ED's Power Under PML Act Rests On The Quartet-Test Of 'Search', 'Seize', 'Proceeds Of Crime' & 'Money-Laundering': Calcutta High Court

In a significant order, the Calcutta High Court on Wednesday explained and deliberated upon the procedure of Search, Seizure of Property & Impounding of Records as provided under Section 17 (1) of the Prevention of Money Laundering Act.The bench of Justice Moushumi Bhattacharya stressed that the power of the Directorate of Enforcement under the PML Act rests upon the quartet-test of 'Search', 'Seize', 'Proceeds Of Crime' & 'Money-Laundering'.In other words, the Court has held that the power of search and seizure as provided under Section 17(1) of the PML Act must satisfy the defining characteristic of "money-laundering" [Section 3 of the PML Act] and "proceeds of crime" [Sections 2(1)(u)] as well as their respective procedural requirements as separately stipulated in Act.The Court observed thus while dealing with the writ plea filed by M/s. Rashmi Metaliks Limited & Anr seeking a stay on two orders of ED made under Section 17(1-A) of the Act, freezing petitioner's two bank accounts.The primary question before the Court in this matter was - on what basis the ED had proceeded to initiate action under Sections 17 and 17(1-A) of The PMLA for freezing the bank accounts of the petitioner no. 1. Before discussing the same, the Court discussed both the above-mentioned provisions Section 17 (1) and 17 (1-A) of PML Act in briefEssentially, Section 17 (1) of the PML Act talks about the search and seizure of record or property, whereas, Section 17 (1-A) comes into picture when it is not practicable to search or seizure of record or property, as this provision provides for freezing of the property (bank account being a property).Agaisnt this backdrop, at the outset, the Court noted that the pre-requisite for an authorized officer of a certain rank being entitled to search and seize [under section 17 (1) of PML Act] is that such officer has information in his possession and a reason to believe, expressed in writing that a person:-i) has committed any act of money-laundering, orii) is in possession of any proceeds of crime involved in money laundering, oriii) is in possession of records relating to money laundering, oriv) is in possession of any property related to crime.Now, it may further be noted that the abovementioned 4 pre-requisites not only indicate that the authorized officer must have reason to believe (reduced to writing) on the information in his possession but he must also have a reason to believe that the person in relation to the premises is guilty of an offence defined in Section 3 of The PMLA - "money-laundering".In other words, if the authorized officer doesn't have the reason to believe that the person in relation to the premises is guilty of an offence defined in Section 3 of The PMLA - "money-laundering", and even then, if search/seize takes place, then it won't be legally tenable.Now, to understand the term 'money laundering', we have to refer to Section 3 of the PML Act, which entails a separate set of requirements and evidence including that the person who is found guilty of the offence of money laundering has knowingly indulged or assisted in the commission of an activity connected with "proceeds of crime" and has concealed, possessed, acquired or used the same.The term "proceeds of crime" has been defined in Section 2(1)(u) as any property derived directly or indirectly by any person as a result of criminal activity related to a scheduled offence as well as any property which is used in the commission of an offence under The PMLA or any of the scheduled offences. Besides, commission of an offence would only qualify as money-laundering if the offence generates proceeds of crime and tainted property, the Court added relying upon the Apex Court's ruling in the case of Vijay Madanlal Choudhary vs. Union of India.Consequently, summarisng the law with regard to 'search' and 'seize', the Court remarked thus:"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 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."Now, discussing Section 17(1-A), the Court noted that this provision 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. Summarising the mandate of this provision, the Court observed that the officer must:a) Satisfy the pre-requisites of Section 17(1) 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...

ED's Power Under PML Act Rests On The Quartet-Test Of 'Search', 'Seize', 'Proceeds Of Crime' & 'Money-Laundering': Calcutta High Court

Sparsh Upadhyay

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