The Supreme Court stated that even in the cases of PMLA, the Court cannot proceed on the basis of preponderance of probabilities.
The appellant J. Sekar Reddy is the Managing Partner of M/s SRS Mining which is a partnership firm engaged in sand mining since 2013 and he had deposited Rs 312.64 Crores in three bank accounts of the firm. In 2016, the Income Tax Department, Chennai conducted a search in the official/commercial premises of the appellant and others and seized currency and 128.495 kg of gold. The respondent had enquired and conducted the investigation and recorded the statement of the appellant and others and found new currency notes of denomination of Rs.2,000/ in a subsequent search on the official and commercial premises of the appellant.
Senior counsel Vikram Chaudhari, appearing for the appellant, contended that for invocation of PMLA, pre existing occurrence of the scheduled offence is required because the proceeds of crime are essential property derived from criminal activity of the said offence.
He argued that the Adjudicating Authority dealt with the order of the Deputy Director (ED) and for lack of evidence refused to pass an order for attachment. As per the material available on record, the offence of money laundering specified in Section 2(1)(p) and also in Section 3 of PMLA is not made out.
S.V. Raju, Additional Solicitor General, appearing for the respondent, contended that the order passed by the Adjudicating Authority under Section 5(5) PMLA is subject to the appeal which is pending before the Appellate Authority.
He added that the order of the Adjudicating Authority and the finding recorded therein are not sufficient to quash the proceedings in the present case.
The division bench of Justice Vineet Saran and Justice J.K. Maheshwari observed that the I.T. Department made searches in the official/commercial premises of the appellant and other connected persons. Later, I.T. Department vide communication which was issued in response to the letter of the appellant was satisfied that the cash which was recovered from the officials/commercial premises of the appellant is explained and tax was paid in the self assessment for the Financial Year 2016-17.
Therefore, the court held that finding recorded in the impugned order by the High Court with regard to recovery of new currency notes of denomination of Rs. 2000 cannot be countenanced.
The court said that on analysing the report of I.T. Department and the reasoning given by CBI while submitting the final closure report and the order passed by the Adjudicating Authority, it is clear that for proceeds of crime, as defined under Section 2(1)(u) of PMLA, the property seized would be relevant and its possession with recovery and claim thereto must be innocent.
The court stated that the schedule offence has not been made out because of lack of evidence. The Adjudicating Authority, at the time of refusing to continue the order of attachment under PMLA, was of the opinion that the record regarding banks and its officials who may be involved, is not on record.
The court added that for lack of identity of the source of collected money, it could not be reasonably believed by the Deputy Director (ED) that the unaccounted money is connected with the commission of offence under PMLA.
The court opined that even in cases of PMLA, the Court cannot proceed on the basis of preponderance of probabilities. On perusal of the statement of Objects and Reasons specified in PMLA, it is the stringent law brought by Parliament to check money laundering. Thus, the allegation must be proved beyond reasonable doubt in the Court.
The court said that even otherwise, it is incumbent upon the Court to look into the allegation and the material collected in support thereto and to find out whether the prima facie offence is made out.
The court while allowing the appeal set aside the impugned order passed by the High Court.
Case title: J.Sekar @Sekar Reddy v/s Directorate of Enforcement
Click Here to read the Order/Judgment