Can ED Include 'Reasons To Believe' In Provisional Attachment Orders? Gauhati High Court Refers Issue To Larger Bench

The Gauhati High Court has recently referred to a larger bench the question of whether the Enforcement Directorate's recorded "reasons to believe" are confidential or can be incorporated into a provisional attachment order.

The reference follows a single judge's disagreement with an earlier coordinate bench that had taken a contrary view.

Justice Manish Choudhury observed that his view that it is not confidential differed from the earlier coordinate bench ruling in Aftabuddin Ahmed v. Enforcement Directorate.

The court directed that the issue be placed before the Chief Justice on the administrative side for the constitution of a larger bench.

"From the perspective of this Court, the points of reference are : [i] whether the reason to believe, which is to be recorded in writing by the Authorized Officer on the basis of material in his possession to pass a Provisional Attachment Order [PAO] under Section 5[1] of the PMLA, is confidential in character or not, and/or is to be furnished to the affected person or not? and [ii] if such reason to believe is made part of the PAO, whether the PAO suffers from any jurisdictional error or not?"

The reference arose from a petition filed by Mrig Mrinal Dhawan, proprietor of Fama Marketing, challenging the Enforcement Directorate's provisional attachment of three properties in connection with an alleged fake GST input tax credit fraud involving about ₹99.31 crore.

Dhawan argued that the authorised officer's recorded "reasons to believe" ought to have remained in a separate confidential file instead of being incorporated into the provisional attachment order. He also contended that the attachment of equivalent-value properties was impermissible and that the statutory conditions for issuing the attachment order had not been satisfied.

The court rejected those submissions. It observed that neither the Prevention of Money Laundering Act nor the applicable rules prohibit an authorised officer from incorporating the recorded reasons into a provisional attachment order. It also observed that furnishing those reasons to the affected person would be consistent with the principles of natural justice and fair play.

"From the above analysis, this Court does not reach a conclusion that if the reason to believe, which if recorded by the Authorized Officer to exercise the power under Section 5 [1] of the PMLA in a file at a prior point of time, is made part of the PAO, the PAO would suffer from any kind of illegality. Rather, this Court is of the view that such reason to believe is required to be furnished to the affected person, sooner or later, if a request is made to that effect by the affected person. If the reason to believe is made part of the PAO, the same would be in alignment with the constitutional principles of natural justice and fair play; and the same would lessen the possibility of subjective fishing expeditions."

On the challenge to the attachment itself, the court held that the Enforcement Directorate had sufficient material to record the requisite reasons to believe before issuing the provisional attachment order.

It also ruled that attachment of properties equivalent in value to the alleged proceeds of crime is permissible.

The court further observed that the provisional attachment order and supporting material are forwarded to the Adjudicating Authority under the applicable rules. If the recorded reasons are excluded from the order, they may never reach the Adjudicating Authority because the rules do not require the separate file containing those reasons to be forwarded.

"This Court is therefore of the clear view that it is for the purpose of precluding manipulation of, and preservation of, the evidence and the material, on the basis of which the Authorized Officer recorded his reason of believe, intact till the time the same are examined by the Adjudicating Authority to test the legality and validity of the PAO. As per the contention of the petitioner, the reason to believe, recorded by the Authorized Officer, is not to be part of the PAO. Then the PAO will be without the reason to believe. As per the PMLA Rules, 2005, the Authorized Officer would be required to send a copy of the PAO and the material to the Adjudicating Authority in a sealed envelope."

After recording those observations and dismissing the petition, the court directed that the question of law be placed before a larger bench for an authoritative determination.