal. Stay of the Impugned Judgment The Court considered the application for stay of the learned Single Judge's order. It observed that the appeal was already admitted and listed for hearing, and that granting an interim stay would amount to allowing the appeal at the interlocutory stage, which is impermissible. The Court declined to stay the entire impugned judgment and order but issued directions to ensure that investigations were not stalled in other connected cases. 3. SIGNIFICANT HOLDINGS "The criteria or parameters of judicial review over the subjective satisfaction applicable in Service related cases, cannot be made applicable to the cases of arrest made under the Special Acts. The scrutiny on the subjective opinion or satisfaction of the authorized officer to arrest the person could not be a matter of judicial review, in as much as when the arrest is made by the authorized officer on he having been satisfied about the alleged commission of the offences under the special Act, the matter would be at a very nascent stage of the investigation or inquiry. The very use of the phrase 'reasons to believe' implies that the officer should have formed a prima facie opinion or belief on the basis of the material in his possession that the person is guilty or has committed the offence under the relevant special Act. Sufficiency or adequacy of the material on the basis of which such belief is formed by the authorized officer, would not be a matter of scrutiny by the Courts at such a nascent stage of inquiry or investigation." (Paragraph 10, Radhika Agarwal) "In respect of such action, the designated officials have been empowered to summon any person for collection of information and evidence to be presented before the Adjudicating Authority. It is not necessarily for initiating a prosecution against the noticee as such. The power entrusted to the designated officials under this Act, though couched as investigation in real sense, is to undertake inquiry to ascertain relevant facts to facilitate initiation of or pursuing with an action... The summoning person need not be an accused, but the summons is issued even to a witness in the furtherance of inquiry so conducted by the authorised officials." (Paragraph 431, Vijay Madanlal Choudhary) Core principles established include:
Final determinations:
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