Telangana High Court

M/S Musaddilal Gems And Jewels ... vs Union Of India And 2 Others on 11 January, 2023

Bench: K. Sarath

IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
                            *****
               WRIT PETITION NO.39378 of 2022

Between:

     1. M/s. Musaddilal Gems and Jewels (India) Private Limited,
        Hyderabad and three others
                                                  ...Petitioners

AND

     1. Union of India, Ministry of Finance, Represented by its
        Secretary, North Block Central Secretariat, New Delhi
        and two others
                                                   ...Respondents


JUDGMENT PRONOUNCED ON: 11.01.2023

SUBMITTED FOR APPROVAL:


             THE HON'BLE SRI JUSTICE K.SARATH

1.    Whether   Reporters    of   Local :        Yes/No
      newspapers may be allowed to see
      the Judgment ?

2.    Whether the copies of judgment      :      Yes/No
      may be marked to Law
      Reports/Journals

3.    Whether Their Lordship/Ladyship     :      Yes/No
      wish to see the fair copy of
      judgment

                                               ____________________
                                              JUSTICE K.SARATH
                                   2
                                                                 SK,J
                                                 W.P.No.39378 OF 2022

            THE HON'BLE SRI JUSTICE K.SARATH

+WRIT PETITION NO.39378 of 2022

%Dated 11.01.2023

# M/s Musaddilal Gems and Jewels (India) Private Limited,
Hyderabad and three others

                                                     ...Petitioners

AND

   $ Union of India, Ministry of Finance, Represented by its
   Secretary, North Block Central Secretariat, New Delhi and
   two others
                                                 ...Respondents


! Counsel for Petitioners :   Mr. B.Chadnrasen Reddy

^ Counsel for Respondents : Sri T.Suryakaran Reddy
                              Additional Solicitor-General



< GIST :

> HEAD NOTE :

? Cases referred :
   1. (2021) 6 SCC 707
   2. Judgment of Calcutta High Court in WA No.17454 of
      2022 dt.27.03.2019
   3. 1982 SCC-online-232
   4. FPA-PMLA-2328/MUM/2018
   5. (1984) 1 SCC 700
   6. 2022 (SCC) online 929
   7. 2022 SCC ONLINE SC 872
   8. 2014 (4) SCC 392
                              3
                                                          SK,J
                                          W.P.No.39378 OF 2022


       THE HON'BLE SRI JUSTICE K.SARATH

           WRIT PETITION No.39378 of 2022

ORDER:

Heard Sri B.Chandrasen Reddy, Learned Senior

Counsel appearing for the petitioners and Sri

T.Suryakaran Reddy, Learned Additional Solicitor-

General, for the respondents.

2. The learned Senior Counsel for the petitioners

submits that the petitioners are challenging the search

and seizure conducted on 17.10.2022 and

consequential panchanamas contrary to the Section 17

of the Prevention of Money Laundering Act (for brevity

'PMLA').

3. The learned Senior Counsel for the petitioner

submits that the petitioner No.1-Company established

in the year 2013 and commenced its business from

SK,J W.P.No.39378 OF 2022

October, 2016 and the petitioner Nos. 2 to 4 are the

Directors of the petitioner No.1-Company. The

Central Bureau of Investigation (CBI), Hyderabad

registered a case against one Mr.Sukesh Guptha and

the officials of MMTC for defrauding M/s MMTC

Limited in purchase bullion under buyer's credit

scheme in F.I.R.No.RC01/(A)/2013 dared 03.01.2013

and also filed charge sheet No.25/2014 dated

27.11.2014. The petitioner No.1 being independent

company, neither the petitioner No.1-company nor its

directors are related to the alleged offences registered

against Mr.Sukesh Guptha and others. The

respondents assuming that there was connection

between the petitioners and the above offences, have

conducted search in the year 2019 at the premises of

the petitioner No.1 company and even at the residence

of petitioners No.2 to 4 and has not found any relevant

SK,J W.P.No.39378 OF 2022

documents and also has not seized any cash, gold or

jewellery.

4. The learned Senior Counsel for the petitioners

further submits that the petitioner No.1 Company is

an independent company and the father of the

petitioner No.2 i.e. Mr.Anurag Gupta is never the

Director of the petitioner No.1 Company. The

petitioner No.1 company is not the benami entity of

Mr.Anurag Gupta. The Central Bureau of Investigation

after due process and investigation did not make

Mr.Anurag Gupta as accused in the offences in charge

sheet No.25/21014 dated 27.11.2014.

5. The learned Senior Counsel for the petitioners

further submitted that the search warrant dated

17.10.2022 was only shown and signatures were

forcefully taken and the petitioners could not read the

contents of the search warrant. The respondents failed

SK,J W.P.No.39378 OF 2022

to provide the details of the date and time for the

recording of the 'reasons to believe' as per the Section

17 (1) of PMLA, 2002 and also failed to provide the

contents of the reasons and further the respondents

also failed to provide the dispatch details of the postal

acknowledgment through which the reasons were

communicated and failed to meet the mandatory

provisions of Secton-17 of PML Act. The Writ Petition

is maintainable under Article 226 by virtue of the full

bench judgment of Hon'ble Apex Court.

6. The learned Senior Counsel for the petitioners

submits that the petitioners are attacking the

impugned action of the respondents, mainly two

grounds viz., (i) the reasons are to be recorded in

writing before issuing search warrant and (ii) the

reasons are to be communicated immediately after the

search and seizure.

SK,J W.P.No.39378 OF 2022

7. The learned Senior Counsel for the petitioners,

in support of his contention, relied upon the following

judgements:

1. Opto Circuit India Limited Vs. Axis bank and others 1

2. M/s Rashmi Metaliks Ltd & Another Vs. Enforcement Directorate & and others 2

3. The State of Maharashtra Vs. B.B.Kothavade 3

4. Sony Music Entertainment India Pvt. Ltd., Vs. The Asst.

Director, 4

5. CIT, West Bengal-III and others Vs. Oriental Rubber Works and batch (1984) 5

6. Vijay Madan LalChoudary and others Vs. Union of India 6

8. Sri T.Suryakaran Reddy, the Learned Additional

Solicitor General of India, appearing for the

respondents, submits that the writ petition filed by the

petitioners is not maintainable. The writ petition is

1. (2021) 6 SCC 707

2. Judgment of Calcutta High Court in WPA No.17454 of 2022 dt.27.03.2019 3.1982 SCC-Online-232

4. FPA-PMLA-2328/MUM/2018

5. (1984) 1 SCC 700

6. 2022 (SCC) online 929

SK,J W.P.No.39378 OF 2022

filed against the search action dated 17.10.2022

conducted under Section 18 (1) of PMLA, 2002 and

subsequent seizures made as per panchanamas. An

alternative remedy is available to the petitioners under

Section 8 (1) of PMLA, 2002 before the Adjudicating

Authority, PMLA, New Delhi. The PML Act itself

provides the remedy to the petitioners before the

Adjudicating Authority, instead of approaching this

Court, as such the Writ Petition is not maintainable.

9. The learned Additional Solicitor General further

submits that an FIR No.RC01(A)/2013 dated

03.01.2013 and charge sheet No.25/2014 dated

27.11.2014 was filed by the CBI, Hyderabad against

Mr.Sukesh Gupta and officials of MMTC for defrauding

M/s MMTC Limited in purchase of gold bullion under

Buyer's Credit Scheme and during the course of

investigation it was revealed that MMTC Limited

SK,J W.P.No.39378 OF 2022

imports bullion from Foreign Suppliers on

consignment basis and sells to local customers

through its billion centres located at Regional/Sub-

Regional Offices including office at Hyderabad. A

Provisional Attachment Order (PAO) bearing

No.07/2021 dated 26.08.2021 was issued in the

subject case under Section 5 (1) of PMLA, 2022 and

Enforcement Directorate has provisionally attached

movable and immovable properties belonging to MBS

Group of companies.

10. The Learned Additional Solicitor General submits

that father of the petitioner No.2 Mr.Anurag Gupta is

a director of M/s.Shroff Apparels Private Limited which

is a shell company and Mr.Anurag Gupta was also

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

said company and M/s. MBS Impex Private Limited

which had defrauded MMTC. Mr.Anurag Gupta was

SK,J W.P.No.39378 OF 2022

one of the directors of M/s MBS Jewellers Private Ltd.,

and M/s. MBS Impex Pvt Ltd., during the relevant

period when the offences of defrauding MMTC had

taken place.

11. The learned Additional Solicitor General further

submits that the search action dated 17.10.2022

under Sections 17 and 18 of PMLA, 2002 had been

conducted on the basis of 'Reasons to believe', duly

recorded in writing. The petitioner No.2 had himself

acknowledged by signing on the

Authorization/Warrant along with the independent

panchas/witnesses. The petitioners will have an

opportunity of being heard and present their case

before the Adjudicating Authrotty, New Delhi in terms

of Section 8 of PMLA, 2002.

SK,J W.P.No.39378 OF 2022

12. The learned Additional Solicitor General

further submits that the respondents are duty to

collect evidence and summons were issued to record

the statements and collect documents from the

witnesses and suspects. The statements were

recorded in a professional manner and under Section

50 of PMLA, 2002 and Section 50 (2) of PMLA, 2002

empowers the authorities to summon any person

whose attendance considers necessary whether to give

evidence or to produce any records during the course

of any investigation proceedings under the Act. The

petitioners were given an opportunity to appear before

summoning authority to adduce evidence as per the

principles of natural justice, but instead of cooperating

with the authority, the present writ petition is filed

questioning the issuance of summons, which is not

maintainable.

SK,J W.P.No.39378 OF 2022

13. The learned Additional Solicitor-General submits

that a writ petition cannot be entertained during

summons stage and writ petition is deserves to be

dismissed.

14. The learned Additional Solicitor General relied

upon the following judgments:

7. Principal Director of Income Tax (Investigation) and others Vs. Laljibhai Kanjibhai Mandalia 7

8. Biswanth Bhattacharya Vs. Union of India 8

15. At the time of hearing, the Learned Senior

Counsel appearing for the petitioners mainly argued

that the respondents without following the procedure

as contemplated under Section 17 of the PML Act

conducted search and seizure and even after

completion of search also not followed the procedure

as contemplated under PML Act.

7. 2022 SCC ONLINE SC 872

8. 2014 (4) SCC 392

SK,J W.P.No.39378 OF 2022

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:

1 Panchanama drawn at M/s MBS Jewellers Private Limited, Secunderabad 2 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 3 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 4 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 5 Panchanama drawn at M/s MBS Jewellers Pvt Ltd., Show Room, 40-

1-40, Dutta Plaza, MG Road, Labbipet, Vijayawada, Andhra Pradesh

- 520 010 6 Copy of "Reasons to Beleive" forwarded to Adjudicating Authority (PMLA) 7 Authorization/Warrant for Search and Seizure in Form No.I 8 Forwarding letter and Index signed for forwarding reasons to believe 9 1 10 Acknowledgment slip in Form No.IV (reasons to believe) 11 Dak Dispatch Register 12 Acknowledgment Slip Register 13 Retention of property order dated 07.11.2022 14 Acknowledgment Slip in Form No. I (Retention Order) 15 Acknowledgemnt Slip in Form No.II (Retention order)

SK,J W.P.No.39378 OF 2022

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:

SK,J W.P.No.39378 OF 2022

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 / or 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

---

19. This Court has gone through the entire record

produced by the respondents. Mr. Dinesh Paruchuri,

SK,J W.P.No.39378 OF 2022

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.

20. Section 17 of the Prevention of Money Laundering

Act, reads as follows:

17. Section Search and seizure. --

(1) Where [the Director or any other officer not below the rank of Deputy Director authorized 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,

(iv) is in possession of any property related to crime.

then, subject to the rules made in this behalf, he may authorize 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;

SK,J W.P.No.39378 OF 2022

(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:

[I-A) where it is not practicable to seize search record or property, the officer authorized under sub-section (1), may take 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) or Section 58-B or sub-section (2-A) of Section 60, it becomes practical to seize a frozen property, the officer authorized under sub-section (1) may seize such property].

(2) The authority, who has been authorized 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 the 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:

SK,J W.P.No.39378 OF 2022

Provided that no authorization 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, 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.

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.

SK,J W.P.No.39378 OF 2022

22. The judgments relied on by the learned Senior

Counsel for the petitioners in respect of Section 17 of

PML Act apply to the instant case. The Hon'ble Apex

Court in Opto India Axis Bank and Others (supra

1), at para No.14 and 15, held as follows :

14. "This Court has time and again emphasized that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner. Among others, in a matter relating to the presentation of an Election Petition, as per the procedure prescribed under the Patna High Court Rules, this Court had an occasion to consider the Rules to find out as to what would be a valid presentation of an Election Petition in the case of Chandra Kishor Jha vs. Mahavir Prasad and Ors. (1999) 8 SCC 266 and in the course of consideration observed as hereunder:

17. "It is a well settled salutary principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner".

Therefore, if the salutary principle is kept in perspective, in the instant case, though the Authorised Officer is vested with sufficient power; such power is circumscribed by a procedure laid down under the statute. As such the power is to be exercised in that manner alone, failing which it would fall

SK,J W.P.No.39378 OF 2022

foul of the requirement of complying due process under law. We have found fault with the Authorised Officer and declared the action bad only in so far as not following the legal requirement before and after freezing the account. This shall not be construed as an opinion expressed on the merit of the allegation or any other aspect relating to the matter and the action initiated against the appellant and its Directors which is a matter to be taken note in appropriate proceedings if at all any issue is raised by the aggrieved party.

15. Apart from the above consideration, what has also engaged the attention of this Court is with regard to the plea put forth on behalf of the appellant regarding the need to defreeze the account to enable the appellant to pay the statutory dues. The appellant in that regard has relied on the certificate issued by the Chartered Accountant, (Annexure P/38 at page 231) which indicates the amount payable towards ITDS, PF, ESI, Professional Tax, Gratuity and LIC employees' deductions, in all amounting to Rs.79,93,124/-. Since we have indicated that the freezing has been done without due compliance of law, it is necessary to direct the respondents No.1 to 3 to defreeze the respective accounts and clear the cheques issued by the appellant, drawn in favour of the Competent Authority towards the ITDS, PF, ESI, Professional Tax, Gratuity and LIC employees' deductions, subject to availability of the funds in the account concerned. Needless to mention that if any further amount is available in the account after payment of the statutory dues and with regard to the same

SK,J W.P.No.39378 OF 2022

any action is to be taken by the respondent No.4 within a reasonable time, it would open to them to do so subject to compliance of the required procedure afresh, as contemplated in law".

23. The High Court of Calcutta, in M/s. Rashmi

Metaliks Limited and Another Vs. Enforcement

Directorate & others (supra 2), at para No.13 and 18

held as follows:

13. Therefore, the 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. In other words, 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). It is only on the fulfilment 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.

xxx

xxx

SK,J W.P.No.39378 OF 2022

18. 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).

24. The Hon'ble Apex Court in Vijay Madanlal

Choudhary & others Vs. Union of India and others

(supra 6) at para No.312 held as follows:

312. As aforementioned, Section 17 provides safeguards, not only mandating exercise of power by high ranking officials, of the rank of Director (not below the rank of Additional Secretary to the Government of India, who is appointed by a Committee chaired by the Central Vigilance Commissioner in terms of Section 25 of the CVC act, or Deputy Director authorized by the Director in that regard, but also to adhere to other stipulations of recording of reasons regarding the belief formed on the basis of information in his possession about

SK,J W.P.No.39378 OF 2022

commission of offence of money-laundering and possession of proceeds of crime involved in money-laundering. Further, such recorded reasons along with the material is required to be forwarded to the three-member Adjudicating Authorities (appointed under Section 6 of the 2002 act headed by a person qualified for appointment as District Jude) in a sealed cover to be preserved for specified period, thus guaranteeing fairness, transparency and accountability regarding the process of search and seizure. This is unlike the provision in the 1973 Code where any police officer including the Head Constable can proceed to search and seize records or property merely on the basis of allegation or suspicion of commission of a scheduled offence"

25. In the instant case the record reveals that the

Additional Director of Enforcement Directorate

without recording the 'reasons to believe' as

contemplated under Section 17 (1) of PML Act, issued

Search Warrant/Authorisation to the Deputy Director

to conduct search and seizure of the premises of the

petitioners and thereafter the Deputy Director recorded

'reasons to believe" without any date and time.

SK,J W.P.No.39378 OF 2022

26. The Hon'ble Apex Court in Opto Circuit

India Ltd. Vs. Axis Bank (supra1.), held that the

authorised Officer is vested with sufficient power and