Order of ED and AA to freeze bank accounts of a petitioner under PMLA was set aside as due procedure wasn’t followed: HC

Case Details: JK Tyre and Industries Ltd. v. Directorate of Enforcement - [2022] 135 taxmann.com 278 (Delhi)

Judiciary and Counsel Details

• • Pratibha M. Singh, J.
  • Sidharth Luthra, Sr. Adv., Ms. Alina Arora, Ms. Nimrah Sameen Alvi, Parth Singh, Sheezan Hashmi and Anmol Kheta, Adv. for the Petitioner.
  •  Ravi Prakash, CGSC, Ms. Shruti Shiv Kumar and Varun Agarwal, Advs. for the Respondent

Facts of the Case

In the instant case, it was alleged that many Indian Companies were 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 alleged companies including the petitioner-company. A letter of request was sent to the Indian ED by the Prosecutor General.

Accordingly, the ED passed freezing orders under section 17(1A), freezing various bank accounts of the Petitioner and other companies in India, and also commenced proceedings under the Act against all the 66 alleged companies.

HC issued the Show Cause Notices (SCNs) to the petitioner to show cause as to why their properties seized/frozen should not be retained as involved in Money Laundering under the Act.

The HC directed the Petitioner to file replies to the SCNs based on the ‘Relied upon Documents’ (RUDs) that were supplied to them along with the SCNs. (Panchnamas).

Petitioner filed their reply based upon the RUDs as served with the SCNs. After hearing the parties, the Adjudicating Authority passed an order, confirming the freezing orders passed by the ED.

Petitioner filed a writ petition to set aside the impugned order passed by the adjudicating authority. The petitioner contended that the petitioner filed the replies merely based on the Panchnamas and the allegations specified in the show cause notice.

None of the other relevant material, which was the basis of the seizure under section 17(1A) and the complaint under section 17(4) were supplied to the Petitioners, as the same were not even supplied by the ED to the HC.

The ED, initially, did not transmit all the ‘material in its possession’ to the Adjudicating Authority, prior to the issuance of the show cause notice. This would clearly be contrary to rule 8 of the 2005 Rules. The only documents that were transmitted along with ‘reasons to believe’ and the application under section 17(4), by the ED to the Adjudicating Authority, were the Panchnamas. The said Panchnamas were supplied to the Petitioners as the RUDs along with the show cause notice(s).

Sharing of documents with the Adjudicating Authority post the issuance of the show-cause notice, outside the hearing and that too without the knowledge of the parties concerned, is not permissible.

High Court Held

The HC held that no documents already in possession of the ED, can be shared by the ED with the Adjudicating Authority. HC further observed that as the due procedure provided in the Prevention of money laundering rules, 2005 Rules was not complied with regarding the transmission of documents to Adjudicating Authority. Therefore HC ordered the impugned order was to be set aside.

List of Cases Referred to

• • To Issue Certain Guidelines Regarding Inadequacies and Deficiencies In Criminal Trials, In re [Suo Moto Writ (Crl.) No. (s) 1 of 2017, dated 30-3-2017] (para 13)
  • Opto Circuit India Ltd. v. Axis Bank [2021] 127 taxmann.com 290/165 SCL 703 (SC) (para 13)
  • J. Sekar v. Union of India 2018 SCC Online Del. 6523 (para 16)
  • Union of India v. J. Sekar [Petition To Special leave to Appeal (C) No. 12865 of 2018, dated 4-7-2018] (para 16)
  • Biswanath Bhattacharya v. Union of India [2014] 41 taxmann.com 420/124 SCL 256 (SC) (para 16)
  • Bhavesh Jayanti Lakhani v. State of Maharashtra [2019] 9 SCC 551 (para 48)
  • P. Chidambaram v. Directorate of Enforcement [2019] 109 taxmann.com 57/156 SCL 104 (SC) (para 58)
  • Directorate of Enforcement v. Abdullah Ali Balsharaf 2019 (3) RCR (Criminal) 566 (Delhi) (para 59)
  • Radha Krishan Industries v. State of Himachal Pradesh [2021] 127 taxmann.com 26/86 GST 665 (SC) (para 107).

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