In a significient order, the Calcutta High Court held that the Enforcement Directorate's power to "search and seizure" under Section 17(1) must also satisfy the defining characteristic of “money-laundering” and “proceeds of crime” as well as their respective procedural requirements as separately stipulated in the PMLA.
The single-judge bench of Justice Moushumi Bhattacharya further observed that the power to enter and search any place or to seize any record or property must be predicated by the satisfaction of all the requirements under Section 17(1) which should find a particularized statement in the written “reason to believe” component by the authorised officer under Section 17(1) of PMLA.
"It is only on the fulfillment of the conditions stipulated under Section 17(1) together with the satisfaction of the conditions of Sections 2(1)(u) and 3 that the power to search and seize is crystallized", the Court said.
The Court was adjudicatng upon a writ petition seeking a stay on two orders of ED made under Section 17(1-A) of the Act, freezing petitioner's two bank accounts.
Deliberating upon relevant provisions, the Court also mentioned Vijay Madanlal Choudhary vs. Union of India which established that commission of an offence would only qualify as money-laundering if the offence generates proceeds of crime and tainted property.
The Court stated
"Section 17(1-A) is an alternative to Section 17(1) for facilitating the measures which are required to be taken in the event search and seizure is not practicable. Section 17(1-A) starts with the opening of an alternative avenue to an authorised officer under Section 17(1) to make an order of 8 freezing a property where it is not practicable to seize the property. The word (used four times) in Section 17(1-A), is the word “such”. The word “such” precedes “record/property” and “order” whereever used in Section 17(1-A). The qualification of property and records by use of “such” fixes the sequence of steps which may be initiated by the authorised officer under Section 17(1) followed by Section 17(1-A).
This means that the officer must
a) Satisfy the pre-requisites of Section 17(1) stated in paragraph 13 above
b) Upon satisfaction of the conditions, enter the place and search and seize the property and
c) Come to a conclusion that seizing the property under Section 17(1) is not practicable
d) Record the reasons why it is not practicable to search and seize under Section 17(1)
e) Satisfy the reason/basis of the apprehension that the property may be transferred or otherwise dealt with unless such freezing order is passed."
Each of the above five conditions is required to be satisfied before graduating from 17(1) to the next stage of action under 17(1-A), the Court ruled.
It also opined that before reaching the power conferred under Section 17(1-A), the authorised officer must also come to an informed finding that the exact location of proceeds of crime or the documents relating to money-laundering cannot be ascertained and hence the requirement to enter and search the premises on a reason to believe (based on material in his possession) that the proceeds of crime/documents may be located in the place of search. Second, the finding must also include the apprehension of resistance on the part of the person whose place is proposed to be entered into and searched. This would be evident from Section 17(1)(b) which includes forcible entry into the premises and breaking open of the receptacle for exercising the power conferred by Section 17(1-A).
The Court named varius High Courts which took these factors into consideration.
In the present, the Court was thus of the view that the impugned orders of freezing do not discharge the onus of stating with reasons as to the necessity of passing such orders or the basis for freezing accounts under Section 17(1-A) of The PMLA.
The singular absence of statements of reasons or the basis of an apprehension, factual or otherwise, for freezing the properties of the petitioners is apparent from the impugned orders. The requirement of satisfaction of the conditions stated in Section 17(1) before proceeding to Section 17(1-A) do not contemplate parroting the words used in the sections but a precise statement, in writing, reflecting the factors which form the basis of the conclusion arrived at. A person reading the order must be able to find the connecting link between the reason given and the action taken. The view of the Court is bolstered by the specific conditions under Section 17(1) as well as in Section 3 (Offence of money-laundering) which demand that properly graded reasons must be stated in an order justifying initiation of measures under Sections 17(1) and 17(1-A)."The defence that the freezing orders were passed only upon incriminating material being found in the three premises of the first petitioner cannot redeem the situation since the impugned orders do not contain any “reason to believe” which is a mandate for search and seizure under Section 17(1) and for freezing orders under Section 17(1-A), the Court added.
The Court was adjudicatng upon a writ petition seeking a stay on two orders of ED made under Section 17(1-A) of the Act, freezing petitioner's two bank accounts.
Deliberating upon relevant provisions, the Court also mentioned Vijay Madanlal Choudhary vs. Union of India which established that commission of an offence would only qualify as money-laundering if the offence generates proceeds of crime and tainted property.
The Court stated
"Section 17(1-A) is an alternative to Section 17(1) for facilitating the measures which are required to be taken in the event search and seizure is not practicable. Section 17(1-A) starts with the opening of an alternative avenue to an authorised officer under Section 17(1) to make an order of 8 freezing a property where it is not practicable to seize the property. The word (used four times) in Section 17(1-A), is the word “such”. The word “such” precedes “record/property” and “order” whereever used in Section 17(1-A). The qualification of property and records by use of “such” fixes the sequence of steps which may be initiated by the authorised officer under Section 17(1) followed by Section 17(1-A).
This means that the officer must ;
a) Satisfy the pre-requisites of Section 17(1) stated in paragraph 13 above
b) Upon satisfaction of the conditions, enter the place and search and seize the property and
c) Come to a conclusion that seizing the property under Section 17(1) is not practicable
d) Record the reasons why it is not practicable to search and seize under Section 17(1)
e) Satisfy the reason/basis of the apprehension that the property may be transferred or otherwise dealt with unless such freezing order is passed."
Each of the above five conditions is required to be satisfied before graduating from 17(1) to the next stage of action under 17(1-A), the Court ruled.
It also opined that before reaching the power conferred under Section 17(1-A), the authorised officer must also come to an informed finding that the exact location of proceeds of crime or the documents relating to money-laundering cannot be ascertained and hence the requirement to enter and search the premises on a reason to believe (based on material in his possession) that the proceeds of crime/documents may be located in the place of search. Second, the finding must also include the apprehension of resistance on the part of the person whose place is proposed to be entered into and searched. This would be evident from Section 17(1)(b) which includes forcible entry into the premises and breaking open of the receptacle for exercising the power conferred by Section 17(1-A).
The Court named varius High Courts which took these factors into consideration.
In the present, the Court was thus of the view that the impugned orders of freezing do not discharge the onus of stating with reasons as to the necessity of passing such orders or the basis for freezing accounts under Section 17(1-A) of The PMLA.
The defence that the freezing orders were passed only upon incriminating material being found in the three premises of the first petitioner cannot redeem the situation since the impugned orders do not contain any “reason to believe” which is a mandate for search and seizure under Section 17(1) and for freezing orders under Section 17(1-A), the Court added.
It went on to discuss the discouragement of the Supreme Court with regard to passing orders of stay of criminal investigation and referred to Siddharth Mukesh Bhandari Vs. State of Gujarat and Anr., 2022 Latest Caselaw 602 SC.
The Court elaborated in detail, the Supreme Court's view on the same using recent precedents and other directives.
"In the recent judgment of a 3-Judge Bench of Supreme Court in Vijay
Madanlal Choudhary vs. Union of India the expression “proceeds of
crime”, is described as the core of
the offence of money-laundering and has been defined as a portion or
whole of the property derived by any person as a result of criminal
activity relating to a stated scheduled offence. The Supreme Court drew a
distinction between possession of unaccounted property acquired by
legal means which may otherwise be actionable for tax violation but may
not be regarded as proceeds of crime unless the concerned tax
legislation prescribes such violation as an offence in the Schedule to
The PMLA. The Supreme Court also cautioned that the authorities under
The PMLA cannot resort to action against any person for money-laundering
on an assumption that the property recovered by them must be proceeds
of crime unless the same is registered with the jurisdictional police or
pending enquiry in a competent forum. More important, Vijay Madanlal
Choudhary carved out a further area of exception for a person named in
the criminal activity relating to a scheduled offence is finally
absolved by a Court of competent jurisdiction owing to an order of
discharge, acquittal or quashing of the criminal case against the
person. An analogy can be drawn to the present facts where the stay of
proceedings ordered by the Supreme Court on 14th December, 2015 is
continuing till date"
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