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Judgment
FPA-PMLA-2210/DLI/2018
The above mentioned appeal has been filed under Section 26 of the Prevention of Money Laundering Act, 2002 against the order passed in Original
Application No. 117 of 2017 dated 01st February, 2018, passed by the Adjudicating Authority.
The Appellant has only two Directors, viz. Mr. Habib Ullah Khanyari and Mr. Mohammad Rafiq Hakim. On 09th August, 2017 and 10th August,
2017, a group of Officers of the Respondent i.e. Directorate of enforcement, entered and searched the premises of the appellantâ€s shop situated at
13, Ormiston Road, Apollo Bandar, Colaba, Mumbai - 400001, and seized Diamond Jewellery (217.86 CTS - Valued at Rs.91,21,627/-), Gold
Jewellery & Coins (8233.400 gms Net Wt â€" Valued at Rs.2,06,08,396/-), Documents and Pen-drive.
The Respondent issued Summons dated 11th August, 2017, 18th August, 2017 and 29th August, 2017 to Mr. Iqbal Mubarak seeking various details
from him, some of which pertained to the Appellant. These summons were addressed to Mr. Iqbal Mubarak, a shareholder holding less than 1%
shares of the Appellant Company and served at the address of the Appellant. It is stated by the Appellant that as Mr. Iqbal Mubarak, is only a minor
shareholder in the Appellant Company with a shareholding of less than 1% and is an NRI residing in Dubai, he is not at all conversant with the day-to-
day affairs of the Appellant and had no access to and/or communication with the Directors of the Appellant as well as the Appellantâ€s
financials/accounts. He was, therefore, in no position to comply with the aforesaid summons, as well as to furnish relevant particulars in relation to the
Appellant or the seized goods. It is submitted on his behalf that the aforesaid summons were issued under the erroneous belief that the said Mr. Iqbal
Mubarak is a director of the Appellant, while intending to implead Mr. Iqbal Mubarak, who is an NRI residing in Dubai, in his personal capacity, were
served at the address of the Appellant. During the month of October, 2017, Mr. Iqbal Mubarak requested the directors of the Appellant and there was
substantial compliance with all the information/particulars sought by the Respondent.
An application under Section 17(4) of the Prevention of Money Laundering Act, 2002 dated 08th September, 2017 was taken out by the
Respondent for the further retention of the seized goods (hereinafter referred to as “the said Applicationâ€). The said application was based on
belief that Mr. Iqbal Mubarak, (who is one of the minor shareholders of the Appellant) was the Appellantâ€s director and was running the
Appellantâ€s Shop. The allegation as contained in paragraph (f) of the Application is reproduced herein below for ease of reference:
“f. Investigations revealed certain financial transactions were being handled by Hassan Ali Khan with the help of Mr. Mohammad Hussain who
was operating a jewellery firm in London in the name of Dianoor Jewels Ltd. alongwith his brother-in-law Mr. Iqbal Mubarak. It is further revealed
from investigation that Mr. Mohammad Hussain’s relative i.e. Mr. Iqbal Mubarak, is running a shop in the name of Ahmed Joo, 13 Ormiston
Road, Apollo Bandar, Colaba, Mumbai. Investigations have revealed that Mohammad Hussain was in regular touch with Hassan Ali Khan and was
privy to unlawful dealings of Hassan Ali Khan and also used to visit Ahmed Joo.â€
[Emphasis supplied]
Reply on behalf of the Appellant to the application under Section 17 Rule 4 of PMLA, 2002 for retention of the materials. The relevant parts of
reply are re-produced here below:-
a) This response is limited to the Diamond Jewellery (217.86 CTS-Valued at Rs.92,21,627/-), Gold jewellery & Coints (8233.400 gms Net Wt- Valued
at Rs.2,06,08,396/-), Documents and Pendrive (hereinafter collectively referred to as “the said Goodsâ€) seized from the premises of the Company,
in respect of which the Application purports to seek orders/permission for their retention under Section 17(4) of the Prevention of Money Laundering
Act, 2002 (“the PMLA†in short) on the an arbitrary and erroneous presumption of having alleged reasonable belief, that one of the shareholders
of the Company Mr. Iqbal Mubarak (holding only 5% shares) is running the Company's shop “Ahmed Joo†situated at 13 Ormiston Road, Apollo
Bundar, Colaba, Mumbai (hereinafter referred to as “the said Shopâ€).
b) At the outset, it is pertinent to note that there is neither any allegation against the Company nor any case is made out against the Company, to
whom the said Goods belong. Mr. Iqbal Mubarak is neither a Director of the Company nor is he running the said Shop. As may be clearly inferred
from the aforesaid, investigations have been initiated against Mr. Iqbal Mubarakâ€s relative Mr. Mohammad Hussain on the basis that Mr.
Mohammad Hussain helped one Hassan Ali Khan to handle certain financial transactions and that Mr. Mohammed Hussain used to visit the said Shop
of the Company.
c) Apparently the said Goods have been seized on an erroneous basis that Mr. Iqbal Mubarak is a Director of the Company and he is running the said
Shop, which he is not. Mr. Iqbal Mubarak is an ordinary shareholder of the Company more than 5% share herein. The Company's records duly
supported by records maintained by the MCA evidence that the Company has only two Directors viz., Mr. Habib Ullah Khanyari and Mr. Mohammad
Rafiq Hakim.
d) Further, admittedly the said Goods were seized by the officers of the Enforcement Directorate on 10.08.2017 and 11.08.2017 from the said Shop
and the Company is the owner of the said Goods. Also, neither the Company nor the said Shop has any concern whatsoever with Mr. Mohammed
Hussain or for that matter Hassan Ali Khan. Further, Enforcement Directorate is also made aware that Mr. Mohammed Hussain is the estranged
brother-in-law of Mr. Iqbal Mubarak and their relationship is strained since last more than a decade and since then Mr. Mohammed Hussain has not
visited the said shop as alleged or otherwise.
e) Notwithstanding the aforesaid, it is submitted that the Application under Section 17(4) of the PMLA is for the retention of the said Goods owned by
the Company, and not Mr. Iqbal Mubarak in his personal capacity. It is a well settled position that any property owned by a Company cannot be
deemed to be the property of any of its shareholders. Mr. Iqbal Mubarak is neither concerned nor in any manner connected with the operation of the
Company. He is a non-resident and currently residing in Dubai, UAE.
f) The very basis for invoking the provisions of PMLA with regards to the said Goods is misconceived in as much as, as a mere 5% shareholder, Mr.
Iqbal Mubarak is not “running†the said Shop.
The said Shop is run by the Company through its Directors and employee. As it is not even alleged (which would otherwise also be false and baseless)
that there is any relation and/or connection between the Company and Mr. Mohammad Hussain, much less Hassan Ali Khan, there is no warrant or
justification for invoking the provisions of PMLA as against the goods which are owned by the Company. Consequently, the seizure in the first place
and the extension thereof under Section 17(4) itself is wholly illegal and without jurisdiction and authority of law. As such, seizure of the Companyâ€s
stock-in-trade, on the false/erroneous basis vitiates the seizure of the said Goods belonging to the Company.
g) Equally misconceived is the basis that Mr. Iqbal Mubarak is the Director of the Company. This is plainly false. As is evident from the ROC
records, Mr. Iqbal Mubarak is not a Director of the Company.
h) It is further submitted that such presumption without any coherent evidence, cannot and should not, in any manner whatsoever result in the said
Goods owned by the Company being seized. Such an action has and continues to cause grave prejudice to the business and revenues of the Company.
Accordingly, it is submitted that the further retention of the said Goods as sought vide the Application will cause serious prejudice to the Company on
account of its stock-in-trade being seized, more so when no justification for the “further†retention thereof has been given anywhere in the said
Application.
i) Moreover, it bears mentioning that on the basis of the seizure, none of the Directors/Shareholders were present at the said shop premises of the
Company. In so far as this Application is concerned, there is no charge or allegation against any of the two Directors of the Company. Thus, the
allegation proceeds purely on the wrongful basis of Mr. Iqbal Mubarak being a Director of the Company and his relationship with his estranged
brother-in-law. It is humbly submitted that such misconceived and erroneous grounds do not entitle the concerned authorities to carry out a seizure
owing to the lack of legitimacy in their “reasons to believeâ€.
j) In support of the above, reliance is placed on the judgement of the Honâ€ble Supreme Court in the case of Aslam Mohammad Merchant V.
Competent Authority (2008) 14 SCC 186 wherein the Honâ€ble Court, in respect of the establishment of a nexus between the property sought to be
attached with the prejudicial activity/ scheduled offence and proceeds of crime resulting in the acquisition of property.
k) It ought to be pointed out that while the aforesaid judgment was on a matter dealing with the interpretation and application of Chapter V-A of the
Narcotic Drugs and Psychotropic Substances Act, 1985, providing for forfeiture of property derived from or used in illicit traffic, it is respectfully
submitted that the provisions and object of the said Narcotic Drugs and Psychotropic Substances Act, 1985 are in pari material to the provisions of the
PMLA.
l) In any event and without prejudice to the aforesaid, it is submitted that the said Goods found in the said Shop premises of the Company have been
procured in the regular course of business. The said Goods are neither financed nor supplied by either by Mr. Iqbal Mubarak or Mr. Mohammad
Hussain or Hassan Ali Khan.
m) As per Panchnama dated 11.08.2017 (pages 19-22 of the Application), the officers of the Enforcement Directorate were questioning one of the
salesmen at the said premises, viz., Mr. Shaikh Javed Hussain. As per the said Panchnama, the officers came under a reason to believe that the said
jewellery and precious stones are connected with the offence of money laundering because Mr. Javed, who is nothing more than a “salesmanâ€
and employee of the Company, could not produce any document in relation to the said jewellery and precious stones. | submit that Mr. Javed was not
concerned with the purchase of jewellery or other articles in the store. It is therefore submitted that his inability to mention the source of procurement
of such jewellery arises merely due to his ignorance and not because it has been sourced from illegal entities. Consequently, to seize the said Goods on
this basis alone is a clear abuse of powers and process, and process, as stipulated under the PMLA.
n) Without prejudice to the foregoing, it is submitted that such seizure is invalid and bad in law. Section 17(4) read with Rule 4(2) of the Prevention of
Money-laundering (Forms, Search and Seizure or Freezing and the Manner of Forwarding the Reasons and Material to the Adjudicating Authority,
Impounding and Custody of Records and the Period of Retention) Rules, 2005, as amended in 2013, (hereinafter referred to as “the Rulesâ€)
stipulate that a seizure memo has to be issued in the prescribed format prior to seizing any property under Section 17 of the PMLA. I further submit
that the Schedule to the Seizure Memo annexed at page 18 of the Application does not include any of the items of jewellery and precious stones that
were seized. I respectfully submit that a seizure made in contravention of the procedure as postulated under the PMLA read with the Rules applicable
thereto stands invalid. Accordingly, the question of further retention of seized goods does not arise at all in view of the invalidity of the seizure at the
outset.
o) In view of the above, it is humbly prayed that the Application dated 08.09.2017, in so far as it seeks to further retain the said Goods owned by the
Company, be dismissed and the said Goods owned by the Company, be ordered to be released forthwith as each day of delay is causing grave harm,
loss and injury to the Company.
All pleas raised in the reply have not been dealt in the impugned order. On the basis of apprehension, the retaining was continued.
The Appellant denies all the allegations and contentions in the Reply. Mr. Iqbal Mubarak is not a Director of the Appellant. The Appellant, being a
Company is the owner of the seized goods and not Mr. Iqbal Mubarak. The seizure of the goods and the Respondentâ€s Application No.117/2017
proceed on the erroneous basis that Mr. Iqbal Mubarak is a Director of the Appellant and is allegedly running the Shop, which he is not. It is settled
law that neither a shareholder nor a Director has any interest in the property of the Company. The Appellant has no connection of any kind with the
alleged dealings or transactions that are being investigated by the Respondent. There is no link between the Appellant and Mr. Hassan Ali Khan and
others. As per Section 22 of the PMLA, the property found in possession or control of any person in the course of a survey or a search, it shall be
presumed that such property belongs to that person. In the present case, the Appellant is the person in whose possession and control the seized goods
were found and hence, it is to be presumed that the goods belong to the Appellant, and not to its shareholder. The Appellant has denied that the
investigation revealed that Mr. Iqbal Mubarak is running the shop of the Appellant. It is also denied that Mr. Mohammad Hussain used to visit the
Shop. It is admitted by the Respondent, that Mr. Iqbal Mubarak is a shareholder of the Appellant.
During the course of arguments the learned counsel for the Appellant amongst others submissions has confirmed that Mr. Iqbal Mubarak is not
named in the FIR or ECIR and no complaint has been filed against him under PMLA. The retention of seized items, therefore, beyond the prescribed
period provided under Section 8(3)(a) of the PML Act, 2002. The prescribed period of the retention having already expired, there is no justification of
retaining this seizure.
It is an undisputed fact that Mr. Iqbal Mubarak is not an FIR named accused nor named in the ECIR and no prosecution complaint has also been
filed against him even though prosecution complaint under PMLA has been filed against several persons arising out of same ECIR and the Special
PMLA Court has taken the cognizance of the same and further trial proceedings are underway. There is no whisper anywhere in the appeal that
either Mr. Iqbal Mubarak is prosecuted under PMLA.
In the circumstances, as per the provisions of Section 8(3)(a) of PMLA, 2002 as existed till 13.07.2019 prosecution complaint was to be filed within
90 days. The impugned order was passed on 01st February, 2018. As per the said mandatory provision then existed, the prosecution complaint was to
be filed involving the property in question within the prescribed period of 90 days and that if no prosecution complaint is filed in respect of the property
concerned, the retention order of seizure lapses. In the present case more than 90 days have been passed since the day of passing of the impugned
order and no prosecution complaint was filed that the materials seized herein are part of any prosecution complaint.
Therefore, in the light of the above the impugned order to the extent that “The seized item should be restored to the appellant†which is
confirmed with a direction to the respondent that the retained material shall be returned to the appellant within four weeks.
It is clarified that we have not decided the present appeal on merit.
The same is disposed of.
No costs.