Allowed

FPA-PMLA-2216/DLI/2018 of H. Rameshchandra & Company v/s The Joint Director Directorate of Enforcement, Delhi

ATFP1 Apr 2019FPA-PMLA-2216/DLI/2018

Case brief

AI extract

What is this about?

The Tribunal allowed four appeals challenging orders retaining seized documents, digital evidence, and property. The court held that since no prosecution complaint was filed against appellants and statutory periods expired, retention orders under the PMLA violated the Act's scheme, mandating the return of seized materials.

What did the court decide?

The impugned orders allowing retention of documents and property are set aside. All seized documents, material, and records are directed to be returned to the appellants.

FPA-PMLA-2216/DLI/2018 of H. Rameshchandra & Company v/s The Joint Director Directorate of Enforcement, Delhi — ATFP (2019) — LawSathi Research

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APPELLATE TRIBUNAL FOR SAFEMA, FEMA, PMLA, NDPS, PBPT ACTS AT NEW DELHI

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Date of Decision: 1st April, 2019

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1)	FPA-PMLA-2215/DLI/2018 Shri R.B. Prajapati	… Appellant
	Versus
	The Joint Director Directorate of Enforcement, Delhi	… Respondent
2)	FPA-PMLA-2216/DLI/2018 H. Rameshchandra & Company	… Appellant
	Versus
	The Joint Director Directorate of Enforcement, Delhi	… Respondent
3)	FPA-PMLA-2217/DLI/2018 H. Rameshchandra & Company	… Appellant
	Versus
	The Joint Director Directorate of Enforcement, Delhi	… Respondent
4)	FPA-PMLA-2218/DLI/2018 H. Rameshchandra & Company	… Appellant
	Versus
	The Joint Director Directorate of Enforcement, Delhi	… Respondent
Adv For	ocates/Authorized Representatives the appellants : Smt. Moh Cha	who appeared Premlata Bansal, Sr. Advocate d. Amir, Advocate & Shri Paras udhary, Advocate
For	the respondent : Shri Mr.	Nitesh Rana, Advocate & Ritesh Srivastava, I.O.
CO	RAM
JUS	TICE MANMOHAN SINGH :	CHAIRMAN
SH	RI G.C. MISHRA :	MEMBER

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JUDGMENT FPA-PMLA-2215-2218/DLI/2018

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FPA-PMLA-2215-2218/DLI/2018

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Page 1 of 16

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The above mentioned appeals have been filed by the appellants under Section 26 of Prevention of Money Laundering Act, 2002 against the impugned orders passed by the Adjudicating Authority of PMLA in OA Nos. 121/2017, 132/2017, 126/2017 and 123/2017.

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We have heard both sides and have already pronounced the order in the Court by allowing the appeals by Order dated 27.03.2019. Now, we have to give the reasoned order, the same are given as under.

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The facts and legal issues in all appeals are common, therefore, we propose to decide all by single order. The brief facts are taken from Appeal No. 2215/2016 filed by R.B. Prajapati.

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The brief facts as per the appellant R.P. Prajapati are given as under:

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a) FIR No. RC. 08(A)/2017-AC. III was registered by CBI/ACCIII/New Delhi on 30.08.2017 u/s 13(2) r/w section 13(1)(d) of Prevention of Corruption Act, 1988 and Section 120B of the Indian Penal Code, 1860. In the said FIR, allegations were raised against the Sterling Group of Companies comprising of M/s Sterling Biotech Limited, M/s Sterling International Enterprises Limited, M/s PMT Machine Tools Ltd., M/s Sterling Oil Resources Ltd., M/s Sterling Port Ltd. etc. and against Mr. Nitin Jayanti Lal Sandesara and his brother Mr. Chetan Jayanti Lal Sandesara being part of the promoters‟ group.

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b) . In the FIR, Income Tax Department had on 28.06.2011, conducted searches u/s 132 of the Income Tax Act, 1961 covering 25 premises of the abovementioned group entities at Mumbai, Vadodara and Ooty. During the course of search, certain incriminating material including one diary of 2011

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FPA-PMLA-2215-2218/DLI/2018 Page 2 of 16

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was found and seized. This diary contained certain transactions relating to the public servants for the period from 01.01.2011 to 28.06.2011.

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c). It was alleged in the FIR that Sandesara Group had been acting as a depository for receiving funds on behalf of the public servants and for further delivery to them at the place of convenience.

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d). It was also revealed in the FIR that the identity of the person who was maintaining the diary and from whose custody, it was seized was not brought on record. As per the appraisal report, one Ajay Panchal was identified as the person maintaining the diary but he was not examined u/s 131 of the Income Tax Act.

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e). On the basis of the aforesaid FIR, ECIR vide F.No. ECIR/HQRs/15/2017 was taken-up for investigation by the Directorate of Enforcement, New Delhi on 31.08.2017.

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f). It was alleged in the OA under challenge that during the investigation, statement of one Shri Ajay Panchal was recorded and it was gathered that various Angadias/Local Hawala operators based in Vadodara were involved in the transfer of the suspected, tainted money/proceeds of crime from Vadodara to Delhi.

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g). On the basis of suspicion, the search was conducted at the premises of appellant on 04.09.2017 by the officials of Directorate of Enforcement, during which day-to-day business record of the appellant, mobile phones of his employees and family members and one laptop/hard disc were seized.

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h). On 29.09.2017, Joint Director, Directorate of Enforcement,

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New Delhi filed an application u/s 17(4) of the Act before the

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Page 3 of 16

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Adjudicating Authority, New Delhi for retention of seized documents/digital evidences. This application was numbered as Original Application (OA) No. 121 of 2017. Consequent to this application, the Adjudicating Authoriy, vide showcase notice dated 9.10.2017, required the appellant to show-cause as to why seized document/digital evidences should not be retained as involved in money laundering and required for the purpose of adjudication u/s 8 of PMLA.

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i). By reply dated 18 December, 2017, the appellant herein objected to the said application on various ground and requested to release the documents/mobile phones/laptop/hard disc as the document pertains to its day-to-day business activity, mobile phones belong to his employees and family members and the hard disc also contains the data of his day-to-day business activity.

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j). However, by impugned order dated 08.02.2018, the Adjudicating Authority allowed the OA No. 121 of 2017 and permitted the Department to retain the seized documents/mobile phones/laptop/hard disc till finalization of the case holding that:

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i) the OA has rightly been filed by the Joint Director as he had authorised the Assistant Director to search,

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ii) FIR and the OA prima facie reveal that the scheduled offences are committed and there is a laundering of proceeds of crime. Ongoing investigation is justified in view of the serious allegations leveled against the principal offenders. Hence, there is no justification in demanding back the seized documents and digital

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Page 4 of 16

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evidences. It is only upon scrutiny of material, it will be known as to whether material seized is in any way relevant to and connected with proceeds of crime.

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iii) as per the provisions of section 21(2), respondent is entitled to have copies of seized material including mirror/dummy images contained in the devices,

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iv) the nature of document and material as to whether those are of personal nature or otherwise, can be appreciated only after its complete scrutiny by DE,

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v) it is not in doubt that “Angadia Service” is a permissible activity, however it needs to be seen that such service is not exploited or misused for money laundering,

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vi) the proceeding at present is in the form of OA. As of now, there is nothing in the application which affects any substantial right of the respondents like attachment and/or confiscation of the properties of the respondents and/or threatened arrest. The application is simply for retention of seized documents/digital/evidence/cash so that investigation can be carried out without any obstruction.

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In para 14 of the order, held that “I am satisfied that the seized documents/digital evidence and properties are required for the purpose of adjudication u/s 8 of PMLA. I am also satisfied that the seized documents/properties are involved in money laundering. Hence, retention of seized documents/properties seized u/s 17 is required to be confirmed and is confirmed hereby.

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6. i) Appeal no. 2215/2018 – R.B. Prajapati

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The above appeal arises from the impugned order dated 08.02.2018 passed in OA no. 121/2017 whereby the Department was allowed to retain the seized documents/ mobile phones/ laptop/hard disc.

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ii) Appeal no. 2216/2018 – H. Rameshchandra & Company

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The above appeal has been filed under Section 26 of PMLA, 2002 against the impugned order dated 22.02.2018 passed in OA No. 132/2017 where the business record was ordered to be retained. The room of the appellant was also sealed. This Tribunal by earlier order desealed the room after hearing both the parties.

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iii) Appeal no. 2217/2018 – H. Rameshchandra & Company

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The appeal has been filed against the impugned order dated 22.02.2018 passed in OA No. 126/2017 where the retention of the seized documents/ electronic devices/ digital evidences was allowed.

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iv) Appeal no. 2218/2018 – H. Rameshchandra & Company

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The above said appeal has been filed against the impugned order dated 08.02.2018 passed in OA No. 123/2017 in which retention of seized documents/digital devices and alleged unaccounted cash was allowed. The appellant has given the justification in the grounds of appeal.

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The legal issues in all Appeals no. 2215/2018, 2216/2018, 2217/2018 and 2218/2018 are similar. The facts and details mentioned in para 4 of our order are taken from the Appeal no. 2215/2018 filed by R.B. Prajapati. The same may also be read in the rest of three appeals which have been filed arising from three OA nos. 132/2017, 126/2017 and 123/2017. Therefore, by single order, all the above mentioned 4 appeals are being decided.

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8. From the entire gamut, it has come on record that:

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a) There is no FIR against the appellant.

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b) No charge sheet

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c) No prosecution complaint even after expiry of prescribed period.

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Section 17 of PMLA, 2002 reads as under:

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― 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 —

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(i) has committed any act which constitutes money-laundering, or

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(ii) is in possession of any proceeds of crime involved in money-laundering, or

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(iii) is in possession of any records relating to money-laundering, (or)

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(iv) is in possession of any property related to crime]

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then, subject to the rules made in this behalf, he may authorize any officer subordinate to him to -

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(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;

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(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;

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(c) seize any record or property found as a result of such search;

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(d) place marks of identification on such record or [property, if required or] make or cause to be made extracts or copies therefrom;

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(e) make a note or an inventory of such record or property;

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(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:

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[Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorised to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorised by the Central Government, by notification, for this purpose.]

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[(1A) Where it is not practicable to seize such record or property, the officer authorised under subsection (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned:

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Provided that if, at any time before its confiscation under sub-section (5) or sub-section (7) of Section 8 or Section 58B 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.]

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(2) The authority, who has been authorized 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 reason and material for such period, as may be prescribed.

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(3) Where an authority upon information obtained during survey under section 16, is satisfied that an evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence.

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Provided that no authorization referred to in subsection (1) shall be required for search under this subsection.

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(4) The authority seizing any record or property under sub-Section (1) or freezing any record or property under sub-Section (1A) 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 subSection (1A), before the Adjudicating Authority.].

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Section 18 of PMLA, 2002 reads as under:

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“ 18. Search of persons. —

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(1) If an authority, authorised in this behalf by the Central Government by general or special order, has reason to believe (the reason for such belief to be recorded in writing) that any person has secreted about his person or in anything under his possession, ownership or control, any record or proceeds of crime which may be useful for or relevant to any proceedings under this Act, he may search that person and seize such record or property which may be useful for or relevant to any proceedings under this Act:

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[Provided that no search of any person shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be.]

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(2) The authority, who has been authorised under sub-section (1) shall, immediately after search and seizure, 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.

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(3) Where an authority is about to search any person, he shall, if such person so requires, take such person within twenty-four hours to the nearest gazetted officer, superior in rank to him, or a Magistrate: Provided that the period of twenty-four hours shall exclude the time necessary for the journey undertaken to take such person to the nearest gazetted officer, superior in rank to him, or Magistrate's Court.

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(4) If the requisition under sub-section (3) is made, the authority shall not detain the person for more

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than twenty-four hours prior to taking him before the Gazetted Officer superior in rank to him, or the Magistrate referred to in that sub-section: Provided that the period of twenty-four hours shall exclude the time necessary for the journey from the place of detention to the office of the Gazetted Officer, superior in rank to him, or the Magistrate's Court.

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(5) The Gazetted Officer or the Magistrate before whom any such person is brought shall, if he sees no reasonable ground for search, forthwith discharge such person but otherwise shall direct that search be made.

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(6) Before making the search under sub-section (1) or sub-section (5) the authority shall call upon two or more persons to attend and witness the search, and the search shall be made in the presence of such persons.

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(7) The authority shall prepare a list of record or property seized in the course of the search and obtain the signatures of the witnesses on the list.

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(8) No female shall be searched by any one except a female.

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(9) The Authority shall record the statement of the person searched under sub-section (1) or sub-section (5) in respect of the records or proceeds of crime found or seized in the course of the search:¹⁸ _[]_* (10) The authority seizing any record or property under sub-section (1) shall, within a period of thirty days from such seizure, file an application requesting for retention of such record or property, before the Adjudicating Authority .

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Sub-section (1), (2) and (3) of Section 20 read as under:-

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20. Retention of property .—

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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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(2) The officer authorized 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 cover, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.

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(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.

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Section 21 of PMLA reads as under:-

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“ 21. Retention of records. –

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(1) Where any records have been seized, under section 17 or section 18 or frozen under sub-section (1A) of section 17 and the Investigating Officer or any other officer authorised by the Director in this behalf has reason to believe that any of such records are required to be retained for any inquiry under this Act, such records 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 records were seized or frozen, as the case may be.

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(2) The person, from whom records seized or frozen, shall be entitled to obtain copies of records.

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(3) On the expiry of the period specified under sub-section (1), the records shall be returned to the person from whom such records were seized or whose records were ordered to be frozen unless the Adjudicating Authority permits retention or continuation of freezing of such records beyond the said period.

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(4) The Adjudicating Authority, before authorising the retention or continuation of freezing of such records beyond the period specified in sub-section (1), shall satisfy himself that the records are required for the purposes of adjudication under section 8.

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(5) After passing of an order of confiscation [or release under subsection (5) or sub-section (6) or sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60] , the Adjudicating Authority shall direct the release of the records to the person from whom such records were seized.

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(6) Where an order releasing the records has been made by the Court [Adjudicating Authority under section (5) of section 21] the Director or any other officer authorised by him in this behalf may withhold the release of any such record for a period of ninety days from the date of (receipt of] such order, if he is of the opinion that such record is relevant for the appeal proceedings under this Act. ]

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It is settled law that a particular thing is to be done in a particular manner, it must be done in that way and none other. Reliance in this regard is also placed on a judgements of Hon‟ble Supreme Court in the

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cases of Dipak Babaria and another vs. State of Gujarat 2014 (3) SCC 502 and J. Jayalalitha & Anr vs State of Karnataka & Ors 2014 (2) SCC 401.

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Sub-section (1) of Section 17 provides that the authorised officer has to record the reason to believe in writing. In such reason to believe, he has also to record the basis of information which is in his possession before conducting the search and seizure.

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It stipulates that if person concerned has committed any act which constitutes money-laundering, or is in possession of any proceeds of crime involved in money-laundering, or is in possession of any records relating to money-laundering, then any authorised officer can enter and search any building, place, vessel, vehicle or aircraft where that such records or proceeds of crime are kept, who is also empowered to break open the lock of any door, box, locker, safe, almirah or other receptacle where the keys thereof are not available and seize any record or property found as a result of such search, place marks of identification on such record or make or cause to be made extracts or copies therefrom; make a note of an inventory or such record or property and to 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.

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However, the said action is sustainable subject to conditions stipulated in the proviso of Section 17(1) of the Act, which says that the search and seizure shall not be conducted unless –

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in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973, (2 of 1974)

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a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the schedule offence, as the case may be,

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in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorized to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or unit, as the case may be, or any other officer who may be authorised by the Central Government, by notification, for this purpose.

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In the present case, no report against the appellants has been forwarded to the Magistrate. No complaint against the appellants was filed before a Magistrate. No cognizance of schedule offence was taken by any authority or Additional Secretary to the Government of India.

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Under Section17(1) (A), it is the duty of the officer authorised if where it is found that it is not practicable to seize such property, can make such order that the person concerned shall not transfer or deal with the said property prior to the permission of the officer authorised. A copy of the said order shall be served upon the person concerned. Section 17, Sub-section (2) stipulates that after search and seizure, the authorised officer shall immediately forward a copy of the reason so recorded along with the material in his possession to the Adjudicating Authority in a sealed cover.

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The authorised officer is to follow the following steps after search and seizure or frozen of any property, any action taken under Section 17(2) or 17(1A) –

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i) the first one is that in case the authority seizes any record or material under sub-section (1) or sub-section (1A) of Section-17, the authorized officer shall within a period of thirty days from the date of seizure or frozen can file the application requesting for retention of such property.

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ii) Secondly, sub-section (1) of Section 20 mandates that where any property has been seized under Section 17 or Section 18 or frozen under sub-section (1A) of Section17, the officer authorised on the basis of material in his possession has chosen to retain the property for the purposes of adjudication under Section 8, he has to pass as to record the reason to believe in writing for continuation of the same for a period not exceeding one hundred and eighty days from the day the such property was seized or frozen as the case may be. The officer authorised immediately after he has passed the order of retention or continuation of freezing of property for the purpose of adjudication under Section 8, has to forward a copy of the order along with the material in his possession to the Adjudicating Authority in a sealed cover within the meaning of Sub-section (2) of Section 20. Subsection (3) of Section 20 mandates that on the expiry of 180 days, the property shall be returned to the person concerned from whom such property was seized and whose property was ordered to be frozen unless the Adjudicating Authority permits retention or confirmation thereof of such property beyond the said period.

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It is clear from the reading of Sections 17 to 21 that outer limit upto the date for deciding the application for retention of property is 180 days from the date of seizure of any property or records. The said period is not extendable as per the scheme of the Act, unless the prayer for retention is allowed and subject to filling of prosecution complaint within 90 days from the date of passing the retention order.

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No doubt, once the prayer is allowed, the person concerned/aggrieved party of such order, is entitled to file the appeal under Section 26 of the Act. The same shall be heard and after giving an opportunity of being heard, the Appellant Tribunal shall pass the order either to confirm the order of retention or to modify or setting aside the same.

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The provisions of section 20 (Retention of Property) are similar to the provisions of section 5(Attachment of Property) as shown here-under:

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Stages	Retention of Property	Attachment of Property
1.	S. 20(1): Recording of „reason to believe‟	S. 5(1): Recording of „reason to believe‟
2.	S.17(4): OA within 30 days	S. 5(5): OC within 30 days
3.	S. 20(2): Order by the Authorized Officer	S. 5(1): Order by the Authorized Officer
4.	Rule 4 of Retention Rules, 2005: Acknowledgment of Order	Rule 5 of Attachment Rules, 2005: Acknowledgment of Order
	by the Adjudicating Authority	by the Adjudicating Authority
5.	S.20(1): Outer limit of 180 days	S.5(1): Outer limit of 180 days
6.	S.8(3): Order by the Adjudicating Authority	S. 8(3): Order by the Adjudicating Authority
7.	S.8(3)(a): Retention restricted to 90 days during investigation.	S.8(3)(a): Attachment restricted to 90 days during investigation.

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The provisions of section 8 (3) (a) provides that the attachment or retention of property or record seized shall continue during the investigation for a period not exceeding ninety days.

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The said prescribed period has already been expired as more than a year has already elapsed but the properties and records have not been returned so far which is in clear violation of the provisions of PMLA. No prosecution complaint has been filed against the Appellants.

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In the light of above, the present appeals are allowed. The impugned orders dated 08.02.2018 and 22.02.2018 are set-aside pertaining to the appellants. The applications filed by the respondent under Section 17(4) for retention of documents are dismissed accordingly. All documents/materials and records shall be returned to the respective appellants by the respondent accordingly.

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25. No costs.

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(Justice Manmohan Singh) Chairman

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(G.C. Mishra) Member

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New Delhi, 1^st April, 2019

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„skb‟

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FPA-PMLA-2215-2218/DLI/2018