2025 (6) TMI 688 - AT - Money Laundering

Money Laundering - retention of seized office files and digital evidence under Section 17(4) of PMLA - failure to record reason to believe in terms of Section 17(1) of PMLA - jurisdiction of ED to conduct an investigation into the commission of a scheduled offence - HELD THAT - Without going into the merits of the case Respondent ED is hereby directed to release all the un-relied documents/seized material to the appellant if not relied upon by any investigating agency till date. However Respondent ED is at liberty to retain the copies of the same for the purpose of further investigation if so required. Respondent ED is also at liberty to take endorsement of the appellant on the photocopies regarding authenticity of the photocopies of the originals returned to the appellant which will be returned to them. It is made clear that if any document/seized material is already relied upon in any criminal case or chargesheet or prosecution complaint the same cannot be returned till the conclusion of the case. Appellant is hereby directed to give an undertaking by way of affidavit that he will not challenge the authenticity of the photocopies. The present appeal is hereby disposed of with direction. This Order be complied within six months after the expiry of period of limitation for filing appeal in the Hon ble High Court.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal under the Prevention of Money Laundering Act, 2002 (PMLA) in this appeal include:

• Whether the Adjudicating Authority was justified in permitting the retention of seized office files and digital evidence under Section 17(4) of PMLA.
• Whether the Enforcement Directorate (ED) had recorded the requisite "reason to believe" under Section 17(1) of PMLA on the basis of material in its possession that the appellant company was in possession of records relating to money laundering.
• Whether the appellant company, whose premises were searched and documents seized, must necessarily be named as an accused in the scheduled offence or the chargesheet for the attachment and retention of property under PMLA.
• Whether the ED has jurisdiction to investigate the commission of scheduled offences or is limited to investigation related to proceeds of crime under PMLA.
• Whether the appellant company was entitled to release of seized documents and materials not relied upon by the investigating agency.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Retention of Seized Documents and Digital Evidence

Legal Framework and Precedents: Section 17(4) of PMLA empowers the Adjudicating Authority to permit retention of seized property if it is necessary for investigation or trial. The Court referred to the Supreme Court's ruling in Vijay Madanlal Choudhary and Ors. vs. Union of India which clarified the scope of attachment and retention of property under PMLA.

Court's Interpretation and Reasoning: The Tribunal noted that the Adjudicating Authority had formed a reasonable belief based on the material on record that the seized documents and digital evidence were connected to proceeds of crime. The retention was thus justified to facilitate ongoing investigation.

Evidence and Findings: The seized materials included four ABI office files and one CD containing digital evidence recovered from the appellant's premises. The investigation revealed suspicious financial transactions involving companies linked to Karti P. Chidambaram, suspected to be proceeds of crime connected to irregularities in FIPB approval for foreign investment in Aircel-Maxis deal.

Application of Law to Facts: Since the investigation was ongoing and the seized materials were relevant to tracing proceeds of crime, retention was warranted under Section 17(4).

Treatment of Competing Arguments: The appellant argued that the materials should be released as the investigation was incomplete and no sanction to prosecute was granted. The Tribunal rejected this, holding that the ongoing nature of investigation and reasonable belief sufficed for retention.

Conclusion: The retention order was lawful and justified.

Issue 2: Requirement of "Reason to Believe" under Section 17(1) of PMLA

Legal Framework and Precedents: Section 17(1) mandates that the ED must record reason to believe, based on material in its possession, that the property is proceeds of crime before seizure or attachment. The appellant relied on a Delhi High Court judgment in J. Sekar & Ors. v. Union of India emphasizing this requirement.

Court's Interpretation and Reasoning: The Tribunal found ample incriminating material against the appellant, including financial transactions and involvement of associates in layering illicit funds, to justify the reason to believe. The Adjudicating Authority's formation of reasonable belief on the basis of seized material and investigation records was upheld.

Evidence and Findings: The investigation disclosed that the appellant's premises contained documents linked to suspicious transactions, and the ED had examined FIPB authorities and financial records indicating irregularities in foreign investment approvals.

Application of Law to Facts: The Tribunal held that the statutory requirement of "reason to believe" was satisfied by the material on record and the Adjudicating Authority's order.

Treatment of Competing Arguments: The appellant contended no material existed to form such belief and investigation was incomplete. The Tribunal rejected this, emphasizing the ongoing investigation and the sufficiency of the material before the Adjudicating Authority.

Conclusion: The "reason to believe" requirement was fulfilled.

Issue 3: Necessity of Being Named as Accused for Attachment and Retention

Legal Framework and Precedents: The Tribunal relied heavily on the Supreme Court's ruling in Vijay Madanlal Choudhary and Ors. vs. Union of India, which clarified that Section 5(1) of PMLA extends to any person involved in proceeds of crime, not necessarily named as accused in the scheduled offence.

Court's Interpretation and Reasoning: The Tribunal held that the appellant's absence from the FIR or chargesheet did not preclude attachment or retention of property found in its possession. The Act's objective to attach proceeds of crime wherever held was emphasized.

Evidence and Findings: The appellant's premises contained incriminating documents and digital evidence linked to proceeds of crime, justifying attachment despite non-inclusion in the FIR or chargesheet.

Application of Law to Facts: The law permits attachment of property in possession of any person connected with proceeds of crime, regardless of accused status.

Treatment of Competing Arguments: The appellant argued that since it was not named in FIR or chargesheet, attachment was improper. The Tribunal rejected this legal stance.

Conclusion: Attachment and retention are permissible even if the person is not an accused in the scheduled offence.

Issue 4: Jurisdiction of Enforcement Directorate in Investigation

Legal Framework and Precedents: PMLA empowers ED to investigate money laundering offences, which are linked to predicate scheduled offences investigated by police or CBI. ED's jurisdiction is limited to proceeds of crime and money laundering aspects, not re-investigation of predicate offences.

Court's Interpretation and Reasoning: The Tribunal clarified that ED does not investigate the scheduled offence per se but focuses on whether proceeds of crime exist, are laundered, and tracing their movement. The Tribunal outlined the scope of ED's investigation including:

• Prima facie evidence of scheduled offence;
• Existence of proceeds of crime;
• Whether proceeds are laundered or likely to be;
• Mode of layering or trail of proceeds;
• Attachment of other properties where proceeds dissipated;
• Verification of genuineness of claimants of attached properties.

Evidence and Findings: The investigation involved examination of FIPB approvals, foreign investments, and financial transactions linked to the appellant and associates.

Application of Law to Facts: ED's jurisdiction was appropriately exercised within the statutory framework.

Treatment of Competing Arguments: The appellant contended ED had no jurisdiction to investigate scheduled offences. The Tribunal rejected this, distinguishing the roles of police/CBI and ED.

Conclusion: ED's jurisdiction to investigate money laundering aspects is valid and distinct from investigation of scheduled offences.

Issue 5: Release of Unrelied Seized Documents and Materials

Court's Interpretation and Reasoning: The Tribunal directed that any seized documents or materials not relied upon by the investigating agencies in the investigation or prosecution be returned to the appellant. However, copies may be retained by ED for further investigation. The appellant must give an undertaking not to challenge authenticity of photocopies returned.

Application of Law to Facts: This balances the appellant's right to property and the investigative needs of ED.

Conclusion: Release of unrelied seized materials with safeguards was ordered.

3. SIGNIFICANT HOLDINGS

The Tribunal preserved the following crucial legal reasoning from the Supreme Court's judgment in Vijay Madanlal Choudhary and Ors. vs. Union of India:

"65......... The sweep of Section 5(1) is not limited to the Accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being Accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime. Such a person besides facing the consequence of provisional attachment order, may end up in being named as Accused in the complaint to be filed by the authorised officer concerning offence Under Section 3 of the 2002 Act.

69. We find force in the stand taken by the Union of India that the objectives of enacting the 2002 Act was the attachment and confiscation of proceeds of crime which is the quintessence so as to combat the evil of money-laundering. The second proviso, therefore, addresses the broad objectives of the 2002 Act to reach the proceeds of crime in whosoever's name they are kept or by whosoever they are held."

Core principles established include:

• Attachment and retention of property under PMLA extend to any person connected with proceeds of crime, irrespective of being named accused in scheduled offence.
• ED's jurisdiction is limited to investigation of money laundering and proceeds of crime, not re-investigation of scheduled offences.
• "Reason to believe" under Section 17(1) can be formed on the basis of material in possession and does not require completion of investigation.
• Retention of seized property is justified if necessary for investigation or trial under Section 17(4).
• Unrelied seized materials must be returned with safeguards to protect investigation integrity.

Final determinations on each issue were:

• Retention of seized documents and digital evidence was lawful and justified.
• Reason to believe under Section 17(1) was properly recorded based on incriminating material.
• Attachment and retention do not require the person to be named as accused in scheduled offence.
• ED has jurisdiction to investigate money laundering aspects and proceeds of crime, not the predicate offence itself.
• Unrelied seized materials are to be returned with appropriate conditions.