Allowed

FPA-PMLA-1868/DLI/2017 of Smt. Jyoti Ashish v/s The Deputy Director Directorate of Enforcement, Delhi

ATFP6 Feb 2018FPA-PMLA-1868/DLI/2017

Case brief

AI extract

What is this about?

The Appellate Tribunal allowed the appellant's appeal against the retention of her jewellery under the PMLA. The court held that retaining the property beyond 180 days without a valid 'reason to believe' recorded in writing violated Section 20(1). The order was passed in the absence of any case or proceedings against the appellant.

What did the court decide?

Impugned order dismissing objection application set aside; lockers de-freezed; appeal and pending application disposed of.

FPA-PMLA-1868/DLI/2017 of Smt. Jyoti Ashish v/s The Deputy… — Money Laundering | ATFP (2018)

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APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI

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Date of Decision: 06.02.2018

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MP-PMLA-3679/DLI/2017 (Stay) &

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FPA-PMLA-1868/DLI/2017

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Smt. Jyoti Ashish … Appellant/Applicant

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Versus The Deputy Director Directorate of Enforcement, Delhi … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	:	Dr. Shamsuddin, Advocate Shri Sujeet Natwal, Advocate Ms. Smriti, Advocate
For the respondent	:	Shri Nitesh Rana, Advocate
CORAM JUSTICE MANMOHAN SINGH SHRI G.C. MISHRA	: :	CHAIRMAN MEMBER
JUDGEMENT

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FPA-PMLA-1868/DLI/2017

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The present appeal is filed under Section 26 of the Prevention of Money Laundering Act, 2002 (hereinafter to be referred as „PMLA‟) against the order dated 05.06.2017 passed by Respondent No. 2 in original application no. 64/2017 (for short „OA‟). The impugned order was received by the appellant on 04.07.2017 and the appeal is therefore filed within the limitation period.

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The subject matter of the appeal is in respect of the appellant‟s movable property (the jewellery and ornaments) found in the Locker No. FPA-PMLA-1868/DLI/2017 Page 1 of 15

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004262/003/005/0096, which was maintained by the appellant and her husband Shri Ashish Kumar who is employed with Kotak Mahindra Bank, Eros City Square Mall, Gurgaon.

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The jewellery in the Appellant‟s Locker No. 004262/003/005/0096 were seized on 02.01.2017 and subsequently retained by Respondent no.1 for further investigation on the plea that the same may be attached under section 5(1) of PMLA in due course.

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The allegations against her husband are that during investigation under PMLA that Ashish Kumar along with others have indulged in criminal act of money laundering to sabotage the demonetization policy announced by Govt. of India and he has been arraigned as an accused of scheduled offences 409/420/188/201/120B/34 IPC & 11/12/13 Prevention of Corruption Act, 1988. Section 201 IPC was also added in the case for destruction of Demand Drafts by him. The appeal filed by the husband for retaining the property was withdrawn by him after the hearing in the present appeal.

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The respondent no. 2 passed an order dated 05.06.2017 allowing the OA filed by the Respondent No. 1. On the application u/s 20(4) of the Act. Section 20(4) read as under:-

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Retention of property :- T he Adjudicating Authority, before authorising the retention or continuation of freezing 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.

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The period more than 180 days is already elapsed and the Enforcement Directorate has not passed any orders under section 5(1) of PMLA.

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Page 2 of 15

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No case was registered either by ED, CBI against her. No criminal complaint under the schedule offence or under PMLA is filed or pending.

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The brief facts are that the appellant got married with Shri Ashish Kumar on 28.02.2008 as per Hindu rituals & rites and received jewellery and gifts from her parents, in-laws, husband and close relatives at the time of her wedding and thereafter over a period of time. The jewellery and ornaments were allegedly gifted to the appellant were kept in the safe custody in the locker No. 004262/003/005/0096, jointly maintained by the appellant and her husband with Kotak Mahindra Bank, Eros City Sqaure Mall, Gurgaon. The claim of the appellant is that the jewellery and ornaments in the locker being her personal property („stridhan‟) which was purchase many year prior to thedate of demonetization i.e. 8^th November, 2016. No recovery of any currency either new or old recovered from the said locker.

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The appellant is claiming absolute owner of the same, it is denied that cannot be termed as „Proceeds of crime‟ being her Stridhan which by acquired by her at the time of her marriage as well as by way of gift much prior to November, 2016. In this regard, reliance is placed on the following judgments:

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(i) Pratibha Rani Vs. Suraj Kumar (1985) 2 SCC 370 [Paras 6 & 7]

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“ Para 6… Manu enumerated six kinds of stridhana:

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1. Gifts made before the nuptial fire, explained by Katyayana to mean gifts made at the time of marriage before the fire which is the witness of the nuptial (adhyagni).

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2. Gifts made at the bridal procession, that is, says Katyayana, while the bride is being led from the

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residence of her parents to that of her husband (adhyavanhanika).

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3. Gifts made in token of love, that is, says katyayana, those made through affection by her father-in-law and mother-in-law (pritidatta), and those made at the time of her making obeisance at the feet of elders (pada-vandanika).

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4. Gifts made by father.

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5. Gifts made by mother.

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6. Gifts made by a brother.”

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“ Para 7 … A Hindu married woman is the absolute owner of her stridhan property and can deal with it in any manner she likes – she may spend the whole of it or give it away at her own pleasure by gift or will without any reference to her husband. Ordinarily, the husband has no right or interest in it with the sole exception that in times of extreme distress, as in famine, illness or the like, the husband can utilize it but he is morally bound to restore it or its value when he is able to do so. This right is purely personal to the husband and the property so received by him in marriage cannot be proceeded against even in execution of a decree for debt. ”

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(ii) In Ashok Chaddha Vs. Income Tax Officer [ITA 274/2011] decided on 05/07/2011 [Paras 3, 4 & 5], a

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Division Bench of Delhi High Court observed as under:

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“ Para 3… After considering the aforesaid submissions we are of the view that addition made is totally arbitrary and is not founded on any cogent basis or evidence. We have to keep in mind that the assessee was married for more than 25-30 years. The jewellery in question is not very substantial. The learned counsel for the appellant/assessee is correct in her submission that it is a normal custom for woman to receive jewellery in the form of “stree dhan” or on other occasions such as birth of a child etc. Collecting jewellery of 906.900 grams by a woman in a married life of 25-30 years is not abnormal. Furthermore, there was no valid and/or proper yardstick adopted by the Assessing Officer to treat only 400 grams as “reasonable allowance” and treat the other as “unexplained”. Matter would have

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been different if the quantum and value of the jewellery found was substantial.”

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“ Para 4. we are, therefore, of the opinion that the findings of the Tribunal are totally perverse and far from the realities of life. In ITA 274/2011 Page 7 of 7 the peculiar facts of this case we answer the question in favour of the assessee and against the revenue thereby deleting the aforesaid addition of ` 3,87,364/-.”

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“ Para 5. Appeal is allowed in the aforesaid terms.”

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(iii) Sushila Devi Vs. Commissioner of Income Tax- XII [WP(C)

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7620/2011, Delhi High Court, Paras 9 & 10]

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“ 9… The nature of ownership of a woman‟s Stridhan is explained by the Supreme Court in its decision Pratibha Rani Vs. Suraj Kumar (Supra) as under:

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„a Hindu married woman is the absolute owner of her Streedhan property and can deal with it in any manner she likes and, even if it is placed in the custody of her husband or her in-laws they would be deemed to be trustees and bound to return the same if and when demanded by her‟ ”.

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“ 10... the petitioner‟s explanation is justified and reasonable. Like in Ashok Chadha (supra), her contention that the gold jewellery was acquired through gifts made by relatives and other family members over a long period of time, is in keeping with prevailing customs and habits. The obdurate refusal of the respondents to release the jewellery constitutes deprivation of property without lawful authority and is contrary to Article 300-A of the Constitution of India. The petition has to succeed; a direction is issued to the respondents to release the jewellery within two weeks and in that regard intimate to the petitioner the time and place where she (or her representative) can receive it. The respondents shall also pay costs quantified at Rs. 30,000/- to the petitioner, within four

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weeks, directly. The writ petition is allowed in terms of these directions.”

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The OA do not indicate or establish any nexus or link with the jewellery and ornaments of the appellant or their involvement in money laundering. It is not the case of respondent that the jewellery and ornaments were purchased by the appellant.

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11. Law on reasons to believe

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In the recent case decided by the Division Bench of Delhi High Court in batch of matters in the W.P. (c) 5320/2017 J. Sekar Vs. Union of India and ors. as well as in the other writ-petitions, decided on 11.01.2018 the Hon‟ble Division Bench in celebrated judgment has dealt with the issue of reason to believe and held that there must reasons of beliees in writing and simple assumption and presumption of the language of Section mentioning does not serve any purpose. Para 70-73 of the Judgment reads as under:-

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70. The expression reasons to believe under Section 26 IPC is understood in the sense of sufficient cause to believe that thing but not otherwise‘. In

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Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC) , the Supreme Court in the context of the Income Tax Act, 1961 explained the expression as under:

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Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and nonspecific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the

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requisite belief.

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71. In Income Tax Officer v. Lakhmani Mewaldas 1976 (3) SCR 956 , the Supreme Court held that there should be a ―live link or close nexus‖ between the material before the ITO and the formation of his belief that income had escaped assessment. More recently, in Aslam Mohd Merchant v. Competent Authority (2008) 14 SCC 186 , the entire legal position has been explained elaborately by the Supreme Court as under:

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―28. It is, however, beyond any doubt or dispute that a proper application of mind on the part of the competent authority is imperative before a show cause notice is issued. Section 68-H of the Act provides for two statutory requirements on the part of the authority viz: (i) he has to form an opinion in regard to his reason to believe'; and (ii) he must record reasons therefor. Both the statutory elements, namely, reason to believe' and `recording of reasons' must be premised on the materials produced before him. Such materials must have been gathered during the investigation carried out in terms of Section 68-E or otherwise. Indisputably therefore, he must have some materials before him. If no such material had been placed before him, he cannot initiate a proceeding. He cannot issue a show cause notice on his own ipse dixit. A roving enquiry is not contemplated under the said Act as properties sought to be forfeited must have a direct nexus with the properties illegally acquired.

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29. It is now a trite law that whenever a statute provides for `reason to believe', either the reasons should appear on the face of the notice or they must be available on the materials which had been placed before him. We have noticed hereinbefore that when the authority was called upon to disclose the reasons, it was stated that all the reasons were contained in the show cause notices themselves. They, however, in our opinion, do not contain any reason so as to satisfy the requirements of sub-section (1) of Section 68H of the Act.

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72. Reasons to believe cannot be a rubber stamping of the opinion already formed by someone else. The officer who is supposed to write down his reasons to believe has to independently apply his mind. Further, and more importantly, it cannot be a mechanical reproduction of the words in the statute. When an authority judicially reviewing such a decision peruses such reasons to believe, it must be apparent to the reviewing authority that the

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officer penning the reasons has applied his mind to the materials available on record and has, on that basis, arrived at his reasons to believe. The process of thinking of the officer must be discernible. The reasons have to be made explicit. It is only the reasons that can enable the reviewing authority to discern how the officer formed his reasons to believe. As explained in Oriental Insurance Company v. Commissioner of Income Tax [2015] 378 ITR 421 (Delhi) , ―the prima facie formation of belief should be rational, coherent and not ex facie incorrect and contrary to what is on record‖. A rubberstamp reason can never take the character of ‗reasons to believe‘, as explained by the Supreme Court in Union of India v. Mohan Lal Kapoor (1973) 2 SCC 836 . In Dilip N Shroff v. CIT (2007) 6 SCC 329 , the Supreme Court decried the practice of issuing notices in a standard pro forma manner ―without material particulars and without deleting inappropriate words or paragraphs‖.

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73. In Kranti Associates v. Masood Ahmed Khan (2010) 9 SCC 496 , the legal position was summarized as under:

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―51. Summarizing the above discussion, this Court holds:

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a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially.

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b. A quasi-judicial authority must record reasons in support of its conclusions.

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c. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well.

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d. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power.

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e. Reasons reassure that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations.

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f. Reasons have virtually become as indispensable a component of a decision making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies.

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g. Reasons facilitate the process of judicial review by superior Courts.

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h. The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions

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serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system.

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j. Insistence on reason is a requirement for both judicial accountability and transparency.

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k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism.

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l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or `rubber-stamp reasons' is not to be equated with a valid decision making process.

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m. It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor (1987) 100 Harvard Law Review 731-737).

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n. Since the requirement to record reasons emanates from the broad doctrine of fairness in decision making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions".

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o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "Due Process".

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12. Copy of reasons to believe not served even upto the stage of deciding the appeal.

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Admittedly no copy was served. This issue has been decided from time to time. We are of the view atleast conducting the searches the appellant is entitled to receive the copy thereof. (i) In P.P Abdullah Vs. Competent Authority 2007 2 SCC 510 para 7 to 8 wherein it has been held by the Apex Court that reason to believe must be communicated along with counter affidavit at least and the authorities are bound to place the same before the court to check the veracity of the same and to come to the conclusion whether such reason to believe are relevant or germane or not.

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(ii). In the case of CIT & Ors. v. Oriental Rubber Works , [(1984) 1 SCC 700], while considering the powers of retention of seized documents under Section 132 of the Income Tax Act, 1962, wherein the reasons for retention were required to be recorded in writing, but nowhere required to communicate those reasons to the aggrieved person, as in the case of Section 17 of PMLA, there is no express requirement for communicating the reasons so recorded, the Hon'ble Supreme Court held that irrespective of there being no such requirement in the statute, the concerned officer is bound to communicate the said reasons, as the failure to communicate shall materially prejudice the person so searched under the provisions of Section 132 of the aforesaid Act. The relevant extract from the judgment is as under:

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“4. ...On a plain reading of the aforesaid provisions it will he clear that ordinarily the books of account or other documents that may be seized under an authorisation issued under Subsections (1) of Section 132 can be retained by the authorised officer or the concerned Income-fax Officer for a period of one hundred and eighty days from the date of seizure, where after the person from whose custody such books or documents have been seized or the person to whom such books or documents belong becomes entitled to the return of the same

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unless the reasons for any extended retention are recorded in writing by the authorized officer/the concerned Income Tax Officer and approval of the Commissioner for such retention is obtained. In other words two conditions must be fulfilled before such extended retention becomes permissible in law:' (a) reasons in writing must be recorded by the authorised officer or the concerned Income-fax Officer seeking the Commissioner's approval and (b) obtaining of the Commissioner's approval for such extended retention and if either of these conditions is not fulfilled such extended retention will become unlawful and the concerned person (i.e. the person from whose custody such books or documents have been seized or the person to whom these belong) acquires a right to the return of the same forthwith. It is true that Sub-section (8) does not in terms provide that the Commissioner's approval or the recorded reasons on which it might be based should be communicated to the concerned person but in our view since the person concerned is bound to be materially prejudiced in the enforcement of his right to have such books and documents returned to him by being kept ignorant about the factum of fulfillment of either of the conditions it is obligatory upon the Revenue to communicate the Commissioner's approval as also the recorded reasons to the person concerned. In the absence of such communication the Commissioner’s decision according his approval will not become effective.”

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(iii). In the case of C.B. Gautam vs. Union of India (1993(1) SCC 78) , a Constitution Bench of the Hon'ble Supreme Court of India held that the reasons to be recorded in writing shall not only be incorporated in the order but also shall be communicated to the affected parties. The relevant extract from the judgement is as under:

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“Sec. 269UD(1), in express terminology, provides that the appropriate authority may make an order for the purchase of the property for reasons to be recorded in writing'. Sec. 269UD(2) casts an obligation on the authority that it "shall cause a copy of its order under sub-s. (1) in respect of any immovable property to be served on the transferor". It is, therefore, inconceivable that the order which is required to be served by the appropriate authority under sub-s. (2) would be the one which does not contain the reasons for the passing of the order or is not accompanied by the reasons recorded in writing. It may be permissible to record reasons separately but the order would be an incomplete order unless either the reasons are incorporated therein or are served separately along with the order on the affected party. Reasons for the order must be communicated to the affected party. ”

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This decision has been followed in various judgments by various Courts, including the Hon'ble Supreme Court of India.

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The Hon'ble Supreme Court, in the case of M. P. Industries Ltd. v. IPO , [(1970) 2 SCC 32], while dealing with the powers under Section 34(1) of the Income Tax, 1922, which required the officer to have 'reason to believe', has held that the expression 'reason to believe' in Section 3 does not mean purely subjective satisfaction on the part of the Income Tax Officer and that the belief must be held in good faith and it cannot be merely a pretence. It was further held by the Supreme Court that it is open to the Court to examine whether the reasons for the believe have a rational connection or an element bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the Section.

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The Supreme Court, in the case of Mohammad Aslam Merchant v. Competent Authority , [(2008) 14 SCC 186], while dealing with similar requirements under Section 68H of the Narcotics Drugs and Psychotropic Substances Act, has held that both the statutory elements, namely, "reason to believe" and "recording of reasons" must be premised on the materials produced before him and that such materials must have been gathered during the investigation carried out in terms of Section 68-E or otherwise. It was further held that indisputably, therefore, he must have some materials before him and that if no such material had been placed before him, he cannot initiate a proceeding.

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The Hon'ble High Court of Andhra Pradesh, in the case of K. Munivelu v. The Government of India and Ors. [AIR1972AP318], while dealing with the terms “Reason to Believe” and “suspects”, with respect to Section 3 (2) of Essential Commodities Act, 1955, which deals with the FPA-PMLA-1868/DLI/2017 Page 12 of 15

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power of the authorized officer to enter and search the premises and the seizure thereof, and the Andhra Pradesh Coarse Grains (Export) Control Order, 1965, has held that the term “Reason to believe” is a much stronger expression than the word “suspect” and further observed from the meanings attributed to the words “suspect” and “reason to believe”, that it is evident that the initial stage for believing the existence of a certain thing or an alleged fact is suspicion. After suspecting the existence of a thing, condition or a statement of fact, you collect information and then examine that information and come to a final conclusion on the basis of that information, that such a thing, condition or statement of a fact exists. All these ingredients are prerequisite for forming any opinion based on “Reason to Believe”.

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In the present case there are no allegation against her involving in the schedule offence or under the PML Act, 2002. More than 180 days period already expired. No proceedings are initiated against the appellant. Only on the basis of apprehension jewellery ornaments are attached. No document and currency was recovered in the locker when it was search.

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The involvement of her brother cannot be attributed to her as nothing indiscriminating material was either recovered from her and from the locker. Both sisters are married sister.

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Thus, it is apparent that there are no „reason to believe‟ that the valuables in the Lockers are involved her in money laundering.

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Section 20(1) of PMLA absolutely bars and prohibits retention of the seized property beyond 180 days from the day on which such property

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was seized. In this regard, reliance is placed on sub-section (1) of section 20 of PMLA which is reproduced as under:-

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“ (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 the 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 . ”

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The respondent counsel has admitted that no proceedings against the appellant u/s 5 and 8 are initiated nor any complaint under section 3 has been filed against the appellant.

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It is apparent that the statutory requirement as to entertainment of reasonable belief in relation to section 17 of PMLA does not exist in the present case. In this regard, the observations of the Courts/Tribunal in the following cases are relevant to be reproduced:

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(a) In Joti Parshad Vs. State of Haryana 1993 Supp (2) SCC 497 , it was observed by the Hon‟ble Supreme Court that „suspicion‟ and „reason to believe‟ are not the same thing. “Reason to believe” is a higher level of state of mind. Section 26 of IPC explains the meaning of the words “reason to believe” as “A person is said to have „reason to believe‟ a thing, if he has sufficient cause to believe that thing and not otherwise”.

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(b) The Hon‟ble Appellate Tribunal (PMLA) in the case of IPRS in Appeal No.- FPA-PMLA-1302/MUM/2016 decided on 22.06.2017 and FPA-PMLA-1026/KOL/2015 and others decided on 14.07.2017 observed as under:

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“59. It cannot be the Scheme of the Act whereby bona fide person without having any direct/indirect involvement in the proceeds of the crime or its dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere suspicion when the element of mens rea or knowledge is missing”.

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For the abovementioned reasons, we set aside the impugned order dated 22.07.2017 passed by the respondent no. 2 by dismissing OA. The lockers of the appellant is de-freezed accordingly by allowing the appeal.

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