The Gauhati High Court has referred to a larger Bench the question of law concerning whether the “reason to believe” recorded by the Directorate of Enforcement (ED) for initiating provisional attachment of property under Section 5(1) of the Prevention of Money Laundering Act (PMLA), 2002, is required to be disclosed to the affected person, either by incorporation in the Provisional Attachment Order (PAO) or through subsequent disclosure.
The reference arose in proceedings challenging a PAO issued under the PMLA in a money laundering investigation. The single-judge Bench of Justice Manish Choudhury disagreed with an earlier co-ordinate Bench decision in Aftabuddin Ahmed v. Enforcement Directorate and Others, which had held that the reason to believe recorded by the Authorised Officer constituted an internal satisfaction note and was not mandatorily required to be part of the attachment order communicated to the noticee.
Justice Choudhury observed that neither Section 5(1) of the PMLA nor the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, imposed any statutory bar on disclosure of the recorded satisfaction. The Court noted that the “reason to believe” is a jurisdictional precondition for exercise of coercive powers of provisional attachment and, therefore, forms part of the foundational material subject to procedural fairness requirements.
It was further held that furnishing such reasons to the affected person, either contemporaneously with the PAO or upon request at a subsequent stage, would be consistent with the principles of audi alteram partem, natural justice, and constitutional guarantees under Article 14 of the Constitution. The Court emphasised that embedding the reasons within the PAO would enhance procedural transparency and act as a safeguard against arbitrary or roving (fishing expedition) enforcement action.
The Bench also observed that exclusion of such reasons from the PAO would render the order effectively non-speaking, reducing it to a mechanical enumeration of properties without disclosing the statutory basis of satisfaction recorded under Section 5(1) PMLA. Such an interpretation, it noted, could potentially dilute the requirement of reasoned administrative action in quasi-judicial proceedings under the PMLA framework.
In view of the divergent judicial views rendered by coordinate Benches, the Court directed that the issue be placed before the Chief Justice of the High Court for constitution of an appropriate larger Bench for authoritative adjudication.
The Court framed two substantial questions of law for determination: whether the “reason to believe” recorded by the Authorised Officer for issuance of a PAO under Section 5(1) PMLA is confidential in nature and whether such reasons are required to be furnished to the affected person; and whether incorporation of such reasons in the PAO would vitiate the order on account of any jurisdictional error or legal infirmity.
Significantly, the argument for maintaining confidentiality of the “reason to believe” was advanced by the petitioner, whose property had been subjected to attachment by the ED. It was contended that the statutory scheme requires the Authorised Officer to record satisfaction in a separate internal file prior to issuance of the PAO, and that inclusion of such material in the operative order would be contrary to procedural requirements.
Rejecting this contention, the Court held that accepting such an interpretation would result in Provisional Attachment Orders becoming cryptic instruments limited to identification of properties without disclosure of the underlying statutory satisfaction. This would deprive the noticee of meaningful opportunity to challenge the basis of attachment before the Adjudicating Authority under Section 8 of the PMLA.
The Court further observed that legislative intent under the PMLA does not contemplate secrecy in respect of jurisdictional facts forming the basis of coercive attachment. It reiterated that judicial interpretation cannot import restrictions into statutory provisions which the legislature has consciously omitted.
The matter has been referred for adjudication by a larger Bench to settle the legal position on the extent of disclosure required in respect of “reason to believe” recorded under Section 5(1) PMLA, particularly in the context of balancing enforcement powers of the ED with procedural due process and rights of affected persons.
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