2025 (5) TMI 653 - HC - Money Laundering

Legality of the seizure of a luxury vehicle and the freezing of a bank account belonging to a registered company under the Prevention of Money Laundering Act 2002 - no scheduled offences committed - HELD THAT - From the admitted factual scenario of the present case it is apparent that the petitioner s company has no nexus or link with either Mr. Ratikanta Rout or Mr. Chandra Sekhar Samal those who are facing proceeding under the PMLA Act. The petitioner s company is also not facing any criminal proceeding under the schedule offence. Therefore the seizure of the BMW car and freezing of the account of the petitioner s company maintained in ICICI Bank Cuttack is without authority of law. The Hon ble Supreme Court in the case of OPTO Circuit India Ltd. vrs. Axis Bank and others 2021 (2) TMI 117 - SUPREME COURT has held that It certainly is not the requirement that the communication addressed to the Bank itself should contain all the details. But what is necessary is an order in the file recording the belief as provided under Section 17 (1) of PMLA before the communication is issued and thereafter the requirement of Section 17 (2) of PMLA after the freezing is made is complied. There is no other material placed before the Court to indicate compliance of Section 17 of PMLA more particularly recording the belief of commission of the act of money laundering and placing it before the Adjudicating Authority or for filing application after securing the freezing of the account to be made. In that view the freezing or the continuation thereof is without due compliance of the legal requirement and therefore not sustainable. The case record also reveals that the Seizing Authority has not applied his mind while seizing the BMW car which was parked in front of the house of the Chandra Sekhar Samal who happens to be the father of Subhashree Priyadarsini one of the directors of petitioner s company. The Seizing Authority under Section 17 of the PMLA Act was required to follow the due process. Immediate before the search and after the seizure it was obligatory on the part of the Seizing Authority to forward a copy of the reasons so recorded along with the material in his possession to the Adjudicating Authority in a sealed envelope - no nexus or link could be established by the Enforcement Directorate with the petitioner s company. Hence freezing of the bank account of the petitioner s company is also appears to be illegal. Therefore at this stage this Court is of the view that the seizure of the BMW car and freezing of the bank account of the petitioner s company is without authority of law. However during the investigation process if materials come to the fore it will not preclude the Enforcement Authority to resort to the remedy under law as against the petitioner s company at that stage. Conclusion - The seizure of the BMW car and freezing of the petitioner-company s bank account are illegal and without authority of law due to lack of nexus with proceeds of crime absence of recorded belief by the authorized officer non-compliance with procedural safeguards under Section 17 of the PMLA Act and the improper extension of liability based on familial relations. Application allowed.

Summary

The core legal questions considered in this judgment revolve around the validity and legality of the seizure of a luxury vehicle and the freezing of a bank account belonging to a registered company under the Prevention of Money Laundering Act, 2002 (PMLA Act). Specifically, the issues are:

1. Whether the Enforcement Directorate (ED) had lawful authority to seize the BMW car owned by the petitioner-company and freeze its bank account under Section 17 of the PMLA Act.

2. Whether there exists a sufficient nexus or link between the petitioner-company and the alleged proceeds of crime connected to other accused persons involved in scheduled offences under the PMLA Act.

3. Whether the procedural safeguards and mandatory requirements prescribed under Section 17 of the PMLA Act were complied with by the Enforcement Directorate at the time of seizure and freezing.

4. Whether mere familial relationship between a director of the petitioner-company and an accused under the PMLA Act can justify the invocation of powers against the company itself.

5. The applicability of judicial guidelines concerning the release of seized properties and defreezing of bank accounts in the context of PMLA investigations.

Issue 1: Lawful Authority for Seizure and Freezing under Section 17 of PMLA Act

The legal framework governing the seizure of property and freezing of accounts under the PMLA Act is primarily Section 17. Sub-section (1) empowers an authorized officer to seize any property or record if he has reason to believe that a person has committed money laundering offences. Sub-section (1A) allows freezing of property where seizure is not practicable. Sub-section (2) mandates that the reasons for seizure or freezing, along with supporting material, be forwarded to the Adjudicating Authority in a sealed envelope. Sub-section (4) requires the officer to file an application within 30 days for retention of the seized or frozen property.

In interpreting these provisions, the Court referred extensively to a precedent from the Supreme Court, which emphasized that the belief of the authorized officer must be recorded in writing and that the procedural safeguards must be strictly followed to ensure fairness and legality. The freezing of bank accounts is also encompassed within the definitions of "property" and "records" under Section 2(v) and 2(w) of the PMLA Act, thus subject to the same procedural rigour.

In the present case, the Court found that the Enforcement Directorate did not comply with these procedural requirements. The impugned communication to the bank lacked any recorded belief or reasons justifying the freezing, and there was no evidence of forwarding such reasons to the Adjudicating Authority as mandated. The Court held that the seizure and freezing were therefore without authority of law and unsustainable.

Issue 2: Nexus Between the Petitioner-Company and Alleged Proceeds of Crime

The Enforcement Directorate's case was predicated on the investigation of an individual, Ratikant Rout, involved in scheduled offences such as extortion and illegal mining, and his alleged nexus with Chandra Sekhar Samal, a director of another company, M/s. Shree Constructions. The petitioner's company's director, Subhashree Priyadarsini, is the daughter of Chandra Sekhar Samal.

The Court scrutinized the evidence and found no material establishing any connection between the petitioner-company and the alleged proceeds of crime. The BMW car was purchased through a 100% bank loan from BMW Finance Group, and the petitioner-company had availed a substantial cash credit loan from Canara Bank for business operations. No link was demonstrated between these financial transactions and the criminal activities of the accused persons.

The Court emphasized that a juristic person such as the petitioner-company cannot be implicated merely on the basis of a familial relationship of one of its directors with an accused. The absence of any incriminating material or nexus rendered the seizure and freezing arbitrary and misconceived.

Issue 3: Compliance with Procedural Safeguards under PMLA Act

The Court highlighted the mandatory procedural steps under Section 17 of the PMLA Act, which include recording the officer's belief, forwarding the reasons and material to the Adjudicating Authority, and filing an application for retention of seized property within stipulated timelines. These safeguards are designed to balance the objectives of the PMLA with the protection of rights of persons or entities affected.

In the instant matter, the Enforcement Directorate failed to demonstrate adherence to these procedures. The seizure of the BMW car and freezing of the bank account was conducted mechanically without proper application of mind or compliance with statutory requirements. The absence of documented belief and failure to involve the Adjudicating Authority rendered the actions invalid.

Issue 4: Impact of Familial Relationship on Liability of the Company

The Court rejected the contention that the petitioner-company could be implicated solely based on the fact that one of its directors is the daughter of an accused person. It underscored the principle that a company is a separate legal entity and cannot be held liable for the acts or alleged crimes of its directors or their relatives without concrete evidence linking the company itself to the offence.

This principle safeguards against arbitrary extension of liability and ensures that investigations and enforcement actions are targeted and justified.

Issue 5: Judicial Guidelines on Release of Seized Property and Defreezing of Accounts

The petitioner relied on a recent judgment of the same High Court which formulated guidelines for the release of seized articles and bank accounts during PMLA investigations. The Court considered these guidelines relevant and applicable to the present case, reinforcing the view that seized properties and frozen accounts must be released if no material links or nexus are established and procedural requirements are not met.

Significant Holdings:

"A perusal of the above provision would indicate that the prerequisite is that the Director or such other Authorised Officer in order to exercise the power under Section 17 of PMLA, should on the basis of information in his possession, have reason to believe that such person has committed acts relating to money laundering and there is need to seize any record or property found in the search. Such belief of the officer should be recorded in writing."

"The freezing or the continuation thereof is without due compliance of the legal requirement and, therefore, not sustainable."

"Merely because one of the Directors of the petitioner's company happens to be a daughter of one of the alleged accused in the PMLA Act, the company which is a juristic person cannot be roped in to the alleged crime under the PMLA Act."

"The seizure of the BMW car and freezing of the account of the petitioner's company maintained in ICICI Bank, Cuttack is without authority of law."

"The Seizing Authority has absolutely not applied his mind rather mechanically went ahead and seized the BMW car which appears to have been purchased by availing bank loan by the petitioner's company."

"No materials have been brought on record by the Enforcement Directorate to show that the acquisition of car is through the proceeds of crime."

"Since there is no material brought on record by the Enforcement Directorate against the petitioner's company showing its complicity, hence, the petitioner's company is entitled to the relief claim in this petition."

In conclusion, the Court determined that the seizure of the BMW car and freezing of the petitioner-company's bank account were illegal and without authority of law due to lack of nexus with proceeds of crime, absence of recorded belief by the authorized officer, non-compliance with procedural safeguards under Section 17 of the PMLA Act, and the improper extension of liability based on familial relations. The Court ordered immediate release of the seized vehicle and defreezing of the bank account, while clarifying that the Enforcement Directorate is not precluded from initiating lawful proceedings against the petitioner-company if future material evidence emerges during investigation.