TMI Blog2021 (10) TMI 1176X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 17(4) of the PMLA - level of satisfaction to be recorded by the Adjudicating Authority prior to issuance of show cause notice under section 8(1) of the PMLA - requirement to supply Relied Upon Documents while issuing SCN - procedure to be followed for providing inspection of records, and for giving a reasonable hearing to the parties, prior to passing of orders by the Adjudicating Authority under the PMLA. Procedure to be followed upon receiving letters of requests from a contracting state, under Section 60 of the PMLA - HELD THAT:- Under Section 60 of the PMLA, the Director, ED upon being forwarded a letter of request by the Central Government, has to direct an authority under the PMLA (person authorized) to take steps necessary for tracing and identifying the property, of which freezing/seizure is sought. The person authorized has wide powers, including to inquire, investigate and survey under 60(4) of the Act. However, Section 60 (6) of the Act specifically provides that the provisions contained in Chapter V of the Act for surveys, searches and seizures would apply to all letters of request received from a contracting state. The requisite safeguards contained i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of proceeds of crime - It would not be permissible for the complainant-ED to show any documents or material to the Adjudicating Authority outside of the hearing being given, or behind the back of the parties concerned. The hearing has to also be transparent and in the presence of the parties concerned. Unilateral hearings in the absence of the opposing party would not be permissible before the AA. If the Adjudicating Authority comes to the conclusion that the party(s) concerned is involved in money laundering, an order would have to be passed in writing under Section 8(3) of the Act - The order passed by the Adjudicating Authority would then be communicated to all the parties concerned. Thereafter, remedies can be availed of by the parties concerned, in accordance with law. Procedure to be followed for inspection of records - HELD THAT:- he provisions relating to inspection and fees for inspection and copying, are in respect of records which are beyond the Relied Upon Documents which may be part of `material in possession . Inspection of such documents can only be given to the party concerned and not to any third parties. Strict confidentiality ought to be maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that the defendant(s) is involved in the offence of money laundering under Section 3 of the Act, or is in possession of proceeds of crime. It would not be permissible for the complainant-ED to show any documents or material to the Adjudicating Authority outside of the hearing being given, or behind the back of the parties concerned. The hearing has to also be transparent and in the presence of the parties concerned. Unilateral hearings in the absence of the opposing party would not be permissible before the AA. The impugned order under Section 17(1A) of the PMLA in all these petitions, as also the orders passed by the Adjudicating Authority under Section 8 of the PMLA dated 28th December 2020, are set aside - Petition allowed. - W.P.(C) 5713/2020 & CM APPLs. 20656/2020, 31384/2020 & 4153/2021 with W.P.(C) 6499/2020 & CM APPL. 22801/2020 W.P.(C) 6499/2020 & CM APPL. 22801/2020, W.P.(C) 5855/2020 & CM APPL. 21152/2020, W.P.(C) 2331/2021 & CM APPL. 6785/2021, W.P.(C) 4680/2021 - - - Dated:- 27-10-2021 - JUSTICE PRATHIBA M. SINGH Petitioner Through: Mr. Sidharth Luthra, Sr. Advocate with Ms. Alina Arora, Ms. Nimrah Sameen Alvi, Mr. Parth Singh, Mr. Sheezan Hashmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Blossom Fabrics Limited, Prompt International, M/s. Maya Trades, Eastman Industries Limited, M/s. Suprint Textiles Jaipur Pvt. Ltd., M/s. Suku Innovatives Versus Directorate Of Enforcement Anr., Union Of India Anr. JUDGMENT Prathiba M. Singh, J. 1. This judgment has been pronounced through video conferencing. 2. These are a batch of writ petitions filed under Article 226 of the Constitution of India, challenging freezing orders passed by the Directorate of Enforcement (hereinafter ED ) wherein the bank accounts of the Petitioners were ordered to be frozen. 3. The genesis of these disputes is a communication dated 26th September 2018 received from the Office of the Prosecutor General, Rio De Janeiro, Brazil. The said communication was termed as a `Request for legal assistance in a criminal matter involving a former Governor of Brazil, Sergio Cabral, against whom allegations of corruption and money laundering were levelled. The diversion was assessed by the Brazilian Authorities to be more than a 100 Million Dollars. According to the Brazilian Authorities, a sophisticated system of compensation was indulged in by the former Governor. As per the said al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of Request received from the Government of Brazil. 7. The Petitioners at the interim stage, contended that the request, if any, ought to be, only qua the particular amounts and the carte blanche freezing of the bank accounts in their entirety was not warranted, when the dispute was pending before the AA. 8. Thereafter, interim orders were passed in all these petitions directing the Petitioners to secure the amounts qua which the allegations of money laundering pertained, in a fixed deposit/ bank guarantee or by depositing the said amounts in their bank accounts in question at all times. The order of the ED, freezing the bank accounts were stayed, subject to the said amounts being maintained. The said interim order, was initially passed in WP(C) 5235/2020, on 26th August 2020 , and was reiterated in all the connected petitions, reads as under: 3. It is the case of the petitioner(s) that the Impugned Orders freezing their bank accounts do not disclose any reason to believe that the money lying in the credit of the said bank accounts are, in any manner, involved in money laundering or are proceeds of crime . They further submit that the due process as required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im orders passed by the Court were amended in terms of the amounts mentioned in the order of the AA dated 28th December 2020 and were made applicable during the pendency of these petitions. Owing to the nature of legal issues raised and owing to the fact that the PMLA Appellate Tribunal is not currently functioning, the limitation period for challenging the orders of the AA was also suspended during the pendency of these petitions. The said order dated, dated 4th February 2021, amending the previous interim orders reads as under: 3. In the meantime, it is noted that vide order dated 16th August 2020 in W.P.(C) 5235/2020, the Petitioner was allowed to transact in their bank account by making deposit of money, to the extent of the amount involved in the dispute or alleged to have been laundered, in the same and withdrawing/ transferring the amount so deposited. Similarly, vide order dated 27th August in W.P.(C) 5235/2020, the Petitioner was given the option of either depositing the money mentioned in the application for amendment filed by the ED before the Adjudicating Authority, or of securing the same by way of a Bank Guarantee or a fixed deposit of equivalent amount in their b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52 crores. as on March 2021. When the freezing order took place, the company was not even informed as to the reason for freezing its various bank accounts. A reading of Section 60, sub-section (2) and sub-section (6) of the PMLA shows that whenever any request is received from a foreign country which is a convention country, the procedure which has to be followed has to be as per Chapter III and Chapter V of the said Act. That without complying with the requisite procedures and safeguards provided under the said section of the Act, freezing of the bank accounts of the Petitioners could not have been undertaken by the authorities. That the initial show cause notice which was issued by the Adjudicating Authority did not have the Relied Upon Documents (RUDs), which ought to have been supplied as a matter of right. Reliance is placed upon Rules 2(f), Rule 5 and Rule 6 of the Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the manner of forwarding the reasons and material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005, to argue that any material which forms the basis of the reasons whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t furnishing the documents in respect of the transactions, the bank accounts of the Petitioner Company were seized. Reliance is placed on the UN Convention Against Corruption, 2003, also known as the Merida Convention, to argue that under Articles 55(4), 55(9) and 46(19) of the said Convention, there are sufficient safeguards provided especially, in respect of bona fide third parties as also in respect of the information and evidence that can be disclosed by the requested country. Moreover, the said Convention also, under Article 55(4), provides that the domestic law would have precedence in such matters. The investigating authorities in the present case, i.e., the ED, has not followed the provisions of the Act and the requisite safeguards provided therein. Mr. Awanish Kumar, ld. Counsel, appearing in W.P.(C) 5855/2020 15. Mr. Awanish Kumar, ld. Counsel, submits that under Section 17 of the Act, any action taken under the Act, can only be taken by an officer who is the Director, or someone who is not below the rank of a Deputy Director, duly authorized by the Director. In the present case, the Assistant Director has passed the freezing orders, and thus this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 8 of the Act. Reliance is placed upon the judgment of the Division Bench in J. Sekar v. Union of India Ors. 2018 SCC Online Del (6523), specifically paragraphs 74 to 77, to argue that the supply of the reasons to believe cannot be made mandatory at both stages as the said judgment which mandates the same, has been stayed by the Supreme Court vide order dated 4th July 2018, in Special Leave to Appeal (C) No. 12865/2018. Reliance is also placed on Biswanath Bhattacharya v. Union of India and Ors. (2014) 4 SCC 392 , specifically paragraphs 10 to 16, to argue that there is no principle that reasons to believe have to be supplied at every stage so long as there are safeguards including, that a copy of the said reasons, are given at a later stage. The Petitioners cannot argue that the reasons to believe have to compulsorily be given by the authority, when finding is given at the stage of section 17 of the PMLA. Proceedings before the Court post the submissions of the parties: 17. During the hearings in these matters, this Court, vide order dated 13th August 2021, had directed ld. Counsels for the ED to seek instructions as to whether the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A, the RUDs are not directly served by the AA upon the parties concerned. 4. Mr. Ravi Prakash, ld. Counsel for the ED, also points out that under Regulation 13 of the Adjudicating Authority (Procedure) Regulations, the RUDs are to be served by the Complainant or Applicant. This, in the present case, shall be the ED. 5. Mr. Deepak Chauhan, Deputy Director, ED, who has appeared before the Court today, submits that upon receiving the copy of the show-cause notice from the AA, the Application under Section 17(4) as also the RUDs from pages 19 to 107, were all supplied to all the parties. However, none of the other documents were supplied to the parties, as per his knowledge. He submits in response to a query from the Court as to whether the AA was shown the documents which were given to the Court in a sealed cover, including the order from the Brazilian court, etc., that the IO dealing with the matter is not available and since the AA has referred to these documents in its order, they may have been shown to the ED. But he would not be able to make a categorical statement in this regard, without verifying from the concerned IO. 20. After hearing the officers, the matter w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective cases. The said statement is taken on record. 23. Ld. Senior Counsel and Counsels appearing for the parties have submitted that the scheme of Section 60, and the procedure to be followed by ED, when requests are received from contracting states, ought to be clarified by this Court. Accordingly, before proceeding to the final directions that are to be passed in these cases, in terms of the statement made by ld. Counsels for the ED on 7th October 2021, the legal position as per the PMLA, the Rules thereof and the Conventions, is being analysed by this Court. Analysis and Directions 24. The chronology of events in this case, as revealed from the documents, are as under: A letter of request was received from the Office of the Prosecutor General, State of Rio De Janeiro by the Indian Directorate of Enforcement on 26th September 2018. The said request was for rendering legal assistance in criminal matters related to breach of bank secrecy and fraudulently obtaining financial information. Information was sought in respect of bank accounts of various companies, with a request that the bank accounts ought to be seized for the purposes of repatriation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 2020, within a span of about 3 hours, the counsels for the 66 Companies/entities in the proceedings whose accounts were seized/frozen, were heard for merely two-three minutes each. The final order dated 28th December 2020 was then passed by the Adjudicating Authority under the PMLA, and the freezing of accounts was ordered to be continued in the interest of the investigation. The application of the ED under Section 17(4) of the PMLA was allowed by the AA. 25. As has been unravelled before this Court during the course of submissions, the various documents which were received from the Brazilian Authorities, forming the basis of the reasons to believe of the ED and the reason to believe of the AA in its final order, which were placed in sealed cover before this Court, were not supplied to the Petitioners. The same were not even shown to the AA at the stage of issuance of show cause notice under 8(1) of the PMLA. These documents include the following: Copy of the Letter of Request received from the Central Authority of Brazil; Plea Bargain Agreement referring to Annex 2 of Claudio Barboza; Plea Bargain Agreement referring to Annex 46 of Vinicus Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords and the period of retention) Rules 2005? v) What is the procedure to be followed by the Adjudicating Authority, upon receipt of the application under Section 17(4) of the PMLA? vi) What is the level of satisfaction to be recorded by the Adjudicating Authority prior to issuance of show cause notice under section 8(1) of the PMLA? vii) Whether while issuing the show cause notice, all the Relied Upon Documents have to be supplied to the parties concerned? viii) What is the procedure to be followed for providing inspection of records, and for giving a reasonable hearing to the parties, prior to passing of orders by the Adjudicating Authority under the PMLA? I. Procedure to be followed upon receiving letters of requests from a contracting state, under Section 60 of the PMLA 28. Chapter IX of the PMLA, titled Reciprocal Arrangements for Assistance in Certain Matters and Procedure for Attachment and Confiscation of Property deals with reciprocal arrangements with a contracting state. The term `contracting state is defined under Section 55(a) as under: S.55 Definitions- In this Chapter, unless the context otherwise requires, - (a) contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he request in accordance with its domestic law or when it can facilitate such execution. 17. A request shall be executed in accordance with the domestic law of the requested State Party and, to the extent not contrary to the domestic law of the requested State Party and where possible, in accordance with the procedures specified in the request. xxx 33. Article 46(21) provides for when mutual legal assistance may be refused. The same reads as under: Article 46. Mutual Legal Assistance xxx 21. Mutual legal assistance may be refused: (a) If the request is not made in conformity with the provisions of this article; (b) If the requested State Party considers that execution of the request is likely to prejudice its sovereignty, security, order public or other essential interests; (c) If the authorities of the requested State Party would be prohibited by its domestic law from carrying out the action requested with regard to any similar offence, had it been subject to investigation, prosecution or judicial proceedings under their own jurisdiction; (d) If it would be contrary to the legal system of the requested State Party relating to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities to preserve property for confiscation, such as on the basis of a foreign arrest or criminal charge related to the acquisition of such property. It is clear from the above that the request for freezing or seizure of assets/property has to have a reasonable basis and there have to be sufficient grounds for taking the action. The question as to whether such a basis or grounds exist is to be determined by the authority in the requested State, i.e., in the present case the ED located in India. 37. Article 55 (3) of the Convention clearly stipulates that provisions of Article 46 of the Convention would apply in the cases of seizure and freezing of property. It also contemplates that the order which is the basis of the confiscation request, as also a detailed statements of facts and the information which may be required for the country to whom the request is sent to execute the request, has to be provided for implementing such seizure and freezing requests. The said provision reads as under: Article 55. International Cooperation for the purposes of confiscation. xxx 3. The provisions of article 46 of this Convention are applicable, mutatis mutandis, to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 12 of this Convention permits confiscation and seizure of proceeds of crime, property, equipment etc., and provides for measures to be provided in domestic legislations for the said purpose. 42. Similar to the Merida Convention, international cooperation is contemplated under Article 13 of this Convention, and any request received from a member state, for cooperation, has to clearly specify the description of the property that is to be confiscated, and set out the facts in a manner so as to be sufficient to seek the confiscation/seizure order under the domestic law of the respective country. 43. As per Article 13(4), actions, pursuant to this Convention, are to be taken in accordance with, and subject to, the provisions of the domestic law. The said provision reads as under: Article 13. International Cooperation for the purposes of confiscation. xxx 4. The decisions or actions provided for in paragraphs 1 and 2 of this article shall be taken by the requested State Party in accordance with and subject to the provisions of its domestic law and its procedural rules or any bilateral or multilateral treaty, agreement or arrangement to which it may be bound in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts; (c) If the authorities of the requested State Party would be prohibited by its domestic law from carrying out the action requested with regard to any similar offence, had it been subject to investigation, prosecution or judicial proceedings under their own jurisdiction; (d) If it would be contrary to the legal system of the requested State Party relating to mutual legal assistance for the request to be granted. xxx Domestic law and Section 60 of the PMLA 48. All Treaties and Conventions that are ratified by India, or which India is a member of, are subject to the municipal law. The same has categorically been settled by the Supreme Court in Bhavesh Jayanti Lakhani vs. State of Maharashtra (2009) 9 SCC 551. The Supreme Court, in the said case, held: 45. India follows the doctrine of dualism and not monism. We may, however, hasten to add that this Court, however, at times for the purpose of interpretation of statute has taken into consideration not only the treaties in which India is a party but also declarations, covenants and resolutions passed in different International Conferences. [See M/s Entertainment Network (India) Ltd. vs. M/s Super ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch letter of request to the Special Court or authority concerned under Section 58 for the execution of the request. Section 58 of the Act reads as under: S.58. Assistance to a contracting State in certain cases- Where a letter of request is received by the Central Government from a court or authority in a contracting State requesting for investigation into an offence or proceedings under this Act and for forwarding to such court or Authority any evidence connected therewith, the Central Government may forward such letter of request to the Special Court or to any authority under the Act as it thinks fit for execution of such request in accordance with the provisions of this Act or as the case may be, any other law for the time being in force. 53. It is relevant to note that execution of the request has to be in accordance with the provisions of the Act or any other law for the time being in force . Thus, the assistance to the contracting state has to be rendered, however, within the legal regime that applies and operates in India. 54. Under Section 60 of the PMLA, the Director, ED upon being forwarded a letter of request by the Central Government, has to direct an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch and seizure. Section 17 which deals with search and seizure states that where the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this Section on the basis of the information in his possession has reason to believe (reason for such belief to be recorded in writing) that any person has committed an offence which constitutes the money laundering or is in possession of any proceeds of crime involved in money laundering etc. may search building, place and seize any record or property found as a result of such search. Section 17 of PMLA also uses the expression reason to believe and reason for such belief to be recorded in writing . Here again, the authorised officer shall immediately on search and seizure or upon issuance of freezing order forward a copy of the reasons so recorded along with the material in his possession to the Adjudicating Authority in a sealed envelope in the manner as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period as may be prescribed. In order to ensure the sanctity of the search and seizure and to ensure the safeguards, in exercise of power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 65 of PMLA. We however, are not persuaded to concur in this view. Our difference of opinion with the view taken by the single Judge of the Gujarat High Court arises from noticing the emphasis and clarity with which the essential conditions for search and seizure are specified in section 17 of PMLA, as evident from the following extract of the provision: 17. Search and seizure.-( 1) Where the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section, on the basis of information in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person... xxx 27. In fact in Noor Aga vs. State of Punjab reported as (2008) 16 SCC 417 , the Supreme Court referred to the definition of 'reason to believe' as contained in section 26 of the IPC in the context of sections 42 and 43 of the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act) as also Section 110 of the Customs Act, 1962 (Customs Act) which provisions concern powers of entry, search, seizure and arrest; and in which the requirement of reason to believe has been incorporated by the legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 17 of the Act and held: 9. A perusal of the above provision would indicate that the prerequisite is that the Director or such other Authorised Officer in order to exercise the power under Section 17 of PMLA, should on the basis of information in his possession, have reason to believe that such person has committed acts relating to money laundering and there is need to seize any record or property found in the search. Such belief of the officer should be recorded in writing. Subsection (1A) to Section 17 of PMLA provides that the Officer Authorised under subsection (1) may make an order to freeze such record or property where it is not practicable to seize such record or property. Subsection (2) provides that after search and seizure or upon issuance of a freezing order the Authorised Officer shall forward a copy of the reasons recorded along with material in his possession to the Adjudicating Authority in a sealed envelope. Subsection (4) provides that the Authority seizing or freezing any record or property under subsection (1) or (1A) shall within a period of thirty days from such seizure or freezing, as the case may be, file an application before the Adjudicating A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to find out as to what would be a valid presentation of an Election Petition in the case of Chandra Kishor Jha vs. Mahavir Prasad and Ors. (1999) 8 SCC 266 and in the course of consideration observed as hereunder: It is a well settled salutary principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner . Therefore, if the salutary principle is kept in perspective, in the instant case, though the Authorised Officer is vested with sufficient power; such power is circumscribed by a procedure laid down under the statute. As such the power is to be exercised in that manner alone, failing which it would fall foul of the requirement of complying due process under law. 61. From a perusal of the above decisions, it is clear that the specific procedure that is contemplated under the Act, in respect of investigations, seizures and freezing of assets/property/ bank accounts, ought to be strictly and scrupulously followed, in the manner prescribed under the Act. 62. While initiating action upon receiving a letter of request under Section 60 of the Act, broadly, the Director ED or the pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be to supplied to the party concerned or not, is stated to be pending before the Supreme Court in SLP(C) No. 12865/2018 titled Union of India and Ors. vs. J. Sekar. In the present case, this Court is only concerned with the orders passed under Section 17 by the ED and under Section 8(1) by the Adjudicating Authority wherein the Relied Upon Documents (RUDs) have not been supplied to the parties concerned. 66. As per Section 17(2) of the PMLA, immediately upon the search and seizure order/ freezing order being passed, the Director ED or the person authorized (as per Section 17(1) of the PMLA) has to forward a copy of the said `reasons to believe so recorded, along with the material in his possession , in respect of the case, to the Adjudicating Authority (AA) in a sealed cover. Section 17(2) of the PMLA reads as under: S.17. Search and seizure.- xxx (2) The authority, who has been authorised under subsection (1) shall, immediately after search and seizure or upon issuance of a freezing order, forward a copy of the reasons so recorded along with material in his possession, referred to in that subsection, to the Adjudicating Authority in a sealed envelope, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lope before sealing it. (3) The authority, as the case may be, shall indicate a reference number and date of despatch on the sealed envelope. (4) The sealed envelope shall be marked Confidential and To be opened by the addressee only and the complete address of the Adjudicating Authority including his name shall be mentioned on the sealed envelope with official seal. (5) The authority, as the case may be, shall place the sealed envelope inside the outer envelope, and shall place an acknowledgement slip in Form IV appended to these rules. (6) The outer envelope shall be sealed and marked Confidential . Complete address of the Adjudicating Authority shall be mentioned on the sealed outer envelope. (7) The authority, as the case may be, shall maintain registers and other records such as acknowledgement slip register, dak register for the purposes of this rule and shall ensure that necessary entries are made in the register immediately as soon as a copy of the reasons along with the material are forwarded to the Adjudicating Authority. xxx 9. Acknowledgement of receipt of a copy of the reasons and the material relating to search, seizure or fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that the Director ED or the person authorized has to transmit all the material in his possession, at this stage, in accordance with the procedure mentioned under Rule 8 of the 2005 Rules, extracted above. It would not be permissible for the ED to retain some part of the material, and send partial documents to the Adjudicating Authority, at this stage, in as much as the statute contemplates sending of `the material in possession of the authority and NOT `material forming the basis of the reasons to believe . 70. The fact that the material in possession of the ED has to be sent to the Adjudicating Authority, in a sealed envelope, shows that it is at that stage that the Adjudicating Authority has to satisfy itself, on the basis of all the material received, i.e., all the material in possession of the ED, as also the reasons to believe recorded by the ED, that a case is made out to issue show-cause notice to the party under Section 8 of the PMLA. After the AA has issued notice to show cause under Section 8(1) of the PMLA, the ED cannot be permitted to produce any documents before the Adjudicating Authority in relation to the matter, which were already in its possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to believe to be recorded by the Adjudicating Authority under Section 8(1) is independent of the reasons to believe recorded by the ED under Section 17(1). The Adjudicating Authority cannot mechanically go by the reasons recorded by the ED, and has to have separate and independent grounds to believe that such an offence has been committed. The fact that the Adjudicating Authority is again required to have reason to believe as per the provisions of the Act shows that there is a two-tier process which is to be followed prior to the issuance of the show cause notice, namely- satisfaction by the ED and thereafter, independent satisfaction by the Adjudicating Authority. 79. Upon arriving at such satisfaction, the same would have to be recorded as the `reason to believe under Section 8(1) of the Act, by the Adjudicating Authority. A notice to show cause would have to be then issued to the parties concerned, along with the evidence on which the Adjudicating Authority has relied to reach the conclusions in its `reason to believe . This material is called the Relied Upon Documents (RUDs). Section 8(1) and 8(2) of the PMLA read: 8. Adjudication: (1) On receipt of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... summon and notice shall be served by the complainant or applicant upon the defendant or respondent along with complete relied upon documents in a bound paper book and an affidavit of service along with proof of service shall be filed by the person affecting such service. 81. A conjoint reading of Section 8(1) of the PMLA and Regulation 13(2) of the Adjudicating Authority (Procedure) Regulations, 2013, leaves no doubt that the Adjudicating Authority is duty bound to serve all the documents, that it has relied upon i.e., the RUDs, while coming to its reason to believe to the party concerned, in a bound paper book. 82. The said service of documents can be effected through the ED, and the Adjudicating Authority has to ensure that the said service has been effected. A simple service of the show cause notice, without the RUDs would not be sufficient. The 30-day period notice would naturally have to be thus counted from the date when the complete Relied Upon Documents are supplied to the parties concerned/ Defendants, as no effective opportunity to reply would be possible unless all the Relied Upon Documents are received. 83. The language of Section 8(1) of the Act, rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 89. Under Section 11 of the Act, the Adjudicating Authority is vested with the powers of a Civil Court under the CPC, and it can accordingly summon witnesses. A perusal of Regulations 21 to 24 of the Adjudicating Authority (Procedure) Regulations, 2013, also shows that the Adjudicating Authority can, in appropriate cases, record deposition of witnesses, who can even be subjected to cross-examination. 90. According to Section 11(3) of the PMLA, the proceedings before the Adjudicating Authority are judicial proceedings. The said provision reads: Section 11. Power regarding summons, production of documents and evidence, etc:. xxx (3) Every proceeding under this section shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860). 91. As the hearing before the Adjudicating Authority is not merely a procedural hearing, but an adjudicatory hearing, the Adjudicating Authority has to, as per Section 8(2) of the PMLA, first consider the reply to the show cause notice filed by the defendants; secondly, hear all the parties in a meaningful manner; and thirdly peruse all the relevant material p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not to any third parties. Strict confidentiality ought to be maintained. No fee can be charged for supplying the Relied Upon Documents by the Adjudicating Authority directly, or through the ED. 99. After conducting the said inspection, which, if granted, ought to be facilitated in an expeditious manner by the Adjudicating Authority bearing in mind the limited time fixed for filing the reply. Findings on the legal issues 100. In terms of the discussion above, the following are the findings on the issues raised above: i) What is the procedure to be followed by the ED when letters of request are received under Section 60 of the Act from a contracting state? When a letter of request is received under Section 60 from a contracting state, the requisite safeguards contained in Chapters III and V of the Act, as well as the procedure mentioned in the Rules and Regulations framed under the Act have to be followed. The said requests cannot be treated at a higher threshold. The ED and the Adjudicating Authority, would have to adhere to all provisions relating to recording the reason(s) to believe and supplying the Relied Upon Documents , as is required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be shared by the ED with the Adjudicating Authority without following the due procedure provided within the 2005 Rules, or post the issuance of the show cause notice. v) What is the procedure to be followed by the Adjudicating Authority, upon receipt of the application under Section 17(4) of the PMLA? vi) What is the level of satisfaction to be recorded by the Adjudicating Authority prior to issuance of show cause notice under section 8(1) of the PMLA? The Adjudicating Authority is an authority which adjudicates, i.e., which decides disputes between the parties on merits without bias or prejudice. It is independent and distinct from the ED. As per Section 8, upon receipt of a complaint/application filed by the ED under Section 17(4), the Adjudicating Authority has to record its reason to believe that an act has been committed which constitutes money laundering under Section 3, or a person is in possession of proceeds of crime . It has to record its satisfaction independent of the `reasons to believe of the ED and only thereafter issue a show cause notice under Section 8(1) to be served upon the party/parties concerned. The said notice has to be issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulation 16 of the Adjudicating Authority (Procedure) Regulations, 2013, and deposit a fee as per Regulation 17 of the said Regulations. After inspection, the Defendant may request for copies of the documents as per Regulation 18, after paying the stipulated fee. The said inspection, if granted, ought to be facilitated in an expeditious manner. The Adjudicating Authority has to, as per Section 8(2) of the PMLA, first consider the reply to the show cause notice filed by the defendants; secondly, hear all the parties in a meaningful manner; and thirdly peruse all the relevant material placed on record before it, and only then record a finding confirming the search or seizure/ confiscation/ freezing, after reaching a conclusion that the defendant(s) is involved in the offence of money laundering under Section 3 of the Act, or is in possession of proceeds of crime. It would not be permissible for the complainant-ED to show any documents or material to the Adjudicating Authority outside of the hearing being given, or behind the back of the parties concerned. The hearing has to also be transparent and in the presence of the parties concerned. Unilateral hearings in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments were not shown to the AA. It is made clear that sharing of documents with the AA, post the issuance of the show cause notice, outside the hearing and that too without the knowledge of the parties concerned, is not permissible. 106. Whenever letters of request are received from any contracting states, the ED ought to follow due process, as per the domestic law, in line with the spirit of the Merida and the Palermo Conventions. Measures such as searching of premises, seizure of records, freezing of bank accounts, etc., ought to be resorted to, only after the authority has fully satisfied itself that there is a prima facie case of illegality. The measures taken also ought to be proportionate to the alleged crime or violation as contained in the letter or request. 107. In the present cases, it was noticed that a carte blanche freezing order was passed, freezing several bank accounts belonging to 66 companies. As recently observed by the Supreme Court in M/s Radha Krishan Industries v. State of Himachal Pradesh and Ors., (2021) 6 SCC 771, in the context of GST law, freezing of bank accounts is a `draconian measure . The observations of the Supreme Court read: 76.4 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursuant thereto based on the averments made in the writ petitions and in the peculiar facts and circumstances of the respective cases. The said statement is taken on record. 110. Accordingly, in view of the above statement made by ld. Counsels for the ED, the following directions are issued, with the consent of the parties, in the facts and circumstances of these cases: (i) The impugned order under Section 17(1A) of the PMLA in all these petitions, as also the orders passed by the Adjudicating Authority under Section 8 of the PMLA dated 28th December 2020, are set aside. (ii) All the documents referred to in paragraph 25 above, which form the basis of the order under Section 17(1A) of the PMLA, shall now be supplied to all the Petitioners, on or before 15th November, 2021. (iii) All parties/Petitioners shall be permitted to file their submissions based on the material received by them from the ED, on or before 15th December, 2021. (iv) The ED shall consider the submissions made by all the parties and then pass fresh orders in accordance with law by 15th February, 2022. (v) In the interregnum, the specific amounts as referred to in the order dated 28th D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns made by the Petitioner, the ED would pass fresh orders within a period of three months. This statement was taken on record vide the last order dated 7th October 2020. Accordingly, it is directed that the ED would pass fresh orders, in respect of M/s Alok Industries by 31st January 2022. All the other relevant directions, as mentioned in paragraph 121 shall be applicable to this case as well. 116. It is, also noted that WP(C) 4680/2021 shall be listed on 30th November, 2021 to receive the status report as directed, pertaining to the issue of appointments and vacancies at the Adjudicating Authority under the PMLA. For the said purpose only, WP(C) 4680/2021 shall remain pending and be treated as a part heard matter. 117. All these petitions and pending applications are disposed of in the above terms. List WP(C) 4680/2021 on 30th November 2021 for receiving the status report in terms of the order dated 28th September 2021. 118. The digitally signed copy of this order, duly uploaded on the official website of the Delhi High Court, www.delhihighcourt.nic.in, shall be treated as the certified copy of the order for the purpose of ensuring compliance. No physical copy of orders ..... X X X X Extracts X X X X X X X X Extracts X X X X
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