KARNATAKA HIGH COURT
Hemant Chandangoudar, J.
Dr. Natesha D.B. – Petitioner
versus
Directorate of Enforcement Ministry of Finance and Department of Revenue – Respondent
Writ Petition No.32956 of 2024 (GM-Res)
Decided on 27.1.2025

Headnote:

Prevention of Money Laundering Act, 2002 – Sections 17, 50 and 62 – Legality of Search and Seizure – A bare perusal of Section 48 of the Act, indicates that the Director is the foremost authority under the Act, and is placed in similarity with the rank of an Additional Director or Joint Director. The Deputy Director is immediately below the Director and the Joint Director, and further below down in the hierarchy is the Assistant Director, thus, the conduct of impugned search and seizure under Section 17 of Prevention of Money Laundering Act, 2002 cannot be faulted for lack of jurisdiction – In the present case, summons under Section 50 were issued following the ‘illegal’ search and seizure conducted under Section 17 of the Prevention of Money Laundering Act, 2002. However, as established in the preceding paragraphs, the reasons recorded for the search do not satisfy the essential elements required to establish the commission of an offence under Section 3 of the Prevention of Money Laundering Act, 2002. As a result, the search and seizure lacked proper authority for there being no proper reason to warrant such a search. The respondent-Agency can summon any person to record a statement or produce a document or record only in cases where there is credible evidence that an offence under Section 3 of Prevention of Money Laundering Act, 2002 has been committed, and in such circumstances, the person who has been summoned cannot raise any grievance against the issuance of summons.

Held: Thus, in light of the circumstances of this case, where no prima facie case has been established showing that an offence has been committed under the PMLA, and no incriminating material has been elicited at the time of search and seizure, the issuance of summons to the petitioner lacks legal authority. The petitioners cannot be compelled to appear and record their statements or produce documents, as such actions would unjustly infringe upon their personal right to liberty.

Section 5 of the PMLA can precede Section 17, if the ED has in its possession sufficient information of the existence of proceeds of crime so as to provisionally attach such property before conducting a search. Furthermore, a perusal of the definition of property contained in Section 2(v)of PMLA indicates that a movable property, such as currency notes or any other property, etc, is subject to attachment under Section 5, provided the Director is satisfied that such property is likely to be concealed, dissipated, or dealt with in such manner so as to frustrate the proceedings of the Act. In all practicality, an attachment of such movable property therefore, cannot be conceived without an incidental search. As such, an attachment under Section 5 cannot be mandated to precede search and seizure under Section 17. Furthermore, it is appropriate that the exercise of investigative tools under the law is left to the prudent exercise of discretion of the investigative agency, to be decided in consideration of thefacts and circumstances of each case.

Enforcement Directorate is a premier investigative agency established for the purpose of preventing the serious offence of money laundering and confiscation of the proceeds of crime, and that it is expected to discharge its duties with fairness. The right to liberty and privacy under Article 21 of the Constitution vests a right against the conduct of arbitrary searches, and therefore, the search conducted on the premises of the petitioner under the garb of investigation, when there is no prima facie evidence to establish the offence under Section 3 is but an abuse of process of law. The Enforcement Directorate cannot give the elements of procedural fairness contained in the PMLA a go-by in the course of its administration. It is pertinent that the right to liberty and privacy of individuals cannot be trampled upon and that any curtailment of civil liberties is subject to the due process of law.

Allowing the Petition, the Court held, –

The impugned search and seizure conducted at the residence of the petitioner on 28.10.2024 to 29.10.2024 and the subsequent statement recorded under Section 17(1)(f) of PMLA, 2002 is vitiated on the grounds of absence of ‘reason to believe’, and is hereby declared invalid and illegal.

iii. The statement recorded under Section 17(1)(f) of PMLA, 2002, is hereby ordered to be retracted.

iv. The impugned summons issued under Section 50of PMLA, 2002, dated 29.10.2024 and 06.11.2024 and the various statements recorded under Section 50 of the Act are hereby quashed.

v. Liberty is reserved with the petitioner to initiate action under Section 62 of the PMLA, 2002against the officer concerned before the appropriate forum, as whether the impugned search and seizure is vexatious or not is matter of trial.

A careful perusal of Section 17 of the Act, 2002, the relevant portion of which is extracted hereunder, reveals that the competent authority under the Act to authorize a search and seizure of any premises is the Director or any other officer authorized by the Director, for the purposes of Section 17, provided such officer is not below the rank of Deputy Director. Therefore, the statute clearly limits the vesting of authority to record reasons to believe on the basis of material in possession with highest responsible authority to prevent the misuse of such provisions. Furthermore, the words “the Director” in sub-section (1) of Section 17 were substituted for the words “the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section” vide the Amendment Act 21 of 2009 (w.e.f.1.06.2009). [Paras 30 to 58].

Result: Application allowed.