Show Cause Notice U/S 8 PMLA Must Be Issued By Judicial Member: Telangana High Court

The Telangana High Court has stayed the proceedings initiated by the Enforcement Directorate against a doctor, wife of erstwhile director of Transstroy (India) Ltd. for 3 weeks citing procedural irregularities.

Justice Surepalli Nanda highlighted that the show cause notice was issued by a Technical Member rather than a judicial member as mandated by law. 

“On perusal of the record, it is evident that the impugned show cause notice of the adjudicating authority (under the prevention of Money Laundering Act, 2022), New Delhi, dated 2.09.2023 issued under Section 8 of PMLA Act, 2002 had not been issued by a judicial member and had been issued by a Technical Member/Member (Finance).”

The interim order was passed in a petition seeking to declare the actions of ED in seizing property from the lockers of the petitioner and also the issuance of show cause notice under PMLA as illegal and without jurisdiction.

Senior Advocate Vikram Pooserla, appearing on behalf of the petitioner, argued that the show cause notice was issued by a technical member/ member (finance) and not by a single member Adjudicating Authority, having experience in the field of law/ judicial member, which was contrary to the principle established by the Apex Court in Opto Circuits (India) Ltd. V. Axis Bank and also this Court in M/s.Hygro Chemicals PharmtekPvt. Ltd vs. Union of India (2022).

The Judge observed that if the law provides for the show cause notice to be issued by a particular authorised person, it should be done in the prescribed manner. 

“This Court opines that if a statute provides for a thing to be done in a particular manner then it has to be done in that manner alone and in no other manner…. in the present case, the show cause notice under Section 8 (1) of the PMLA were issued and confirmation orders under Section 8 (3) of the PMLA were passed by a single member having no experience in law. Therefore, the said show cause notices and confirmation orders are non-est and are liable to be set aside," the Court observed.

Senior advocate Pooserla, also argued that the ED failed to show, as per, section 17 of PMLA, that it ‘on the basis of information, in his possession, has, reason to believe (that are to be recorded in writing) that any person, in his possession has proceeds of crime.’

The Senior counsel contended that the ED was never able to establish either direct or indirect involvement of the petitioner in the loan scam alleged against M/s Transstroy and under such circumstances could not high handedly seize the jewellery deposited in the lockers of the petitioner, on the sole premise of being the spouse of one of the directors in M/s Transstroy. It was further submitted that the petitioner is a practicing doctor and had purchased the jewellery by her own earnings and cannot be considered “proceeds of crime.”

The Senior counsel pressed that the ‘recorded reasons’ by the ED do not disclose “any allegations against the Petitioner in a personal capacity, associate her with the Company or FIRS registered against the Company and its directors. accused/ suspected the Petitioner of being involved (either directly or indirectly) in the alleged fraudulent conduct of affairs and operations of the Company.”

Taking account of the facts and the arguments, the Court ordered as follows:

“Taking into consideration the above referred facts and circumstances and the view taken by this Court in W.P.Nos.34238 & 34627 of 2022 and batch, and the law laid down by the Apex Court….., the operation of the show cause notice dated 02.09.2023 issued by the Adjudicating Authority (under prevention of Money Laundering Act, 2022) New Delhi, i.e. the 1" respondent, and the proceedings in pursuance to the summons dated 01.09.2023 of the Assistant Director Enforcement Directorate, Government of India, Hyderabad calling upon the petitioner to appear at the said office on 15.09.2023 at 10.30 AM is stayed for a period of three weeks from today.”

Case Title: Dr. Vani Cherukuri vs. Directorate of Enforcement and Anr.

Counsel for petitioner: Senior Counsel Vikram Pooserla appearing on behalf of Shreya Devaki.

Counsel for respondent: Gadi Praveen Kumar DY. Solicitor General Of India