2025 (7) TMI 932 - HC - Money Laundering

Maintainability of petition - availability of statutory remedies available under the Prevention of Money Laundering Act 2002 - challenge to provisional order of attachment - HELD THAT - In Vijay Madanlal Choudhary v. Union of India 2022 (7) TMI 1316 - SUPREME COURT (LB) the Apex Court has held that Section 5 of the Act provides a balancing arrangement to secure the interest of the person as well as to ensure that the proceeds of crime remain available for being dealt with in the manner provided by the Act. This provision has a reasonable nexus with the objectives sought to be achieved by the Act namely the effective prevention and regulation of money laundering. As rightly held by the learned Single Judge the Act provides an efficacious alternative remedy through a tiered appellate mechanism including a second appeal and further recourse to the High Court. It is well-settled that the extraordinary writ jurisdiction under Article 226 of the Constitution of India is not to be invoked to circumvent or short-circuit statutory procedures save in exceptional and extraordinary circumstances where statutory remedies are wholly inadequate or ill-suited to address the grievance and even then only for compelling reasons. It needs to be noted at this juncture that it is pursuant to the issuance of the above notice that a provisional order of attachment was passed under sub section (1) of Section 5 of PMLA 2002. In all the notices as required under the provisions of law the properties in respect of which provisional attachment has been ordered has been enumerated as a table in the body of the provisional attachment order. The moment the order under Section 5 (1) of the Act is issued the earlier notice issued by the Assistant Director purportedly under Section 54 of the Act will not have any effect over the properties not included in the table attached to the provisional attachment order - Furthermore the provisional attachment of property involved in money laundering can be effected only by the officers specifically empowered under Section 5 of the Prevention of Money Laundering Act 2002. Ay action taken by the Assistant Director under Section 54 of the Act will have no legal effect once a provisional attachment order is duly made in respect of properties that qualify as proceeds of crime. With respect to properties included in such an order the appellants are at liberty to raise all their contentions before the Adjudicating Authority and other forums provided under the Act and to exhaust their remedies in accordance with law. We find that by an interim order dated 04.07.2024 passed by the learned Single Judge the proceedings before the adjudicating authority were stayed. In that view of the matter 30 days time granted by the adjudicating authority under Section 8(1) of the Act to file a reply shall start to run only from today; i.e. on 08.07.2024. If reply is filed within such time as ordered the adjudicating authority shall consider the same and pass orders in accordance with law. Appeal dismissed.

Summary

The core legal questions considered by the Court in these appeals include:

1. Whether the writ petitions challenging the provisional attachment orders under the Prevention of Money Laundering Act, 2002 ("the Act") were maintainable, given the existence of statutory remedies under the Act.

2. The scope and effect of provisional attachment orders under Section 5 of the Act, including the procedural safeguards and appellate remedies available.

3. The validity and legal effect of notices issued under Section 54 of the Act by the Assistant Director, particularly regarding interdictory directions imposed on bank accounts prior to the issuance of provisional attachment orders.

4. The applicability of arbitration proceedings and stay orders on predicate offences to the proceedings under the Prevention of Money Laundering Act.

Issue-wise Detailed Analysis

1. Maintainability of Writ Petitions Challenging Provisional Attachment Orders

The Court examined the statutory framework of the Prevention of Money Laundering Act, 2002, particularly Chapter III, which governs attachment, adjudication, and confiscation of property. Section 5(1) empowers designated officers to issue provisional attachment orders for a maximum period of 180 days, subject to confirmation by an independent Adjudicating Authority. The procedure requires the provisional attachment order to be forwarded to the Adjudicating Authority within 7 days (Section 5(2)) and a complaint to be filed within 30 days (Section 5(5)). The Adjudicating Authority then issues show cause notices (Section 8(1)) and conducts adjudication after hearing the parties (Section 8(2)).

The Act provides a comprehensive and tiered appellate mechanism: orders of the Adjudicating Authority can be appealed to the Appellate Tribunal (Section 26(1)), and further to the High Court (Section 42) on questions of law or fact. This statutory scheme is a self-contained code designed to balance the interests of individuals and the State in combating money laundering.

The Court relied on binding precedents, including the Supreme Court's decision in Vijay Madanlal Choudhary v. Union of India, which upheld the reasonableness and constitutionality of Section 5 of the Act and emphasized the need to preserve the availability of proceeds of crime during investigation and adjudication. The Court also invoked the principle that extraordinary writ jurisdiction under Article 226 should not be used to circumvent statutory remedies unless exceptional circumstances exist, referencing the Apex Court's ruling in Special Director v. Mohammad Ghulam Ghouse, which discouraged premature judicial intervention in investigatory processes.

Applying these principles, the Court held that the writ petitions were rightly dismissed as non-maintainable since the appellants had statutory remedies available under the Act, which they had not exhausted. The Court emphasized that the petitioners must pursue their objections through the adjudicatory and appellate mechanisms provided by the Act.

2. Effect and Scope of Provisional Attachment Orders under Section 5 of the Act

The Court analyzed the nature of provisional attachment orders under Section 5(1), clarifying that such orders are temporary and subject to confirmation by the Adjudicating Authority. The Court detailed the procedural safeguards embedded in the Act: the Adjudicating Authority must issue a show cause notice, allow the noticee to respond and produce evidence, and conduct a hearing before confirming or declining the attachment (Section 8(1)-(4)). Following adjudication, the Special Court may order confiscation or release of property depending on the outcome of the trial (Section 8(5)-(6)).

The Court underscored that only properties qualifying as "proceeds of crime" under Section 2(1)(u) of the Act can be attached, and that the authorised officers empowered to issue provisional attachment orders are senior officials (Director or Deputy Director) who must be satisfied of the existence of a reason to believe in the commission of a scheduled offence. This requirement acts as an inbuilt safeguard against arbitrary attachment.

The Court also noted that the appellants had not challenged the validity of the complaint filed under Section 5(5) or the subsequent adjudication process, and thus the provisional attachment order was validly issued and operative.

3. Validity and Effect of Notices under Section 54 of the Act and Interdictory Directions on Bank Accounts

The appellants contended that notices issued by the Assistant Director under Section 54 of the Act, which directed banks to withhold debit transactions without prior intimation, were ultra vires and caused serious prejudice. Section 54 empowers certain officers to assist in inquiries and investigations but does not expressly confer powers to impose interdictory orders or restrict bank transactions.

The Court agreed with this contention, holding that the Assistant Director's issuance of interdictory directions to banks under Section 54 was beyond the scope of the powers conferred by that provision. The Court clarified that such restrictions on bank accounts can only be imposed pursuant to a provisional attachment order under Section 5(1) by authorised officers.

Consequently, the Court directed the Enforcement Directorate to issue clarifications to the concerned banks rescinding the interdictory directions issued under Section 54, except insofar as they relate to properties specifically covered by the provisional attachment order under Section 5(1) and the complaint filed under Section 5(5). This ensured that the appellants could operate their bank accounts freely except for those assets legitimately subject to provisional attachment.

4. Impact of Arbitration Proceedings and Stay of Predicate Offences on PMLA Proceedings

The appellants argued that since arbitration proceedings had been initiated and an award rendered in their favour, and since the predicate offences under the IPC and Prevention of Corruption Act were stayed by this Court, the initiation of proceedings under the PMLA was malicious and unjustified.

The Court rejected this argument, emphasizing that the PMLA is a distinct and self-contained statute with independent procedures and remedies. The stay of proceedings in predicate offences or the existence of arbitration awards does not preclude the Enforcement Directorate from initiating or continuing proceedings under the PMLA, as long as the statutory requirements are met. The Court reiterated that the statutory scheme contemplates parallel proceedings and that the appellants must exhaust the remedies under the PMLA before seeking judicial intervention.

Conclusions

The Court dismissed the appeals, upholding the dismissal of the writ petitions as non-maintainable. The Court preserved the statutory scheme of the PMLA as the exclusive and efficacious remedy for challenging provisional attachment orders and related enforcement actions. It clarified the limited scope of powers under Section 54 and restrained the Enforcement Directorate from exercising powers beyond those conferred by the Act. The appellants were granted liberty to pursue their contentions before the Adjudicating Authority and appellate forums under the Act.

Significant Holdings

"Section 5 of the Act provides a balancing arrangement to secure the interest of the person as well as to ensure that the proceeds of crime remain available for being dealt with in the manner provided by the Act."

"The extraordinary writ jurisdiction under Article 226 of the Constitution of India is not to be invoked to circumvent or short-circuit statutory procedures, save in exceptional and extraordinary circumstances where statutory remedies are wholly inadequate or ill-suited to address the grievance."

"Any action taken by the Assistant Director under Section 54 of the Act will have no legal effect once a provisional attachment order is duly made in respect of properties that qualify as 'proceeds of crime.'"

"The provisional attachment of property involved in money laundering can be effected only by the officers specifically empowered under Section 5 of the Prevention of Money Laundering Act, 2002."

"The stay of proceedings in predicate offences or the existence of arbitration awards does not preclude the Enforcement Directorate from initiating or continuing proceedings under the PMLA."