J. SEKAR @SEKAR REDDY versus DIRECTORATE OF ENFORCEMENT on 5 May 2022

[2022] 3 S.C.R. 698

SUPREME COURT REPORTS

[2022] 3 S.C.R.

J. SEKAR @SEKAR REDDY

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v.

DIRECTORATE OF ENFORCEMENT

(Criminal Appeal No. 738 of 2022)

BMAY 05, 2022

[VINEET SARAN AND J. K. MAHESHWARI, JJ.]

Prevention of Money Laundering Act, 2002: ss. 3 and 4 – Onfacts, seizure of large amount of currency notes and gold from theappellant – Registration of FIR against the appellant under theCprovisions of PMLA in addition to schedule offences under the PenalCode and Prevention of Corruption Act – Petition seeking quashingof proceedings – Dismissed by the High Court – On appeal, held:Chances to prove the allegations in the court are very bleak – CBIfiled closure report in respect of the FIR registered with respectDscheduled offence – Schedule offence not made out because oflack of evidence – In cases of PMLA, allegations must be provedbeyond reasonable doubt, the the court cannot proceed on the basisof preponderance of probabilities – Order of attachment of propertynot confirmed by the adjudicating authority holding that the saidallegations based on speculations and not on any specific materialE– For the currency seized, the tax is already paid – Departmentunable to collect any incriminating material and also not producedbefore this Court even after a lapse of 5 1D 2 years to prove itscase beyond reasonable doubt – From the material collected by theAgency, they themselves not satisfied that the offence under PMLAFcould be proved beyond reasonable doubt – High Court recordedthe finding without due consideration of the letter of the I.T.Department and other material in right perspective – Thus, thefindings of the High Court cannot be sustained and the order is setaside – Code of Criminal Procedure, 1973 – s. 482.

GAllowing the appeal, the Court

HELD: 1.1 The I.T. Department made search in the official/commercial premises of the appellant and other connectedpersons. Later, I.T. Department vide communication dated16.5.2019 which was issued in response to the letter of theHappellant dated 13.5.2019 was satisfied that the cash which was recovered from the officials/commercial premises of the appellantis explained and tax was paid in the self-assessment for theFinancial Year 2016-17. Therefore, the proceedings started onthe basis of intriguing recovery of cash and other items in fact,does not exist and the I.T. Department itself was satisfied withthe recovery after investigation in the year 2019. Therefore, thefinding recorded in the impugned order by the High Court withregard to recovery of new currency notes of denomination ofRs. 2000 cannot be accepted. [Para 14][705-F-G; 708-C-D]

1.2 It is clear that the FIR with respect to schedule offenceregistered by the CBI with respect to proceeds of the crimeincluding property attached has been closed. On the basis of theintimation given by the I.T. Department and registration of theFIR by the CBI which was closed, the Directorate of EDregistered ECIR/CEZO/19/2016 under Sections 3, 4 & 8(5) ofPMLA. After the said FIR, Deputy Director (ED) passed an orderunder Section 5(1) of PMLA on 1.6.2017 attaching the property.For confirmation of attachment, OC No. 785 of 2017 was filed bythe Department which is rejected by the Adjudicating Authoritywhile exercising the power under Section 5(5) of PMLA. [Paras15, 16][709-G; 710-A-B]

1.3 In view of the legal position that when chance ofconviction in a criminal case appeared to be bleak, the accusedmay be exnoerated and on analysing the report of I.T. Departmentand the reasoning given by CBI while submitting the final closurereport in RC MA1 2016 A0040 and the order passed by theAdjudicating Authority, it is clear that for proceeds of crime, asdefined under Section 2(1)(u) of PMLA, the property seized wouldbe relevant and its possession with recovery and claim theretomust be innocent. In the instant case, the schedule offence hasnot been made out because of lack of evidence. The AdjudicatingAuthority, at the time of refusing to continue the order ofattachment under PMLA, was of the opinion that the recordregarding banks and its officials who may be involved, is not onrecord. Therefore, for lack of identity of the source of collectedmoney, it could not be reasonably believed by the Deputy Director(ED) that the unaccounted money is connected with the AB

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Acommission of offence under PMLA. Simultaneously, the letterof the I.T. Department dated 16.5.2019 and the details asmentioned, makes it clear that for the currency seized, the tax isalready paid, therefore, it is not the quantum earned and used formoney laundering. Even in cases of PMLA, the court cannotproceed on the basis of preponderance of probabilities. On perusalBof the statement of Objects and Reasons specified in PMLA, it isthe stringent law brought by Parliament to check moneylaundering. Thus, the allegation must be proved beyondreasonable doubt in the court. Even otherwise, it is incumbentupon the court to look into the allegation and the materialCcollected in support thereto and to find out whether the primafacie offence is made out. Unless the allegations are substantiatedby the authorities and proved against a person in the court of law,the person is innocent. [Para 18][713-E-H; 714-A-C]

1.4 Looking to the facts of this case, it is clear by a detailedDorder of acceptance of the closure report of the schedule offencein RC MA1 2016 A0040 and the quashment of two FIRs by theHigh Court of the schedule offence and of the letter dated16.5.2019 of I.T. Department and also the observations made bythe Adjudicating Authority in the order dated 25.2.2019, theevidence of continuation of offence in ECR CEZO 19/2016 is notEsufficient. The Department itself is unable to collect anyincriminating material and also not produced before this Courteven after a lapse of 5 1D 2 years to prove its case beyondreasonable doubt. From the material collected by the Agency,they themselves are prima facie not satisfied that the offenceFunder PMLA can be proved beyond reasonable doubt. Thus,looking to the facts, the chance to prove the allegations even forthe purpose of provisions of PMLA in the Court are bleak.Therefore, this court is of the firm opinion that the chances toprove those allegations in the court are very bleak. It is trite to say, till the allegations are proved, the appellant would beGinnocent. The High Court by the impugned order has recordedthe finding without due consideration of the letter of the I.T.Department and other material in right perspective. Therefore,the findings of the High Court cannot be sustained. The impugnedorder passed by the High Court is set aside. [Para 19, 20][714-HC-H; 715-A]

Radheshyam Kejriwal v. State of West Bengal (2011) 3SCC 581 : [2011] 4 SCR 889; Ashoo SurendranathTewari v. Deputy Superintendent of Police, EOW, CBIand Another (2020) 9 SCC 636 – relied on.

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Case Law Reference

B[2011] 4 SCR 889relied onPara 17, 18, 19(2020) 9 SCC 636relied onPara 17, 19

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.738 of 2022.

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From the Judgment and Order dated 04.02.2021 of the High Courtof Judicature at Madras in Crl. O.P. No. 24200 of 2017.

Vikram Chaudhri, Sr. Adv., Rishi Sehgal, S. Eiambharathi, AbdulSaleem, Ms. Ria Khanna, Ms. Anzu K. Varkey, Advs. for the Appellant.

S. V. Raju, ASG, M. K. Maroria, Zoheb Hussain, Kanu Agarwal,Ms. Sairica Raju, Ms. Deepabali Dutta, Anshuman Singh, Ankit Bhatia,Arpit Goel, Harsh Paul Singh, Advs. for the Respondent.

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The following Judgment of the Court was delivered

JUDGMENT

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1. Leave granted.

2. This appeal arises out of the judgment dated 04.02.2021 passedby the Division Bench of the High Court of Madras in Crl. O.P. No. 24200of 2017 which was filed for quashing of the proceedings in C.C. No. 2 of2017. The High Court, while dismissing the petition under Section 482 of theCriminal Procedure Code (for short ‘Cr.P.C.’) inter-alia held that theargument of the appellant that the FIR with respect to schedule offencewas closed for want of evidence and in absence of connected evidencewith a crime of schedule offence, the prosecution for offences underSections 3 & 4 of the Prevention of Money Laundering Act, 2002 (forshort “PMLA”) cannot be sustained. It is also held that the commissionof schedule offence may be a fundamental pre-condition for initiatingthe proceedings but the offence of money laundering is independent ofthe schedule offence because the PMLA deals with the process or activitywith respect to the proceeds of crime including concealment, possession,acquisition or use, however in the light of the explanation of Section F

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A44(1) of PMLA, the argument of the appellant was repelled. The HighCourt further held that if any observation has come in the bail application,having no material to connect with the commission of any offence, wouldnot be enough to quash the proceedings. The Court relied upon the seizuremade by the I.T. Department including that of the currency notes ofdenomination of Rs. 2000 in the context that the currency notes ofBdenomination of Rs. 500 and Rs. 1000 ceased to be legal tender byorder of the Government at the time of demonetization and the peoplewere in queue to exchange those old currency notes for new ones. Asthe seizure of currency notes of Rs. 33 crores in the denomination ofRs. 2000 was made, therefore, the closure report made by Central BureauCInvestigation (in short ‘CBI’) in schedule offence cannot be relied upon.

2. Briefly, the facts relevant for the purpose of the appeal are thatthe appellant J. Sekar Reddy is the Managing Partner of M/s SRS Miningwhich is a partnership firm engaged in sand mining since 2013 and hehad deposited Rs 312.64 Crores in three bank accounts of the firm. OnD08.12.2016 and 09.12.2016, the Income Tax Department, Chennai (forshort “I.T. Department”) conducted search in the official/commercialpremises of the appellant and others and seized currency amounting toRs.106,98,89,800/- and 128.495 kg of gold (valued at Rs.36,72,07,311).

3. Thereafter, from 08.12.2016 to 12.12.2016, appellant joinedEinquiry before the IT Department about the seizure of currency notesand gold. Subsequently on 19.12.2016, the CBI registered RC 40(A)2016/CBI/ACB/CHENNAI for offences under Sections 120-B r/w 409,420 of Indian Penal Code (in short ‘IPC’) and Section 13(2), r/w 13(1)(c)and 13(1)(d) of the Prevention of Corruption Act,1988 (in short ‘PCAct’) against the appellant and two others.F

4. The Enforcement Directorate after perusing the FIR of theCBI felt that in addition to the scheduled offences, the provisions ofunder Sections 2(1)(x) and 2(1)(y) of the PMLA attract, howeverregistered the offence at ECIR No. 19 of 2016 dated 19.12.2016 againstthe appellant and others. The respondent had enquired and conductedGthe investigation and, recorded the statement of the appellant and othersand found new currency notes of denomination of Rs.2,000/- of a totalvalue of Rs.33,74,92,000/ in a subsequent search on the official andcommercial premises of the appellant.

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5. In the meantime, the CBI had filed the custody petition whichwas dismissed by the Special Court vide order dated 30.12.2016. TheCBI had also registered two FIRs being Crime No. RC MA1 2016 A0051at 1500 hrs. and RC MA1 2016 A0052 at 1510 hrs on 30.12.2016 by amargin of ten minutes time. The appellant filed the bail application in RCMA1 2016 A0040 and RC MA1 2016 A0051 before the Principal SpecialJudge for CBI Cases, Chennai. The Special Court, by order dated17.3.2017 granted bail to the appellant imposing certain conditions.

6. Subsequently, Deputy Director (ED), Chennai in ECIR CEZO/19/2016 passed an order for provisional attachment in exercise of thepower under Section 5(1) of PMLA for a specified period of one month.On submitting the complaint OC No. 785 of 2017 before the AdjudicatingAuthority for confirmation of the order of provisional attachment, itrefused to confirm the order of attachment and dismissed the same. Inthe order, the Adjudicating Authority stated that the description of thebank or bank officers is not on record. In absence of any identification,who were the bank officers who converted the denomination of oldcurrency notes into new and that too from which bank, there was nomaterial with the Deputy Director for making a reasonable belief forchange of old into new currency notes through the bank officers andobserved that the said allegation is based on speculations, which are notlegally tenable.

7. It is relevant to note that RCMA1 2016 A0051 and RCMA12016 A0052 were challenged by the appellant as well as other co-accusedbefore the Madras High Court by filing Crl. O.P. Nos. 24200 and 24202of 2017 invoking the power under Section 482 Cr.P.C., which weredecided by a common order dated 27.6.2018 and the High Court in para32 quashed the RC MA1 2016 A0051 and RC MA1 2016 A0052 againstthe appellant and other co-accused giving liberty to the CBI to treat theallegations made in FIRs as supplementary allegations or to merge thesame in first FIR RC MA1 2016 A0040.

8. It is most relevant to note that CBI after investigation in themain case in RC MA1 2016 A0040 submitted the closure report beforethe Additional Sessions Judge, CBI Court, Chennai in exercise of powerunder Section 173(2) Cr.P.C. The said report was accepted vide orderdated 25.9.2020 with an observation that for lack of sufficient evidence,nothing incriminating is found which may surface on the part of accusedpersons. Therefore, from the above facts, it is clear that the CBI registered AB

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Athree cases out of which in the main case RC MA1 2016 A0040, thefinal closure report was submitted by CBI itself which was accepted bythe Court and in remaining two cases bearing Nos. RC MA1 2016 A0051and RC MA1 2016 A0052, the High Court quashed the FIRs with respectto schedule offence.B9. So far as the investigation made by the I.T. Department on thebasis of search is concerned, the same is closed. The appellant soughtinformation from the I.T. Department vide communication dated11.5.2019. In respect to the same, the I.T. Department vide letter dated16.5.2019 provided the details of seizure made by it from the appellant.It is apparent that the new currency notes of denomination of Rs. 2000Cbelonged to M/s SRS Mining which is recorded in its cash book. Thosecurrency notes seized are from the proceeds of the sand sales byM/s SRS Mining. The details of the tax, paid before or after self-assessment for Financial Year 2016-17 satisfied the Authority that moneyso seized was accounted money or tax paid.D

10. The appellant contending all the above facts, approached theHigh Court of Madras invoking the jurisdiction under Section 482 Cr.P.C.seeking quashment of the proceedings related to PMLA case and prayedfor the following reliefs:

(i) To stay all further proceedings in CC No. 2 of 2017 on theEfile of the Hon’ble Principal Sessions Court, Chennai pendingdisposal of the above criminal original petition.

(ii) To call for the records in CC No. 2 of 2017 on the file of theHon’ble Principal Sessions Court, Chennai and quash thesame and pass such further other order, orders as deemed fitFand proper in the circumstances of the case and thus renderjustice.

By the impugned order dated 4.2.2021, the High Court of Madrasdismissed the said petition.

11. We have heard Shri Vikram Chaudhari, learned Senior CounselGfor the appellant and Shri S.V. Raju, learned Additional Solicitor Generalon behalf of the respondent.

12. Learned senior counsel for the appellant urged that forinvocation of PMLA, pre-existing occurrence of the scheduled offenceis required because the proceeds of crime are essential property derivedH

from criminal activity of the said offence. The Adjudicating Authoritydealt with the order of the Deputy Director (ED) and for lack of evidencerefused to pass an order for attachment. As per the material availableon record, the offence of money laundering specified in Section 2(1)(p)and also in Section 3 of PMLA is not made out. It is further urged that asper Section 8(1) of PMLA, a show cause notice may be issued regardingthe attached property if the said Authority is having reason to believethat any person has committed an offence under Section 3 or is inpossession of proceeds of crime. The adjudication proceedings andcriminal proceedings are independent to each other but the material forcommission of offence recorded by the authorities in those proceedingsmay be a relevant factor, in particular when for lack of evidence, theAuthority itself is satisfied that the attachment of the proceedings inPMLA case cannot be continued. Reliance has been placed on thejudgments of this Court in Radheshyam Kejriwal Vs. State of WestBengal (2011)3SCC 581 and Ashoo Surendranath Tewari vs. DeputySuperintendent of Police, EOW, CBI and Another (2020) 9 SCC 636.

13. On the other hand, Shri S.V. Raju, learned Additional SolicitorGeneral on behalf of the respondent contends that the order passed bythe Adjudicating Authority under Section 5(5) PMLA is subject to theappeal which is pending before the Appellate Authority. Therefore, theorder of the Adjudicating Authority and the finding recorded therein arenot sufficient to quash the proceedings in the present case. LearnedASG is not in a position to controvert the arguments on merits as advancedby the learned senior counsel for the appellant.

14. After having heard learned counsels and on perusal of thematerial available on record, it is clear that the I.T. Department madesearch in the official/commercial premises of the appellant and otherconnected persons. Later, I.T. Department vide communication dated16.5.2019 which was issued in response to the letter of the appellantdated 1.5.2019 and also of I.T. Department dated 13.5.2019 was satisfiedthat the cash which was recovered from the officials/commercial premisesof the appellant is explained and tax was paid in the self-assessment forthe Financial Year 2016-17. The said letter is reproduced as thus:

“GOVERNMENT OF INDIA

OFFICE OF THE JOINT DIRECTOR OF INCOME-TAX (INV)(OSD) UNIT-2(1), Room No. 223, 2[nd] Floor, Income TaxInvestigation Wing, M G Road Nungambakkam, Chennai-600 034.

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[2022] 3 S.C.R.

Sir,

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Sub: Search in the case of M/s SRS Mining and others-requestto provide information-Reg Ref: Your letter dated 01.05.2019 received in this office on13.05.2019

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Please refer to the above.

2. The details requested by you are given below point wise:-

(i) The date of initiation of search action in the case of M/s SRSMining and others is 08.12.2016. This office didn’t refer the caseFto the CBI and the CBI suo-moto initiated proceedings after newsof seizure of huge amount of new Rs 2000 notes emerged.

(ii) The seized cash and gold belong to M/s SRS Mining, apartnership firm whose partners are Shri S. Ramachandran, ShriK.Rethinam and Shri J.Sekar G

(iii) From the residence of Shri J.Sekar cash of Rs. 12,00,000/- inold currencies was seized

(iv) The details of seizure of new currencies of Rs. 2000 notesmade in the various premises are given below:- H

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The new currencies belong to M/s SRS Mining and they wererecorded in the parallel cash book of M/s SRS Mining.

(v) As per the seized documents, the source of new currenciesseized is from proceeds of sand sales by M/s SRS Mining.

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(vi) The details of prepaid tax paid by SRS Mining before thesearch action are given below:- G

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SUPREME COURT REPORTS

APost Search, M/s SRS Mining has paid Rs. 22,00,00,000/- towardsself-assessment tax for AY 2017-18 relevant to FY 2016-17.

Yours faithfully

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(K G ARUNRAJ IRS) Joint Director of Income Tax (Inv.) (OSD) Unit 2 (1), Chennai”

Therefore, the proceedings started on the basis of intriguingCrecovery of cash and other items in fact, does not exist and the I.T.Department itself was satisfied with the recovery after investigation inthe year 2019. Therefore, the finding recorded in the impugned order bythe High Court in paragraph 14 with regard to recovery of new currencynotes of denomination of Rs. 2000 cannot be countenanced.

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15. Reverting to the issue of registration of the main FIR by theCBI bearing No. RC MA1 2016 A0040 and thereafter two other casesRC MA1 2016 A0051 and RC MA1 2016 A0052 are based upon theinformation furnished by the I.T. Department. As discussed above, thecases bearing Nos. RC MA1 2016 A0051 and RC MA1 2016 A0052Ehave been quashed by the High Court vide order dated 27.6.2018 passedin Criminal O.P. No. No. 409 of 2017. Thereafter in the main FIR RCMA1 2016 A0040, CBI submitted its closure report. The said closurereport has been accepted by the Court in exercise of the power underSection 173(2) Cr.P.C. on 25.9.2020. The relevant extracts of closurereport find mention in the court order is reproduced thus:F

“The Inspector of Police, CBI, ACB, Chennai has submitted afinal report through Senior Public Prosecutor, CBI, prayingan order to close the FIR pending before this court in RCMA1 2016 A 0040 U/s 120-B r/w 409, 420 IPC and Sec. 13(2)r/w 13 (1) (c) (d) of PC Act, 1989…..This court perused allGthe relevant records including the FIR, Statement recordedunder Section 161 of Cr.P.C., the documents collected duringinvestigation, by the Investigating Officer and in the finalreport it is submitted that this court may be pleased to acceptthis Closure Report under Section-173(2) of Cr.P.C. and maydrop the action against A1 to A6 for lack of sufficient H

Evidence. There was nothing incriminating surfaced on thepart of accused persons, as these accused 1 to 6 had inconspiracy with unknown bank officials and public servantscheated the Government of India.

4. The evidence on record is not adequate to launchprosecutable case against the accused persons beyondreasonable doubt to establish that they fraudulently convertedthe unauthorised cash held by them in old currency notes into NHD, thereby depriving the public, in enforcing their rightand thus the accused 1 to 6 had in conspiracy with unknownbank officials and public servants cheated the Governmentof India.

6. The investigation has not established the allegations levelledagainst A1 to A6. On the basis of statement of witnesses ofLW1 to 170 and documents D1 to D879 and M.O.I to 8collected during the investigation, there is no sufficientevidence to launch prosecution against the accused 1 to 6persons, for the offences of Criminal Conspiracy, Cheating,Criminal misconduct.

7. As per the oral and documentary evidence, the allegationsin the FIR to the effect that the accused persons have causedwrongful loss to the Government of India to the tune ofapproximately 247.13 Crores and obtaining correspondingwrongful gain to themselves, is not substantiated withprosecutable evidence. Hence the final report has been filedfor recommending closure of the case report has been filedfor recommending closure of the case

8. …..Hence this court is convinced and satisfied to acceptthe prayer of closure of the case…..

9. …..The reasons submitted by the prosecution for closure ofF.I.R. in the absence of any evidence is acceptable.”

Thus, it is clear that the FIR with respect to schedule offenceregistered by the CBI with respect to proceeds of the crime includingproperty attached has been closed.

16. On the basis of the intimation given by the I.T. Departmentand registration of the FIR by the CBI which was closed, the Directorate A

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Aof ED registered ECIR/CEZO/19/2016 under Sections 3, 4 & 8(5) ofPMLA. After the said FIR, Deputy Director (ED) passed an order underSection 5(1) of PMLA on 1.6.2017 attaching the property. Forconfirmation of attachment, OC No. 785 of 2017 was filed by theDepartment which is rejected by the Adjudicating Authority whileexercising the power under Section 5(5) of PMLA. The AdjudicatingBAuthority observed as thus:

“It is pertinent to note that about two years have lapsed sincepassing of the said bail order dated 17.03.2017, and over twoyears have passed after filing of FIR, however till date no FinalReport is filed by the concerned Investigating Officer investigatingCthe scheduled offences. Most material is the fact that so far nobank or bank officers are identified, either by the officerinvestigating the schedule offences or even the EnforcementDirectorate, Chennai. In view of the absence of any bank or bankofficers having been identified, it was necessary for the DeputyDDirector to consider the absence and/ or non-identification of anybank or bank officers. Nothing is adduced or available on recordas to which banks and which bank officers are involved, whohave unauthorizedly converted demonetized old currency into newcurrency. The reasonable belief as is formed by the DeputyDirector reveals that the vital aspect concerning the fact that noEsuch bank or bank officers are existing or found is not consideredby the Deputy Director at all. The Reasonable Belief is thusimpaired. The Reasonable Belief formed by the Deputy Directorinter alia is that the accused persons have laundered theirunaccounted money in conspiring with the bank officials of various Fbanks who helped them laundering the unaccounted money. Thereis nothing on record which reveals the name of even single bank,much less, the various banks as stated by the Deputy Director.Similarly not a single bank official is identified or named and thereis nothing on record which reveals any such detail. Consequentlythe Reasonable Belief becomes baseless and is mere speculationGof the Deputy Director. Such a belief can not be justified andsustained. The aspect concerning non-identification and/ or non-availability of any bank and bank officials, goes to the root of theformation of the entire Reasonable Belief. The Additional Director/Joint Director/ Deputy Director ought to have directed the H

Enforcement Directorate Officers to investigate or cause to beinvestigated the aspect concerning the bank or bank officers. TheDeputy Director ought to have deliberated on the issue andproceeded, which is not done. In the absence of such basic materialthe Reasonable Belief entertained by the Deputy Directorspecifically forming the Reasonable Belief that the accusedlaundered their unaccounted money in conspiring with the bankofficials of various banks who helped them in laundering theunaccounted money, can not be legally tenable.

The Reasonable Belief of the Deputy Director further upon it’sanalysis indicates that the Deputy Director has entertained theReasonable Belief as stated in para 21, 26 & 27 of the ProvisionalAttachment Order, only in respect of a part of the seized amountof Rs. 334792000/-, without specifying as to what quantum andas to what part of the seized amount of Rs. 334792000/- in theform of movable properties is related to the schedule offences.

The formation of the Reasonable Belief only for part of the seizedamount and yet proceeding to attach the entire seized amountvitiates the entire Reasonable Belief and renders it as illegal. It isseen from the Reasonable Belief that such an exercise was notcarried out by the Deputy Director.

The reasonable belief formed by the Deputy Director that thenew currency, which were seized by the Income Tax Authoritiesare nothing but the currency received in lieu of exchange of oldcurrency notes (demonetized currency) inclusive of commissionfor such exchange received by S/ Shri J. Sekar Reddy, M.Premkumar, S. Srinivaslu, S. Ramachandran & K. Rethinam, isneither based on any specified material nor is justified.

It is therefore, concluded that the reasonable belief formed by theDeputy Director in this regard cannot be sustained, the same havingbeen not based on any specifically material and the same is merelysurmises, conjectures and speculation.

Considering the material in O.C., the written replies/ additionalwritten reply/ submissions of the Defendants and the argumentsabove referred, I find that the property provisionally attached byPAO No. 14/2017 dated 12.06.2017, i.e. 49,480 kgs of gold valued AB

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Aof Rs. 13,96,88,246 mentioned in para 22 of PAO(para 1 of thisorder) is not involved in money laundering. ’’

17. In the said sequel of facts, the legal position emerges by thejudgment of Radheshyam Kejriwal (supra) is relevant in which thisCourt has culled out the ratio of the various other decisions pertaining toBthe issue involved and has observed as thus:

“12 After referring to various judgments, this Court then culledout the ratio of those decisions in para 38 as follows: (RadheshyamKejriwal Case)

38. The ratio which can be culled out from theseCdecisions can broadly be stated as follows:

(i) Adjudication proceedings and criminal prosecution canbe launched simultaneously;

(ii) Decision in adjudication proceedings is not necessaryDbefore initiating criminal prosecution;

(iii) Adjudication proceedings and criminal proceedings areindependent in nature to each other;

(iv) The finding against the person facing prosecution inthe adjudication proceedings is not binding on theEproceeding for criminal prosecution;

(v) Adjudication proceedings by the EnforcementDirectorate is not prosecution by a competent court oflaw to attract the provisions of Article 20(2) of theConstitution or Section 300 of the Code of CriminalFProcedure;

(vi) The finding in the adjudication proceedings in favourof the person facing trial for identical violation willdepend upon the nature of finding. If the exonerationin adjudication proceedings is on technical ground andGnot on merit, prosecution may continue; and

(vii) In case of exoneration, however, on merits where theallegation is found to be not sustainable at all and theperson held innocent, criminal prosecution on the sameset of facts and circumstances cannot be allowed to H

continue, the underlying principle being the higherstandard of proof in criminal cases.”

13. It finally concluded: (Radheshyam Kejriwal case “39. In our opinion, therefore, the yardstick would be tojudge as to whether the allegation in the adjudicationproceedings as well as the proceeding for prosecution isidentical and the exoneration of the person concerned inthe adjudication proceedings is on merits. In case it is foundon merit that there is no contravention of the provisions ofthe Act in the adjudication proceedings, the trial of theperson concerned shall be an abuse of the process of thecourt.

14. From our point of view, para 38(vii) is important and if theHigh Court has bothered to apply this parameter, then on a readingof the CVC report on the same facts, the appellant should havebeen exonerated.”

In the case of Ashoo Surendranath Tewari (supra), this Courtrelied upon the judgment of Radheyshyam Kejriwal (supra) and set-aside the judgment of the High Court while exonerating the appellantsbecause the chance of conviction in a criminal case in the same factsappeared to be bleak.

18. In view of the aforesaid legal position and on analysing thereport of I.T. Department and the reasoning given by CBI while submittingthe final closure report in RC MA1 2016 A0040 and the order passed bythe Adjudicating Authority, it is clear that for proceeds of crime, as definedunder Section 2(1)(u) of PMLA, the property seized would be relevantand its possession with recovery and claim thereto must be innocent. Inthe present case, the schedule offence has not been made out becauseof lack of evidence. The Adjudicating Authority, at the time of refusingto continue the order of attachment under PMLA, was of the opinionthat the record regarding banks and its officials who may be involved, isnot on record. Therefore, for lack of identity of the source of collectedmoney, it could not be reasonably believed by the Deputy Director (ED)that the unaccounted money is connected with the commission of offenceunder PMLA. Simultaneously, the letter of the I.T. Department dated16.5.2019 and the details as mentioned, makes it clear that for thecurrency seized, the tax is already paid, therefore, it is not the quantum A

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Aearned and used for money laundering. In our opinion, even in cases ofPMLA, the Court cannot proceed on the basis of preponderance ofprobabilities. On perusal of the statement of Objects and Reasonsspecified in PMLA, it is the stringent law brought by Parliament to checkmoney laundering. Thus, the allegation must be proved beyond reasonabledoubt in the Court. Even otherwise, it is incumbent upon the Court toBlook into the allegation and the material collected in support thereto andto find out whether the prima facie offence is made out. Unless theallegations are substantiated by the authorities and proved against aperson in the court of law, the person is innocent. In the said backdrop,the ratio of the judgment of Radheshyam Kejriwal (supra) in paragraphC38 (vi) and (vii) aptly applicable in the facts of the present case.

19. As discussed above, looking to the facts of this case, it is clearby a detailed order of acceptance of the closure report of the scheduleoffence in RC MA1 2016 A0040 and the quashment of two FIRs by theHigh Court of the schedule offence and of the letter dated 16.5.2019 ofDI.T. Department and also the observations made by the AdjudicatingAuthority in the order dated 25.2.2019, the evidence of continuation ofoffence in ECR CEZO 19/2016 is not sufficient. The Department itselfis unable to collect any incriminating material and also not producedbefore this Court even after a lapse of 5 ½ years to prove its casebeyond reasonable doubt. From the material collected by the Agency,Ethey themselves are prima facie not satisfied that the offence underPMLA can be proved beyond reasonable doubt. The argument advancedby learned ASG regarding pendency of the appeal against the order ofAdjudicating Authority is also of no help because against the order ofthe Appellate Authority also, remedies are available. Thus, looking to theFfacts as discussed hereinabove and the ratio of the judgments of thisCourt in Radheshyam Kejriwal (supra) and Ashoo SurendranathTewari (supra), the chance to prove the allegations even for the purposeof provisions of PMLA in the Court are bleak. Therefore, we are of thefirm opinion that the chances to prove those allegations in the Court arevery bleak. It is trite to say, till the allegations are proved, the appellantGwould be innocent. The High Court by the impugned order has recordedthe finding without due consideration of the letter of the I.T. Departmentand other material in right perspective. Therefore, in our view, thesefindings of the High Court cannot be sustained.

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J. SEKAR @SEKAR REDDY v. DIRECTORATE OFENFORCEMENT

20. Accordingly, we set-aside the impugned order passed by theHigh Court. Consequently, this appeal is allowed. ECR CEZO 19/2016including Complaint bearing No. 2 of 2017 stands quashed.

Nidhi Jain(Assisted by : Shashwat Jain, LCRA)

Appeal allowed.

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