J K Tyre And Industries Ltd Vs Directorate of Enforcement (Delhi High Court)
Conclusion: Since none of the other relevant material, which was the basis of the seizure under Section 17(1A) and the complaint under Section 17(4) of the PMLA were supplied to assessee, as the same were not even supplied by the ED to the AA. Thus, ED should forward a copy of the documents to the Adjudicating Authority immediately after a freezing order under PML Rule.
Held: Assessee had filed petition under Article 226 of the Constitution of India, challenging freezing orders passed by the Directorate of Enforcement (hereinafter “ED”) wherein the bank accounts of assessee were ordered to be frozen. The stand of the ED supporting the said freezing orders had been that they executed the freezing orders under Section 17(1A) of the PMLA, in accordance with the mandate of Section 60(6) of the PMLA, on the basis of the Letter of Request received from the Government of Brazil. It was held that none of the other relevant material, which was the basis of the seizure under Section 17(1A) and the complaint under Section 17(4) of the PMLA were supplied to assessee, as the same were not even supplied by the ED to AA. The other aberration in this case was that the documents forming the basis of the ‘reasons to believe’ of the ED at the stage of Section 17 of the PMLA, were stated to have been shown to the Adjudicating Authority exclusively, of which assessee had no knowledge/notice. The same were shown in non-compliance of the 2005 Rules, and were shown post the issuance of the show cause notice . It was made clear that sharing of documents with the AA, post the issuance of the show cause notice, outside the hearing and that too without the knowledge of the parties concerned, was not permissible. Such freezing of bank accounts could lead to disruption of personal lives and/or of businesses. Thus, measures such as freezing of bank accounts ought to be proportionate and taken only to the extent required. If any clarifications were required from authorities in the contracting state, the ED ought to seek those clarifications, prior to resorting to such measures of freezing. As was in the present case, the ED upon seeking clarifications from the Brazilian Authorities restricted the freezing amounts, which in their opinion were the amounts involved in the commission of offences. Thus, the impugned order under Section 17(1A) of the PMLA in all these petitions, as also the orders passed by Adjudicating Authority under Section 8 of the PMLA were set aside. However, assessee was permitted to furnish either bank guarantees, or securities to the satisfaction of the ED, subject to which the said accounts might be directed to be de-frozen by the ED, on a case-to-case basis.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This judgment has been pronounced through video conferencing.
2. These are a batch of writ petitions filed under Article 226 of the Constitution of India, challenging freezing orders passed by the Directorate of Enforcement (hereinafter “ED”) wherein the bank accounts of the Petitioners were ordered to be frozen.
3. The genesis of these disputes is a communication dated 26th September 2018 received from the Office of the Prosecutor General, Rio De Janeiro, Brazil. The said communication was termed as a `Request for legal assistance’ in a criminal matter involving a former Governor of Brazil, Sergio Cabral, against whom allegations of corruption and money laundering were levelled. The diversion was assessed by the Brazilian Authorities to be more than a 100 Million Dollars. According to the Brazilian Authorities, a sophisticated system of compensation was indulged in by the former Governor. As per the said allegations, more than 3000 companies from 53 countries were stated to be involved. The specific allegation in respect of Indian companies was qua a sum of 13.24 Million Dollars. The Prosecutor General relied upon the United Nations Convention against Transnational Organized Crime, 2000, also known as the Palermo Convention, to make various requests to the Indian authorities in respect of the companies alleged to have been involved in money laundering in relation to the case against the former Brazilian Governor. The Prosecutor General from Brazil sought freezing/seizure of the bank accounts of the Companies stated to be involved, as also digital copies of all the documents relating to the identified bank accounts. A letter of Request was sent to the Indian ED by the Prosecutor General on 26th September 2018.
4. Pursuant to this Letter of Request, the ED passed freezing orders under Section 17(1A) of the Prevention of Money Laundering Act, 2002 (hereinafter, “Act”), in July 2020, freezing various bank accounts of the Petitioners and other companies in India, and also commenced proceedings under the Act against all the 66 companies.
5. The matter was referred by the ED to the Adjudicating Authority (hereinafter, “AA”) under section 17(4) the Act, pursuant to which, the AA issued notices to the Petitioner under Section 8(1) of the Act to show-cause as why their properties seized or frozen should not be retained as involved in Money Laundering under the Act. These notices were issued to the Petitioners in September 2020. The AA directed the Petitioners herein to file replies to the show cause notice, based on the ‘Relied Upon Documents’ (hereinafter, “RUDs”) that were supplied to them (Panchnamas). A hearing was then called for by the AA. During the hearings, as has been submitted by the Petitioners, each of them were afforded a mere 2-3 minutes to make their oral submissions before the AA. The fact that the hearings were so brief is not disputed by the Respondents.
6. In the meanwhile, the present writ petitions were filed before this Court praying to quash and set-aside the freezing orders passed by the ED, against these Petitioners’. The stand of the ED supporting the said freezing orders has been that they executed the freezing orders under Section 17(1A) of the PMLA, in accordance with the mandate of Section 60(6) of the PMLA, on the basis of the Letter of Request received from the Government of Brazil.
7. The Petitioners at the interim stage, contended that the request, if any, ought to be, only qua the particular amounts and the carte blanche freezing of the bank accounts in their entirety was not warranted, when the dispute was pending before the AA.
8. Thereafter, interim orders were passed in all these petitions directing the Petitioners to secure the amounts qua which the allegations of money laundering pertained, in a fixed deposit/ bank guarantee or by depositing the said amounts in their bank accounts in question at all times. The order of the ED, freezing the bank accounts were stayed, subject to the said amounts being maintained. The said interim order, was initially passed in WP(C) 5235/2020, on 26th August 2020, and was reiterated in all the connected petitions, reads as under:
“3. It is the case of the petitioner(s) that the Impugned Orders freezing their bank accounts do not disclose any ‘reason to believe’ that the money lying in the credit of the said bank accounts are, in any manner, involved in ‘money laundering’ or are ‘proceeds of crime’. They further submit that the due process as required under Section 17 and Section 60 of the Prevention of Money Laundering Act, 2002 (PMLA) has not been followed. They further submit that the order may also have been passed coram non judice by an officer who is not authorized in law to pass such order.
4. On the other hand, the learned counsel for the respondent submits that the Impugned action has been taken on the request received from the Government of Brazil under Section 60(6) of the Act.
5. In WP (C) 5235/2020, the learned counsel for the respondent has also filed on record, the application under Section 17(4) of the Act, filed by the respondent before the Adjudicating Authority. A perusal of the said application would reveal that the allegation against the petitioner(s) can, at best, be attributed to specific amounts as mentioned in paragraph 2.8 of the said application. Therefore, the action of freezing the entire bank accounts of the petitioner(s), prima facie, appears to be unreasonable and not authorized by law.
6. As an interim measure, therefore, on the petitioner(s) securing the amount as mentioned in paragraph 2.8 of the said application, copy whereof shall be supplied by the learned counsel for the respondent to the counsels appearing in the other petitions as well, by way of a Bank Guarantee/Fixed Deposit or by maintaining a deposit of an equivalent amount in their bank accounts in question, the operation of the Impugned action of the respondent of freezing their bank accounts shall remain stayed, till the next date of hearing.
7. The learned counsels for the petitioner(s) further prayed that the proceedings before the Adjudicating Authority be stayed. At present this Court is not inclined to pass such order.”
The above interim order was not given effect to by the Banks, and therefore, fresh directions were sought by the Petitioners. Thereafter, the ED sought clarifications from the Central Authority in Brazil. Upon receiving clarifications, in November 2020, the freezing orders have been amended and restricted to the actual amounts which were mentioned in the request letters.
9. Parallelly, after hearing the parties, the AA passed a lengthy order on 28th December 2020, confirming the freezing orders passed by the ED, in respect of the amounts mentioned therein, which was restricted to the actual amounts mentioned in the request letters.
10. Accordingly, the interim orders passed by the Court were amended in terms of the amounts mentioned in the order of the AA dated 28th December 2020 and were made applicable during the pendency of these petitions. Owing to the nature of legal issues raised and owing to the fact that the PMLA Appellate Tribunal is not currently functioning, the limitation period for challenging the orders of the AA was also suspended during the pendency of these petitions. The said order dated, dated 4th February 2021, amending the previous interim orders reads as under:
3. In the meantime, it is noted that vide order dated 16th August 2020 in W.P.(C) 5235/2020, the Petitioner was allowed to transact in their bank account by making deposit of money, to the extent of the amount involved in the dispute or alleged to have been laundered, in the same and withdrawing/ transferring the amount so deposited. Similarly, vide order dated 27th August in W.P.(C) 5235/2020, the Petitioner was given the option of either depositing the money mentioned in the application for amendment filed by the ED before the Adjudicating Authority, or of securing the same by way of a Bank Guarantee or a fixed deposit of equivalent amount in their bank accounts in question. Subject to the said deposit, the order freezing the bank account of the Petitioners has been stayed by this Court. Similar interim orders have been passed on different dates in all these writ petitions wherein the freezing of amounts bad been limited in terms of the application for amendment of the attachment order filed by the ED before the Adjudicating Authority.
4. In the meantime, vide order dated 28th December 2020, the Adjudicating Authority has passed an order on the said application of the ED, continuing the freezing order with respect to the amounts mentioned in the application, subject to the orders of this court.
5. However, it is the grievance of the Petitioners that since the Enforcement Directorate has not written any further communications limiting the extent to which the Petitioners’ bank accounts are frozen and hence the banks are not lifting the said freezing order.
6. Since there is no dispute that the initial freezing orders stand amended and limited the Petitioners in these cases are permitted to approach the banks with the present order, in order to ensure that their bank accounts are duly de-frozen, so long as the amounts, as contained in the amendment of attachment order dated 28th December 2020, are maintained either by way of a deposit or a bank guarantee or in any other manner.
7. The limitation period for challenging the order of the Adjudicating Authority shall remain suspended during the pendency of the present writ petitions.
11. Thereafter, these matters have been heard from time to time and all parties have made their submissions.
Submissions of the Parties:
12. Submissions have been made by various counsels in these matters, and Luthra, ld. Senior Counsel appearing in WP(C) 5713/2020 has led the submissions on behalf of the Petitioners in these matters. On behalf of the Respondents, Mr. Amit Mahajan, ld. CGSC and Mr. Ravi Prakash, ld. CGSC appearing for the ED in W.Ps.(C) 5235/2020, 5671/2020, 5713/2020, 7210/2020 & 9384/2020 have addressed submissions.
On behalf of the Petitioners:
Submissions of Mr. Siddharth Luthra, ld. Senior Counsel
13. Mr. Luthra, ld. Senior counsel appearing in WP(C) 5713/2020 has made the following submissions:
