Telangana High Court Holds Valid Reasons To Believe Justify ED Asset Retention In MMTC Fraud Case

The Telangana High Court on 1 July upheld the Enforcement Directorate's (ED) power to retain seized cash, gold jewellery, precious stones, documents and electronic devices where the adjudicating authority records reasons to believe that such assets may constitute proceeds of crime under the Prevention of Money Laundering Act (PMLA).

A Division Bench of Justices P. Sam Koshy and Narsing Rao Nandikonda dismissed an appeal filed by Musaddilal Gems and related entities, while affirming the Appellate Tribunal's order that upheld the Adjudicating Authority's order permitting retention of the seized assets under Section 17(4) of the PMLA (which allows retention of property seized during a search if statutory conditions are satisfied). It held:

“For all the aforesaid reasons stated in the preceding paragraphs and the findings arrived at by the two forums and specifically discussed in the instant appeal, we do not find any strong case made out by the appellant in holding the two impugned orders to be bad in law. Rather, the two impugned orders are well-reasoned orders in tune with the judicial precedents on the subject matter and therefore there is hardly any scope of interference made out. Therefore, the instant appeal being devoid of merit, deserves to be and is accordingly dismissed.”

The case arose from a Central Bureau of Investigation (CBI) probe into an alleged fraud involving MMTC Ltd and the MBS Group headed by Sukesh Gupta, which allegedly caused a loss of over Rs. 226 crore. Following searches conducted between 17 October and 19 October 2022, the ED initiated proceedings under Section 17(4) of the PMLA seeking retention of the seized assets.

Musaddilal argued that the Enforcement Case Information Report (ECIR) had been quashed by the High Court, that its transactions with the MBS Group were genuine commercial dealings and that the seized assets had no connection with any alleged proceeds of crime. It also contended that the proceedings were barred by limitation. The ED opposed the plea, arguing that Musaddilal had allegedly been used as a conduit for layering proceeds of crime and that the investments and unsecured loans lacked credible sources.

Examining the Adjudicating Authority's order, the Court held that the authority had complied with the statutory requirements while permitting retention of the properties and that its findings were consistent with settled judicial precedents. It observed:

“Thus, from the reading of the findings and the conclusion arrived at by the Adjudicating Authority, this Bench has no hesitation in reaching to the conclusion that the Adjudicating Authority has, in fact, met with all the requirements as is required under the statute as also the said order being in tune with the judicial precedents on the issue.”

The Bench rejected Musaddilal's reliance on its earlier order quashing the ECIR, noting that the Supreme Court had stayed that judgment in a special leave petition. It held that the stay rendered the earlier order ineffective and restored the position that existed before the ECIR was quashed. It also rejected the limitation challenge, holding that the period during which the investigation remained had to be excluded while calculating the 365-day period under Section 8(3) of the PMLA (which deals with the continuation of attachment or retention proceedings). The judges noted:

“In terms of the explanation provided under Section 8(3), the duration during which the stay was in operation under any Court and any law, the said period would have to be excluded for the purpose of counting the limitation. If the duration of stay is excluded in the instant case, there is no dispute so far as the prosecution complaint being filed within a period not exceeding 365 days.”

Accordingly, the High Court found no infirmity in the orders passed by the Adjudicating Authority and the Appellate Tribunal and dismissed Musaddilal's appeal.

For Appellant: B.Chandrasen Reddy, Senior Counsel, B.Vamshidhar Reddy, Counsel

For Respondent: D.Narender Naik, Standing Counsel