By: Ram Chander Sankhla, Advocate | Former Chief Commissioner, GST & Customs| Managing Partner, Sankhla Law associates |

Author can be reached at www.rrsla.com

——————————— CONTINUED FROM PART I & PART II——————————

SEARCHES AND SEIZURES:

33. Chapter V of the PMLA deals with summons, searches and seizures, etc. Section 16 provides for power of survey. Authorities have been empowered to enter upon any place within the limits of the area assigned to them or in respect of which, has been specifically authorised for the purposes of Section 16 by the competent authority, for inspection of records or other matters, in the event, it has reason to believe on the basis of material in possession that an offence under Section 3 has been committed.

34. However, in case of search and seizure, Section 17 permits only the Director or any other officer not below the rank of Deputy Director authorised by him to exercise that power on the basis of information in his possession and having reason to believe that any person has committed some act which constitutes money-laundering or is in possession of proceeds of crime involved in money-laundering, including the records and property relating to money-laundering.

35. Section 17 has been amended vide Act 21 of 2009, Act 2 of 2013 and by the Finance (No.2) Act, 2019. The Petitioners, here, challenge deletion of proviso vide Finance (No.2) Act, 2019, being unconstitutional — which stated that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under Section 157 of the Cr.PC or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or Court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorised to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being Head of the Office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorised by the Central Government, by notification, for this purpose. Further, the challenge is about, no safeguards, as provided under the Cr.PC  regarding searches and seizures have been envisaged and that such drastic power is being exercised without a formal FIR registered or complaint filed in respect of scheduled offence.

36. The Hon’ble Court however held this amendment being constitutional and lawful. In the words of the Bench,

“Undoubtedly, the 2002 Act is a special self-contained law; and Section 17 is a provision, specifically dealing with the matters concerning searches and seizures in connection with the offence of money-laundering to be inquired into and the proceeds of crime dealt with under the 2002 Act. We have already noted in the earlier part of this judgment that before resorting to action of provisional attachment, registration of scheduled offence or complaint filed in that regard, is not a precondition………………. Even in the matter of searches and seizures under the 2002 Act, that power can be exercised only by the Director or any other officer not below the rank of Deputy Director authorised by him. They are not only high-ranking officials, but have to be fully satisfied that there is reason to believe on the basis of information in their possession about commission of offence of money laundering or possession of proceeds of crime involved in money laundering. Such reason(s) to believe is required to be recorded in writing and contemporaneously forwarded to the Adjudicating Authority along with the material in his possession in a sealed envelope to be preserved by the Adjudicating Authority for period as is prescribed under the Rules framed in that regard. Such are the inbuilt safeguards provided in the 2002 Act. The proviso as it existed prior to 2019 was obviously corresponding to the stipulation in the first proviso in Section 5. However, for strengthening the mechanism, including regarding prevention of money-laundering, the Parliament in its wisdom deemed it appropriate to drop the proviso in sub-section (1) of Section 17 of the 2002 Act, thereby dispensing with the condition that no search shall be conducted unless in relation to the scheduled offence a report has been forwarded to a Magistrate under Section 157 of the 1973 Code or a complaint has been filed before a Magistrate in regard to such offence. As it is indisputable that the 2002 Act is a special Act and is a self-contained Code regarding the subject of searches and seizures in connection with the offence of money-laundering under the 2002 Act, coupled with the fact that the purpose and object of the 2002 Act is prevention of money-laundering; and the offence of money-laundering being an independent offence concerning the process and activity connected with the proceeds of crime, the deletion of the first proviso has reasonable nexus with the objects sought to be achieved by the 2002 Act for strengthening the mechanism of prevention of money-laundering and to secure the proceeds of crime for being dealt with appropriately under the 2002 Act.

80…………………… Further, such recorded reasons along with the materials is required to be forwarded to the three-member Adjudicating Authority (appointed under Section 6 of the 2002 Act headed by a person qualified for appointment as District Judge) in a sealed cover to be preserved for specified period, thus, guaranteeing fairness, transparency and accountability regarding the entire 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.

81.Concededly, the 2002 Act provides for an inquiry to be conducted by the Authorities and with power to collect evidence for being submitted to the Adjudicating Authority for consideration of confirmation of provisional attachment order passed by the Authorities in respect of properties being proceeds of crime involved in the offence of money-laundering. In that sense, the provisions in 2002 Act are not only to investigate into the offence of money laundering, but more importantly to prevent money-laundering and to provide for confiscation of property related to money-laundering and matters connected therewith and incidental thereto.

82. The process of searches and seizures under the 2002 Act are, therefore, not only for the purposes of inquiring into the offence of money-laundering, but also for the purposes of prevention of money laundering. This is markedly distinct from the process of investigating into a scheduled offence.”

37. It was also reasoned by the Court that if the action taken by the Authority is eventually found to be without reasons recorded in writing, would entail punishment for vexatious search under Section 62 of the Act.

38. It relied on the decision of Constitution Bench of the Supreme Court in Pooran Mal vs Director of Inspection (Investigation), New Delhi & Ors- (1974) 1 SCC 345, which had dealt with similar power of search and seizure entrusted to the Director of Inspection or the Commissioner under the Income-tax Act, 1961; RS Seth Gopi Krishan Agarwal vs. R.N. Sen, Assistant Collector of Customs & Ors. -1967(2) SCR 340 dealing with Sections 105 and 136 of the Customs Act.

SEARCH OF PERSONS:

39. Section 18 deals with search of persons. Even in respect of this provision, the petitioners challenge the deletion of proviso in sub-section (1) of Section 18 vide Finance (No.2) Act, 2019 which was pari-materia with the proviso in Section 17(1) of the 2002 Act — stipulating that no search of any person shall be made unless in relation to the scheduled offence a report has been forwarded to a Magistrate under Section 157 of the 1973 Code, etc.

40. The Hon’ble Court, however, stated that as per Section 18(3) the Authority is obliged to take the person who is about to be searched to a Gazetted Officer or a Magistrate before the search of such person is carried out. The Constitution Bench of Supreme Court while dealing with similar provisions of NDPS Act in State of Punjab vs. Baldev Singh-(1999) 6 SCC 172, upheld the search of person procedure being a fair and reasonable procedure. In paragraph 25 of the said decision, the Court observed as:

“25. To be searched before a gazetted officer or a Magistrate, if the suspect so requires, is an extremely valuable right which the legislature has given to the person concerned having regard to the grave consequences that may entail the possession of illicit articles under the NDPS Act. It appears to have been incorporated in the Act keeping in view the severity of the punishment. The rationale behind the provision is even otherwise manifest. The search before a gazetted officer or a Magistrate would impart much more authenticity and creditworthiness to the search and seizure proceeding. It would also verily strengthen the prosecution case………………………….”

41. Additionally, under Section 18(5), if the person to be searched is taken to a Gazetted Officer or the Magistrate, then such Officer or Magistrate may release the person if there is no ground for search and under Section 18(6), the Authority is obliged to call at least two witnesses to attend to witness the search, in whose presence, the search is to be carried out. In terms of Section 18(7), the Authority seizing any property during the search of such a person has to prepare a list of the record or the property seized which is required to be signed by the witnesses to ensure that no tempering thereof takes place later on. In case, search of a female is to be carried out, in terms of Section 18(8), it could be done only by a female. Significantly, the Authority seizing any record or property during the search of the person is obliged to submit an application to the Adjudicating Authority within thirty days for permitting retention of record or property. On such application, the Adjudicating Authority gives opportunity of hearing to the person concerned as to why record or property should not be retained in terms of Section 18(10).

42. The court finally observed that such inbuilt safeguards are provided to secure the interest of the person being subjected to search, at the same time for strengthening the mechanism regarding prevention of money-laundering and attachment of proceeds of crime. Merely because Section 165 of the 1973 Code provides for a different mechanism regarding search by the police officer, that will be of no consequence for dealing with the inquiry/investigation and adjudication including prosecution under the 2002 Act. Suffice it to observe that the provision in the form of Section 18, as amended, is a special provision and is certainly not arbitrary much less manifestly arbitrary.

 

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———————————TO BE CONTINUED PART IV———————————