2025 (7) TMI 931 - HC - Money Laundering

Money Laundering - Communication of the order to the parties - Purposively interpretation - challenge to notice issued under Section 8(4) of the PMLA and Rule 4(5) of the Prevention of Money Laundering (Taking Possession of Attached or frozen properties confirmed by the Adjudicating Authority) Rules 2013 - direction to transfer the outstanding balance in five fixed deposits (FDRs) maintained by the petitioner to another bank by the ED - compliance of Regulation 27 of the Adjudicating Authority (Procedure) Regulations 2013 by the Adjudicating Authority or not - HELD THAT - The Adjudicating Authority is bound to deliver the copy of the order to the parties or their representatives. It is undisputed fact that counsel for the petitioner has filed Vakalatnama on behalf of the petitioner on 29.09.2024 whereby the Adjudicating Authority was intimated that the petitioner (Director-Trilok Singh Dhillon) was in judicial custody. The service of Show Cause Notice of OC No. 2318/2024 upon Trilok Singh Dhillon was effectuated in Central Jail Raipur. The Vakalatnama filed before the learned Adjudicating Authority contains an endorsement of the Jail Superintendent. It is also pertinent to mention here that on the date of pronouncement of the order dated 7.10.2024 passed by the learned Adjudicating Authority learned counsel for the petitioner did not appear before the Adjudicating Authority for the reasons best known to him. The Adjudicating Authority has not supplied any proof of mail or intimation to the counsel for the petitioner with regard to the pronouncement of the order by the Adjudicating Authority. As per the order of the Adjudicating Authority the order was passed in open court therefore the same ought to have been served upon the petitioner forthwith in terms of Regulation 27 of the Adjudicating Authority (Procedure) Regulations 2013 which evidently did not happen therefore this Court is of the considered view that the procedure of Regulation 27 of the Adjudicating Authority (Procedure) Regulations 2013 has not been complied with - considering the submissions of the learned counsel for the parties and considering the facts and circumstances of the present case it is directed that the Adjudicating Authority shall provide the copy of the order to the petitioner or his counsel either physically or through email within a period of 7 days from the date of receipt of copy of this order and thereafter 20 days time is granted to the petitioner to avail of its appellate remedy. The observation of this Court shall not bind the Appellate Tribunal which shall decide the appeal on its own merits - Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether the Adjudicating Authority under the Prevention of Money Laundering Act, 2002 (PMLA) complied with Regulation 27 of the Adjudicating Authority (Procedure) Regulations, 2013, which mandates delivery of a copy of the order on the date of its pronouncement to the parties or their representatives present;

(b) Whether the petitioner was duly informed or communicated the Confirming Order dated 7.10.2024 confirming the Provisional Attachment Order (PAO) under Section 8(3) of the PMLA, especially considering the petitioner's director was in judicial custody;

(c) Whether failure to communicate the Confirming Order to the petitioner and/or his counsel constitutes a violation of the principles of natural justice;

(d) Whether the Enforcement Directorate (ED) was justified in issuing the notice under Section 8(4) of the PMLA and Rule 4(5) of the Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 directing the transfer of funds from the petitioner's fixed deposits without supplying a copy of the Confirming Order;

(e) Whether the petitioner had an alternative remedy available under Section 26 of the PMLA to challenge the Confirming Order and whether the petitioner's approach to the High Court without exhausting that remedy was maintainable;

(f) The extent and scope of the powers under Section 8(4) of the PMLA, including judicial review of the subjective satisfaction recorded by the ED;

(g) Whether service of the Confirming Order on the residential address of the petitioner, when the petitioner's director was in judicial custody, was sufficient and valid;

(h) The role and obligations of the bank (respondent No. 2) in complying with the directions of the Adjudicating Authority;

(i) The interpretation and application of relevant Supreme Court precedents and principles relating to communication of judicial orders and natural justice, including the necessity of effective communication of grounds and reasons for orders.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Compliance with Regulation 27 of the Adjudicating Authority (Procedure) Regulations, 2013

Legal framework and precedents: Regulation 27 mandates that if parties or their representatives are present on the date of pronouncement of the order, a copy of the order, if ready, shall be delivered forthwith to them under their signatures, and no further sending of the order is necessary. This is a procedural safeguard to ensure immediate communication of judicial decisions.

Court's interpretation and reasoning: The Court found that the petitioner's counsel had filed a Vakalatnama and was present during the final arguments but did not appear on the date of pronouncement (7.10.2024). The petitioner's director was in judicial custody, which was duly communicated to the Adjudicating Authority. The order was passed in open court but was not physically delivered to the petitioner or his counsel at that time. The Adjudicating Authority also failed to provide proof of any email or other intimation to the petitioner or counsel regarding the pronouncement.

Key evidence and findings: The service of the Show Cause Notice was effected at the Central Jail, and the Vakalatnama bore the endorsement of the Jail Superintendent. The petitioner's director's incarceration was known to the Adjudicating Authority. Despite this, the Confirming Order was sent only to the residential address and not to the jail or the counsel.

Application of law to facts: The Court held that Regulation 27 was not complied with, as the order was not delivered to the petitioner or his counsel on the date of pronouncement, nor was there any satisfactory proof of communication thereafter.

Treatment of competing arguments: The ED argued that the petitioner voluntarily missed the hearing on the pronouncement date and that the order was communicated by sending copies to known addresses. The Court rejected this, emphasizing the mandatory nature of Regulation 27 and the necessity to communicate the order effectively, especially given the petitioner's incarceration.

Conclusion: The Court concluded that the procedural requirement under Regulation 27 was violated, and the petitioner was entitled to receive a copy of the order physically or by email within seven days.

(b) Communication of the Confirming Order and violation of natural justice

Legal framework and precedents: Principles of natural justice require that a party affected by an order must be informed of the operative part and the grounds of the order to enable effective representation. The Court relied on the Supreme Court precedents including State of Punjab v. Qaisar Jehan Begum and Lallubhai Jogibhai Patel v. Union of India, which emphasize that communication must be effective, in a language understood, and sufficient to impart knowledge of the essential contents.

Court's interpretation and reasoning: The Court observed that mere sending of the order to the residential address does not suffice when the petitioner's director was in jail and the counsel was not informed. The failure to communicate the grounds and reasons for confirming the PAO deprived the petitioner of the opportunity to challenge the order effectively.

Key evidence and findings: The petitioner's counsel submitted that no email or other intimation was received. The ED did not produce evidence of communication to the petitioner or counsel. The petitioner's representation to ED and the bank after receipt of the impugned notice was ignored.

Application of law to facts: The Court held that the failure to communicate the order and its reasons constituted a breach of natural justice and rendered the attachment order a potential abuse of process.

Treatment of competing arguments: The ED contended that the order was passed after due process and the petitioner had alternative remedies. The Court distinguished maintainability from entitlement to relief and emphasized that natural justice violations cannot be overlooked merely because alternative remedies exist.

Conclusion: The Court found that the petitioner's right to be informed of the order and its grounds was violated, infringing natural justice.

(c) Justification for ED's exercise of powers under Section 8(4) of the PMLA and Rule 4(5) of the Rules

Legal framework and precedents: Section 8(4) allows the ED to take possession or control of attached property confirmed by the Adjudicating Authority. Rule 4(5) provides for transfer of money lying in banks to the ED's account upon confirmation of attachment. The Supreme Court in Vijay Madalal Chowdhury v. Union of India clarified that such powers must be exercised in extreme situations, not routinely, and the subjective satisfaction of the ED is amenable to judicial review.

Court's interpretation and reasoning: The Court noted that the ED's exercise of power under Section 8(4) must be justified by circumstances warranting extreme action. In the present case, the ED's vague justification and failure to supply the Confirming Order prior to coercive action undermined the legality of the action.

Key evidence and findings: The ED issued the notice directing transfer of fixed deposit amounts without supplying the Confirming Order. The petitioner's fixed deposits were already under lien since 2023, which the ED did not adequately address.

Application of law to facts: The Court held that the ED's action was premature and not in accordance with legal safeguards, and the subjective satisfaction recorded by the ED was not immune from judicial scrutiny.

Treatment of competing arguments: The ED argued that the attachment and transfer were lawful and that the petitioner could seek restoration if the Special Court found no money laundering. The Court acknowledged this but emphasized procedural fairness in the exercise of powers.

Conclusion: The Court found the ED's exercise of power under Section 8(4) and Rule 4(5) flawed due to procedural lapses and lack of justification.

(d) Validity of service of the Confirming Order on residential address when the petitioner's director was in judicial custody

Legal framework and precedents: Service of judicial orders must be effected in a manner ensuring actual or constructive knowledge to the affected party. The Court relied on principles from the aforementioned precedents emphasizing effective communication.

Court's interpretation and reasoning: The Court found that sending the order to the residential address of the petitioner's director, who was in jail, was insufficient and improper. The Adjudicating Authority was aware of the incarceration but did not serve the order at the jail or through the counsel.

Key evidence and findings: The Vakalatnama and show cause notice were served at the jail, and the Jail Superintendent endorsed the Vakalatnama. The order was not served at the jail or to the counsel.

Application of law to facts: The Court held that service on the residential address alone was inadequate and failed to meet legal requirements.

Treatment of competing arguments: The ED argued that the order was sent to available addresses and that it was the petitioner's responsibility to obtain the order. The Court disagreed, emphasizing the duty of the Adjudicating Authority to ensure proper service.

Conclusion: The Court ruled that service on the residential address was invalid in the circumstances.

(e) Availability and exhaustion of alternative remedy under Section 26 of the PMLA

Legal framework and precedents: Section 26 provides for appeal to the Appellate Tribunal against orders of the Adjudicating Authority. The Court noted that maintainability of writ petitions despite availability of alternative remedies is a separate question from entitlement to relief.

Court's interpretation and reasoning: The ED contended that the petitioner should have approached the Appellate Tribunal first. The Court acknowledged the existence of the alternative remedy but did not dismiss the writ petition on this ground, considering the violation of natural justice and procedural lapses.

Key evidence and findings: The petitioner had not filed an appeal before the Appellate Tribunal before approaching the High Court.

Application of law to facts: The Court granted the petitioner 20 days to avail of the appellate remedy after supply of the order copy.

Conclusion: The Court allowed the writ petition to proceed but directed the petitioner to exhaust the appellate remedy subsequently.

(f) Role and obligations of the bank in complying with the Adjudicating Authority's order

Legal framework and precedents: Rule 4(5) of the Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 mandates banks to transfer money to the ED's account upon receipt of directions from the Adjudicating Authority.

Court's interpretation and reasoning: The Court noted that the bank acted in bonafide compliance with the Adjudicating Authority's order and was duty bound to do so.

Key evidence and findings: The bank submitted that it executed the order after due consideration and was not responsible for communication of the order to the petitioner.

Application of law to facts: The Court held that the bank's role was ministerial and it cannot be faulted for complying with lawful directions.

Conclusion: The bank's actions were lawful and in accordance with the order of the Adjudicating Authority.

3. SIGNIFICANT HOLDINGS

"The procedure of Regulation 27 of the Adjudicating Authority (Procedure) Regulations, 2013 has not been complied with. It is also important fact that a physical copy of the order was not delivered to the petitioner till date nor mail has been sent through the Jail Superintendent, Raipur."

"The failure to intimate the petitioner of the pronouncement of the Confirming Order and the subsequent failure to supply copy of the Confirming Order by the learned Adjudicating Authority is failure to comply the principles of natural justice."

"The power under Section 8(4) must be resorted to in extreme situations and not in a routine and mechanical manner. The subjective satisfaction purportedly recorded by the ED cannot be immune from judicial review and procedural requirement and safeguards cannot be treated as having been complied with merely on the ipse dixit of the ED."

"Where the property confirmed by the Adjudicating Authority is in the form of money lying in a bank or a financial institution, the Authorized officer shall issue a direction to the bank or financial institution, as the case may be to transfer and credit the money to the account of the Directorate of Enforcement."

"The words 'delivered to the parties' and 'communication of the order to the parties' in Regulations 27 and 28 must be interpreted purposively rather than as an empty formality."

"The petitioner has a right of appeal to the Appellate Tribunal under Section 26(3) of the PMLA, 2002."

Final determinations:

- The Adjudicating Authority failed to comply with Regulation 27 by not delivering the order copy to the petitioner or counsel on the date of pronouncement.

- The failure to communicate the Confirming Order constituted a violation of natural justice.

- The ED's exercise of power under Section 8(4) and Rule 4(5) without supplying the Confirming Order was improper and premature.

- Service of the order on the residential address was insufficient given the petitioner's director was in judicial custody.

- The petitioner was entitled to receive a copy of the order within seven days and was granted 20 days thereafter to file an appeal before the Appellate Tribunal.

- The bank acted lawfully in complying with the Adjudicating Authority's directions.