TMI Blog2015 (3) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... nks cannot be said to be illegal. (c) Failure to refer to other "scheduled offences" apart from the one under the SEBI Act in the impugned letter would not ipso facto invalidate the same in view the materials emanating from the records of investigation as also the saving provision engrafted in section 68 of the PML Act, 2002. (d) Impugned letter dated 19.09.2014 having been held to be a temporary measure in aid of proceedings under the Act cannot be an end it itself. Hence, embargo contained in the said letter cannot continue indefinitely but is required to be restricted to a time frame within which the respondents may initiate appropriate proceedings under the Act in respect of the accounts/assets referred therein. Accordingly, the impugned letter dated 19.09.2014 is modified and the embargo contained therein is directed to operate for a period of three months from date within which the respondent authorities are at liberty to initiate appropriate proceedings as contemplated under the Act, if not already done, in respect of the assets/accounts referred to therein. If the respondent authorities fail to initiate proceedings under the Act in respect of the accounts/assets re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A read with section 24 of the SEBI Act against the appellant. It appears that the said proceeding has been challenged before this Court in CRR No. 20177 of 2013 and the same has been stayed. It is pertinent to note that offence under section 24 of the SEBI Act is a scheduled offence under the Prevention of Money Laundering Act, 2002 (hereinafter referred to as PML Act, 2002 ) With reference to the aforesaid scheduled offence investigation was initiated by the respondent No. 3 being ECIR No. ECIR/KLZO/02/2014 against the appellant under the provisions of PML Act, 2002. In connection with such investigation, respondent Nos. 2 and 3 along with their officers conducted search at the offices of the appellant and seized monies to the tune of L 3,70,763.50 apart from compact discs and documents. The appellant challenged the aforesaid search and seizure in W.P. No. 17343 (W) of 2014 which was subsequently withdrawn with liberty to file afresh, if occasion arose. In the meantime, the respondent authority issued show cause notice on the appellant No. 1 calling upon him to show cause before the adjudicating authority as to why the seized properties be not retained under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n passed by the Hon'ble Division Bench in its order dated 28.07.2014 in AST No. 345 of 2014 and remanded the matter for fresh consideration by the adjudicating authority. However, the learned Single Judge refused to interfere with the impugned letter dated 19.09.2014 issued by respondent No. 3 to respondent banks, as aforesaid. Hence, the present appeal. Mr. Sarkar, learned senior counsel appearing for the appellants restricted his submission to the impugned letter dated 19.09.2014 issued by respondent No. 3 to the respondent banks only. He submitted that the said letter in effect amounted to attachment/seizure of the accounts of the appellant No. 1 Company. Such power could be exercised by the respondent authority only under section 5 or section 7 of the PML Act, 2002 after recording reasonable beliefs based on the materials in possession of the concerned authority. Impugned letter did not record such reasonable belief and hence the same was without jurisdiction and liable to be quashed. He further submitted that the amounts collected from the public in respect of the non-convertible debentures issued by appellant No. 1 Company had already been refunded and the same is reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions for collection of evidence for effective enforcement of the Act. He submitted that the respondent banks being reporting entities under the Act were duty bound under section 54 of the Act to assist the authorities for its enforcement. He further submitted that money laundering investigation is a highly specialised exercise which entails immediate tracing, identification, restraint, seizure and eventual attachment and confiscation of the proceeds of crime . In the event amounts from the suspected accounts are not immediately restrained from being withdrawn, said amounts would be spirited away through electronic banking or otherwise to off shore accounts of non-contracting States which are beyond the domain of the legislation notwithstanding its extra territorial operation. He accordingly prayed for dismissal of the appeal. In the course of hearing records of the investigation were produced before the Court. It appears from the records of investigation that the investigation initiated against the appellant No. 1 Company under PML Act, 2002 is not restricted to offence under section 24 of SEBI Act alone. It has been extended in respect of other scheduled offences und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undering legislation's and/or programmes to counter the menace of widespread money laundering arising out of organised transborder crimes, like terrorism, drug trafficking, corporate fraud and other grave offences which cause serious threat not only to the financial systems of the countries but also endanger their integrity and sovereignty. The evolved and effective manner in which proceeds of crime are placed, layered and integrated into the financial systems of the country through e-commerce and international trade necessitates a specialised agency with ample powers to investigate such crimes through vigilant surveillance, supervision, tracking and identification of suspicious transactions, restraint of suspicious accounts and ultimate seizure, retention, attachment and confiscation of assets which are reasonably believed to be proceeds of crime . To achieve such end, the aforesaid legislation has been brought into force. Let us examine the scheme of the Act. PML Act, 2002 empowers the authorities prescribed in Chapter VIII of the Act to carry on investigation in respect of offence of money laundering as defined in section 3 of the Act. Section 3 of the Act reads as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he authorities for enforcement of the Act. Officers of reporting entities, that is, banks and financial institutions, fall in the aforesaid category. It has been argued none of the aforesaid provisions empower the respondent authorities to issue the impugned letter dated 19.09.2014 directing respondent banks to prohibit/freeze withdrawal from the accounts maintained by the appellant's group of Companies. It has been submitted that such power could have been exercised only after recording requisite satisfaction as to reasonable belief under section 5 or section 7 of the Act. Admittedly such notice has not been issued under the said provisions and is therefore liable to be quashed. It has also been argued in view of the fact that the monies collected from the public issuing of non-convertible debentures having been refunded there was no reason to prohibit/freeze withdrawal from the accounts of the appellant No. 1 Company. With regard to the issue of refund of debenture money, one must bear in mind the wide definition of the word proceeds of crime in the Act. Proceeds of crime under the Act is not only relates to property derived or obtained directly from the criminal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies without restoring to section 5 (attachment) or section 7 (seizure) of the Act, let us examine the same in the light of the various provisions of the Act. Section 2(na) defines investigation . The definition is an inclusive one and therefore would empower investigating agency to take recourse to not only proceedings under the Act but also to all incidental and consequential acts that may be necessary for effectively pursuing such proceedings to ensure collection of evidence. The prime object of an investigation for an offence of money laundering is that the investigating agency must be empowered to take immediate steps so that monies credited in suspicious accounts are not spirited away rendering the proceedings under the Act nugatore and otiose. It is true that existence of reasonable belief is the condition precedent for exercise of powers under section 5 (attachment) or section 7 (seizure of the property or asset) of an accused. However, existence of reasonable belief is not a condition precedent for commencement of investigation under the Act. Such investigation may be commenced on reasonable suspicion that proceeds of crime relating to scheduled offences are bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fairly be regard as incidental to, or consequential upon, those things which the legislature has authorised ought not (unless expressly prohibited) to be held by judicial construction, to be ultra vires . (See Attorney-General v. Great Easter Rly. Co., (1880)5 AC 473 (HL). Similar view was reiterated in Khargram Panchayat Samiti Anr. v. State of West Bengal Ors., (1987)3 SCC 82. 4. It is well-accepted that the conferral of statutory powers on these local authorities must be construed as impliedly authorising everything which could fairly and reasonably be regarded as incidental or consequential to the power itself. See: De Smith's Judicial Review of Administrative Action. 4th edn., p. 95, HWR Wade's Administrative Law, 5th edn., p. 217, Craies on Statute Law, 6th edn., p. 276, Attorney General v. Great Eastern Railway, LR (1880) 5 AC 473; Baroness Wenlock v. River Dee Co., LR (1885) 10 AC 354. De Smith in his celebrated work Judicial Review of Administrative Action, 5th edn. at p. 95 puts the law tersely in these words: The House of Lords has laid down the principle that whatever may fairly be regarded as incidental to, or consequent upon, those things w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act is of no help to the appellant. Respondents banks being reporting entities under the Act are duty bound to act upon a request made by the authorities under section 54 of the Act. PML Act, 2002 empowers the authorities to initiate all proceedings under the Act for collection of evidence. Attachment or seizure of properties which are reasonably believed to be proceeds of crimes or connected therewith are contemplated under section 5 or 7 of the Act. All incidental and consequential acts like temporary prohibition of withdrawal from accounts of an accused pending investigation for giving effect to such powers of seizure and attachment are, therefore, to be inferred for effective enforcement of the Act. Failure to infer such power would result in siphoning off funds from accounts of accused persons pending investigation rendering powers of seizure/attachment under the Act otiose. Viewed from such perspective, the impugned letter is neither an unlawful invasion of right to property nor is the same bereft of statutory sanction. Any other interpretation would frustrate the object or purpose of the law which seeks to create an effective machinery for investigation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng hearing show that appellant is accused of commission of other scheduled offences under the Act and is being investigated by CBI on that score. Hence, mere absence of reference to other scheduled offences in the impugned letter cannot be a ground to invalid the impugned notice under the Act. In view of the saving clause engrafted in section 68 (supra) and the materials emanating from records of investigation, we are of the view Chandre Singh (supra) is inapplicable to the facts of the case. It is also argued on behalf of the respondents relying on Chandra Singh Ors. v. State of Rajasthan Anr., 2003(3) S.C.T. 694 : (2003)6 SCC 545 the Court in exercise of discretionary jurisdiction under Article 226 may not interfere with an illegal order whereby substantial justice is being done. Reference has also been made by the respondents to B. Rama Raju v. Union of India, (2011)164 Com Cas 149 (AP) and unreported judgement dated 31.07.2013 of Gujarat High Court in Special Civil Application No. 4171 of 2012 with Special Civil Application No. 1059 of 2012, Alive Hospitality Food Private Ltd. v. Union of India. None of the aforesaid cited cases deal with the issue raised in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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