FPA-PMLA-6807-6808/DLI/2023
This Appeal has been filed under Section 26 of the Prevention of Money Laundering Act, 2002 (in short “the Act of 2002”) to challenge the order dated 03rd November, 2023 passed by the Adjudicating Authority.
It is stated that an ECIR was recorded on 29th August, 2019 pursuant to a complaint dated 01st July, 2019 filed by Serious Fraud Investigation Officer (SFIO) against M/s. Bhushan Steel Limited & Ors. It was for offence under I.P.C. and Companies Act of 2013. It was alleged that Brij Bhushan Singal and Neeraj Singal, ex-promoters of M/s. Bhusan Steel Ltd. had obtained huge loans from financial institutions with outstanding liabilities of Rs. 56,000 Crores.
Mr. Brij Bhushan Singal and Neeraj Singal, the ex-promoters of the Company had formed 157 companies in which either they were the directors or shown to be employee. In order to infuse funds in M/s. Bhusan Steel Ltd., they availed credit facility from lender banks. By using a complex web of companies and financial transaction, siphoned of the funds. It was alleged that an amount of Rs. 1,770 Crores was siphoned from M/s. Bhushan Steel Ltd and M/s. Bhushan Energy Ltd. by Brij Bhushan Singal and Neeraj Singal.
It is also alleged that Brij Bhushan Singal and Neeraj Singal transferred funds from BSL and BEL to its associated companies by showing it to be “Capital Advances”. The recipient companies transferred these funds through one or more layers of associated companies of Brij Bhusan Singal and Neeraj Singal and ultimately invested in BSL as promoters” equity.
The siphoning commenced with the diversion of funds as “capital advances” with the transfer in the head of “CWIP” in BSL or BEL. In this manner, an amount of around Rs. 1770 Crore was siphoned which was then used by Brij Bhushan and Neeraj Singal as their own equity under controlled companies for purchase of movable or immovable properties in personal names or in the names of the companies they controlled. Brij Bhushan Singal and Neeraj Singal made systematic investments in BSL through several promoters” Company after obtaining loans, the interest payments of which were made only after diversion of funds from Company BSL itself. All the loans raised for investment in BSL were repaid after redemption of preference shares amounting to Rs. 632 Crore in the F.Y. 2015-16 and 2016-17. The promoters of the company deftly devised the entire web of transactions duly and implemented it to divert monies to integrate the same into system as share capital and projecting a false financial position to the lenders by creating a façade of enhancing net worth.
That, after a complex web of interwined transactions among the group companies of Neeraj Singal with that of erstwhile Bhushan Steel Limited (BSL) and with the help of bank accounts of Brij Bhushan Singal, Ritu Singal, Uma Singal and himself, funds were remitted to M/s. BSL to the tune of Rs. 1375 Crore from FY: 2009-10 to 2014-15 wherein funds were utilized for round tripping transactions and were sourced from the Cash Credit Loan accounts of M/s. BSL and after layering through multiple other related companies/directors, invested in M/s. BSL as their own equity.
It is also alleged that the directors and staff of M/s. Bhushan Steel Limited had dishonestly and fraudulently by using false and fabricated documents diverted huge public funds to the tune of Rs. 45,818 crores during the period 2013-14 to 2016-17 into its accounts (out of which, Letters of Credit [LCs] to the tune of Rs. 24,594 crores were verified) from the banks through the instrument of LC, where Jindal Steel Works or Hindustan Zinc Ltd. were stated to be beneficiaries of LCs to the tune of Rs. 3204.09 crore, thereby causing wrongful loss to the State Bank of India and Punjab National Bank. It is also alleged that Sh. B.B. Singal and Sh. Neeraj Singal Ex promoters of BSL, in order to avail credit facilities from lender banks for its steel plant had infused huge funds as equity into the company by way of diversion of funds from BSL/BEL so as to maintain the required level of debt-to-equity ratio. The ex-promoters in connivance with their employees and close associates, through a set of pre-arranged scheme of actions had used their large number of group companies for undertaking a complex web of financial transactions and siphoned off funds from BSL and Bhushan Energy Limited (BEL). In this continued and concerted process of siphoning of funds, some of the illegitimately diverted funds were also utilized for acquisition of immovable and movable properties.
It was revealed during the course of investigation that the erstwhile promoters/directors in conspiracy with the ex-officials of the company M/s. Bhushan Steel Limited had craftily prepared forged documents and made fraudulent representations before the banks to discount LCs and diverted the funds back into their own web of companies with ulterior motives. Funds were misappropriated against the LC created in favour of JSW Steel Limited and Hindustan Zinc Limited and were further diverted the funds into BSL and other group/associated companies.
That, in course of investigation, it was transpired that Mr. Brij Bhushan Singal and Mr. Neeraj Singal had siphoned off the loan funds of M/s. Bhushan Steel Limited after layering through the bank accounts of Brij Bhushan Singal, Neeraj Singal, Uma Singal, Ritu Singal and also through several shell companies for the purpose of introduction of Preferential shares in M/s. Bhushan Steel Limited in the name of their shell companies for purchase of immovable properties for ulterior motives.
M/s. Bhushan Steel Limited was involved in out of the books sale of Zinc Ingots. The cash so generated from the sale of goods were used for availing accommodation entries of LTCG. By the above process, Mrs. Uma Singal had availed an amount of Rs. 26,75,72,087/- from various penny stock companies. Hence Mrs. Uma Singal was the direct monetary beneficiary of funds out of the proceeds of crime.
During the course of investigation, it transpired that the bank account of the family members of Neeraj Singal namely Brij Bhushan Singal (Father), Mrs. Uma Singal (Mother), Mrs. Ritu Singal (Wife) and himself were used for layering of funds originated from the loan funds of erstwhile M/s. Bhushan Steel Limited which ultimately transferred to it for investment in the preferential shares of the company controlled by Mr. Neeraj Singal or in the name of Singal Family. These funds were also used for the purpose of creation of movable and immovable properties in the name of the shell companies.
On the basis of material in possession, search proceedings u/s 17 of PMLA were conducted at the residential premise of the appellant Neeraj Singal at W-29, Greater Kailash-II, New Delhi on 09.06.2023 and his 2 mobile phones, 15 FDRs amounting to tune of Rs. 2.4 Crore in the name of his mother Mrs. Uma Singal and some loose documents were seized.
After conducting investigation, a Prosecution Complaint was filed for the commission of the offence of money laundering, as defined in Section 3 read with Section 70 and punishable under Section 4 of the PMLA, 2002 against erstwhile M/s. Bhushan Steel Limited & Ors. including Mr. Neeraj Singal and Mrs. Uma Singal (Present Appellant). The Special Court (PMLA) took cognizance of the offence of money laundering under Section 3 and 4 of PMLA, 2002 on 07-11-2023 and issued summons against the accused persons.
For the search operation on 09.06.2023 under Section 17 of the PMLA at the residential premise of Neeraj Singal W-29, Greator Kailash-II, New Delhi, the following steps were carried out as per procedure under Section 17 of the PMLA:
(a) Based on information in possession of the Department and having reasons to believe, search and seizure was conducted at the residential premise of Neeraj Singal at W-29, Greater Kailash-II, New Delhi by an authorized officer,
(b) Panchnama was drawn during search on 09.06.2023 which are duly handed to the wife of the Appellant Mrs. Ritu Singal containing the list of articles seized. The list whereof has been recorded in the Impugned Order at Page 6-7.
(c) A copy of the reasons to believe along with all material in possession was forwarded to the Adjudicating Authority (“AA”), PMLA in a sealed envelope.
(d) Within 30 days of the search and seizure, an Original Application (No. 918/2023) dated 07.07.2023 was filed before the Adjudicating Authority, PMLA seeking retention of seized material.
The Adjudicating Authority issued Notice to the Appellants on 14.07.2023 under Section 8(1) to show cause as to why the retention of movable properties and record in the form of original FDs, digital devices, documents/records seized as per details contained in the Original Application and the accompanying documents be not permitted to be retained by the Enforcement Directorate, PMLA. A copy of the reasons to believe was also served. Instead of filing a reply to the show cause notice, the Appellants moved an application before the Adjudicating Authority seeking a copy of the reasons to believe and other documents that had been submitted by the ED to the Adjudicating Authority.
That the present Appeal is against the interim order dated 03.11.2023, whereby the Appellants” application for supply of “reasons to believe”, copy of retention order dated 07.07.2023, copy of search authorization no. 54 of 2023, copy of statements of independent witnesses available during the course of search proceedings, copy of ECIR and copy of acknowledgement slip for forwarding reasons to believe and other materials was dismissed.
Since application to seek copy of reason to believe recorded under Section 17 of the Act of 2002 has been dismissed, this Appeal has been filed to challenge the order to that extent. The Appellant submitted that in absence of reason to believe, he would not be able to give effective response to the O.A. filed by the E.D seeking confirmation of retention of the documents, devices and FD”s seized during the course of search and seizure on 09th June, 2023. It is alleged that application to seek copy of the reason to believe has been dismissed by the Adjudicating Authority in ignorance of the provisions of law and thereby grave injustice has been caused. In absence of the reasons to believe, the Appellant is deprived to contest the matter effectively before the Adjudicating Authority.
We find that application filed by the Appellant was not only to seek copy of reason to believe recorded under Section 17(1) of the Act of 2002 but many other documents. The present Appeal is however pressed only in reference non supply of the copy of reason to believe recorded under Section 17(1) of the Act of 2002. The Counsel for the Appellant has further prayed for copy of reason to believe recorded under Section 20 & 21 of the Act of 2002 for retention of the seized property and the documents though no such prayer was made before the Adjudicating Authority.
The Learned Counsel for the Appellant submits that the Appellant Uma Singal has not been named as accused either in the FIR or ECIR yet search was conducted followed by the seizure of the documents and property and therefore it was imperative on the Respondent to supply copy of reason to believe for conducting search and seizure against the Appellant Uma Singal.
It is also stated that in absence of service of the copy of reason to believe recorded under Section 17(1) of the Act of 2002, the proceedings would not be irregular but illegal in view of the judgment of the Delhi High Court in the case of J. Sekar V/s. Union of India & Ors., W.P. ( C) 5320/2017 decided by the Division Bench of Delhi High Court on 11th January, 2018. The Learned Counsel for the Appellant has further relied on the judgment of the Apex Court in case of CIT, West Bengal – III and Ors. V/s. Oriental Rubber Works (1984) 1 SCC 700. The Supreme Court has mandated for supply of reason to believe for seizure and retention of documents under Section 132 of the Income Tax Act, 1962. It was held that though the provision does not mandate for supply of reason to believe but it is necessary to supply reason to believe recorded by the Authority so that assessee may properly defend his case. A further reference of the judgment of the Constitutional Bench of the Apex Court in the case of C.B. Gautam v/s. Union of India And Ors. reported in (1993) 1 SCC 78 has been given. The specific reference of para No. 31 & 33 was given to show that the similar provision were given interpretation to emphasize service of the copy of the reason to believe for effective opportunity of hearing to the Appellant.
The arguments was raised even in reference to Section 19 of the Act of 2002 where Apex Court in the case of Pankaj Bansal v/s. Union of India, 2023 SCC OnLine 1244 gave interpretation to Section 19 and held that reason of arrest are required to be conveyed to the accused before he is arrested. It was submitted that provisions of Section 17, 20 & 21 are similar thus non supply of reason to believe makes the entire process of seizure to be illegal.
The Learned Counsel for the Appellant submitted that the Adjudicating Authority summarily dismissed the application ignoring the judgment cited by the Appellant and Section 17 of the Act of 2002 thus impugned order deserves to be set aside.
The detailed arguments were made by the Learned Counsel for the Respondent to contest the Appeal and would be referred during the course of discussion. It is to avoid repetition of the facts.
We have gone through the impugned order and the material available on record. We have even perused the judgment cited by the respective parties. The facts on record show that an ECIR was recorded on 29th August, 2019 on the strength of the complaint dated 01st July, 2019 by the SFIO. It was for the offence under Section 409, 467, 468, 471 & 120 B of Indian Penal Code and Section 447 of Companies Act, 2013. The Respondent attached three immovable properties in the name of the companies controlled by Neeraj Singal on 08th November, 2021 and the attachment was confirmed by the Adjudicating Authority vide its order dated 25th July, 2022. The aforesaid is not subject matter of the Appeal but the fact has been given for the clarity. The search under Section 17 of the Act of 2002 was conducted at the residential premises of Neeraj Singal on 09th June, 2023 wherein certain mobile phone and 15 FDR”s apart from loose documents were seized. The facts on record further shows that the prosecution complaint has been filed for the offence under Section 3 of the Act of 2002 apart from the Section 44 and 45 punishable under Section 4 of the Act of 2002. It was not only against the Appellant Neeraj Singal but even Appellant Uma Singal. The cognizance of offence was taken by the Special Court (PMLA) on 07th November, 2023. The facts aforesaid are relevant because search and seizure was much after the recording of the ECIR.
The Appellant was served with the show cause notice alongwith the reasons to believe under Section 8(1) of the Act of 2002 by the Adjudicating Authority. The Appellants were called upon to file reply to it. It would not be out of place to mention that the complaint/O.A. was sent to the Adjudicating Authority within thirty days of seizure under Section 17(1) of the Act, 2002. The Appellant instead of filing reply to the show cause notice, moved an application to seek copy of reason to believe recorded under Section 17(1) of the Act of 2002. The question for our consideration is as to whether copy of reason to believe recorded in writing under Section 17(1) was required to be supplied to the Appellant. To analyze the issue, we may refer to Section 17 & 8 of the Act of 2002 and both provisions are quoted hereunder:-
Section 17 Search and seizure. —
(1) Where [the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section,] on the basis of information in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person—
(i) has committed any act which constitutes money-, or
(ii) is in possession of any proceeds of crime involved in money-laundering, or
(iii) is in possession of any records relating to money-laundering,
[(iv) is in possession of any property related to crime]
then, subject to the rules made in this behalf, he may authorise any officer subordinate to him to—
(a) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;
(b) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;
(c) seize any record or property found as a result of such search;
(d) place marks of identification on such record or [property, if required or] make or cause to be made extracts or copies therefrom;
(e) make a note or an inventory of such record or property;
(f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act:
[(1A) where it is not practicable to seize such record or property, the officer authorised under sub-section (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned:
Provided that if, at any time before its confiscation under sub-section (5) or sub-section (7) of section 8 or section 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.]
(2) The authority, who has been authorised under sub-section (1) shall, immediately after search and seizure, [or upon issuance of a freezing order] forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed.
(3) Where an authority, upon information obtained during survey under section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence:
Provided that no authorisation referred to in sub-section (1) shall be required for search under this sub-section.
[(4) The authority, seizing any record or property under sub-section (1) or freezing any record or property under sub-section (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 sub-section (1A), before the Adjudicating Authority.]
“Section 8 Adjudication.-
(1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under sub-section (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an [offence under section 3 or is in possession of proceeds of crime], he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized [or frozen] under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government;”
Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person:
Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.
(2) The Adjudicating Authority shall, after—
(a) considering the reply, if any, to the notice issued under sub- section (1);
(b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and
(c) taking into account all relevant materials placed on record before him,
by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering:
Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering.
(3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of section 5 or retention of property or [record seized or frozen under Section 17 or section 18 and record a finding to that effect, whereuponsuch attachment or retention of the seized property] or record shall—
(a) continue during [investigation for a period not exceeding [three hundred and sixty-five days] or] the pendency of the proceedings relating to any [offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and]
[(b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8 or Section 58B or sub-section (2A) of section 60 by the [Special Court].
[Explanation.- For the purposes of computing the period of three hundred and sixty-five days under clause (a), the period during which the investigation is stayed by any court under any law for the time being in force shall be excluded.]
(4) Where the provisional order of attachment made under sub-section (1) of section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the [possession of the property attached under section 5 or frozen under sub-section (1A) of section 17, in such manner as may be prescribed:
Provided that if it is not practicable to take possession of a property frozen under sub-section (1A) of section 17, the order of confiscation shall have the same effect as if the property had been taken possession of.]
(5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government.]
(6) Where on conclusion of a trail under this Act, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it.]
(7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed under sub-section (3) of section 8, pass appropriate orders regarding confiscation or release of the property, as the case may be, involved in the offence of money-laundering after having regard to the material before it.]
(8) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed may also direct the Central Government to restore such confiscated property or part thereof a claimant with a legitimate interest in the property, who may suffered a quantifiable los as a result of the offence of money laundering:
Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money laundering]:
[Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed.]”
Section 17(1) mandates that the Directors or any other officer not below the rank of Deputy Director authorized by him on the basis of information in his possession, has reason to believe and reason of such belief to be recorded in writing that any person has committed an act of money laundering or in possession of proceeds of crime etc. may make a search. Sub section 2 of Section 17 requires that immediately after search and seizure or upon issuance of a freezing order, a copy of reason so recorded alongwith the material would be send to the Adjudicating Authority in a sealed envelope. It would be in the manner, as prescribed. The Adjudicating Authority would keep reason and material for such period, as may be prescribed.
The reason for search and seizure is to be based on the information that person has committed an act of money laundering or is in possession of proceeds of crime involved therein and so on. The authorized officers then enter and search any building, place and vessel etc. and seize the records and the property etc. The authorized officer may even examine a person on oath which is found to in control of any record or property relevant to the case. The retention of the property would not be beyond a period of 180 days from the date of seizure and freezing. Its continuance would be subject to confirmation of retention by the Adjudicating Authority within the period given above and unless the Adjudicating Authority permits retention of property and documents etc. beyond the period of 180 days, it would be returned to the person concern. For the purpose of retention of the property or seized material, the proceedings under Section 8(1) is to be drawn where a show cause notice is issued by the Adjudicating Authority. It should be accompanied with reason to believe that the person has committed an offence under Section 3 of the Act of 2002 or is in possession of the proceeds of crime etc. The show cause notice under Section 8(1) should not be of less than 30 days to call upon the reply. We find that the reasons to believe was conveyed to the Appellant while serving a show cause notice by the Adjudicating Authority as was recorded by it. That suffice the purpose and compliance of the judgment of the Apex Court in the case of CIT v/s. Oriental Rubber Works (supra). Para 4 of the said judgment is quoted hereunder:-
“4. In order to decide the aforesaid contention it will be desirable to set out the material provisions of section 132 of the Act, namely, sub-sections (8), (10) and (12) thereof, which run as follows:
132. (8) The books of account or other documents seized under sub- (1) or sub-section (1-A) shall not be retained by the authorised officer for a period exceeding one hundred and eighty days from the date of the seizure unless the reasons for retaining the same are recorded by him in writing and the approval of the Commissioner for such retention is obtained:
Provided that the Commissioner shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922 (XI of 1922), or this Act in respect of the years for which the books of account or other documents are relevant are completed.
(10) If a person legally entitled to the books of account or other documents seized under sub-section (1) or sub-section (1-A) objects for any reason to the approval given by the Commissioner under sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents.
(12) On receipt of the application under sub-section (10) the Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit.
On a plain reading of the aforesaid provisions it will be clear that ordinarily the books of account or other documents that may be seized under an authorisation issued under sub-section (1) of section132 can be retained by the authorised officer or the concerned Income-tax officer for a period of one hundred and eighty days from the date of seizure, whereafter 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 unless the reasons for any extended retention are recorded in writing by the authorised 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-tax 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 fulfilment 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.”
The Apex Court, while giving interpretation to Section 132(1) of the Income Tax Act held that if the seized material is to be retained then reasons are to be recorded in writing by the officers concerned and seek approval of the Commissioner for extended retention and in case of extended retention, person acquires a right to get a copy of Commissioner”s approval and reasons recorded so that no prejudice is caused. In the instant case, to seek retention of the property and the documents beyond 30 days, the proceedings under Section 8(1) of the Act was taken and there the Appellant was served with show cause notice alongwith reasons to believe and disclosed all the relevant facts and material to seek retention beyond the period of 30 days and confirmation of it within 180 days. The Appellant was thus not only supplied reason to believe recorded by the Adjudicating Authority but all the material to invite him as to why the retention of seized FD”s and other material may not be confirmed. The prior stage for action under Section 17 was administrative in nature. It is a case where Appellant was supplied material for search and seizure. As per the judgment of the Apex Court, reasons are to be supplied if extended retention is required and has been complied. The search was conducted much after the attachment of the property of the Appellant Neeraj Singal. After search and seizure, even prosecution complaint was filed before the Special Court, PMLA followed by an order of cognizance of offence against both the Appellants.
The show cause notice otherwise discloses all the relevant materials to seek retention of the seized material. In the instant case, ECIR was recorded in the year 2019 itself and the search was conducted in the year 2023. The relevant documents are now part of the show cause notice. In the background aforesaid, we do not find that any prejudice is caused to the Appellant on non-service of the copy of the reasons to belief recorded in writing for search and seizure under Section 17(1) of the Act of 2002. In case of J. Sekar v/s. Union of India & Ors. (Supra), the Division Bench of Delhi High Court has not addressed the issue in reference to Section 17(1) of the Act of 2002 but was in reference in Section 5(1) of the Act of 2002. The provisions may be similar but purpose of the proceedings under two provisions are altogether different. One pertains to the attachment of the property till conclusion of the trial, if the attachment order is confirmed by the Adjudicating Authority. The retention of the documents or property would remain for the period given by the Adjudicating Authority and infact if the investigation is completed followed by the prosecution complaint, justification of retention of documents subsequent to it may require to be addressed by the Adjudicating Authority on merits. It is looking to the facts that if the materials seized became part of the prosecution complaint with a copy thereupon to the Appellant then an appropriate order can be passed by the Adjudicating Authority. We are however refraining ourselves to comment on it because matter is pending before the Adjudicating Authority. It is even for the property. If it is to be protected, the department may proceed to attach it.
We may refer to the judgment of the Apex Court in the case of Narayanyappa & Ors. v/s. Commissioner of Income Tax (1967) 1 SCR 590 wherein similar issue in reference to the Income Tax Act came up for consideration before the Apex Court. Therein also, the reasons led to initiate the proceedings under Section 34 of the Income Tax Act was not supplied and therefore a challenge to it was made before the Apex Court where arguments were found to be misconceived and held that the process of assessment and reassessment start from the issuance notice to the assesse and prior to it, the action of the Income Tax officer for recording the reasons for obtaining the sanction of the Commissioner are administrative in nature and not quasi-judicial. The para 4 of the said judgment is quoted hereunder for ready reference:-
“4. It was also contended for the appellant that the Income Tax Officer should have communicated to him the reasons which led him to initiate the proceedings under Section 34 of the Act. It was stated that a request to this effect was made by the appellant to the Income Tax Officer, but the Income Tax Officer declined to disclose the reasons. In our opinion, the argument of the appellant on this point is misconceived. The proceedings for assessment or re-assessment under Section 34(1)(a) of the Income Tax Act start with the issue of a notice and it is only after the service of the notice that the assesse, whose income is sought to be assessed or re-assessed, becomes a party to those proceedings. The earlier stage of the proceeding for recording the reasons of the Income Tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial.”
In the case of Biswanath Bhattacharya V/s. union of India (2014) 4 SCC 392, the Apex Court addressed the same issue and relied the earlier judgment in the case of S. Narayanyappa & Ors. (Supra). Para 16 of the said judgment is quoted hereunder:-
“16. We reject the submission of the appellant for the following reasons.
Firstly, there is no express statutory requirement to communicate the reasons which led to the issuance of notice under Section 6 of the Act. Secondly, the reasons, though not initially supplied along with the notice dated 4-3-1977, were subsequently supplied thereby enabling the appellant to effectively meet the case of the respondents. Thirdly, we are of the opinion that the case on hand is squarely covered by the ratio of Narayanappa case. The appellant could have effectively convinced the respondents by producing the appropriate material that further steps in furtherance to the notice under Section 6 need not be taken. Apart from that, an order of forfeiture is an appealable order where the correctness of the decision under Section 7 to forfeit the properties could be examined. We do not see anything in the ratio of Ajantha Industries case which lays down a universal principle that whenever a statute requires some reasons to be recorded before initiating action, the reasons must necessarily be communicated.”
Section 17 provides that for the purpose of search and seizure, the Directors or other Officers not below the rank of Deputy Director may proceed for search and seizure based on the information in his possession and has reasons to believe that any person has committed any Act which constitute money laundering and is in possession of any proceeds of crime involved in money laundering etc., the Authorised Officer may enter and search the building, place, vessel, vehicle etc. and thereupon take further action as given under Section 17(1) of the Act which includes seizure of records and property. However it would remain in operation only for a period of thirty days unless the officer file an application requesting retention of such records and property before the Adjudicating Authority and at this stage the Adjudicating Authority would serve a show cause notice alongwith the reasons to believe to the parties effected by it. The Adjudicating Authority would supply complete material to the parties concern to seek their response to show cause notice where the reasons to believe recorded by the Adjudicating Authority are also supplied thus the stage prior to the initiation of Section 8(1) of the Act of 2002 is administrative in nature and the parties are not affected indefinitely unless the order is confirmed by the Adjudicating Authority but before confirmation, an opportunity of hearing is provided after disclosure of material and reasons to believe. In our opinion the issue raised by the Learned Counsel for the Appellant is covered by the judgment of the Apex Court in the case supra and aforesaid judgment was not cited before the Delhi High Court in the case of J. Sekar (Supra).
We further find that the judgment of the Division Bench of Delhi High Court in the case of J. Sekar v/s. Union of India & Ors. (Supra) is pending consideration before the Apex Court where the operation of the order has been stayed though according to the Appellant, ratio of the judgment would apply however what we find that the matter is sub-judice before the Apex Court on the subject thus any direction may have serious repercussion because if the Appeal preferred by the Respondent is allowed by the Apex Court with a finding that reasons to believe recorded at the initial stage of the 5(1) of the Act of 2002 are not required to be supplied as otherwise reasons to believe are given by the Adjudicating Authority under Section 8(1) of the Act of 2002, it would have consequence in case Appeal is allowed with a direction to supply reasons to believe. In the peculiarity of the case and the discussions made above, we do not find any illegality in the order to deny the copy of the reasons to believe recorded under Section 17(1) of the Act of 2002 and otherwise kept in the sealed envelope by the Adjudicating Authority.
The provision under section 19 of the Act of 2002 is different thus judgment in the case of Pankaj Bansal (supra) would be of no help to the Appellant. It would rather relevant to refer Section 19 of the Act of 2002 which specifically mandate that ground of arrest is to be informed to the person and accordingly the Apex Court gave the judgment to make action in terms of the provision. No such requirement has been imposed under Section 17 of the Act of 2002 therefore it is to be taken that whenever legislature found that it is necessary to supply the reasons/grounds, a specific provision was made under Section 19 which does not exists under Section 17.
At this stage we may refer to the judgment of the Constitutional Bench in the case of C.B. Gautam (supra). In the aforesaid case, the Apex Court refer to Section 269-UD(1) to show an obligation of the Authority to give a copy of the order framed under sub-section (1). It was thus held that if the provisions mandate service of the copy of the order then under sub section (2) of the aforesaid provision, it is to be supplied alongwith the order. It was however clarified that reasons can be recorded separately but order would be in-complete unless the order alongwith the reasons are served on the effective parties. The judgment of the Constitutional Bench of the Apex Court has given interpretation to Section 269-UD(1) showing a mandate for service of copy which does not exists under the Act of 2002 and in any case, copy of the reasons to believe recorded by the Adjudicating Authority has been served alongwith the material so that Appellant may defend him effectively. Thus reasons to believe recorded in the administrative action under Section 17 was not required to be served to the Appellant.
We do not find that copy of reason to believe under Section 20 and 21 of the Act of 2002 was prayed before the Adjudicating Authority thus prayer for it cannot be made for the first time in the Appeal.
In view of the discussions made above, we do not find any reason to cause interference in the impugned order, the Appeal accordingly fails and is dismissed.
