The Additional Director vs M/S Musaddilal Gems And Jewels ...
2023 Latest Caselaw 1515 Tel

         THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
                                       AND
              THE HON'BLE SRI JUSTICE N. TUKARAMJI


                   WRIT APPEAL No.145 of 2023

JUDGMENT : (Per the Hon'ble the Chief Justice Ujjal Bhuyan)


       Heard Mr. A.R.L.Sundaresan, learned Additional

Solicitor General of India for the appellants; and Mr. Dama

Seshadri Naidu and Mr. B.Chandrasen Reddy, learned

Senior Counsel for respondents No.1 to 4.

2. This intra-court appeal under Clause 15 of the

Letters Patent has been preferred by the appellants against

the final order dated 11.01.2023 passed by the learned

Single Judge allowing W.P.No.39378 of 2022 filed by

respondents No.1 to 4 as the writ petitioners.

3. Respondents No.1 to 4 had filed the related writ

petition taking exception to the search and seizure

conducted in their premises on 17.10.2022 by the

appellants and the consequential panchanama as being

contrary to Section 17 of the Prevention of Money

Laundering Act, 2002 (for short, "the PMLA" hereinafter).

4. Case projected by respondents No.1 to 4 in the writ

petition was that respondents No.2 to 4 are Directors of

respondent No.1 which is a private limited company

incorporated under the Companies Act, 1956. Respondent

No.1 is engaged in the business of buying and selling of

jewellery.

4.1. Respondent No.1 in the course of its business had

availed credit facilities from Syndicate Bank vide sanction

letter dated 26.09.2014 to the tune of Rs.25.00 crores.

Subsequently, in the year 2021, respondent No.1 obtained

credit facilities from Kotak Mahindra Bank vide sanction

letter dated 18.10.2021 to the tune of Rs.8.00 crores which

was enhanced to Rs.12.50 crores in the year 2022.

Respondent No.1 has obtained term loans, housing loans,

car loans etc., from the said bank for which an amount of

Rs.11.00 lakhs has to be paid each month towards interest

only.

4.2. Appellant No.1 informed respondents No.2 and 3 that

he has issued search warrant No.42 of 2022 under Section

17(1) of PMLA authorising appellant No.2 to conduct

search in the premises of respondent No.1 situated at

Erramanzil, Somajiguda, Hyderabad. Respondents No.1 to

4 have alleged that the search warrant was not served

upon them.

4.3. Be that as it may, on the strength of the said search

warrant, appellant No.2 along with other officials

conducted search proceedings in the premises of

respondent No.1 and seized gold and jewellery worth

Rs.53,98,56,497.00 and cash to the tune of

Rs.1,75,00,000.00 besides other documents. Thereafter,

appellant No.2 issued panchanama dated 18.10.2022 as

per which at around 10:30 am on 17.10.2022 officials of

the Directorate of Enforcement, Hyderabad, had invited the

panchas to witness certain official proceedings to be

conducted at premises No.6-3-563, Banjara Hills Main

Road, Erramanzil Colony, Hyderabad. Appellant No.2

along with the panchas had reached the premises and

introduced themselves to respondents No.2 and 3.

Appellant No.2 had also shown some document purporting

to be the search warrant bearing No.42 of 2022 dated

17.10.2022 issued by appellant No.1 under Section 17(1) of

PMLA authorising appellant No.2 to conduct search in the

above premises. In the course of the search proceedings,

appellant No.2 seized the documents found in the premises

as per Annexure-A to the panchanama.

4.4. Appellant No.2 invited Mr. Satyanarayan Sharma, a

government panel valuer, to carryout valuation of the stock

of jewellery found in the premises. As per valuation report

dated 17.10.2022, the government panel valuer valued the

jewellery at Rs.53,98,56,497.00 which was seized by

appellant No.2. Appellant No.2 has also seized two mobile

phones belonging to respondents No.2 and 3 as per

Annexure-B to the panchanama. Further appellant No.2

found one almirah in the premises wherein cash to the

tune of Rs.48,13,000.00 was found in addition to cash

amounting to Rs.1,35,00,000.00. Total cash amount of

Rs.1,83,13,000.00 was found in the premises of

respondent No.1 out of which Rs.1,75,00,000.00 was

seized by appellant No.2 as per Annexure C to the

panchanama. The balance amount of Rs.8,13,000.00 was

returned to respondents No.1 to 4.

4.5. Assailing such action of the appellants, the related

writ petition came to be filed for declaring the search and

seizure dated 17.10.2022 and panchanama dated

18.10.2022 to be illegal and arbitrary and sought for a

direction to release the seized jewellery and cash.

5. On behalf of respondents No.1 to 4 it was contended

that the said search and seizure was made without any

notice or hearing to respondents No.1 to 4. All along

respondents No.1 to 4 had been cooperating with the

investigation. In fact, one Mr. Anurag Gupta, father of

respondents No.2 and 3 and husband of respondent No.4

had received summons from appellant No.2 pursuant to

which he had appeared before the Enforcement Directorate

authorities on 29.09.2022 and on 30.09.2022 when his

statement was recorded. Be it stated that Mr. Anurag

Gupta is the Director of M/s. Shroff Apparels Private

Limited. He was earlier a Director of M/s. MBS Jewellers

Private Limited from the year 2008 onwards till his

retirement in the year 2013. There was a case against the

said company represented by Mr. Sukesh Gupta in which

Mr. Anurag Gupta was called for investigation. It was

asserted that respondents No.1 to 4 have nothing to do

with M/s. MBS Jewellers Private Limited Company or with

Mr. Sukesh Gupta or with Mr. Anurag Gupta.

5.1. Insofar the seized cash amount is concerned,

respondents No.1 to 4 explained that an amount of

Rs.1,35,00,000.00 was on account of sale proceeds of gold

and jewellery, whereas an amount of Rs.48,13,000.00

belonged to the family members of respondents No.2 to 4

details of which were mentioned in paragraph 9 of the writ

affidavit. Respondents No.1 to 4 had denied that they were

involved in any offence, not to speak of the offence of

money laundering. Impugned search and seizure was

grossly arbitrary and even violative of the provisions of

PMLA including Section 17. The jewellery seized are a part

of the stock in trade of respondent No.1 and also the

secured assets of financial institutions on the basis of

which respondent No.1 had availed credit facilities. On the

other hand, documents seized would be worth more than

Rs.100.00 crores.

6. The writ petition was contested by the appellants who

were arrayed as respondents No.2 and 3 by filing a

common counter affidavit along with Assistant Director of

Enforcement Directorate who was arrayed as respondent

No.4.

6.1. Appellants contended that the writ petition was not

maintainable as respondents No.1 to 4 had an alternative

remedy under Section 8(1) of PMLA.

6.2. Thereafter, background details of the case were

mentioned. It was stated that FIR dated 03.01.2013 was

lodged by Central Bureau of Investigation (CBI),

Hyderabad, whereafter charge sheet No.25/2014 dated

27.11.2014 was filed by CBI before the CBI Court against

Mr. Sukesh Gupta and officials of Minerals and Metals

Trading Corporation Limited (MMTC) under Section 120-B

read with Sections 409, 420, 465, 471 and 477-A of Indian

Penal Code, 1860 (IPC) read with Section 13(2) and Section

13(1) of the Prevention of Corruption Act, 1988 (for short,

"the PC Act" hereinafter). The allegation pertain to

purchase of gold bullion under the Buyer's Credit Scheme

which resulted in wrongful loss of Rs.226.82 crores

(principal amount) to MMTC. Since the offences committed

under Section 120-B read with Section 420 IPC and

Section 13 of the PC Act are scheduled offences under the

PMLA, appellants initiated investigation under the PMLA by

registering Enforcement Case Information Report (ECIR) on

25.02.2014. Details of how and in what manner the MBS

Group, including Mr. Sukesh Gupta had entered into

criminal conspiracy and caused wrongful loss to MMTC

have been narrated. Though Mr. Sukesh Gupta had filed

criminal petition, being Crl.P.No.5196 of 2019, before this

Court to quash ECIR dated 25.02.2014, the same was

however dismissed by this Court.

6.3. Provisional attachment order dated 26.08.2021 was

issued under Section 5(1) of PMLA whereafter Enforcement

Directorate provisionally attached movable and immovable

properties of the MBS Group of companies, Mr. Sukesh

Gupta, Mr. Anurag Gupta and other entities associated

and related with them. Adjudicating authority vide order

dated 18.08.2022 had confirmed the provisional

attachment order.

6.4. Appellants contended that the search action under

Section 17(1) of PMLA was conducted after recording

reasons to believe in writing. Mr. Anurag Gupta is a

Director of M/s. Shroff Apparels Private Limited which is

nothing but a shell company. He was also Director in

M/s. MBS Jewellers Private Limited and M/s. MBS Impex

Private Limited which had defrauded MMTC. It was after

registration of FIR by CBI against the above companies

that Mr. Anurag Gupta resigned from the directorship of

the above companies in June, 2013.

6.5. Insofar respondent No.1 is concerned, it was

incorporated on 13.04.2013 in which son of Mr. Anurag

Gupta and wife of Mr. Anurag Gupta are shareholders and

Directors, being Mr. Shashank Gupta and Mrs. Vandana

Gupta. Investigation has revealed that respondent No.1 is

a benami entity of Mr. Anurag Gupta. Thereafter several

averments have been made about the financial solvency of

the directors at the time of incorporation of respondent

No.1. It was also stated that from the balance sheet of

respondent No1 for the period ending 13.10.2022 it was

found that family members of Mr. Anurag Gupta had given

total unsecured loans of Rs.26.02 crores to respondent

No.1. It was alleged that amounts seized from the premises

of respondent No.1 are nothing but proceeds of crime of

Mr. Anurag Gupta invested in respondent No.1. That apart,

respondents No.1 to 4 failed to furnish the source of the

cash amount seized from the premises of respondent No.1.

6.6. Denying the allegation of respondents No.1 to 4,

appellants stated that reasons to believe as mandated

under Section 17(1) of PMLA were properly recorded

whereafter those were forwarded to the adjudicating

authority on 21.10.2022. In the circumstances appellants

sought for dismissal of the writ petition.

7. Respondents No.1 to 4 thereafter filed a reply affidavit

denying the contentions of the appellants. It is stated that

in the charge sheet filed by CBI Mr. Anurag Gupta has not

been named as an accused. That apart it was reiterated

that appellants failed to provide details of the reasons to

believe which has vitiated the impugned search and

seizure. Respondents No.1 to 4 asserted that appellants

did not follow the procedure contemplated under Section

17 of PMLA which had rendered the search and seizure

wholly illegal and untenable.

8. On behalf of respondents No.1 to 4 the impugned

action of the appellants was assailed mainly on two

grounds - i) reasons which are to be recorded in writing

and before issuing search warrant were not recorded; and

ii) reasons which were required to be communicated

immediately after the search and seizure were not so

communicated.

8.1. Thus, appellants without following the procedure

contemplated under Section 17 of PMLA had conducted the

search and seizure and even after completion of search had

not followed the procedure as contemplated under PMLA.

9. On the other hand, on behalf of the appellants

objection was raised as to maintainability of the writ

petition. It was contended that against the search action

conducted on 17.10.2022 and the subsequent seizures

made, respondents No.1 to 4 had adequate and efficacious

alternative remedy under Section 8(1) of PMLA before the

adjudicating authority. Therefore, without availing the

alternative remedy, respondents No.1 to 4 had rushed to

the Court and filed the writ petition.

9.1. It was further contended that CBI had lodged FIR

dated 03.01.2013 and thereafter filed charge sheet

No.25/2014 dated 27.11.2014 against Mr. Sukesh Gupta

and officials of MMTC for defrauding MMTC while

purchasing gold bullion under the Buyer's Credit Scheme.

During the course of investigation it was revealed that

MMTC imports bullion from foreign suppliers on

consignment basis and sells to local customers through its

bullion centres located at regional/sub-regional offices

including at Hyderabad. A provisional attachment order

bearing No.07/2021 dated 26.08.2021 was passed under

Section 5(1) of PMLA whereafter Enforcement Directorate

had provisionally attached movable and immovable

properties belonging to the MBS Group of Companies.

9.2. It was further contended that father of respondent

No.2 Mr. Anurag Gupta is a Director of M/s. Shroff

Apparels Private Limited which is a shell company. He was

also a Director in M/s.MBS Jewellers Private Limited. The

said company and M/s. MBS Impex Private Limited had

defrauded MMTC. Mr. Anurag Gupta was a Director in

M/s. MBS Jewellers Private Limited as well when the

defrauding of MMTC had taken place.

9.3. It was vehemently argued that search action had

taken place on 17.10.2022 under Sections 17 and 18 of

PMLA on the basis of reasons to believe duly recorded in

writing. Respondent No.2 had himself acknowledged the

reasons by signing on the authorisation/warrant along

with the independent panchas/witnesses.

9.4. It was further contended that statements were

recorded in a professional manner. Respondents No.1 to 4

were given opportunity by the summoning authority to

adduce evidence by following principles of natural justice.

Instead of cooperating with the authority, respondents

No.1 to 4 filed the related writ petition.

10. Learned Single Judge directed the appellants to

produce the relevant record and on perusal of the same,

learned Single Judge held as follows:

16. In view of the above submissions made by the learned Senior Counsel appearing for the petitioners, this Court directed the respondents to produce all the relevant records. Accordingly, the respondents have shown the original record to the Court and submitted photo copies of the said record in two (2) sealed covers

to the Court. The index of photo copies of the record in two (2) sealed covers are as follows:

Panchanama drawn at M/s MBS Jewellers Private Limited, 1 Secunderabad

Panchanama drawn at M/s Musaddilal Gems and Jewels India Pvt. Ltd., 6-3-563, Banjara Hills Main Road, Erramanjil Colony,

Venkataraman Colony, Khairatabad, Hyderabad

Panchanama drawn at Residence of Shri Anurag Gupta, Ex-

Director of M/s MBS Jewellers Pvt. Ltd., 3-5-784/B & C, 1st

Floor, Musaddilal House, King Koti, Basheerbagh, Hyderabad

Panchanama drawn at MBS Jewellers Pvt. Ltd., D.No.3-5-886/1 to 4A, 5th Floor, Ward No.3, Old MLA Quarters Road,

Himayathnagar, Hyderabad - 500 029

Panchanama drawn at M/s MBS Jewellers Pvt Ltd., Show Room, 40- 1-40, Dutta Plaza, MG Road, Labbipet, Vijayawada, Andhra

Pradesh - 520 010

Copy of "Reasons to Believe" forwarded to Adjudicating Authority 6 (PMLA)

Authorization/Warrant for Search and Seizure in Form No.I

Forwarding letter and Index signed for forwarding reasons to 8 believe

Acknowledgment slip in Form No.IV (reasons to believe)

Dak Dispatch Register

Acknowledgment Slip Register

Retention of property order dated 07.11.2022

Acknowledgment Slip in Form No. I (Retention Order)

15 Acknowledgment Slip in Form No.II (Retention order)

17. The records submitted by the respondents in sealed covers reveals that on 17.10.2022 one Mr.Dinesh Paruchuri, Additional Director, Enforcement Directorate, had reasons to believe that viz., M/s. Musaddilal Gems and Jewels (India) Private Limited has committed an act which constitutes money laundering, and authorized Mr.Rahul Singhania, Deputy Director, Directorate of

Enforcement, Hyderabad Zonal Office, Hyderabad to conduct the search and seizure of the premises of the petitioner No.1-company under Section 17 of the PML Act, 2002.

18. The true extract of Search Warrant issued by the Additional Director, Directorate of Enforcement, Hyderabad on 17.10.2022 as follows:

AUTHORIZATION (SEARCH WARRANT) [See Sub Rule (1) of Rule 3]

Authorisation No.42 of 2022 Date:17.10.2022

Whereas I, Dinesh Paruchuri, Additional Director, Directorate of Enforcement, Hyderabad Zonal office, Hyderabad, have reason to believe that:

M/s Musaddilal Gems and Jewels (India) Private Limited

i) Has committed an act which constitutes money laundering, 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, or

iv) Is in possession of any property related to crime

certain documents including proceeds of crime and/sor records relating to money-laundering, which in my opinion, will be useful for or relevant to the investigation and proceedings under the Prevention of Money Laundering Act, 2022 (15 of 2003) are secreted in the premises specified in Scheduled below.

I, hereby authorize, Rahul Singhania, Deputy Director, Directorate of Enforcement, Hyderabad, Zonal Office, Hyderabad to conduct the search and seizure of the premises specified in Schedule below, under sub-section (I) of Section 17 of the Prevention of Money Laundering Act, 2022 (15 of 2003) add Rule-3 of the Prevention of Money Laundering (Forms, Search and Seizure and Manner of Forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody of Records and Period of Retention) Rule, 2005.

Given under my hand and seal this 17th Day of October, Two Thousand and Twenty.

SCHEDULE OF PREMISES Xxxx xx xx

Sd/-

Dinesh Paruchuri, Addl. Director

10.1. After going through the record, learned Single Judge

held that the Additional Director had not recorded the

reasons to believe but one Mr. Rahul Singhania who was

authorised to conduct the search and seizure had recorded

the reasons to believe but without any date and time. It

was held as follows:

19. This Court has gone through the entire record produced by the respondents. Mr. Dinesh Paruchuri, Additional Director, has not recorded the 'reasons to believe', but Mr.Rahul Singhania, who was authorized to conduct search and seizure recorded "reasons to believe" without any date and time.

10.2. Learned Single Judge adverted to Section 17 of

PMLA and held that Additional Director of Enforcement

Directorate had issued the search warrant/authorisation to

his subordinates without recording the reasons to believe.

It was the Deputy Director of Enforcement Directorate who

had recorded the reasons to believe without any date and

time. Thus, the search was conducted without following

the requirements under Section 17(1) of PMLA. Findings of

the learned Single Judge are as follows:

21. After hearing both the sides and after perusing the records submitted by the respondents in two (2) sealed covers this Court is of considered view that the Additional Director of the Enforcement Directorate without recording the 'reasons to believe" issued search warrant/authorisation to his subordinates and the Deputy Director of the Enforcement recorded the reasons to believe without any date and time, which clearly shows that without following the requirements under Section 17 (1) of PML Act conducted search and seizure and seized jewellery, cash and other articles belonging to the petitioners.

10.3. After considering various decisions cited at the bar,

learned Single Judge allowed the writ petition by

interfering with the search and seizure further directing the

appellants to release all the jewellery, cash and other

articles seized in pursuance of the search

warrant/authorisation dated 17.10.2022. However, liberty

was given to the appellants to take such steps as may be

contemplated in law but by following the due procedure.

Learned Single Judge held as follows:

27. In view of the same, the action of the respondents in conducting search and seizure at the premises of the petitioner No.1-company and the residences of petitioners 2 to 4 and seizing of all the cash, jewellery and other articles in pursuance to the search warrant/authorization dated 17.10.2022 is contrary to Section 17 of Prevention of Money Laundering Act, 2002 and accordingly the same is hereby set aside. The respondents are directed to release all the jewellery, cash and other articles seized in pursuance to the search warrant/authorization dated 17.10.2022. It is left open to the respondents to take any action, subject to compliance of the required procedure afresh, as contemplated under law.

11. It is against the aforesaid order of the learned Single

Judge dated 11.01.2023 that the present writ appeal came

to be filed.

12. In the proceedings held on 28.02.2023, this Court

after adverting to paragraphs 16, 17, 19 and 21 of the

judgment of the learned Single Judge, noticed from a

perusal of the record in original which was produced that

there is a handwritten note signed by the Additional

Director on 16.10.2022 recording his satisfaction for

undertaking search and seizure action under Section 17 of

PMLA. After referring to the discrepancy pointed out by

the learned Single Judge, this Court directed both the

appellants to file separate affidavits to explain the

discrepancy and also to clarify whether as to how there can

be two reasons to believe, one dated 16.10.2022 and the

other dated 17.10.2022. While directing the two appellants

to file separate affidavits within seven days, this Court

ordered status quo as on 28.02.2023 to be maintained.

Relevant portion of the proceedings dated 28.02.2023 is as

under:

In the admission hearing today, Mr. Anil Prasad Tiwari, learned Standing Counsel for Enforcement Directorate has produced before us the record in original which discloses a hand-written note signed by the Additional Director on 16.10.2022 recording his satisfaction for undertaking search and seizure action under Section 17 of PMLA. Learned Single Judge noted in paragraph 17 that Additional Director had recorded reasons to believe on 17.10.2022 whereas the record discloses recording of reasons by the Additional Director on 16.10.2022. This discrepancy needs to be explained, more so in the light of the conclusions reached by the

learned Single Judge in paragraph 19 as extracted above.

We therefore direct both the appellants to file separate affidavits to explain the discrepancy and also to clarify as to how there can be two 'reasons to believe' of the Additional Director, one dated 16.10.2022 and the other dated 17.10.2022.

Let the two affidavits be filed within seven days from today.

In the meanwhile, status quo as on today till the next date shall be maintained.

13. Pursuant to the aforesaid order dated 28.02.2023,

the two appellants have filed separate affidavits.

14. In the affidavit filed by Mr. Dinesh Paruchuri,

Additional Director of Directorate of Enforcement, dated

04.03.2023 it is stated that on the basis of materials

collected during investigation in ECIR/05/HYDO/2014 he

had reasons to believe that respondent No.1 was in

possession of proceeds of crime and therefore, in

accordance with Section 17(1) of PMLA, he had recorded

his reasons to believe on the note sheet of the office file on

16.10.2022. After forming his reasons to believe and

recording the same in writing on 16.10.2022, he had

authorised the Deputy Director to conduct the search and

seizure proceedings at the premises of respondent No.1 by

issuing search warrant dated 17.10.2022. On the basis of

the search warrant dated 17.10.2022 issued by him,

search and seizure actions were carried out on 17.10.2022

and 18.10.2022 at the premises of respondent No.1. Thus,

the reasons to believe were recorded on 16.10.2022 and the

search warrant based on the said reasons to believe was

issued on 17.10.2022. Therefore, there were no two

reasons to believe. He has also referred to the proceedings

before the learned Single Judge in W.P.No.39378 of 2022.

As per directions of the learned Single Judge, copy of

authorisation/warrant for search and seizure dated

17.10.2022 which was issued by him was submitted before

the learned Single Judge in a sealed cover. On examining

the said authorisation/warrant for search and seizure

dated 17.10.2022 learned Single Judge had noted in

paragraph 17 of his order dated 11.01.2023 that on

17.10.2022 the Additional Director had reasons to believe

that respondent No.1 committed the offence of money

laundering and therefore authorised the Deputy Director to

conduct the search and seizure by issuing search warrant

dated 17.10.2022. Thus, observations made by the

learned Single Judge in paragraphs 17 and 19 of the order

dated 11.01.2023 are referable to the date of issuance of

the search warrant and not the date of recording of reasons

to believe. It was contended that no two reasons to believe

were recorded. A copy of the authorisation (search

warrant) dated 17.10.2022 has been annexed to the said

affidavit.

15. Appellant No.2 has also filed an affidavit through

Mr. Rahul Singhania serving as Deputy Director in the

Enforcement Directorate. In his affidavit also he has

reiterated what has been stated by appellant No.1.

According to him, Additional Director had formed his

reasons to believe under Section 17(1) of PMLA on

16.10.2022 that respondent No.1 was in possession of

proceeds of crime. Additional Director thereafter

authorised the Deputy Director to conduct search and

seizure proceedings in the premises of respondent No.1 by

issuing search warrant dated 17.10.2022. It was on the

basis of the search warrant dated 17.10.2022 that search

and seizure action was carried out in the premises of

respondent No.1 on 17.10.2022 and on 18.10.2022. Thus,

reasons to believe were recorded on 16.10.2022 whereafter

search warrant based on the said reasons to believe was

issued on 17.10.2022. On the above basis, he submits

that no two reasons to believe were recorded. He has also

annexed a copy of the authorisation (search warrant) dated

17.10.2022 with his affidavit.

16. Respondents No.1 to 4 have filed counter affidavit to

the affidavits filed by the appellants. It is reiterated that

learned Single Judge had gone through the record which

was produced before him and thereafter had recorded a

finding that the Additional Director had not recorded any

reasons to believe; but it was the Deputy Director who was

authorised to conduct search and seizure who had

recorded the reasons to believe without any date and time.

Thus, apart from the search warrant dated 17.10.2022

another document was produced before the learned Single

Judge where reasons to believe were recorded by Mr. Rahul

Singhania, the Deputy Director, without any date and time.

Respondents No.1 to 4 have raised doubts about the

genuineness of the handwritten note dated 16.10.2022

signed by Mr. Dinesh Paruchuri, Additional Director which

was produced before the Court on 28.02.2023 which is an

afterthought and a fabricated piece of document.

17. Mr. A.R.L.Sundaresan, learned Additional Solicitor

General of India representing the appellants submits that

learned Single Judge was not at all justified in reaching the

conclusion that Additional Director of Enforcement

Directorate without recording the reasons to believe had

issued the search warrant and thereafter in quashing the

search and seizure action as well as the authorisation.

17.1. He submits that it is evident from the record that

Additional Director had recorded the reasons to believe for

conducting search and seizure under Section 17(1) of

PMLA on 16.10.2022 whereafter the search

warrant/authorisation was issued authorising the Deputy

Director to conduct the search and seizure on 17.10.2022.

Therefore, learned Single Judge had fallen in error in

holding that Additional Director had not recorded the

reasons to believe but instead the officer authorised to

conduct search and seizure had recorded the reasons to

believe, that too without any date and time. He submits

that the aforesaid finding of the learned Single Judge is

contrary to the materials on record and has vitiated the

order passed by the learned Single Judge.

17.2. Further submission of learned Additional Solicitor

General of India is that pursuant to the order of this Court

dated 28.02.2023, two separate affidavits have been filed

by the Additional Director and by the Deputy Director. In

their respective affidavits they have clearly mentioned that

the reasons to believe were recorded by the Additional

Director on 16.10.2022 whereafter warrant of

authorisation was issued on 17.10.2022. It was on the

basis of such search warrant that the search proceedings

were conducted on 17.10.2022 and 18.10.2022 in the

premises of respondent No.1. The entire operation was

carried out strictly in conformity with Section 17 of PMLA.

Therefore, on this ground itself order of the learned Single

Judge is liable to be set aside.

17.3. Further submission of Mr. A.R.L.Sundaresan, learned

Additional Solicitor General of India is that immediately

after the search and seizure operation, appellants had

made an application under sub-section (4) of Section 17 of

PMLA before the adjudicating authority who will now carry

out the adjudication in terms of Section 8 of PMLA and

thereafter pass necessary order in accordance with law. In

the proceedings under Section 8 of PMLA, respondents

No.1 to 4 would have ample opportunity to put forward

their case that the properties seized are not involved in

money laundering. Therefore, respondents No.1 to 4 have

adequate and efficacious remedy under the statute. In any

view of the matter, he submits that learned Single Judge

had erred in entertaining the writ petition and therefore the

order of the learned Single Judge dated 11.01.2023 should

be set aside.

18. Per contra, Mr. Dama Seshadri Naidu, learned Senior

Counsel for respondents No.1 to 4 submits that learned

Single Judge had meticulously perused the record and

thereafter had come to the conclusion that appellants had

conducted the search and seizure operation under Section

17 of PMLA without recording the reasons to believe which

is the sine qua non for invoking jurisdiction under sub-

section (1) of Section 17 of PMLA. He submits that

respondents No.1 to 4 would be justified in taking the view

that presentation of reasons to believe dated 16.10.2022

has been done subsequently to cover up the lacuna pointed

out by the learned Single Judge. It is therefore clearly an

afterthought.

18.1. He submits that when law requires a thing to be done

in a particular manner, it has to be done in that manner.

When Section 17 of PMLA lays down the manner in which

the power of search and seizure has to be exercised, it is

not open to the appellants to short circumvent the

procedure prescribed thereunder and in the process cause

enormous harassment to respondents No.1 to 4, besides

violating their valuable rights. He therefore submits that

the appeal filed by the appellants should be dismissed.

18.2. Learned Senior Counsel further submits that merely

because respondents No.1 to 4 would be in a position to

contest adjudication proceedings under Section 8 of PMLA,

it cannot be a ground to overlook lack of jurisdiction on the

part of the appellants in taking action against respondents

No.1 to 4 under Section 17 of PMLA.

19. Supporting the submissions advanced by Mr. Dama

Seshadri Naidu, learned Senior Counsel,

Mr. B.Chandrasen Reddy, learned Senior Counsel also

representing respondents No.1 to 4 submits that there is

no criminal case or scheduled offence against respondents

No.1 to 4. In the absence of any predicate offence, no

action can be taken against respondents No.1 to 4 under

PMLA. The predicate offence which is being highlighted by

the appellants is of the year 2014 wherein respondents

No.1 to 4 are not the accused. Nine years thereafter

respondents No.1 to 4 cannot be harassed in this manner

by the appellants.

20. At the end of the hearing, Mr. Anil Prasad Tiwari,

learned Standing Counsel for Enforcement Directorate has

submitted a sealed envelope containing the record which

we have opened and perused.

21. Submissions made by learned counsel for the parties

have received the due consideration of the Court.

22. Since Section 17 of PMLA is central to the discourse,

the same is extracted in its entirety as under:

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-laundering, 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, or

(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 58-B or sub-section (2-A) 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 (1-A) 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 (1-A), before the Adjudicating Authority.

23. From the above it is seen that where the Director or

any other officer not below the rank of Deputy Director

authorised by him for the purposes of Section 17 of PMLA,

on the basis of information in his possession, has reason to

believe which has to be recorded in writing that any person

- i) has committed any act which constitutes money

laundering, 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, or 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 PMLA.

24. Pausing here for a moment, we find that sub-section

(1) of Section 17 of PMLA deals with two stages: one is at

the stage of pre-authorisation and the next is the stage of

post-authorisation.

24.1. In the first stage, the Director or any other officer

authorised by him not below the rank of Deputy Director

must have in his possession certain information; on the

basis of such information in his possession, he must form

reason to believe which must be recorded in writing that

any person has committed any act of money laundering

etc. Therefore, the information in his possession must have

a causal relation with the recording of reasons which in

turn must be the basis for forming the belief that any

person has committed an act which constitutes money

laundering. Therefore, possession of information,

derivation of reason from such information and thereafter

formation of belief on the basis of the reasons that any

person has committed an act which constitutes money

laundering etc., are the sine qua non or conditions

precedent for invoking the power under sub-section (1) of

Section 17 of PMLA.

24.2. Insofar the second stage is concerned, once the

Director or the authorised officer has come to the above

conclusion, he may authorise any officer subordinate to

him to enter and search any building etc., where he has

reason to suspect that records or proceeds of crime are

kept; break open the lock of any door etc; seize any record

or property found as a result of such search etc. Insofar

the second stage is concerned, the authorised officer must

have reason to suspect that in any building etc., records

relating to money laundering or proceeds of crime are kept

etc.; he can enter and search such building and seize any

record or property found as a result of such search. As

opposed to recording of reasons to believe by the Director

or by the subordinate officer whereafter he can authorise

any subordinate officer to enter into and search any

building, search any record or property etc., provided he

has reason to suspect that in such building records or

proceeds of crime are kept. Reason to suspect is not

equivalent to reason to believe. While in the case of reason

to believe, there must be objectivity, reason to suspect is

subjective.

25. Be that as it may, under sub-section (2), the

authorised officer under sub-section (1) shall immediately

after search and seizure forward a copy of reasons so

recorded along with material in his possession to the

adjudicating authority in a sealed envelope and such

adjudicating authority shall keep such reasons and

material for such period as may be prescribed.

26. Under sub-section (4), the authority seizing any

record or property under sub-section (1) or freezing any

record or property under sub-section (1-A) 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 (1-A) before the adjudicating authority.

27. From the sealed envelope which we have opened, it is

seen that a detailed note was prepared by the investigating

officer dated 16.10.2022 stating that from the materials

available it is abundantly clear that the initial and

subsequent source of finance of M/s. Musaddilal Gems &

Jewels India Private Limited is the proceeds of crime

acquired by Mr. Anurag Gupta and Mr. Sukesh Gupta.

The company was initiated and is thriving on the proceeds

of crime only. M/s. Musaddilal Gems & Jewels India

Private Limited was incorporated by Mr. Anurag Gupta

with an ulterior motive to show his disassociation from

MBS Group and also from Mr. Sukesh Gupta to conceal

the proceeds of crime. It is recorded that there is suspicion

that the accused persons are in possession of documents

and properties related to the scheduled offence. It is likely

that if summoned, the suspects would not disclose the

documents and may take steps to further conceal the trail

of documents and other evidence. Therefore, it was

necessary to conduct search under Section 17 of PMLA in

the premises mentioned in the note; to identify and seize

available incriminating record/documents relating to the

predicate offence and to the offence of money laundering;

relating to the whereabouts of the proceeds of crime; to

identify and trace the proceeds of crime; to recover

incriminating documents relating to commission of the

offence of money laundering. This was agreed upon by the

Deputy Director on 16.10.2022 whereafter the note was

put up for perusal and approval of the Additional Director.

Additional Director recorded his satisfaction on 16.10.2022

as under:

I have perused the above note and facts and the material placed before me on the file. On the basis of the same, I have reasons to share that the above suspect persons and entities are involved in the offence of money laundering and are in possession of records, documents and proceeds of crime involved in the offence of money laundering. I agree that search and seizure action under Section 17 of PMLA is required to trace the records, documents and proceeds of crime involved in the offence of money laundering. Hence, I hereby authorise the following officers to conduct search and seizure at the above mentioned four (4) premises in terms of Section 17 of PMLA. Search warrants issued accordingly.

1) Benjamen Chettiar, D.D.

2) Sumit Goyal, A.D.

3) Rahul Singhania, D.D.

4) B.S.Saravana Kumar, D.D.

28. The reasons to believe have been given in detail by

the investigating officer which were considered and

approved by the Additional Director. Therefore, he recorded

his satisfaction as extracted supra.

29. On the above basis, search warrant was issued on

17.10.2022 whereafter search action was conducted on

17.10.2022 in the case of M/s. Musaddilal Gems & Jewels

India Private Limited. Copy of reasons to believe, copy of

search warrant and panchanama, copy of FIR

No.01(A)/2013 dated 03.01.2013 registered by CBI, copy of

charge sheet No.25/2014 dated 27.11.2014 filed by CBI

and copy of ECIR/05/HYZO/2014, dated 25.02.2014, were

forwarded to the adjudicating authority by the Deputy

Director vide forwarding letter dated 21.10.2022.

30. Since the case is at the very preliminary stage, we

have consciously not extracted the entire note prepared,

but only extracted the note of the Additional Director, lest

it causes prejudice to respondents No.1 to 4 in subsequent

proceedings. Further the substance of the note is already

on record in the counter affidavit filed by the appellants

before the learned Single Judge.

31. That being the position, we are of the view that

learned Single Judge had erred in holding that no reasons

to believe were recorded by the Additional Director which

vitiated the search action carried out in the premises of

respondents No.1 to 4 on 17.10.2022 and in setting aside

the search action including the search warrant/

authorisation dated 17.10.2022, further directing the

appellants to release the seized jewellery, cash etc., to

respondents No.1 to 4.

32. Consequently, we set aside the order of the learned

Single Judge dated 11.01.2023.

33. Writ appeal is accordingly allowed.

Miscellaneous applications pending, if any, shall

stand closed. However, there shall be no order as to costs.

______________________________________ UJJAL BHUYAN, CJ

______________________________________ N. TUKARAMJI, J 04.04.2023 vs