TMI Blog2020 (2) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... any of such properties should not be declared to be the properties involved in moneylaundering and confiscated by the Central Government. The notice under Section 8(1) of the PMLA in the present case, was issued by the AA situated at Delhi - Although a writ petition was initially filed in the High Court at Delhi, a learned Single Judge directed that the matter ought to be filed before the Calcutta High Court, which, in essence, was affirmed by a division bench of the Delhi High Court. As such, the present writ petition has been filed before this court, despite part of the cause of action for the present writ having arisen in Delhi. Since nothing has come before the court to prove that the notice given to the petitioner under Section 8(1) of the PMLA disclosed the reasons to believe as contemplated in such section, which was a prerequisite of the notice and had to be arrived at by the AA independently, the notice itself was illegal, being bad in law - no proceeding could be initiated on the basis of the notice under Section 8(1) issued to the present petitioner, thereby rendering the notice under Section 5(1) infructuous, post facto, since the notice under Section 5(1) ultimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isite of the notice and had to be disclosed to the petitioner for the latter to effectively give a reply. 7. Learned counsel for the petitioner places reliance on a division bench judgment of the Delhi High Court rendered in J. Sekar and Ors. Vs. Union of India and Ors., reported at MANU/DE/0075/2018. In the said judgment, the division bench observed, inter alia, that the reasons to believe at every stage must be noted down by the officer in the file. While reasons to believe recorded at the stage of passing the Order of Provisional Attachment under Section 5(1) of the PMLA may not be forthwith at that stage communicated to the person adversely affected thereby, the reasons as recorded in the file have to accompany the complaint filed by such officer within thirty days before the AA under Section 5(5) of the PMLA. A copy of such complaint, accompanied by the reasons, as found in the file, must be served by the AA upon the person affected by such attachment after the said authority adds its own reasons why he prima facie thinks that the provisional attachment should continue. 8. The division bench judgment goes on further to hold that there are two reasons to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the PMLA shall be invalid, or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such notice, summons etc., if such notice, summons etc. is in substance and effect in conformity with or according to the intent and purpose of the PMLA. 13. As such, it is argued that even if no reasons to believe arrived at by the AA were communicated to the petitioner, since no such notice is contemplated in Section 8(1), the mere omission to include the reasons could not vitiate the notice itself and/or further proceedings pursuant thereto. 14. By pointing out to the order dated February 9, 2018, whereby the AA directed the issuance of notice under Section 8(1) of the PMLA, learned counsel for the respondents submits that sufficient reasons to believe, as contemplated in Section 8(1), were recorded therein. It is further evident that the AA virtually adopted the reasons to believe arrived at while issuing the notice under Section 5(1) of the PMLA and as such, in any event, no further communication of the reasons to believe recorded by the AA was required to be communicated to the petitioner. 15. Learned counsel for the respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the correctness of the decision under Section 7 to forfeit the properties could be examined. We do not see anything in the ratio of Ajantha Industries case which lays down a universal principle that whenever a statute requires some reasons to be recorded before initiating action, the reasons must necessarily be communicated. 19. Learned counsel for the respondents next relies on an unreported order dated April 8, 2019 passed by a co‐ordinate bench of this court in W.P. No.7624(W) of 2019 [Sri Mritunjay Singh vs. The Director, Enforcement Directorate (Eastern Region), Government of India Ors.] . It was observed therein, inter alia, that the contention that the company‐in‐question was a separate legal entity and that the petitioner had nothing to do with regard thereto could not be accepted at that stage. The corporate veil of a company could not be utilized for the purpose of perpetuating frauds. In the circumstances of the case, however, affidavits were directed to be exchanged and the parties were given the liberty to mention for early hearing of the matters. 20. Upon considering the submissions of the parties, the first aspect which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod not exceeding thirty days from the date of order of vacation of such stay order shall be counted. (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub‐section (1), forward a copy of the order, along with the material in his possession, referred to in that sub‐section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed. (3) Every order of attachment made under sub‐section (1) shall cease to have effect after the expiry of the period specified in that sub‐section or on the date of an order made under sub‐section (3) of Section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub‐section (1) from such enjoyment. Explanation .- For the purposes of this sub‐section, person interested , in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (2) that any property is involved in money‐laundering, he shall, by an order in writing, confirm the attachment of the property made under sub‐section (1) of Section 5 or retention of property or record seized or frozen under Section 17 or Section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property or record shall- (a) continue during investigation for a period not exceeding ninety days or the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and (b) become final alter an order of confiscation is passed under sub‐section (5) or sub‐section (7) of Section 8 or Section 58‐B or sub‐section (2‐A) of Section 60 by the Special Court. (4) Where the provisional order of attachment made under sub‐section (1) of Section 5 has been confirmed under sub‐section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed. 21. Although Section 5 specifically mentions that the reason for such belief is to be recorded in writing, such requirement is absent in Section 8. Section 8 stipulates that if the AA has reason to believe that any person has committed an offence under Section 3 or is in possession of proceeds of crime, it may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub‐section (1) of Section 5 or seized or frozen under Section 17 or Section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in moneylaundering and confiscated by the Central Government. 22. Before proceeding further, it is relevant to note that part of the cause of action for the writ petition, being issuance of the notice under Section 5(1), which virtually set the ball ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequentially hearing, cannot take place without the noticee having a clear idea as to what were the reasons for believing the allegations against him. 28. As far as Section 68 is concerned, the same contemplates mistakes, defects or omissions in the notice and provides that those would not ipso facto render a notice invalid, if such notice is in substance and effect in conformity with or according to the intent and purpose of the PMLA. 29. However, as discussed above, the substance and effect of the notice cannot be in conformity with or according to the intent and purpose of the Act, which incorporates the well established principle of natural justice, audi alteram partem, which gives the noticee a right to contest the notice, its basis as well as the contents of the notice elaborately, if the basis of the notice under Section 8(1), that is, the reasons to believe of the AA are not disclosed in the notice. 30. It has to be noted here that one of the arguments of the respondents is that the AA adopted the reasons to believe attributed while passing the POA, which reasons were allegedly communicated to the noticee. 31. However, such argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio. As per the said judgment, at least at the stage of issuance of notice under Section 8(1), PMLA, the reasons to believe of the AA, as well as the authority issuing the notice under Section 5(1), have to be mandatorily communicated to the noticee to give rise to a proper show‐cause and a hearing on the matter. Such a requirement, although not enumerated in so many words in the statute, has to be read into Section 8(1) to attribute a meaningful interpretation to the said provision. 34. In order to satisfy the criterion of Section 68, the intent and purpose of the Act has to be seen. Absence of communication of the reasons to believe at both the stages would violate the intent and purpose of the Act and the norms of natural justice recognized in every civilized society where the Rule of Law prevails. Hence, such an omission would not be a mere irregularity but an illegality vitiating the notice itself and, consequentially, the following proceeding. 35. The argument regarding burden of proof as envisaged in Section 24 of the PMLA is neither here nor there. The question of burden of proof arises only at the stage of hearing and is not applicable in any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cause shown, if the special court finds that the offence of money‐laundering has not taken place or the property is not involved in money‐laundering, it shall, under sub‐section (6) of Section 8 of the PMLA, order release of such property to the person entitled to receive it. Under sub‐section (8) of Section 8, the special court may also direct the Central Government to restore property confiscated under sub‐section (5) of Section 8 or part thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of moneylaundering. 42. Section 9 of the PMLA provides that upon an order of confiscation being made, all the rights and title in such property shall vest absolutely in the Central Government, free from all encumbrances. The subsequent provisions of the Act deal with management of the properties confiscated under the aforesaid provisions. Section 14 provides that, save as otherwise provided in Section 13 of the PMLA, the reporting entity, its Directors and employees shall not be liable to any civil or criminal proceedings against them for furnishing information under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rove that the notice given to the petitioner under Section 8(1) of the PMLA disclosed the reasons to believe as contemplated in such section, which was a prerequisite of the notice and had to be arrived at by the AA independently, the notice itself was illegal, being bad in law. 50. That apart, even as argued by the respondents themselves, the AA apparently adopted the reasons to believe recorded while passing the POA, without arriving at any independent findings on such reason to believe, let alone communicate the same to the noticee/petitioner. The said inaction on the part of the AA vitiates the notice under Section 8(1) as well. 51. In such view of the matter, no proceeding could be initiated on the basis of the notice under Section 8(1) issued to the present petitioner, thereby rendering the notice under Section 5(1) infructuous, post facto, since the notice under Section 5(1) ultimately merged in the notice under Section 8(1) as the latter was a continuation of the process initiated by the former. 52. Hence, the entire proceeding, commencing with the notice under Section 5(1) and culminating in the notice under Section 8(1) and the proceedings abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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