Allowed

FPA-PMLA-1917/DLI/2017 of Kumud Mitra v/s The Deputy Director Directorate of Enforcement, Delhi

ATFP15 Feb 2018FPA-PMLA-1917/DLI/2017

Case brief

AI extract

What is this about?

The Appellate Tribunal (PMLA) allowed an appeal against the retention of seized jewellery held in bank lockers. The court held that mere familial connection to an accused did not constitute sufficient reasons to believe the property was proceeds of crime, especially when no proceedings were initiated within the statutory 180-day limit, violating Section 20(1) of PMLA.

What did the court decide?

The prohibition order on the appellant's bank lockers was lifted and the appeal was allowed. The impugned order retaining the jewellery was set aside.

FPA-PMLA-1917/DLI/2017 of Kumud Mitra v/s The Deputy Director… — 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: 15 .02.2018

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FPA-PMLA-1917/DLI/2017

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Kumud Mitra

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… Appellant/Applicant

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Versus

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The Deputy Director Directorate of Enforcement, Delhi

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… Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	:	Shri Gaurav Duggal, Advocate Shri M.T. Reddy, 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-1917/DLI/2017

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The present appeal has been filed against the order dated 21^st July, 2017 whereby the application filed by the Respondent u/s 17(4) PML Act, 2002 was allowed.

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Facts of the matter are that during the search of office premises i.e. R-89, Greater Kailash-I, New Delhi of T&T Law Firm (belongs to one Mr. Rohit Tondon) on 10.12.2016 by Income Tax and Delhi Police, Crime Branch Team Rs. 13.62 Crores were recovered that included Rs. 2.62 Crores of new denomination notes of Rs. 2,000/-. Subsequent to registration of FIR No. 197/2016 dated 14.12.2016 by Delhi Police in this

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FPA-PMLA-1917/DLI/2017

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matter, this directorate opened ECIR No. 14/DZO II/2016 dated 16.12.2016 and started investigation into the case. It is revealed that his new currency notes have been acquired illegally through unauthorized channel accumulated the same with mala-fide intention.

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It was revealed that Paras Mal Lodha along with his associates, namely Shri Rohit Tondon besides others were involved in a deep rooted conspiracy and was indulged in converting the old demonetized currency into new currency on commission basis which constitutes offences of money laundering. It is the case of respondent that the new currency notes which were entrusted to banks and Govt. officials and was supposed to be delivered to public/bank account holders appears to have been misappropriated by Paras Mal Lodha, Rohit Tondon besides others for their monetary gains thereby cheated the public at large and had also caused monetary loss to the Govt. of India.

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The case of the respondent is that the named accused person besides others are involved in the activity of monetizing the demonetized currency on commission.

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The following lockers were searched in the presence of appellant and other witnesses where certain valuable were found and are under further examination. The details of searches are as follows:

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a. Locker No. 475, being maintained in Indian Overseas Bank, Ballygunge Park Road, in the name of Smt. Kusum Nahata and Late Smt. B.D. Lodha. Search conducted under panchnama dated 17.04.2017 which disclosed that the total valuation of jewellery including gold coin and stones comes to Rs. 28,58,533 as per valuation report.

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FPA-PMLA-1917/DLI/2017

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b. Locker No. 652, being maintained in Indian Overseas Bank, Ballygunge Park Road, in the name of Smt. Kumud and Late Smt. B.D. Lodha. Search conducted under panchnama dated 17.04.2017. It contain studded jewellery, gold coin in the locker. The total valuation of the same comes to Rs. 6,42,178 as per valuation report dated 17.04.2017.

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The Appellant Kumud Mitra and Kusum Nahata both are married sisters of Paras Mal Lodha.

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The Respondent no. 2 wrote to Indian Overseas Bank, 22, Ballygunj Park, Road, Kolkata not to allow the operation of the bank locker No. 475A jointly held in the name of Mrs. Bhanwari Devi Lodha and Smt. Kusum Nahata, sister of the appellant and Locker No. 652 in the name of Smt. Bhanwari Devi Lodha and Smt. Kumud Mitra (appellant) .

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Thereafter, the application was filed by Assistant Director, Directorate of Enforcement, Delhi before this Adjudicating Authority under Section 17(4) of Prevention of Money Laundering Act, 2002 (PMLA) against Smt. Kumud Mitra of Kolkata seeking retention of seized documents/properties in the search conducted consisting of gold/stone studded jewellery and gold coin from two lockers No. 475 and 652 of Indian Overseas Bank, Ballygunge, Kolkata of Respondent.

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The respondent also averred in the application that it was felt that proceedings under PMLA may be initiated against the person who are involved in the money laundering. Notice was issued to the Respondent and reply was filed.

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In nutshell, it was the apprehension on the part of R-1, at the time searching lockers that the valuables may form the part of Proceeds of Crime

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in the case and the same may be attached under Section 5(1) of PMLA in due course, therefore in the application filed to retain the said jewellery terms of section 17(4) of the PMLA, 2002. However, no proceedings are initiated under section 5 of the Act against the appellant and her sister Kusum as informed despite of over 9 months.

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The Appellant in her reply to the said application specifically stated that in Respondent interalia, stated herein:-

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“Sub;- Locker No. 475 maintained with Indian Overseas Bank, 22-Ballygung Park Road, Kolkata in the name of Smt. B.D. Lodha and Smt.Kusum Nahata. The above bank locker was searched on 17.04.2017 in my presence. The letter of authority in my favour by Smt. Kusum Nahata (my sister) is already on record. As already explained during the course of search, the said locker was searched by the Income Tax Department on 23.08.2016 and finding every item contained in the locker as duly explained, the contents were released by them and the restrain order was revoked on the same day.

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The contents of the valuation report prepared by Income Tax Department on 23.08.2016 match with the valuation report prepared on 17.04.2017, as per details below:-

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Item No. of valuation Item No. of valuation

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Report of ED	Report of ITD
1	1
2	2
3	3
4	4
5	5
6 (A, B, C, D)	6
7	7

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Similarly, the sister of appellant Smt. Kusum Nahata vide her letter

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dated 25.03.2017 addressed to the Applicant inter alia stated:-

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Sub:Locker No. 475 in the name of Mrs. Kusam Nahata Maintained with Indian Overseas Bank, Ballygung Park Road, Kolkata. The operation of the above locker was put under prohibition order on 29.12.2016. The Appellant on behalf of Mrs. Kusum Nahata, vide her letter dated 24.04.2017 addressed to the Applicant inter alia, stated:“Sub:- Locker No. 475 maintained with Indian Overseas Bank, 22-Ballygung Park Road, Kolkata in the name of Smt. B.D. Lodha and Smt. Kusum Nahata. The above bank locker was searched on 17.04.2017 in my presence. The letter of authority in my favour by Smt. Kusum Nahata (my sister) is already on record.

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It is not denied that during the course of search, the said locker was searched by the Income Tax Department on 23.08.2016 and finding every item contained in the lockers were duly explained, the contents were released by them and the restrain order was revoked on the same day.

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The contents of the valuation report prepared by Income Tax Department on 23.08.2016 match with the valuation report prepared on 17.04.2017, as per details below:-

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Item No. of valuation	Item No. of valuation
Report of ED	Report of ITD
1	1
2	2
3	3
4	4
5	5
6 (A, B, C, D)	6
7	7

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Smt. Bhanwari Devi Lodha, mother of the Appellant expired on 07.03.2017. Smt. Kusum Nahata is the sister of Kumud Mitra residing in U.S.A. Admittedly, no intimation about the restrictions imposed on the operation of the aforesaid Bank Locker was given to the Appellant. Smt. Kusum Nahata vide her letter dated 25.03.2017 addressed to Respondent No. 2 stated that the operation of the bank locker has been put under prohibition on 29.12.2016., when she came to India on the sad demise of her mother, she found that her Bank locker was searched by Income Tax Department on 23.08.2016.

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After explaining her position, the restraint order stands revoked. She in her letter has stated that she has been deprived the access to her bank locker without any justification. Her request to revoke earlier when the restraint order has been ignored and rejected. She has authorized the Appellant to pursue the matter with the Respondent No. 2 in her absence.

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The Appellant by her letter dated 24.04.2017 addressed to the Respondent No. 2 in regard to locker No. 475 explained that the said locker was searched on 17.04.2017 in her presence and that the letter of authority in her favour by Smt. Kusum Nahata (my sister) is already on record. During the course of search, the said locker was searched by the Income Tax Department on 23.08.2016 and finding every item contained in the locker as duly explained, the contents were released by them and the restrain order was revoked on the same day.

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Admittedly during the investigation two lockers no. 475 and 652 in Indian Overseas Bank Ballygung Park Road, Kolkata in the name of Smt. Kusum Nahata and late Smt. B. D. Lodha were searched on 17.04.2017 and contents of both these lockers in the form of gold/stone studded

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jewellery and gold coin totally valued at Rs. 28,58,533 and Rs. 6,42,178 were seized.

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Counsel for the Respondent does not dispute the factual position that IT Department has released the said jewellery much prior to the date of demonization.

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It was the contention of the respondent that the valuables seized during the search of lockers may be required to be attached under section 5(1) of PMLA and therefore these jewellery articles are required.

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Counsel for the respondent has also referred the rejoinder filed by the Respondent No. 2 wherein was it has been stated that the valuables of the said Locker are under scrutiny and the same need to be retained for investigations. It has further been stated that it was during the course of search of the locker in the name of Smt. Madhu Lodha maintained with Indian Overseas Bank, Kolkata that they came to know that the aforesaid two bank lockers are maintained in the same bank by family members of Paras Mal Lodha, therefore, there was sufficient reasons to believe to search the aforesaid lockers as there were strong suspicions that there would be some incriminating documents and new monetised currency in the above mentioned lockers. Copy of the reason to believe was not served to the Appellant.

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Counsel for Appellant argued that there is no reason whatsoever to retain the property once the Income Tax Department, already released the same prior raids of Rohit Tandon and Parasmal Lodha. The date of FIR is also of subsequent date against accuse. He says that the bad luck of two sisters is only that they are sisters of Parasmal Lodha.

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He submits that the Respondent has suppressed the fact of the explanation placed on record in respect of the contents of the aforesaid Bank Lockers. Which are same contents the counsel states that there is absolutely no justification for the applicant to seek retention of the contents of the aforesaid Bank Lockers.

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It was stated by the counsel that whosoever are involved in the activity of monetizing the demonetized currency on commission basis, the action may be taken as per law, however his client who has nothing to do with any offence cannot harassed.

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There is no denial that the FIR registered by Delhi Police, Enforcement Directorate opened ECIR dated 16.12.2016 and started investigation under PMLA. The Appellant is not named in the FIR and in ECIR.

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No proceedings against the appellant under PMLA are pending. Counsel for the Appellant says that the Appellant locker was search merely on the reason that she is the sister of Paras Mal Lodha otherwise admittedly no offence was committed by her. There is also no denial that the jewellery in question is the same which was earlier released by the Income Tax Office.

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It is not denied by the Respondent that the contents of the valuation report prepared by Income Tax Department on 23.08.2016 match with the valuation report prepared on 17.04.2017 by Respondent No. 2.

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The contents of the bank locker No. 475 are accounted for in the records of the Income Tax Department.

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There is no denial by the respondent that the Locker No. 652 of the Appellant the said locker was searched on 17.04.2017 in her presence and FPA-PMLA-1917/DLI/2017 Page 8 of 16

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that it was explained during the course of search that the said locker was searched by the Income Tax Department on 23.08.2016 and finding every item contained in the locker as duly explained, the contents were released by them and the restraint order was revoked on the same day.

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It is not denied by the Respondent that items mentioned at Sl. No.1 to 7 of the valuation report prepared on 17.04.2017 match with the items at Sl. No. 1 to 7 of the valuation report of the Income Tax Department and that as regards the only remaining item No. 8 of valuation report dated 17.04.2017 as per Appellants, its value is below Rs. 5,000/- and not Rs. 15,925/- shown incorrectly as the base of the said item is plastic.

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The main purpose of conducting the searches, as mentioned in the reason to believe, no material or any seizure of incriminating documents or any demonetized currency. The search of the said lockers conducted was not in conformity with the provisions of law relating “reasons to believe” for conducting search of the lockers. Copy of the reasons to believe here also not been served.

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The Respondent at no stage has stated that the contents of Bank Locker are „proceeds of crime‟ and there is no whisper even in the complaint against the Appellant.

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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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31. 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 be reasons of believes 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

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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 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

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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

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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 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

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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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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

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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 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

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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. So the reasons of believe on the face of it loose its validity

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

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Section 20(1) of PMLA bars and prohibits retention of the seized property beyond 180 days from the day on which such property 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) This 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 prohibition of the lockers of the appellant is lifted accordingly by allowing the appeal.

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