Karnataka High Court
The Joint Director vs Smt Shobha Karandlaje on 26 September, 2025
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MSA No. 112 of 2018
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF SEPTEMBER, 2025
PRESENT
THE HON'BLE MR. JUSTICE D K SINGH
AND
THE HON'BLE MR. JUSTICE VENKATESH NAIK T
MISCELLANEOUS SECOND APPEAL NO.112 OF 2018
BETWEEN:
THE JOINT DIRECTOR
DIRECTORATE OF ENFORCEMENT
BENGALURU ZONAL OFFICE
3RD FLOOR, B BLOCK, BMTC
SHANTHINAGAR-TTMC
KH ROAD, SHANTINAGAR
BENGALURU-560 027
REPRESENTED BY MR. M.N. THYAGARAJ
ASSISTANT DIRECTOR
DIRECTORATE OF ENFORCEMENT.
...APPELLANT
(BY SRI UNNIKRISHNAN M., ADVOCATE)
AND:
SMT. SHOBHA KARANDLAJE
D/O. MR. MONAPPA GOWDA
NO.5/2, 9TH CROSS
Digitally signed by
KUMARAPARK WEST
MOUNESHWARAPPA
NAGARATHNA
RAILWAY PARALLEL ROAD
Location: High Court
of Karnataka
BENGALURU-560 020.
...RESPONDENT
(BY SRI R. SWAROOP ANAND, ADVOCATE)
***
THIS MISCELLANEOUS SECOND APPEAL IS FILED UNDER
SECTION 42 OF THE PREVENTION OF MONEY LAUNDERING ACT,
2002, PRAYING TO SET ASIDE THE ORDER DATED 18.07.2018
PASSED BY THE APPELLATE TRIBUNAL (THE PREVENTION OF MONEY
LAUNDERING ACT), NEW DELHI, IN FPA-PMLA-2127/BNG/2017
(ANNEXURE-A) AND CONSEQUENTLY, CONFIRM THE PROVISIONAL
ORDER OF ATTACHMENT, BEARING 1/2014 IN ECIR/07/BZ/2011,
DATED 24.01.2014 PASSED BY THE ADJUDICATING AUTHORITY.
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MSA No. 112 of 2018
THIS MISCELLANEOUS SECOND APPEAL, HAVING BEEN HEARD
AND RESERVED ON 10.09.2025, COMING ON FOR PRONOUNCEMENT
OF JUDGMENT, THIS DAY, VENKATESH NAIK T. J., PRONOUNCED
THE FOLLOWING:
CORAM: HON'BLE MR. JUSTICE D K SINGH
and
HON'BLE MR. JUSTICE VENKATESH NAIK T
CAV JUDGMENT
(PER: HON'BLE MR. JUSTICE VENKATESH NAIK T.) This appeal is filed by the Directorate of Enforcement under Section 42 of the Prevention of Money Laundering Act, 2002 (for short, 'PMLA') to set aside the judgment passed by the Appellate Tribunal, Prevention of Money Laundering Act at New Delhi, dated 18.07.2018, in FPA-PMLA-2127/BNG/2017, and to confirm the Provisional Attachment Order, bearing No.1/2014 in ECIR/07/BZ/2011, dated 24.01.2014, passed by the Adjudicating Authority.
2. The brief facts of the case are that, the Police Wing of the Karnataka Lokayukta, Bengaluru, filed charge-sheet No.4/2011 dated 07.07.2011 before the XXIII Additional City Civil and Sessions Judge, and Special Judge for Lokayukta cases at Bengaluru City, against Mr. Katta Subramanya Naidu and others in Special C.C. No.135 of 2011, for the alleged offences punishable under Sections 120B, 420 and 471 of the Indian -3- MSA No. 112 of 2018 Penal Code, 1860, and Sections 7, 8, 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988. Investigations were carried out by the appellant based on the records and bank statements of M/s. Indu Builders as well as statement of its partners under Section 50 of PMLA and it was revealed that the respondent had received Rs.70 lakhs, vide cheque bearing No.448981 dated 29.05.2007, from M/s. Indu Builders from its accounts in Karnataka Bank Limited, Indiranagara Branch, Bengaluru. This said cheque dated 29.05.2007 issued in the name of the respondent was realised in her account in Federal Bank Limited, R.T. Nagar Branch, Bengaluru, on 01.06.2007 and the said amount was utilised by the respondent.
3. The respondent on being summoned and questioned about the said receipt of payment into her account, confirmed the receipt from M/s. Indu Builders by stating that she was one of the Directors of the Company, known as M/s. Kapila Manjushree Apparels Private Limited, and as she was in requirement of funds for acquisition of a franchise outlet at Indiranagara from Arvind Mills, she made enquiries from her friends and at that time, Mr. Katta Subramanya Naidu, who was the Minister for Industries, handed over the said cheque, which -4- MSA No. 112 of 2018 was paid from the account of M/s. Indu Builders. The respondent also stated that she had repaid the money by issuing a cheque to M/s. G.V. Infrastructure on the instructions of Mr. Katta Subramanya Naidu on 02.08.2007. However, on specifically questioned about the said transaction, Mr. Katta Subramanya Naidu denied having any knowledge about transactions between the respondent and himself. On verification about the veracity of statement of the respondent, the account of M/s. G.V. Infrastructure was examined and it was found that the said account was closed by its partners and they were not traceable. On examining the introducer of the account of M/s. G.V. Infrastructure, i.e., one Mr. Jagadish, son of Mr. Katta Subramanya Naidu, he has specifically stated that he has nothing to do with the transactions between M/s. Indu Builders and Ms. Shobha Karandlaje i.e., the respondent, and as such, it was their independent transactions.
4. That apart from similarities of accounts, the respondent has not been able to substantiate her claims for having made the said repayment, as a result of which, the investigation concluded contending that the amount stated to be paid by the respondent to M/s. G.V. Infrastructure is independent and is not related to one received by her from M/s. Indu Builders. There -5- MSA No. 112 of 2018 are no contracts substantiating huge transfer of money. The Directorate of Enforcement, on the basis of admission of facts by the respondent and other documents, came to a conclusion that the amount in the account of the respondent was proceeds of crime. Hence, issued a provisional order of attachment of Rs.70 lakhs held in the account of Federal Bank Limited in the name of the respondent in Order No.1 of 2014 under Section 5(1) of PMLA.
5. Section 5(5) of PMLA mandates that the Director or the Officer, who provisionally attaches the property shall file a complaint within a period of 30 days of such attachment stating the facts before the Adjudicating Authority. Accordingly, the appellant is appointed, and filed a complaint before the Adjudicating Authority under PMLA within the stipulated period. The said complaint was numbered as Complaint No.263/2014. The Directorate of Enforcement further contended that the Adjudicating Authority, after considering the records, confirmed the attachment in Order No.1 of 2014 in ECIR/07/BZ/2011 in terms of its order, dated 31.07.2014. Being aggrieved by the order of the Adjudicating Authority confirming the attachment of the order, the respondent preferred an appeal before the Appellate Tribunal, which was numbered as Appeal -6- MSA No. 112 of 2018 No.588/2014. The Appellate Tribunal after considering the materials available before it, remanded the matter along with another Appeal No.636/2014 by way of a common order dated 22.06.2017 to the Adjudicating Authority to consider the matter afresh.
6. After remand, the matter was reheard by the Adjudication Authority, who confirmed the attachment order by way of an order dated 28.09.2017. Being aggrieved by the order of the Adjudicating Authority, the respondent preferred an appeal before the Appellate Tribunal, which was numbered as FPA-PMLA-2127/BNG/2017. The Appellate Tribunal, after considering the appeal, allowed the appeal on 18.07.2018 and thereby, set aside the order passed by the Adjudicating Authority dated 28.09.2017 and thus, the provisional attachment order was quashed.
7. Being aggrieved by the order dated 18.07.2018 passed by the Appellate Tribunal, the appellant-Directorate of Enforcement preferred this appeal.
8. The following substantial question of law and facts arise for consideration in the appeal:
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i. Whether the refusal of confirmation of provisional attachment order by the Appellate Tribunal is against Section 24 of PMLA?
ii. Whether the Appellate Tribunal has failed to examine the proceeds of crime as defined under Section 2(1)(u) of PMLA?
iii. Whether the Appellate Tribunal has failed to consider the 'Money Laundering' as defined under Section 2(1)(p) read with offence of Money Laundering under Section 3 of PMLA?
iv. Whether the Appellate Tribunal has failed to consider the presumption as to records or property in certain cases defined under Section 22 of PMLA?
v. Whether the Appellate Tribunal has failed to consider the presumption in interconnected activities under Section 23 of PMLA?
vi Whether the Appellate Tribunal was right in reversing the confirmation order passed by the Adjudicating Authority, without giving any categorical finding regarding the existence of proceeds of crime?
vii Whether the Appellate Tribunal decided the appeal contrary to the provisions of PMLA?-8- MSA No. 112 of 2018
viii Whether the Appellate Tribunal failed to take note of the statements of various persons while passing the impugned order?
9. Sri Unnikrishnan M., learned counsel for the appellant, has vehemently contended that according to the respondent, a sum of Rs.70 lakhs was borrowed by her from M/s. Indu Builders and repaid the entire amount to M/s. G.V. Infrastructure. The receipt of payment was from one entity and payment made was to another entity. It clearly shows that said transactions are not linked to one another. The respondent did not produce any documents that the receipt and payment are one and the same. Amount of Rs.85,28,68,700/- in the account of M/s. Indu Builders has not come from a clean and legitimate source. The respondent borrowed a sum of Rs.70 lakhs from M/s. Indu Builders, but repaid the amount to M/s. G.V. Infrastructure. Now, the burden is on the respondent to prove that the amount received by the respondent into her account was not proceeds of crime. The payment was from M/s. Indu Builders to the account of the respondent, when there had been no business transactions between M/s. Indu Builders and the respondent and the said Company had its transactions with Mr. Katta Subramanya Naidu, who was an accused in the -9- MSA No. 112 of 2018 case filed by the Lokayukta. Therefore, it proves that the amount was from proceeds of crime. Hence, the burden of proof that it was not the proceeds of crime is on the respondent and not on the Directorate of Enforcement, but the Appellate Tribunal, without assessing the factual and legal aspect, has set aside the order of the Adjudicating Authority. Hence, he prayed for allowing the appeal.
10. Sri R. Swaroop Anand, learned counsel for the respondent, has vehemently contended that the Adjudicating Authority has not complied with the requirements of Section 81 of PMLA and there is a gross violation of Article 14 of the Constitution of India, 1950, and the principles of natural justice. The case registered by the Directorate of Enforcement does not come within the schedule of offence under Section 2(y)(ii) of PMLA. The allegation made against the respondent does not satisfy the requirements of Section 5(1) of PMLA. Rs.70 lakhs has been received from clear and legitimate source and not from Rs.85,28,68,700/- allegedly classified as proceeds of crime and as defined under Section 2(y) of PMLA. Further, the respondent is not an accused in Special Case No.135/2011 filed before the Special Judge by the Police Wing of the Karnataka Lokayukta. The Adjudicating Authority has not given any
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MSA No. 112 of 2018reasons as to how it arrived at the conclusion that Rs.70 lakhs has not come from clean and legitimate source, and it has come from proceeds of crime of Rs.85,28,68,700/-. The Adjudicating Authority has failed to appreciate the fact that Sri B. L. Venkataya alias Venkaya in his statement dated 09.06.2012 has stated that Rs.70 lakhs given to the respondent from Rs.104,18,55,950/- in the account of M/s. Indu Builders. As per the complainant's own averments approximately Rs.19 lakhs in the account of M/s. Indu Builders is clean and legitimate. The Adjudicating Authority has not furnished any proper finding as to why it came to the conclusion that Rs.70 lakhs received by the respondent from the account of M/s. Indu Builders was proceeds of crime. Hence, the learned counsel contended that the Appellate Tribunal has rightly set aside the order of the Adjudicating Authority. Hence, he prayed for dismissal of the appeal.
11. Learned counsel further contended that the impugned order was passed on 18.07.2018 and this appeal was filed on 19.09.2018. Hence, there is delay of 3 days in preferring the appeal. Under PMLA, there is a bar to prefer appeal beyond 60 days. Hence, on this ground also, the appeal is barred by law of limitation.
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MSA No. 112 of 2018ANALYSIS & FINDING:
12. This Court has heard the parties at length and has carefully examined the pleadings, the impugned order, and the written submissions filed by both the parties.
13. At the outset, it is pertinent to note that the present appeal was filed by the appellant on 19.09.2018, and the impugned order was passed on 18.07.2018. The appellant applied for certified copy of the impugned judgment on 23.08.2018 and the appellant secured the copy on 24.08.2018 and filed the appeal on 19.09.2018. Further, the appellant had filed an application seeking condonation of delay in filing the appeal under Section 5 of Limitation Act, 1963, vide I.A. No.1 of 2019. This Court, allowed I.A. No.1 of 2019, on 31.01.2022 and passed the following order:
"Heard on I.A. No.1 of 2019.
For the reasons assigned in the application which is duly supported by an affidavit, we find that sufficient cause for condonation of delay of 3 days in filing the appeal is made out.
Accordingly, I.A. No.1 of 2019 is allowed. Delay is condoned."
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MSA No. 112 of 2018Thus, the delay was condoned long back. However, the respondent filed I.A. No.1 of 2023 under Section 42 of PMLA read with Section 151 of the Code of Civil Procedure, 1908, to recall the order dated 31.01.2022 on the ground that the appeal was filed after lapse of 3 days.
14. We have extensively perused the impugned judgment, I.A. and order dated 31.01.2022. This Court rightly considered the delay and the fact that the appeal has been filed in time. Therefore, the question of recalling the order dated 31.01.2022 would not arise. Hence, I.A. No.1 of 2023 has been disposed off.
15. We are of the view that the core issue for adjudication in the present matter pertains to the applicability of Sections 2(1)(u), 2(1)(p), 2(1)(x)(y), 5(1), 5(5), 8(1), 16, 17, 18, 19, 22, 23, 24, 42, 50, and 50(2)(3) of PMLA, which governs the person dealt with contrary to provisions of PMLA, seizure of property, search and seizure operations conducted by the Directorate of Enforcement under Section 17 of PMLA.
16. Section 17 of PMLA lays down the procedure for search and seizure. Sub-section (1) permits the search and seizure of any record or property, after forming a "reason to
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MSA No. 112 of 2018believe", based on the material in his possession. This, in our opinion, is the first procedural safeguard provided to a person before his property or records are seized.
17. Sub-section (1A) of Section 17 provides an alternative where immediate search and seizure of the property or record is not practicable. In such cases, the authorised officer may pass an order to freeze the property. However, the officer retains the discretion to seize the frozen property later, provided it becomes practicable to do so before the relevant adjudicatory stage.
18. Sub-section (2) provides that the Directorate of Enforcement must immediately forward the material and the order passed by the authorised officer to the learned Adjudicating Authority, following the search and seizure or the issuance of the freezing order.
19. Sub-section (3) empowers the authority to carryout seizure where, during a survey conducted under Section 16 of PMLA, there arises a reasonable apprehension regarding concealment, transfer, or tampering with the property.
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MSA No. 112 of 2018
20. Sub-section (4) requires the authorised officer of the Directorate of Enforcement to file an application before the learned Adjudicating Authority within 30 days of the search, seizure, or freezing order, seeking permission for retention of the seized or frozen property.
21. Section 17 (as amended up-to-date) states as follows:
"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--
(i) has committed any act which constitutes money-
laundering, or
(ii) is in possession of any proceeds of crime involved in money-laundering, or
(iii) is in possession of any records relating to money- laundering, or
(iv) is in possession of any property related to crime, then, subject to the rules made in this behalf, he may authorise any officer subordinate to him to--
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MSA No. 112 of 2018
(a) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;
(b) break open the lock of any door, box, locker, safe, almirah or other
receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;
(c) seize any record or property found as a result of such search; (d) place marks of identification on
such record or property, if required or make or cause to be made extracts or copies therefrom;
(e) make a note or an inventory of such record or property; (f) examine on oath any person, who
is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act:
(1A) Where it is not practicable to seize such record or property, the officer authorised under sub-section (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with,
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except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned:
Provided that if, at any time before its confiscation under sub-section (5) or sub-section (7) of Section 8 or Section 58-
B or sub-section (2A) of
Section 60, it becomes
practical to seize a frozen
property, the officer authorised
under sub-section (1) may
seize such property.
(2) The authority, who has been authorised under sub-section (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 sub-section, 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.
(3) Where an authority, upon information obtained during survey under Section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and
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search the building or place where such evidence is located and seize that evidence:
Provided that no authorisation referred to in sub-section (1) shall be required for search under this sub-section.
(4) The authority seizing any record or property under sub-section (1) or freezing any record or property under sub-section (1-A) shall, within a period of thirty days from such seizure or freezing, as the case may be, file an application, requesting for retention of such record or property seized under sub-section (1) or for continuation of the order of freezing served under sub-section (1A), before the adjudicating authority."
22. The second limb pertains to Section 20 of PMLA, which deals with the retention of property seized or frozen under Section 17 of PMLA. Before delving into its substantive applicability, it is appropriate to reproduce Section 20 of PMLA (as amended up-to-date), which reads as under:
"20. Retention of property.--
(1) Where any property has been seized under section 17 or section 18 or frozen under sub-
section (1A) of section 17 and the officer authorised by the Director in this behalf has, on
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MSA No. 112 of 2018the basis of material in his possession, reason to believe (the reason for such belief to be recorded by him in writing) that such property is required to be retained for the purposes of adjudication under section 8, such property may, if seized, be retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred and eighty days from the day on which such property was seized or frozen, as the case may be.
(2) The officer authorised by the Director shall, immediately after he has passed an order for retention or continuation of freezing of the property for purposes of adjudication under section 8, forward a copy of the order along with the material in his possession, referred to in sub-section (1), 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) On the expiry of the period specified in sub- section (1), the property shall be returned to the person from whom such property was seized or whose property was ordered to be frozen unless the Adjudicating Authority permits retention or continuation of freezing of such property beyond the said period.
(4) The Adjudicating Authority, before authorising the retention or continuation of
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MSA No. 112 of 2018freezing of such property beyond the period specified in sub-section (1), shall satisfy himself that the property is prima facie involved in money-laundering and the property is required for the purposes of adjudication under section 8. (5) After passing the order of confiscation under sub-section (5) or sub-section (7) of section 8, (Special Court), shall direct the release of all property other than the property involved in money-laundering to the person from whom such property was seized or the persons entitled to receive it.
(6) Where an order releasing the property has been made by the Special Court under sub- section (6) of section 8 or by the Adjudicating Authority under section 58B or sub-section (2A) of section 60, the Director or any officer authorised by him in this behalf may withhold the release of any such property for a period of ninety days from the date of receipt of such order, if he is of the opinion that such property is relevant for the appeal proceedings under this Act."
23. Section 20 of PMLA comprises six sub-sections, which prescribe a detailed mechanism concerning the retention of seized or frozen property. Sub-sections (1) and (2) set out the essential preconditions and procedures for retaining such seized or frozen property, for a period not exceeding 180 days
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MSA No. 112 of 2018from the date of seizure or freezing, by the Directorate of Enforcement.
24. Sub-section (3) prescribes the consequences of the lapse of the initial 180 days period and Sub-section (4) prescribes the manner in which the learned Adjudicating Authority is to approach any retention for a period beyond the 180 days. We add a caveat here that the said "prima-facie"
satisfaction is not by itself the procedural requirement and this aspect will be made clearer in the later part of this Judgment.
25. Sub-sections (5) and (6) address the subsequent course of action to be taken upon the final decision of the Special Court concerning the seized or frozen property and are not really relevant for the present purposes.
26. At the outset, it needs to be borne in mind that the entire Scheme of Search and Seizure is set out in Chapter V of PMLA. It is evident that the fact that all the provisions set out in the said Chapter deal expressly with the said subject of Search and Seizure and the Headings of the said Sections, though not conclusive, given the express provisions contained in the Sections themselves and the fact that all these Sections are contained in the Chapter which expressly purport to be
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dealing with matters relating to Search and Seizure, the Heading of the Chapter is the first indicator that the provisions in the Chapter are a ring fenced set of provisions. Further, the procedure as provided in the provisions is very elaborate and deals expressly with the subject of "Search and Seizure", without lending itself to any ambiguity or doubt or need for a reference to a provision outside the said Chapter, till so occasioned and provided by the provisions themselves.
27. Sub-section (1) of Section 20 concerns retention of property that is either seized or frozen under Section 17 or 18, and in which event, the authorised officer, duly empowered by the Director of the Directorate of Enforcement, based on the material in his possession, forms a reason to believe that the said property is required for adjudication under Section 8 of PMLA, and proceeds to pass an order for its retention/continued freezing.
28. Sub-section (2) of Section 20 further mandates that the Officer, who passes the order for retention or continuation of freezing shall immediately forward a copy of such order, along with the material or evidence on which the order is based, to the learned Adjudicating Authority in the manner
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prescribed under the 'Prevention of Money Laundering (the Manner of Forwarding a Copy of the Order of Retention of Seized Property along with the Material to the Adjudicating Authority and the Period of its Retention) Rules, 2005'.
29. In the present case, the Adjudicating Authority was of the opinion that, the amount of Rs.70 lakhs received by the respondent is proceeds of crime. The same was set aside by the Appellate Tribunal.
30. Since the o rder sought to be defended herein was one passed under Section 8 of PMLA, we propose to start by examining Section 8 of PMLA, which reads as under:
"8. Adjudication.--
(1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under sub-
section (10) of section 18, if the Adjudicating Authority 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,
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MSA No. 112 of 2018the 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 money-laundering and confiscated by the Central Government:
Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person:
Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.
(2)The Adjudicating Authority shall, after--
(a) considering the reply, if any, to the notice issued under sub-section (1);
(b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and
(c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering:
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Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money- laundering.
(3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under subsection (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 three hundred and sixty-five 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 after an order of confiscation is passed under sub-section (5) or sub-section (7) of section 8 or section
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58B or sub-section (2A) of section 60 by the Special Court;
Explanation.-- For the purposes of computing the period of three hundred and sixty-five days under clause (a), the period during which the investigation is stayed by any court under any law for the time being in force shall be excluded.
(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 property attached under section 5 or frozen under sub- section (1A) of section 17, in such manner as may be prescribed:
Provided that if it is not practicable to take possession of a property frozen under sub-section (1A) of section 17, the order of confiscation shall have the same effect as if the property had been taken possession of.
(5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the
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Central Government.
(6) Where on conclusion of a trial under this Act, 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 order release of such property to the person entitled to receive it.
(7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed under sub-section (3) of section 8, pass appropriate orders regarding confiscation or release of the property, as the case may be, involved in the offence of money- laundering after having regard to the material before it.
(8) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed, may also direct the Central Government to restore such confiscated property 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 money laundering:
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Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money laundering:
Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed."
31. As is manifest, Section 8 of PMLA is a provision for the purposes of "Adjudication". Section 8(3) of PMLA does not deal with the act of simpliciter "Retention". In fact, a plain reading of Section 8(3) of PMLA makes it evidently clear that it provides that the learned Adjudicating Authority will "...by an order in writing confirm the attachment of the property made under sub-section (1) of Section 5 of PMLA or retention of property or record seized or frozen under Section 17 of PMLA, or Section 18 of PMLA 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".
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MSA No. 112 of 2018
32. Regulations 21 to 25 of the Adjudicating Authority (Procedure) Regulations, 2013, provide the procedural framework for conducting adjudication under Section 8 of PMLA. These regulations empower the learned Adjudicating Authority to examine witnesses, mark exhibits, issue commissions, and undertake other procedural steps necessary for a fair adjudication.
33. Regulations 21 to 25 of the Adjudicating Authority (Procedure) Regulations, 2013, state as follows:
"21. Examination of witness and the issue of commissions.- The provisions of the Code of Civil Procedure, 1908 (5 of 1908) relating to the issuing of commissions for examination of witnesses and documents shall, as far as may be applicable, apply in the matters of summoning and enforcing attendance of any person as witness and issuing a commission for examination of such witness.
22. Recording of deposition.- The deposition of the witness whenever necessary shall be recorded in Form 8. A Certificate of attendance, if requested for, will be issued in Form 9.
23. Numbering of witness.- The witness called by the applicant shall be numbered consecutively as P.Ws and those by the defendant or any other persons not being applicants as D.Ws. and any
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witness examined at the instance of the complainants shall be numbered consequently as C.Ws, and the witness called by the Adjudicating Authority shall be numbered as A.Ws.
24. Witness expenses payable.- The Adjudicating Authority may, if it considers necessary, direct the concerned party for the payment of expenses to the witness, as the case may be.
25. Marking of documents.- Every document filed by the applicant shall be marked as Ex.A1 and the document filed by the complainant shall be marked as Ex.C1 and the documents filed by the defendants or other person not being applicant shall be marked as Ex.D1 and so on."
34. In light of the statutory provisions, the above discussions, and the scheme of PMLA, the conclusions, as relevant for the present purposes, which though not exhaustive, may be summarised as follows:
(a). The Directorate of Enforcement initiates action under PMLA by conducting search and seizure under Section 17(1).
(b). Upon executing a search and seizure or passing a freezing order, the Directorate of Enforcement is statutorily obligated to immediately inform the learned Adjudicating Authority and forward the reasons recorded along with the relevant material, as mandated under Section 17(2).
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(c). Within 30 days of such search, seizure, or freezing, the Directorate of Enforcement must file an Application under Section 17(4), before the learned Adjudicating Authority for confirmation and adjudication in accordance with Section 8(1), (2), and (3) of PMLA.
(d). Prior to the point in time when the power for confirmation of retention of the seized/frozen property or records is required to be confirmed by the learned Adjudicating Authority for the period beyond 180 days, in exercise of its powers under Section 8(3), the Provisions of Section 20(1) and Section 20(2) read with Section 20(3) would have to be necessarily held to be the power under which the seized goods are permitted to be retained for a period up to 180 days.
(e). Therefore, after informing the learned Adjudicating Authority under Section 17(2) and before filing the requisite application under Section 17(4), the Directorate of Enforcement, if it believes the retention of the seized or frozen property is necessary for adjudication under Section 8, would have to necessarily invoke Section 20.
(f). Filing an application under Section 17(4) before the learned Adjudicating Authority does not ipso facto permit the Directorate of Enforcement to retain the seized property unless it also complies with the requirements of Section 20. Failure to do so would amount to a violation of the express procedure established by law.
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(g). Section 20(1) mandates that the officer authorised by the Director of the Directorate of Enforcement must have in his possession, material leading to a reasonable belief that the continued retention is required for adjudication under Section 8. This belief must be based on tangible evidence and recorded in writing. Upon forming such a belief, the officer shall pass an order for such retention or continued freezing for a period not exceeding 180 days from the date of seizure or freezing.
(h). Once such a belief is formed and recorded in an order, it must be communicated to the learned Adjudicating Authority under Section 20(2). This communication becomes relevant as part of the record and basis for the learned Adjudicating Authority's adjudication.
(i). Under Section 20(4), the learned Adjudicating Authority may allow continued retention or freezing only if it is satisfied that:
(i) The property is prima facie involved in money laundering; and
(ii) The property is required for adjudication under Section 8.
(j) On the basis of the Application under Section 17(4), made within 30 days of the seizure, the learned Adjudicating Authority, after satisfying itself on the foundational requirement under Section 20(4) of "prima facie" satisfaction, would thereafter, along with
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the relevant material and Reasons to believe under Sections 17(2) and 20(2) undertake the mandatory procedural requirements set out in Sections 8(1) and 8(2) and under 8(3), pass an order, in writing, confirming the retention, whereupon, the seizure would continue beyond 180 days and up to 365 days, during the investigation.
(k) The learned Adjudicating Authority upon receiving such application, forms an opinion under Section 8(1), issues notice, and provides the concerned person an opportunity to respond with evidence and be heard under Section 8(2). Thereafter, based on the material on record, the learned Adjudicating Authority determines whether the property in question is involved in money laundering. Based on the decision under Section 8(2), the learned Adjudicating Authority, under Section 8(3), confirms the retention of property or records seized or frozen under Section 17 or 18 for a period beyond 180 days.
(l) Before forming any such opinion, the learned Adjudicating Authority must adhere to the procedural requirements of Sections 8(1) and (2), and in doing so, may invoke the relevant provisions of the Adjudicating Authority (Procedure) Regulations, 2013.
(m) Section 8(2) imposes a duty upon the learned Adjudicating Authority to:
(i) consider the reply, if any, submitted by the aggrieved person;
(ii) hear both, the aggrieved person and the
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Directorate of Enforcement; and
(iii) take into account all relevant materials placed on record.
(n) The scope of Section 8(2) of the PMLA is not confined to the response and hearing of the parties; it also includes all materials previously submitted by the Directorate of Enforcement, during and after the search, seizure and retention.
(o) The decision of the learned Adjudicating Authority is appealable before the learned Appellate Tribunal, and if aggrieved by the decision of the learned Appellate Tribunal, a further challenge may lie before the appropriate High Court.
(p) In case there is no order for retention, Section 20(3) provides that, upon expiry of the 180-day period, the property must be returned to the person from whom it was seized or whose property was frozen.
35. The Prevention of Money Laundering Act, being a special legislation with significant economic implications, occupies a distinct place in the statutory framework of financial regulations and jurisprudence. Recognising the evolving nature of economic offences and the growing threat of money laundering to the integrity of national and international financial systems, the Prevention of Money Laundering Act, has
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MSA No. 112 of 2018been extensively amended over time, almost a dozen times, to address exigencies, close legal loopholes, and reinforce its enforcement architecture. The list of amendments, which underscores the evolving scope and rigor of the statute, includes:
(a). The Prevention of Money Laundering Amendment) Act, 2005 (20 of 2005).
(b). The Prevention of Money Laundering (Amendment) Act, 2009 (21 of 2009).
(c). The Prevention of Money Laundering (Amendment) Act, 2012 (2 of 2013).
(d). The Finance Act, 2015 (20 of 2015).
(e). The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of 2015).
(f). The Finance Act, 2016 (28 of 2016).
(g). The Finance Act, 2018 (13 of 2018).
(h). The Prevention of Corruption (Amendment) Act, 2018 (16 of 2018).
(i). The Finance Act, 2019 (7 of 2019).
(j). The Aadhaar and Other Laws (Amendment) Act, 2019 (14 of 2019).
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36. It is thus clear that although the Prevention of Money Laundering Act empowers the Directorate of Enforcement to seize or freeze property suspected to be involved in money laundering, such powers are embedded within a stringent procedural framework aimed at ensuring accountability, transparency, and protection of individual rights. The exercise of such coercive powers must strictly conform to the statutory checks and balances provided within PMLA.
37. We reiterate that, Section 20(1) of PMLA would necessarily get attracted, at the very first instance, in respect of any action taken for the Retention of property or the continuance of freezing of any property. Section 20(1) of PMLA mandates that a separate and independent opinion must be formed by an officer authorised by the Director, who may not necessarily be the same officer as authorised under Section 17(1) of PMLA, stating reasons justifying such retention. After forming an independent reason to believe, which would naturally have to form the basis for the order for retention, the order would be required to be forwarded along with the material in his possession, without delay, under Section 20(2) of PMLA. Such an order would draw sustenance from the
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MSA No. 112 of 2018reason to believe and would necessarily have to form a part of the order, as any order without the appurtenant reasoning would not be an order at all. This is all the more relevant since the said order effectively seeks to prolong the curtailment of the enjoyment of valuable rights of a party, who has suffered any such seizure or freezing of property.
38. We are of the opinion that the architecture of the Prevention of Money Laundering Act is designed to strike a delicate balance between empowering enforcement agencies and protecting individual rights. The processes of search, seizure, freezing, attachment, and retention are embedded with procedural safeguards to ensure that state action is not only lawful, but also proportionate and subject to independent scrutiny. Judicial and quasi-judicial oversight is envisaged at every stage to prevent the arbitrary exercise of power and to uphold constitutional values. The integrity of this framework rests on the rigorous application of the procedural mandates enshrined in the statute.
39. A cardinal principle of statutory interpretation, as reiterated by the Courts, time and again, is that when a statute prescribes a method to do a particular thing, it must be
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MSA No. 112 of 2018done in that manner alone and not otherwise. Therefore, if Section 20 of PMLA stipulates a defined mechanism for the retention of seized property or records, it is imperative that such procedure is strictly followed.
40. This legal position was reaffirmed by a Three-Judges Bench of the Hon'ble Supreme Court in the case of OPTO Circuit India Limited v. AXIS Bank and Others, reported in (2021) 6 SCC 707, wherein the Court stressed that procedural compliance under the Prevention of Money Laundering Act is not optional, especially when individual rights are at stake. The relevant paragraphs of the said judgment are herein below:
"8. 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 the 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. Sub-section (1-A) to Section 17 of the PMLA provides that the officer authorised under sub-section (1) may make an order to freeze such record or property where it is not practicable to seize such record or property. Sub-section (2) provides that after search and seizure
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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. Sub- section (4) provides that the authority seizing or freezing any record or property under sub-section (1) or (1-A) shall within a period of thirty days from such seizure or freezing, as the case may be, file an application before the adjudicating authority requesting for retention of such record or properties seized.
9. For the purpose of clarity, it is emphasised that the freezing of the account will also require the same procedure since a bank account having alleged "proceeds of crime" would fall both under the ambit "property" and "records". In that regard, it would be appropriate to take note of Sections 2(1)(v) and 2(1)(w) of the PMLA which defines "property" and "records". The same read as follows:
"2.(1)(v) "property" means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located;
2.(1)(w) "records" include the records maintained in the form of books or stored in a computer or such other form as may be prescribed;"
10. The scheme of the PMLA is well intended. While it seeks to achieve the object of preventing money-
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MSA No. 112 of 2018laundering and bring to book the offenders, it also safeguards the rights of the persons who would be proceeded against under the Act by ensuring fairness in procedure. Hence a procedure, including timeline is provided so as to ensure that power is exercised for the purpose to which the officer is vested with such power and the adjudicating authority is also kept in the loop. In the instant case, the procedure contemplated under Section 17 of the PMLA to which reference is made above has not been followed by the officer authorised. Except issuing the impugned Communication dated 15-5-2020 to AML Officer to seek freezing, no other procedure contemplated in law is followed. In fact, the impugned communication does not even refer to the belief of the authorised officer even if the same was recorded separately. It only states that the officer is investigating the case and seeks for relevant documents, but in the tabular column abruptly states that the accounts have to be "debit freezed/stop operations". It certainly is not the requirement that the communication addressed to the Bank itself should contain all the details. But what is necessary is an order in the file recording the belief as provided under Section 17(1) of the PMLA before the communication is issued and thereafter the requirement of Section 17(2) of the PMLA after the freezing is made is complied with. There is no other material placed before the Court to indicate compliance with Section 17 of the PMLA, more particularly recording the belief of commission of the act of money-laundering and placing it before the adjudicating authority or for filing application after
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MSA No. 112 of 2018securing the freezing of the account to be made. In that view, the freezing or the continuation thereof is without due compliance with the legal requirement and, therefore, not sustainable.
xxx xxx xxx
14. This Court has time and again emphasised that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner. Among others, in a matter relating to the presentation of an election petition, as per the procedure prescribed under the Patna High Court Rules, this Court had an occasion to consider the Rules to find out as to what would be a valid presentation of an election petition in Chandra Kishore Jha v. Mahavir Prasad and Others (1999) 8 SCC 266] and in the course of consideration observed as hereunder : (SCC p. 273, para 17).
"17.......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."
41. Therefore, if the salutary principle is kept in perspective, in the instant case, though the Appellate Tribunal 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 requirements of complying with due process
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MSA No. 112 of 2018under law. We have found fault with the Appellate Tribunal and declared the findings bad only insofar as not following the legal requirements. Further, the Adjudicating Authority has followed the legal requirements before and after freezing the account. The findings of the Appellate Tribunal shall not be construed as an opinion expressed on the merit of the allegation or any other aspect relating to the matter and the action initiated against the respondent, which is a matter to be taken note of in an appropriate proceedings, if at all, any issue is raised by the aggrieved party.
42. As is manifest, the order does not reveal any reason being accorded for the decision to set aside the order of the Adjudicating Authority, which passed the provisional attachment of Rs.70 lakhs pertaining to the respondent. In our opinion, the same does not satisfy the statutory mandate and suffers from a mechanical and superficial approach, devoid of the mandatory inquiry envisaged under Sections 8(2) and 8(3) of PMLA. The absence of a proper response, the respondent cannot absolve from her liability and thus, it is statutory duty to independently assess the materials placed before it and determine whether the amount in question is indeed involved in money laundering. The legislative scheme does not permit
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MSA No. 112 of 2018automatic confirmation or passive endorsement; it mandates active, reasoned adjudication.
43. In light of the foregoing analysis, let us enlighten on the issue involved in this matter. The respondent was the erstwhile Director of the Company called M/s. Kapila Manjushree Apparels Private Limited, which is dealing in trading of readymade garments of Lee and Wrangler Brands of M/s. Arvind Fashions Private Limited. The respondent's Company was short of Rs.70 lakhs to acquire franchise outlet from M/s. Arvind Mills. Thus, the respondent borrowed a sum of Rs.70 lakhs from M/s. Indu Builders and repaid to another entity called M/s. G.V. Infrastructure. The receipt of payment was from one entity and payment made was to another entity. It clearly shows that said transactions were not linked to one another. The respondent has not produced any documents to substantiate that the receipt and payment are one and the same. The amount of Rs.85,28,68,700/- in the account of M/s. Indu Builders has not come from clean and legitimate sources. The respondent borrowed a sum of Rs.70 lakhs from M/s. Indu Builders, but repaid the amount to M/s. G.V. Infrastructure.
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44. Now, the burden is on the respondent and she has to prove that the amount received by her into her account was not proceeds of crime. The payment was from M/s. Indu Builders to the account of the respondent, when there had been no business transactions between M/s. Indu Builders and the respondent and the said Company had its transactions with Mr. Katta Subramanya Naidu, who was an accused in the criminal case filed by the Lokayukta. Therefore, it prima-facie proves that the amount was from proceeds of crime.
45. However, the Appellate Tribunal held that the respondent was not aware of the fact that it was part of proceeds of crime and she was not in possession of any proceeds of crime, and the money repaid by the respondent to Mr. Katta Subramanya Naidu, as per his instructions, to M/s. G.V. Infrastructure came from clean and legitimate source of loan account, which are not supported by any material and the Appellate Tribunal has overlooked the findings of the Adjudicating Authority. In fact, the Adjudicating Authority rightly analysed the facts, applied the correct propositions of law, and held that the transactions of Rs.70 lakhs borrowed by the respondent from M/s. Indu Builders and paid to M/s. G.V. Infrastructure are proceeds of crime. In fact, the
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MSA No. 112 of 2018respondent had failed to substantiate her claim for having made the said repayment in accordance with law.
46. Undoubtedly, the amount received from M/s. Indu Builder by the respondent is nothing but proceeds of crime. She repaid the said amount through cheque to M/s. G.V. Infrastructure and same was debited in her account on 02.08.2007. It means the proceeds of crime was in the hands of the respondent from 01.06.2007 to 01.08.2007. Thus, the respondent had handled the proceeds of crime for two months and said to have paid to another entity, which is not traceable. Thus, after realising the cheque for Rs.70 lakhs, the account holder had returned the proceeds of crime to the respondent. Therefore, the Adjudicating Authority has rightly attached the proceeds of crime under the order dated 31.07.2014, which is based on facts and correct propositions of law.
47. The Appellate Tribunal (PMLA), without properly perusing the factual and legal aspects of the matter, has set aside the order of the Adjudicating authority, which requires to be set aside. Accordingly, we proceed to pass the following
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ORDER
i. The appeal is allowed.
ii. The judgment passed by the Appellate Tribunal,
Prevention of Money Laundering Act at New Delhi, dated 18.07.2018, in FPA-PMLA-2127/BNG/2017, is hereby set aside, and we confirm the Provisional Attachment Order, bearing No.1/2014 in ECIR/07/BZ/2011, dated 24.01.2014, passed by the Adjudicating Authority.
iii. No order as to costs.
Pending interlocutory applications, if any, stand
dismissed.
Sd/-
(D K SINGH)
JUDGE
Sd/-
(VENKATESH NAIK T)
JUDGE
KVK