Solipuram Venkat Reddy vs Adjudicating Authority on 15 July, 2026

Telangana High Court

Solipuram Venkat Reddy vs Adjudicating Authority on 15 July, 2026

Author: Nagesh Bheemapaka

Bench: Nagesh Bheemapaka

IN THE HIGH COURT OF JUDICATURE FOR THE STATE OF
                    TELANGANA
     HON'BLE SRI JUSTICE NAGESH BHEEMAPAKA

             WRIT PETITION No. 4360 OF 2025

                         15.07.2026

Between:

Solipuram Venkat Reddy & others

                                                   ..... Petitioners
And

Adjudicating Authority
Under the Prevention of Money Laundering Act, 2002
& others

                                                ..... Respondents

O R D E R:

Petitioner No.1 is engaged in the transportation and

logistics business and is also carrying on construction activities

involving commercial and residential projects in Hyderabad and

Bangalore. He is a partner in several firms engaged in the

aforesaid lawful business activities. It is the specific case of

petitioners that the income derived from the said businesses is

duly recorded in the books of account, the accounts are

regularly audited and income tax returns are filed disclosing

income from all sources. Petitioners further state that the firms

in which Petitioner No.1 is a partner had availed loans from
2

various banks including Andhra Pradesh Mahesh Cooperative

Urban Bank Limited, Hyderabad (Mahesh Bank) during the

period from 2014 to 2023 for the purpose of their business

activities and that all such loans were repaid regularly together

with interest and other charges.

1.1. It is the case of petitioners that officers of the 2nd

Respondent conducted search proceedings on 31.07.2024 at the

residential premises of Petitioners 1, 2, 3 and 5 and at the

maternal house of Petitioner No.4 on the allegation that one

Purshottamdas Mandhana, who was Vice-Chairman of Andhra

Pradesh Mahesh Cooperative Urban Bank Limited, was involved

in offences of money laundering and that Petitioner No.1 was

allegedly associated with him. During the course of the said

search proceedings, the officers seized gold ornaments weighing

6309.09 grams valued at Rs.4,27,24,300/-, Indian currency of

Rs. 14,50,000/-and foreign currency of USD 3256 from the

residences of Petitioners 1, 2, 3 and 5 and from the maternal

house of Petitioner No.4 along with property documents, locker

keys of two lockers and a mobile phone under Panchanama

dated 31.07.2024.

1.2. Petitioner No.1 has no business transactions with

Purshottamdas Mandhana except availing loans from Mahesh
3

Bank and also from the HUF account of Purshottamdas.

Mandhana during the ordinary course of business and that the

entire loan amount together with interest and other charges was

repaid in full. Petitioners specifically contend that they are in no

manner connected with the business activities of Mahesh Bank

or its Vice-Chairman Purshottamdas Mandhana. Petitioner No.1

had addressed the letter dated 17.08.2024 to Respondents

explaining that all transactions with Mahesh Bank were regular

business transactions and that he had no involvement in any

alleged money laundering activity of the bank or its office

bearers and sought release of the seized cash, jewellery and

documents. However, Petitioners have not received any reply

from the 2nd Respondent.

1.3. It is stated, petitioner No. 1 had addressed another

detailed representation dated 03.10.2024 explaining the

transactions of his business entities with Mahesh Bank and

demonstrating that the loans were availed in the regular course

of business and that he had no other transactions whatsoever

with the bank or with Purshottamdas Mandhana. Petitioners

further contend that Petitioner No.1 furnished complete

particulars relating to purchase of gold ornaments by himself

and the other petitioners over a span of nearly 25 years and also
4

furnished details regarding the source of the Indian currency

seized, which according to petitioners represented withdrawals

from bank accounts. It is further contended that the jewellery

seized was duly supported by purchase bills and despite

furnishing all supporting material, no response was received

from the office of the 1st respondent.

1.4. Under Section 20(1) of the Prevention of Money

Laundering Act, 2002 (for short, ‘the Act’), cash, goods or

documents seized under Section 17 of the Act can be retained

only for a period of 180 days and for retention beyond the said

period the investigating officer is required to file an Application

before the Adjudicating Authority specifying “reasons to believe”

that the property is required for adjudication under Section 8 of

the Act. Petitioners contend that the 2nd Respondent filed

Original Application dated 23.08.2024 under Section 17(4) of

the Act seeking retention of the seized properties beyond 180

days alleging that Purshottamdas Mandhana was a partner in

M/s. Profound Infra along with Petitioner No.1, that several

suspicious transactions existed between Petitioner No.1 and

Purshottamdas Mandhana, that loans granted to M/s Hive

Space were diverted to Petitioner No.1’s account and remitted to

Mainland Digital Technologies and Profound Builders and that
5

Petitioner No.1 may have acted as a proxy for the business

interests of Purshottamdas Mandhana. According to petitioners,

the Original Application merely contained bald allegations and

suspicion without any cogent material to establish that the

seized jewellery, Indian currency or foreign currency constituted

proceeds of crime.

1.5. Original Application filed by the 2nd Respondent

before the Adjudicating Authority specifically referred to

suspicious transactions between borrowers of APMCU Bank and

family members of Purshottamdas Mandhana and also alleged

circuitous transactions between entities related to Petitioner

No.1 such as Intercity Transport Logistics, Indian Auto Services,

Ease on Wheels Logistics and Hivespace. However, in support of

the said claims/allegations 2nd respondent had failed to place

any material establishing that any illegal transaction took place

between Petitioner No.1 and the office bearers of Mahesh Bank

or that any proceeds of crime were generated by petitioners.

1.6. Based on the Original Application filed by the 2nd

Respondent, the 1st Respondent issued a show cause notice

dated 02.09.2024 under Section 8(1) of the Act stating that it

contained “reasons to believe”. Petitioners contend that no such

“reasons to believe” were furnished along with the show cause
6

notice and that the notice itself did not disclose any material

showing involvement of Petitioner No. 1 in money laundering or

that the seized properties constituted proceeds of crime. It is

further contended that no notices whatsoever were issued to

Petitioners 2 to 5 though substantial portions of the jewellery

belonged to them. According to petitioners, the entire

proceedings are therefore, vitiated by violation of principles of

natural justice.

1.7. Petitioner No.1 filed a detailed reply dated

03.10.2024 to the show cause notice contending that the notice

was issued without recording or furnishing valid “reasons to

believe” as mandated under the PMLA and that in the absence

of any reasons to believe that Petitioner No.1 was involved in

money laundering activity, retention of the cash, jewellery and

documents seized from the premises of petitioners was wholly

illegal. Petitioner No.1 specifically contended before the

Adjudicating Authority that the seizure proceedings were

initiated merely on assumptions and presumptions alleging

suspicious transactions between Petitioner No. 1 and one of the

accused in the predicate offence and that seizure of property

cannot be sustained on mere suspicion in the absence of prima

facie evidence. It is the specific and categorical case of
7

petitioners that all properties seized were lawfully acquired and

that complete documentary evidence regarding legal acquisition

was produced before the authorities, however it was not

considered while passing the impugned order.

1.8 Petitioner No.1 specifically denied the allegation

that Purshottamdas Mandhana was partner in M/s Profound

Infra and contended that the allegation was false and baseless.

Documentary evidence filed and produced before the competent

authority clearly established that no benefit whatsoever was

derived by Petitioner No. 1 from any accused in the predicate

offence and that all loans availed from Mahesh Bank were

repaid in the ordinary course of business along with interest

and charges. It is denied in specific that the allegation regarding

diversion of loan sanctioned to M/s. Hive Space, a sole

proprietorship concern of Petitioner No.3, was false and

contrary to the record and that the entire loan amount was

utilized for the purpose for which it was sanctioned, namely

creation of infrastructure for leasing premises, and the entire

amount was repaid to the bank.

1.9. Further, seizure of Indian currency amounting to

Rs.14,50,000/- was illegal as the source of the said amount was

duly demonstrated through bank withdrawal statements. So
8

also is the case with the seizure of foreign currency amounting

to USD 3256, as the said currency belonged to petitioners and

represented leftover foreign exchange retained after foreign

travel. Petitioners relied upon RBI Master Circular No.6/2015-

16 dated 01.07.2015 to contend that every traveller is entitled to

retain USD 2000 per visit. Petitioners further contended that

under Section 20(4) of the PMLA, the Adjudicating Authority is

required to satisfy itself that the property sought to be retained

is prima facie involved in money laundering and required for

adjudication under the Act. Investigating officer failed to

produce any evidence whatsoever demonstrating that the seized

cash, jewellery or property documents were involved in money

laundering and therefore the movable properties, cash and

documents ought to have been released.

1.10. Along with the reply filed before the Adjudicating

Authority, petitioner No.1 filed extensive documentary evidence

including copy of the Partnership Deed dated 18.01.2018 of M/s

Profound Infra showing that Purshottamdas Mandhana was not

a partner therein, Supplementary Amendment Agreement dated

15.10.2023, copies of loan sanction letters issued by AP Mahesh

Bank, copies of loan closure letters, documents pertaining to

transfer of M/s Hive Space loans from AP Mahesh Bank to
9

Kotak Mahindra Bank, worksheets showing details of repayment

to Purshottamdas Mandhana’s HUF and family members, copy

of loan sanction letter dated 06.02.2020 issued to M/s Hive

Space, No Dues Certificate dated 01.02.2024 issued to M/s Hive

Space, Lease Deed dated 01.10.2019, bank statements

evidencing withdrawal of cash and relevant pages of passports

and visas of Petitioners 1, 2 and 3.

1.11. In support of the contentions of petitioners, they

filed affidavits, statements of jewellery owned by each petitioner

and respective purchase bills through memo dated 26.11.2024.

It is specifically contended that Petitioner No.4 is the married

daughter of Petitioners 1 and 2 and the jewellery belonging to

her kept at her maternal house was also seized illegally.

Petitioners contend that the purchase value of jewellery

belonging separately to Petitioners 1 to 5 was as follows:

Petitioner No. 1 – Rs. 1,60,38,105/-

Petitioner No. 2-Rs. 87,01,050/-

Petitioner No. 3-Rs. 16,34,310/-

Petitioner No. 4-Rs. 57,16,777/-

Petitioner No. 5- Rs. 1,60,000/-

Total Rs. 3,22,50,242/-

10

1.12. Petitioners further contend that the present market

value of the jewellery as estimated by a Government registered

valuer was Rs. 4,27,24,300/-. Despite filing detailed replies,

affidavits and documentary evidence, the 1st respondent passed

the impugned order dated 06.01.2025 allowing retention of the

seized properties and documents without considering the

submissions advanced by petitioners. According to petitioners,

the Adjudicating Authority passed a cryptic order merely

observing that prima facie allegations related to money

laundering existed and that the seized material demonstrated

involvement of proceeds derived from illicit activities.

1.13. Petitioners specifically assail paragraph 5(III) of the

impugned order wherein the only allegation recorded against

Petitioner No. I is that he was “suspected to have paid

commissions to Sh. Purshotamdas Mandhana in return of the

loans sanctioned to him or his entities.” It is contended that

except for the aforesaid observation based purely on suspicion,

there is no finding whatsoever in the impugned order linking

petitioners or their properties with any offence of money

laundering. Impugned order was passed without examining the

documentary evidence filed by them and therefore suffers from

non-application of mind, violation of principles of natural justice
11

and predetermined bias. That apart, no opportunity whatsoever

was afforded to Petitioners 2 to 5 though their jewellery was also

seized and retained.

1.14. It is stated, Purshottamdas Mandhana himself

informed petitioner No.1 that his statement before the

Enforcement Directorate was obtained under coercion and that

he denied being a partner in M/s Profound Infra. Even in the

reply filed by Purshottamdas Mandhana before the Adjudicating

Authority, no allegation whatsoever was made against Petitioner

No.1 or his entities. This itself establishes that Petitioner No.1

was in no manner connected with the alleged offence of money

laundering. Petitioners contend that seizure and retention of

their jewellery, Indian currency and foreign currency is illegal

and that the Petitioners have been deprived of their lawful

property without authority of law. Though purchase bills,

income tax returns and assessment records were produced

demonstrating lawful acquisition and possession of the

jewellery, the same were ignored by respondents. Entire

jewellery belongs to the family members except the ornaments

worn on their persons at the time of search, which was seized

arbitrarily and without jurisdiction.

12

1.15. Respondents failed to establish “proceeds of crime”

as defined under Section 2(1)(u) of the Act. The subject jewellery

was purchased over a period of nearly 25 years had no nexus

whatsoever with the alleged illegal activities of office bearers of

Mahesh Bank and that neither the Original Application nor the

impugned order records any finding that the jewellery, cash or

foreign currency represented proceeds of crime. Petitioners

relied upon the judgment of the Patna High Court in HDFC

Bank Limited Chotisaraiya ganj v. Government of India1

wherein it was held that property acquired from legitimate

sources cannot be attached merely because property derived

from scheduled offences is unavailable and that only property

derived or obtained from criminal activity would fall within the

ambit of “proceeds of crime”.

1.16. It is stated, the impugned order is wholly without

jurisdiction as Section 20(4) of the Act mandates that the

Adjudicating Authority must record satisfaction that the

property is prima facie involved in money laundering and

required for adjudication. According to petitioners, no such

finding exists either in the Original Application filed by the 2nd

Respondent or in the impugned order dated 06.01.2025.

1
2021 SCC OnLine Pat 4222
13

Petitioners further contend that no valid “reasons to believe”

were recorded either by the 1st Respondent or the 2nd

Respondent in relation to petitioners or the seized properties.

Reasons to believe were recorded only against persons accused

in the predicate offence and not against Petitioner No.1 or the

other Petitioners. In the absence of “reasons to believe”

connecting petitioners with money laundering activity, retention

of the seized properties is wholly illegal.

1.17. Apart from the decision of Patna High Court in

HDFC Bank Limited Chotisaraiya ganj vs. Government of

India 2, petitioners have relied upon the following decisions in

support of the contention that “reasons to believe” cannot be

founded upon mere suspicion and must be based on cogent

material:

(i) Income Tax Officer, Calcutta & Ors. vs. Lakhmani Mewal
Das 3;

(ii) Opto Circuit India Ltd. vs. Axis Bank 4;

(iii) Shobha Woollen Pvt. Ltd. vs. Union of India 5;

(iv) Sony Music Entertainment India Pvt. Ltd. vs. Assistant
Director, Directorate of Enforcement, Mumbai; 6

2
2021 SCC OnLine Pat 4222
3
(1976) 3 SCC 757
4
2021 (2) TMI 117-Supreme Court
5
2021 (3) TMI 1132-Andhra Pradesh High Court
6
MANU/ML/0026/2019
14

(v) Universal Music India Pvt. Ltd. vs. Deputy Director,
Directorate of Enforcement, Mumbai 7

(vi) Yash Raj Films Pvt. Ltd. vs. Deputy Director, Directorate
of Enforcement Mumbai 8.

1.18 Petitioners further contend that seizure of property

cannot be sustained merely on the basis of suspicion. According

to the Petitioners, despite production of all evidence

demonstrating that the seized properties were not proceeds of

crime through representations dated 17.08.2024 and

03.10.2024, Respondents proceeded with seizure and retention

without any prima facie evidence. In support of this submission,

petitioners relied upon the following judgments:

(i) Kavitha G. Pillai vs. Joint Director, Directorate of
Enforcement 9

(ii) Bhanuben & Ors. vs. State of Gujarat 10.

1.19. Allegations regarding suspicious transactions and

alleged partnership with Purshottamdas Mandhana in M/s

Profound Infra were demonstrably false and stood disproved

through documentary evidence filed before the authorities. All

7
MANU/ML/0024/2019;

8

MANU/ML/0022/2019
9
2017 (3) KLT 1143

– Kerala High Court
10
2017 (354) ELT 193-Gujarat High Court
15

transactions pertaining to loans obtained from Mahesh Bank

and from the HUF of Purshottamdas Mandhana were fully

explained and not a single illegal transaction between Petitioner

No.1 and the office bearers of the bank was demonstrated by the

Respondents. The authorization issued by the Joint Director on

30.07.2024 for search and seizure did not disclose any reasons

to believe recorded under Section 17(1) and no material

evidencing compliance with Section 17(1) was placed either in

panchanama or before the Adjudicating Authority. According to

petitioners, the property was attached merely on assumptions

and presumptions.

1.10. In support of the aforesaid contention relating to

mandatory compliance under Section 17 of the PMLA,

petitioners relied upon the following judgments:

(i) State of Rajasthan v. Mohinuddin Jamal Alvi 11

(ii) Hussein Ghaidially vs. State of Gujarat 12

(iii) Opto Circuit India Ltd. vs. Axis Bank 13.

1.11. It is the further case of petitioners that Petitioner

No.5 was scheduled to be married on 15.02.2025 in accordance

with Hindu customs and traditions and the gold jewellery seized

11
(2016) 12 SCC 608
12
(2014) 8 SCC 425
13
2021 (2) BLJ 131
16

from petitioners was required for the wedding ceremonies.

According to petitioners, seizure of the entire family jewellery is

valued at Rs.4,27,24,300/- caused immense hardship,

emotional distress and mental agony to petitioners, particularly

to Petitioners 2 to 4 who were not even connected with the

investigation under the PMLA. Petitioners contend that although

an alternative remedy of appeal under Section 26 of the Act

before the Appellate Tribunal for SAFEMA, New Delhi was

available within 45 days from the date of receipt of the

impugned order, the present writ petition was filed since the

impugned order was passed without jurisdiction, without

authority of law, in violation of principles of natural justice and

without considering the documentary evidence produced by

petitioners. It is stated that the impugned order was received by

Petitioner No.1 on 13.01.2025 and the appeal period was to

expire on 27.02.2025.

2. Respondent No.2 filed counter contending that

Respondent Directorate of Enforcement is an investigating

agency functioning under the Government of India, Ministry of

Finance and is empowered to investigate offences under the Act

and the Foreign Exchange Management Act, 1999. Respondents

specifically contend that the Directorate of Enforcement is the
17

only competent authority authorized to investigate offences

under the PMLA and FEMA. The writ petition is premature and

reflects the insecurity of petitioners, who according to

respondents rushed to this Court without any genuine

apprehension despite the statutory mechanism available under

the PMLA. Searches were conducted on 31.07.2024 at seven

residential premises, one of which belonged to petitioner and

consequent to the searches, Respondent Directorate duly filed

Original Application No.1305/2024 dated 27.08.2024 before the

learned Adjudicating Authority seeking retention of the seized

properties, documents and devices, which came to be confirmed

by order dated 06.01.2025.

2.1. Investigation conducted by the Respondent

Directorate pertains to the offence of money laundering defined

under Section 3 and punishable under Section 4 of the Act.

Offence of money laundering is an independent offence distinct

from the scheduled offence and that investigation under the

PMLA can be interdicted only where the information available

does not disclose ingredients of the offence under Section 3 of

the Act.

2.2. ECIR/HYZO/09/2021 was registered on the basis

of FIR No.218 of 2021 dated 12.03.2021 and FIR No.222 of
18

2021 dated 13.03.2021 registered by Police Station Banjara

Hills, Hyderabad against Ramesh Kumar Bung, Umesh Chand

Asawa, Purshotamdas Mandhana and Ester Rani John under

Sections 120-B read with Sections 409, 420, 467, 468, 471 and

477-A IPC. The said FIRs disclosed large-scale financial

irregularities in Andhra Pradesh Mahesh Cooperative Urban

Bank Limited involving illegal loan disbursements, siphoning of

funds and fraudulent activities by office bearers of the bank.

2.3. FIR No.218/2021 pertained to alleged unfair

practices adopted during the General Body Elections of the

Bank. Accused persons, in connivance with each other,

converted ineligible members, namely gold loanees without

voting rights, into Ordinary “A” class members with voting rights

to ensure victory in the elections. It is alleged that around 1800

fictitious or dummy gold loanees with voting rights were

enrolled between 02.11.2020 and 17.11.2020 and that such

loanees included family members and known associates of the

accused persons as well as certain bank employees. FIR No.222

of 2021 related to illegal distribution of loans to family

members, entities related to Board Members, Directors and

major shareholders of the Bank and siphoning of funds in the

guise of construction of the Head Office Building. Loans
19

amounting to nearly Rs.300 crores were distributed to various

entities against illegal collateral securities such as Wakf Board

lands and papers relating to non-existent properties after

charging commissions ranging between 2 and 10%. It is further

alleged that Rs.20.73 crores was illegally distributed to persons

and entities related to Board Members, Directors and major

shareholders through falsification of records and forged loan

documentation and that the accused persons inflated the cost of

construction of the Head Office Building and siphoned off

Rs.18.30 crores from the Bank.

2.4. During the course of investigation, complaints

dated 17.03.2021 and 19.04.2021 submitted by one

Omprakash Modani were received alleging that several entities

and individuals paid hefty commissions to the accused persons

in exchange for favours such as restructuring of loans, One

Time Settlements and dilution of eligibility criteria. The

Respondents specifically refer to the following entities and loan

amounts:

(i) Maa Tripura Sundari, Khammam – Rs.6 crores;

(ii) Vaishnavi Service Station, Charminar – Rs.5 crores;

(iii) Arjun Solvent, Guntur – Rs.20 crores;

(iv) Classic Convention of Krishna Reddy – Rs.9 crores;
20

(v) M/s. Indian Auto Services Centre – Rs.6 crores;

(vi) Intercity Transport Logistic – Rs. 12.50 crores;

(vii) East of Wheels – Rs.4 crores;

(viii) Sony Transports – Rs.10 crores; and

(ix) Venkat Reddy and Others – Rs.12 crores.

2.5. After registration of the ECIR, summons were

issued to Ramesh Kumar Bung. Purshottamdas Mandhana and

Umesh Chand Asawa for recording of statements and collection

of details relating to bank accounts and movable and immovable

properties for verification of the allegations contained in the

FIRs and complaints. Various details including sale deeds,

encumbrance certificates and details of loan accounts related to

Board Members and Directors of the Bank were obtained and

examined by the Respondent Directorate. That scrutiny of bank

account statements and examination of documents relating to

properties underlying various loans revealed large-scale

irregularities in operation of loan accounts and acquisition of

multiple properties by family members of the principal suspects

at values significantly below prevailing market rates and in

certain instances below the valuations adopted by the Bank at

the time of sanction of loans.

21

2.6. During investigation, it was also revealed that in the

annual inspection carried out by the Reserve Bank of India into

the affairs of Andhra Pradesh Mahesh Cooperative Urban Bank,

the RBI had taken note of irregularities in the functioning of the

top management of the Bank and had issued show cause

notices proposing removal of Ramesh Kumar Bung,

Purshottamdas Mandhana and Umesh Chand Asawa from their

official positions. During examination of Purshotamdas

Mandhana under Section 50 of the Act, it was revealed that

three partners in M/s Profound Developers @M/s. Profound

Infra apart from him were Petitioner No.1, G.V. Rao and

Murlidhar Reddy. Bank account analysis further revealed

several suspicious transactions between Petitioner No. 1 and

entities related to him, namely Intercity Transport Logistics,

Indian Auto Services, Ease on Wheels Logistics and Hivespace,

on the one hand, and family members of Purshottamdas

Mandhana on the other hand and that there existed circuitous

transactions between the said entities and that loan accounts

were closed through remittances received from related entities

without scrutiny regarding end use of earlier disbursed loans.
22

2.7. It is also the specific case of the Respondents that

loans granted to M/s Hive Space, which according to

Respondents is related to Petitioner No.1 and loan amounts

were diverted to the personal account of Petitioner No.1 and

thereafter, remitted to Mainland Digital Technologies and

Profound Builders in violation of the designated purpose for

which the sanctioned loan and credit facilities were granted.

From the pattern of transactions observed in the accounts of

Petitioner No.1 and entities related to him, Respondents

suspected that the loans disbursed to such entities had been

beneficially used by Purshottamdas Mandhana and Petitioner

No.1 was acting as a proxy for the business interests of

Purshottamdas Mandhana.

2.8. On the basis of credible information and reasons to

believe recorded in writing, search proceedings were conducted

on 31.07.2024 at seven residential premises including the

premises of petitioners herein. During the search proceedings,

jewellery, cash, foreign currency, mobile phones and other

electronic devices containing incriminating information were

seized and the same were duly recorded in the Panchanama

drawn at the premises of the Petitioner. Consequent to the

seizure of the subject properties, Respondent Directorate filed
23

Original Application No.1305/2024 dated 27.08.2024 before the

learned Adjudicating Authority seeking retention of the seized

properties till completion of investigation and adjudication

proceedings. The learned Adjudicating Authority issued show

cause notices dated 02.09.2024 to all Respondents in the said

Original Application and after receipt of reply dated 10.10.2024

filed by Petitioner No. 1 and after hearing both parties on

21.12.2024, passed the order dated 06.01.2025 confirming

retention of the seized properties.

2.9. Respondents deny the contention of petitioners

regarding non-compliance with Section 17 of the PMLA and

contend that Respondent Directorate duly complied with the

provisions of Section 17 of the Act by recording reasons to

believe in writing and forwarding the same along with

supporting material to the Respondent No.1 within the

prescribed period. Respondent No.1 is a judicial authority

constituted under the PMLA by the Central Government and is

competent to independently apply its mind and adjudicate upon

the materials placed before it and therefore the allegation that

the proceedings were arbitrary or contrary to law is baseless.

2.10. Investigation under the PMLA is still underway and

the final outcome regarding the seized properties is dependent
24

upon the result of the ongoing investigation. Respondents

contend that at the time of search proceedings conducted on

31.07.2024 Petitioner No.1 failed to furnish any documentary

evidence establishing ownership of the jewellery seized and that

this constituted one of the primary reasons for seizure of the

jewellery. Discrepancies existed in the description of individual

jewellery items and the value thereof to the extent of

approximately Rs.1.2 crores except the valuation reports

prepared during earlier Income Tax proceedings. Petitioners

failed to produce adequate documentary evidence establishing

acquisition and legitimacy of the jewellery.

2.11. Respondents further contend that the jewellery

seized during the search proceedings is required to be retained

for further investigation in order to ascertain whether any part

of the proceeds of crime was utilized for acquisition of the same

and that in the event the jewellery is ultimately found

unconnected with proceeds of crime, the same would be

released. Petitioner No.1 had several bank transactions with

Purshotamdas Mandhana and his family members which are

prima facie suspected to be quid pro quo transactions or

commissions paid in return for sanction of loans. Since

investigation is still underway, the seized properties, documents
25

and devices are necessary for establishing the Petitioners

‘involvement in money laundering and their retention is

therefore sine qua non for effective investigation.

2.12. The jewellery seized appears to have been

purchased during the period from 2011 to 2022 and is largely

held in the names of the wife and daughter of Petitioner No.1

and there exists mismatch between the jewellery seized and the

descriptions furnished subsequently. The Respondents further

contend that the claim regarding necessity of jewellery for

marriage ceremonies is not sufficient ground for release of the

seized jewellery. Plea regarding marriage of Petitioner No.5 and

necessity of jewellery for engagement and wedding ceremonies

was not properly raised before Respondent No.1 during the

adjudication proceedings. Oral arguments before the

Respondent No.1 concluded on 21.12.2024 whereas the

communication regarding the engagement ceremony was sent

only on 11.12.2024. It is further contended that once

adjudication proceedings are pending before the Adjudicating

Authority, the Investigating Officer is not empowered to release

any seized property and that the Petitioners ought to have

approached the appropriate appellate forum.

26

2.13. Petitioners have an efficacious alternative remedy

by way of appeal before the Appellate Tribunal under Section 26

of the PMLA against the order dated 06.01.2025. Petitioners

have received the impugned order on 13.01.2025 and had time

to file appeal till 27.02.2025, Petitioners without having availed

the statutory remedy and instead rushed to this Court.

According to the Respondents, at this stage of investigation the

jewellery cannot be released and is required to be retained for

further action under the provisions of the PMLA. During the

course of investigation the Deputy Director issued Provisional

Attachment Order No.33/HYZO/2025 dated 29.08.2025 under

the proviso to Section 5(1) of the Act after following due process

and upon gathering sufficient material for issuance of the said

attachment order. Mere non-attachment of the jewellery seized

from the Petitioners does not conclusively establish absence of

involvement of the Petitioners in money laundering or absence

of nexus between the jewellery and proceeds of crime. During

the course of investigation it emerged that Umesh Chand Asawa

and his son Rohit Asawa were found to be in possession of

proceeds of crime likely to be concealed or transferred and

therefore the Deputy Director issued the aforesaid Provisional

Attachment Order No.33/HYZO/2025 dated 29.08.2025 after
27

recording reasons to believe and upon satisfaction that

immediate attachment was necessary to prevent frustration of

proceedings under the PMLA.

2.14. Respondents lastly contend that investigation under

the PMLA is still in progress and that the Directorate expects to

file prosecution complaint under Sections 44 and 45 of the

PMLA before the Special Court on or before 02.01.2026.

According to Respondents, the final outcome regarding the

seized jewellery, cash and the alleged role of the Petitioners is

subject to conclusion of the investigation and filing of

prosecution complaint before the Special Court constituted

under the PMLA.

3. Petitioner filed a reply contending that the

contentions of the Respondents that filing of the present writ

petition demonstrates insecurity on their part or they

approached this Court without genuine apprehension is wholly

baseless, arbitrary and reflective of the high-handed attitude

adopted by Respondents. It is contended that such averments

themselves demonstrate scant regard on the part of

Respondents 1 and 2 towards statutory safeguards under the

2002 Act and towards their constitutional rights. It is

specifically contended that Respondents have illegally and
28

arbitrarily retained Petitioners’ properties beyond the statutory

limit prescribed under Section 20(4) of the Act without satisfying

the mandatory requirements contemplated under law.

3.1. Petitioners are not accused in any of the scheduled

offences registered against the office bearers of Andhra Pradesh

Mahesh Cooperative Urban Bank Limited, therefore, the

allegations relating to the affairs of the said Bank have no nexus

or relevance to petitioners. It is specifically contended that

despite making allegations regarding payment of commissions

to accused persons in relation to restructuring of loans and

sanction of credit facilities, Respondents have not placed even a

single piece of evidence on record demonstrating that petitioners

paid any commission or that any alleged commission

constituted “proceeds of crime” so as to attract the provisions of

the Act.

3.2. Petitioners specifically assert that there are no

outstanding loans payable by them to Andhra Pradesh Mahesh

Cooperative Urban Bank Limited and that all loan accounts

were fully cleared and closed by 2022 itself. They rely upon the

loan closure letters and ‘No Due Certificate’ to establish that all

loans obtained from APMCU Bank were repaid in full together

with interest and applicable charges. Although the FIRs against
29

the office bearers of APMCU Bank were registered in 2021 and

the ECIR was also initiated in the same year, even after lapse of

nearly four years, respondents failed to place any material

whatsoever demonstrating that the cash, gold jewellery and

documents seized from them constituted “proceeds of crime”.

Petitioners contend that no “reasons to believe” supported by

cogent material have been produced against them, therefore, the

entire proceedings initiated against them are without

jurisdiction, arbitrary, illegal and initiated for extraneous

reasons.

3.3. Petitioners specifically deny the allegations made in

paragraph 16 of the counter and contend that M/s Profound

Developers and M/s Profound Infra are entirely distinct and

separate entities. According to them, respondents attached the

properties of petitioners without even conducting preliminary

verification of the relevant facts and documents. Both the

Original Application filed before Respondent No. 1 and the

impugned adjudication order wrongly alleged that

Purshottamdas Mandhana was a partner in M/s Profound Infra,

which allegation has been conclusively disproved by the

partnership documents filed by Petitioners.

30

3.4. It is categorically pleaded by petitioners that for the

first time in the counter, the 2nd Respondent changed its stand

and alleged that Purshottamdas Mandhana was a partner in

M/s Profound Developers. Even this allegation is factually

incorrect as Purshottamdas Mandhana had already retired from

the said partnership in 2023. Petitioners rely upon the

partnership deed and deed of retirement to substantiate the

same. In support of the aforesaid contention, petitioners place

reliance upon the judgment of the Hon’ble Supreme Court in

Mohinder Singh Gill v. Chief Election Commissioner 14,

wherein it was held that an impugned order must stand or fall

on the reasons contained in the order itself and that fresh

reasons cannot subsequently be introduced through affidavits.

Thus, respondents cannot now improve upon the deficiencies in

the Original Application and the impugned order by introducing

altogether new allegations in the counter affidavit before this

Court. It is further contended that even assuming, without

admitting, that Purshottamdas Mandhana was a partner along

with Petitioner No.1 in a partnership concern, such relationship,

by itself, does not constitute evidence of money laundering nor

does it establish receipt of any proceeds of crime by petitioners.

14

(1978) 1 SCC 405
31

Petitioners specifically contend that M/s Profound Developers

never availed any loan from APMCU Bank and respondents

failed to produce any transaction linking the said entity to the

alleged offence of money laundering. Petitioner No.1 had no

business transactions whatsoever with Purshottamdas

Mandhana in his individual capacity and had no connection

with the alleged money laundering offences attributed to him.

Respondents 1 and 2 failed to establish existence of any

proceeds of crime in the hands of the Petitioners so as to justify

invocation of jurisdiction under the PMLA and seizure of the

assets belonging to the Petitioners.

3.5. Petitioners reiterate that the loan obtained by M/s

Hive Space was utilized exclusively for the purpose for which it

had been sanctioned and that documents evidencing closure of

the said loan account with Mahesh Bank were produced both

before the Adjudicating Authority and before this Court.

Respondents themselves have averred that they “suspect” that

loans disbursed to Petitioner No. 1 and related entities were

used for the benefit of Purshottamdas Mandhana and therefore,

the very foundation of the proceedings is based solely upon

suspicion and assumptions. Thereby the attachment and
32

retention of property merely on suspicion without production of

supporting material is wholly without authority of law.

3.6. Further more, on the face of the record it is

apparent that there is/are no valid “reasons to believe” were

recorded against Petitioner No.1 either prior to the search

proceedings conducted on 31.07.2024 or in the show cause

notice issued thereafter. According to petitioners, seizure of all

documents, cash and jewellery lying in the residential premises

of petitioners merely on the assumption that they ‘may have

paid commission’ to accused persons in the scheduled offence is

wholly arbitrary, without jurisdiction and contrary to the

provisions of the PMLA. They specifically contended that the

purported “reasons to believe” relied upon by respondents are

wholly absent insofar as petitioners are concerned and neither

the “recording of reasons” document nor any supporting

material establishes involvement of petitioners or the seized

properties in money laundering activity.

3.7. Respondents have failed to produce any

documentary or other evidence establishing existence of

proceeds of crime in the hands of petitioners. On the contrary,

petitioners furnished all documents evidencing lawful

acquisition and ownership of jewellery including Annexure-P-21
33

and Annexure-P-22 filed before the Adjudicating Authority and

before this Court. Respondents calling upon them to furnish

documentary proof for jewellery acquired over a span of nearly

25 years at the very moment of seizure is unreasonable,

arbitrary and absurd. Despite production of affidavits, jewellery

bills, tabular statements, income tax returns and valuation

details establishing lawful acquisition and ownership of

jewellery by petitioners, Respondent No.1 had failed to discuss

or render any finding whatsoever on such material and instead

mechanically confirmed retention of the jewellery. It is the

further case of petitioners, Respondents 1 and 2 have acted with

a predetermined mindset and without application of mind while

seizing and retaining the properties belonging to petitioners.

3.8. That apart, there is no rebuttal made by

Respondents inter alia the specific contention of petitioners that

all loans availed from Mahesh Bank had already been repaid in

full. This aspect itself demolishes the allegation that any illegal

financial benefit was derived by petitioners from the accused

persons connected with APMCU Bank. Even otherwise, for the

purpose of mere retention of seized properties under Section 20

of the Act, Respondents are legally-obligated to establish that

the seized properties constitute “proceeds of crime” within the
34

meaning of Section 2(1)(u) of the Act. Neither Respondents nor

the Adjudicating Authority have produced any material

whatsoever to demonstrate that the seized jewellery, cash or

documents were derived from criminal activity.

3.9. The jewellery seized from the residential premises of

Petitioner No.1 belongs not merely to Petitioner No.1 but also to

Petitioners 2 to 5, which fact stands established through

affidavits, purchase bills and income tax returns collectively

filed as Annexure-P-21 and Annexure-P-22 to the writ petition.

Petitioners 2 to 5 are not even accused or parties to the money

laundering proceedings initiated by the 2nd Respondent and

therefore, seizure and retention of their properties without

issuance of notices is grossly violative of principles of natural

justice. In support of the contention that “reasons to believe”

cannot be founded upon mere suspicion, petitioners rely upon

the judgment in Kavitha G. Pillai vs. Joint Director,

Directorate of Enforcement 15, wherein it was held that

“reason to believe” requires credible information and probable

conclusions and cannot be based upon surmises or conjectures.

Respondents themselves admitted in the counter that the

jewellery was being retained only for “ascertaining whether any

15
2017 (3) KLT 1143
35

part of the proceeds of crime is used for acquiring such

jewellery”. According to petitioners, such averment itself

demonstrates that the seizure and retention are founded only

upon suspicion and not upon any recorded finding that the

jewellery actually constitutes proceeds of crime. They contend

that they cannot be deprived of their constitutional right to

property merely on the basis of assumptions and

unsubstantiated suspicion.

3.10. It is stated, the son of Petitioners 1 and 2, Petitioner

5 got engaged in December, 2024 and was scheduled to be

married on 15.02.2025, as evidenced by the wedding invitation

filed as Annexure-P-23 to the writ petition. However, the

wedding was later postponed due to the sudden death of a

family member of the bride. Petitioners contend that jewellery

forms an integral and significant part of Hindu marriage

ceremonies and the illegal seizure of the entire family jewellery

subjected petitioners to immense emotional distress, mental

agony and hardship. Petitioners repeatedly addressed

communications dated 31.07.2024 and 17.08.2024 and also

sent e-mail dated 11.12.2024 to the 2nd respondent furnishing

complete details relating to the business activities and loans

availed by entities related to Petitioner No.1 and also informing
36

respondents about the impending engagement and marriage

ceremonies of Petitioner No.5. Despite receipt of such

information and supporting material, respondents proceeded

with the Original Application seeking retention of the seized

properties without explaining how the properties constituted

proceeds of crime.

3.11. The show cause notice supplied by Respondents

merely stated that a copy of the “recorded reasons” was

enclosed. However, the document styled as “recording of

reasons” annexed as Annexure-P-8 to the writ petition contains

merely a heading and does not disclose how Petitioner No.1 is

connected to any scheduled offence or how the seized properties

constitute proceeds of crime. According to petitioners,

respondents have acted in complete disregard of the mandatory

provisions of Section 17 of the Act. In support of the aforesaid

contention, petitioners place reliance upon the judgment of the

Hon’ble Supreme Court in Opto Circuit India Ltd. vs. Axis

Bank 16 wherein it was held that when a statute prescribes a

particular manner in which a thing is required to be done, it

must necessarily be done in that manner alone and failure to

comply with the prescribed procedure would vitiate the action.

16

2021 (2) TMI 117-SC
37

Petitioners contend that respondents failed to comply with the

mandatory safeguards prescribed under Section 17 of the Act

and therefore, the entire search and seizure proceedings are

unsustainable in law.

3.12. Petitioners rely upon the judgment in Income Tax

Officer, Calcutta & Others vs. Lakhmani Mewal Das 17,

wherein it was held that there must exist a direct nexus or live

link between the material available and the formation of belief

by the authority. Section 24 of the Act places burden of proof

upon a person accused of money laundering only after the

Respondents establish existence of “proceeds of crime”. In the

present case, according to petitioners, respondents have failed

even to establish the basic jurisdictional fact that any proceeds

of crime were received by petitioners. Petitioners contend that

they have sufficiently demonstrated through documentary

evidence that all loans were repaid in time, seized jewellery was

acquired through legitimate income sources and that petitioners

2 to 5 are neither accused nor connected with the money

laundering proceedings.

3.13. Petitioners rely upon the visas and travel

documents of Petitioners 1, 2 and 3 filed along with Writ

17
(1976) 3 SCC 757
38

Petition to substantiate lawful possession of the foreign

currency. Petitioners 2 to 5, who are not even accused in the

money laundering proceedings, have been illegally deprived of

their properties in violation of Articles 14, 19, 21 and 300A of

the Constitution of India. Respondents failed to rebut the

specific contention that under Section 20(4) of the Act retention

of seized property beyond the prescribed period can be

permitted only after the Adjudicating Authority records

satisfaction that the property is prima facie involved in money

laundering and required for adjudication under Section 8 of the

Act. According to petitioners, no such finding has been recorded

by Respondent No.1 in the impugned order dated 06.01.2025

and therefore the impugned order is wholly illegal and

unsustainable in law.

4. Heard Ms. Y. Siri Reddy, learned counsel for

petitioner, Sri Anil Prasad Tiwari, learned Standing Counsel for

Respondents 1 and 2 and Sri N. Bhujanga Rao, learned Deputy

Solicitor General on behalf of Respondent No.3.

5. The Prevention of Money Laundering Act, 2002

(hereinafter referred to as ‘the Act’) was enacted by the

government to provide for confiscation of property derived from

or invoked in Money Laundering activities. The Scheme of the
39

Act provides for initial attachment of the proceeds of the crime

in possession of any person for an initial period of 180 days by

the Director or any other Officer not below the rank of Deputy

Director authorized by the Director, for the purposes of Section

5 of the Act. Section 5 stipulates the process of attachment and

Section 3 defines ‘Money Laundering’. As per the language of

Section 5, attachment can be made only when the said officer

records, in writing, his reason to believe that such a person is in

possession of any proceeds of carrying in that such proceeds of

crime are likely to be concealed or transferred or debited in any

manner which may result in frustration of any proceedings

relating to confiscation of such proceedings of the crime. After

such provisional attachment is made, the same order of

attachment along with the material in possession of the said

officer shall be forwarded to the adjudicating authority in a

sealed envelope for further proceedings. Upon receipt of such

provisional attachment order the adjudicating authority after

due notice to such a person, shall, under Section 8, adjudicate

on the question whether the property under attachment is

involved in Money Laundering and direct the confiscation of

such property or direct the release of such attachment.

Similarly, where the authority has, recorded in writing, his
40

reason to believe, that any person is in possession of the

proceeds of crime involved in money laundering, may authorize

any officer subordinate to him to search and seize such

property. Upon such seizure, the adjudicating authority is again

informed and the adjudicating authority would have to further

confirm the said seizure of the property. Thereby, it is clear from

the language of the Act, the Sine Qua Non for exercise of the

powers under either Section 5 or Section 17 is formation of

opinion, by a competent officer, that the condition set out in

these sections are found to exist. In the absence of such a

finding, exercise of powers under these sections would be

without basis and cannot survive in the absence of these

requirements.

6. On the basis of the aforesaid legal requirements,

now it needs to be considered whether exercise of commission of

search and seizure taken as against petitioners by Respondents

is legal and in accordance with the provisions of the Act.

7. This Court has carefully considered the rival

submissions advanced on behalf of petitioners and respondents

and perused the entire material placed on record including the

pleadings, documents, annexures, impugned order dated
41

06.01.2025 passed in Original Application No.1305/2024 and

the provisions of the Prevention of Money Laundering Act, 2002.

8. The principal issue that arises for consideration

before this Court is whether the impugned order dated

06.01.2025 permitting retention of the seized jewellery weighing

6309.09 grams valued at Rs.4,27,24,300/-, Indian currency of

Rs.14,50,000/- and foreign currency of USD 3256 satisfies the

mandatory statutory requirements prescribed under Sections

17, 20 and 8 of the 2002 Act and whether the said proceedings

conform to the constitutional safeguards guaranteed under

Articles 14 of the Constitution.

9. It is not in dispute that search proceedings were

conducted by the officers of the Directorate of Enforcement on

31.07.2024 at the residential premises of Petitioners 1, 2, 3 and

5 and at the maternal residence of Petitioner No.4. During the

said proceedings, gold jewellery weighing 6309.09 grams valued

at Rs.4,27,24,300/-, Indian currency of Rs.14,50,000/- and

foreign currency of USD 3256 together with certain documents,

locker keys and electronic devices were seized under

Panchanama dated 31.07.2024. It is also not in dispute that the

basis for initiation of investigation by the Directorate of

Enforcement was ECIR/HYZO/09/2021 registered pursuant to
42

FIR Nos.218/2021 and 222/2021 registered by Police Station

Banjara Hills, Hyderabad relating to alleged irregularities in

Andhra Pradesh Mahesh Cooperative Urban Bank Limited.

10. A careful examination of the record further reveals

that Petitioner No.1 is admittedly not arrayed as an accused in

the predicate FIRs forming the basis for the ECIR proceedings.

Equally, Petitioners 2 to 5 are not accused in the scheduled

offences nor are they shown to be accused in any proceedings

under the PMLA. This factual position assumes significance in

view of the contention of the Respondents that the seized

properties are required to be retained on the premise that the

Petitioners are allegedly connected with transactions involving

Purshottamdas Mandhana, one of the accused in the scheduled

offences. Thus, it is apparent as on the date of the search and

seizure there is no material evidence either direct or indirect, to

connect the Petitioners to the Crimes registered as against the

Directors of the Bank. Furthermore, the fact that is staring at

Respondents is that the business concerns of the Petitioner

No.1 had availed loans from the Bank and were repaid. These

circumstances and facts will have significant say in the

adjudication of the present lis.

43

11. The statutory scheme under Sections 17 and 20 of

the PMLA makes it abundantly clear that the drastic powers of

search, seizure and retention affecting valuable property rights

can be exercised only upon strict compliance with the

safeguards incorporated in the statute. Section 17 contemplates

existence of “reasons to believe”, based upon material in

possession, that a person is in possession of proceeds of crime

or records relating to money laundering. In the instant case, in

the Impugned Order there are no reasons given inter alia

“reasons to believe”, rather the Respondent No.1 with there

being any substantial pleading and evidence merely believed the

version of the Respondent No.2 and had passed the order which

is impugned.

12. Section 20 of the Act stipulates that continued

retention of seized property beyond the prescribed period is

permissible only where the Adjudicating Authority is satisfied

that the property is prima facie involved in money laundering

and is required for adjudication under Section 8 of the Act.

These safeguards are not empty formalities but constitute

substantive protections against arbitrary exercise of power. In

the present case, this Court finds considerable force in the

contention advanced by petitioners that the impugned order
44

dated 06.01.2025 does not reflect meaningful consideration of

the voluminous documentary material placed on record by

them. Petitioners produced partnership deeds, supplementary

partnership agreements, loan sanction letters, loan closure

certificates, No Due Certificates, repayment details, bank

statements, jewellery purchase bills, valuation reports,

affidavits, income tax returns, passports, visas and

documentary material concerning acquisition of the jewellery

over a span of nearly twenty-five years. However, the impugned

order is conspicuously silent as regards examination of the said

material and does not record any finding as why the

explanations furnished by the Petitioners were unacceptable.

13. It is well-settled that authorities exercising powers

under a statue shall act and perform as mandated by the statue

and the resulting order must disclose due application of mind

and reasons supported by the evidence in arriving at the

conclusion reached. The requirement of recording reasons is an

integral component of fairness in administrative and quasi-

judicial action. A reasoned order alone enables judicial review

and assures the affected party that its submissions were duly

considered. In the present case, the impugned order merely

reproduces allegations and concludes that prima facie
45

allegations of money laundering exist without analyzing the

material relied upon by either side. Such an approach falls

short of the statutory obligation cast upon the Adjudicating

Authority under Section 20(4) of the Act.

14. The only substantive allegation recorded in the

impugned order against Petitioner No.1 is that he was

“suspected to have paid commissions” to Purshottamdas

Mandhana in return for loans sanctioned to him or entities

related to him. Respondents themselves repeatedly employ

expressions such as “suspicious transactions”, “suspected

commissions”, “possible diversion of loans” and “likely beneficial

use”. Suspicion, however grave, cannot, by itself, constitute

legal proof or substitute the mandatory statutory requirement of

“reasons to believe” founded upon cogent material. There must

exist a live nexus between the material relied upon and the

conclusion that the seized properties constitute proceeds of

crime. Mere conjecture or surmise cannot justify continued

deprivation of property. As discussed supra, petitioner No.1

business concerns have availed loans and have repaid the same

with any quarrel and that apart the none either the Bank,

Complainant nor the even the Investigating agency have a

dispute over the said loan transactions. Thus, Respondent No.1
46

while passing the impugned order had completely over looked

these requirements. Hence, the impugned order is in error and

cannot be allowed to sustain.

15. This Court further notices that despite serious

allegations regarding payment of commissions and diversion of

loans, Respondents have not placed on record any material

demonstrating the said alleged acts nor that any amount

representing proceeds of crime was actually received by the

Petitioners. Respondents also failed to establish that the seized

jewellery, Indian currency or foreign currency was derived or

obtained from criminal activity relating to a scheduled offence

within the meaning of Section 2(1)(u). On the contrary,

petitioners specifically produced loan closure documents,

repayment details and documentary evidence indicating that

loans availed from Andhra Pradesh Mahesh Cooperative Urban

Bank Limited had been repaid by the year 2022 itself.

16. The contention of Respondents that Petitioner No.1

was connected with Purshottamdas Mandhana through M/s

Profound Infra and M/s Profound Developers also does not

appear to have been properly examined by Respondent No.1-

Adjudicating Authority. Petitioners consistently contended that

M/s Profound Developers and M/s Profound Infra are separate
47

entities and further asserted that Purshottamdas Mandhana

was never a partner in M/s Profound Infra. It is further the case

of petitioners that Purshottamdas Mandhana retired from M/s

Profound Developers in 2023. Whether these assertions are

ultimately true or otherwise though required examination on the

basis of documentary evidence produced by petitioners, the

same was not considered by the Respondent No.1 – Adjudicating

Authority while passing the impugned order. Further, impugned

order contains no discussion whatsoever regarding the

partnership deeds or retirement documents placed on record by

the Petitioners. The aforesaid lapses by Respondent

No.1/Adjudicating Authority in passing the impugned order are

good enough to set aside the impugned order.

17. This Court also finds merit in the submission of

petitioners that Respondents cannot improve upon deficiencies

made in the impugned order by introducing altogether new

allegations in the counter affidavit filed before this Court. The

law laid down by the Hon’ble Supreme Court in Mohinder

Singh Gill vs. Chief Election Commissioner is well-settled

that validity of a statutory order must be judged on the reasons

stated in the order itself and not on fresh grounds subsequently

introduced through affidavits. The impugned order dated
48

06.01.2025 therefore, cannot be sustained on the basis of

explanations subsequently furnished in the counter affidavit

before this Court.

18. Further, this Court is considering the judgment in

Shobha Woollens Pvt. Ltd v. Union of India 18 (W.P.No.2737

of 2021). The facts of the said case are similar to the present

case. In the said order, the applicability of law and procedure to

be followed by the investigating agency are discussed and

concluded that the exercise of search and seizure under

provisions of the Act shall be strictly adhered and in violation of

the same, the seizure of the property shall be set aside. The

relevant portion of the said order is extracted hereunder:-

” 13. The Prevention of Money Laundering Act, 2002 was
brought in, to provide for confiscation of property derived from or
invoked in Money Laundering activities. Money Laundering is defined,
under Section 3 of the Act, as follows:

” Whosoever directly or indirectly attempts to indulge or
knowingly assists or knowingly is a party or is actually involved in any
process or activity connected proceeds of crime including its
concealment, possession, acquisition or use and projecting or claiming it
as untainted property shall be guilty of offence of money-laundering.”

14. Section 5 of the Act reads as follows:

” Attachment of property involved in money-Laundering.- (1)
Where the Director or any other officer not below the rank of Deputy
Director authorised by the Director for the purposes of this section, has
reason to believe (the reason for such belief to be recorded in writing), on

18
2021 SCC Online AP 423
49

the basis of material in his possession, that- (a) any person is in
possession of any proceeds of crime; and (b) such proceeds of crime are
likely to be concealed, transferred or dealt with in any manner which
may result in frustrating any proceedings relating to confiscation of
such proceeds of crime under this Chapter, he may, by order in writing,
provisionally attach such property for a period not exceeding one
hundred and eighty days from the date of the order, in such manner as
may be prescribed: Provided that no such order of attachment shall be
made unless, in relation to the scheduled offence, a report has been
forwarded to a Magistrate under section 173 of the Code of Criminal
Procedure, 1973 (2 of 1974), or a complaint has been filed by a person
authorised to investigate the offence mentioned in that Schedule, before
a Magistrate or court for taking cognizance of the scheduled offence, as
the case may be, or a similar report or complaint has been made or filed
under the corresponding law of any other country: Provided further that,
notwithstanding anything contained in clause (b), any property of any
person may be attached under this section if the Director or any other
officer not below the rank of Deputy Director authorised by him for the
purposes of this section has reason to believe (the reasons for such
belief to be recorded in writing), on the basis of material in his
possession, that if such property involved in money-laundering is not
attached immediately under this Chapter, the non-attachment of the
property is likely to frustrate any proceeding under this Act. (2) The
Director, or any other officer not below the rank of Deputy Director,
shall, immediately after attachment under sub-section (1), forward a
copy of the order, along with the material in his possession, referred to
in that sub-section, to the Adjudicating Authority, in a sealed envelope,
in the manner as may be prescribed and such Adjudicating Authority
shall keep such order and material for such period as may be
prescribed. (3) Every order of attachment made under sub-section (1)
shall cease to have effect after the expiry of the period specified in that
sub-section or on the date of an order made under sub-section (2) of
section 8, whichever is earlier. (4) Nothing in this section shall prevent
the person interested in the enjoyment of the immovable property
50

attached under sub-section (1) from such enjoyment Explanation.- For
the purposes of this sub-section “person interested”, in relation to any
immovable property, includes all persons claiming or entitled to claim
any interest in the property. (5) The Director or any other officer who
provisionally attaches any property under sub-section (1) shall, within a
period of thirty days from such attachment, file a complaint stating the
facts of such attachment before the Adjudicating Authority.

15. Section 17 of “the Act” reads as follows:

” Search and seizure.-(1) Where the Director or any other
officer not below the rank of Deputy Director authorised by him for the
purposes of this section, on the basis of information in his possession,
has reason to believe (the reason for such belief to be recorded in
writing) that any person- (i) has committed any act which constitutes
money-laundering, or (ii) is in possession of any proceeds of crime
involved in money laundering, or (iii) is in possession of any records
relating to money-laundering, or (iv) is in possession of any property
related to crime then, subject to the rules made in this behalf, he may
authorise any officer subordinate to him to- (a) enter and search any
building, place, vessel, vehicle or aircraft where he has reason to
suspect that such records or proceeds of crime are kept; (b) break open
the lock of any door, box, locker, safe, almirah or other receptacle for
exercising the powers conferred by clause (a) where the keys thereof are
not available; (c) seize any record or property found as a result of such
search; (d) place marks of identification on such record or property, if
required or make or cause to be made extracts or copies therefrom; (e)
make a note or an inventory of such record or property; (f) examine on
oath any person, who is found to be in possession or control of any
record or property, in respect of all matters relevant for the purposes of
any investigation under this Act: Provided that no search shall be
conducted unless, in relation to the scheduled Soffence, a report has
been forwarded to a Magistrate under section 157 of the Code of
Criminal Procedure, 1973, (2 of 1974) or a complaint has been filed by a
person, authorised to investigate the offence mentioned in the Schedule,
before a Magistrate or court for taking cognizance of the scheduled
51

offence, as the case may be, or in cases where such report is not
required to be forwarded, a similar report of information received or
otherwise has been submitted by an officer authorised to investigate a
scheduled offence to an officer not below the rank of Additional
Secretary to the Government of India or equivalent being head of the
office or Ministry or Department or Unit, as the case may be, or any
other officer who may be authorised by the Central Government, by
notification, for this purpose. (LA) Where it is not practicable to seize
such record or property, the officer authorised under subsection (1),
may make an order to freeze such property whereupon the property
shall not be transferred or otherwise dealt with, except with the prior
permission of the officer making such order, and a copy of such order
shall be served on the person concerned: Provided that if, at any time
before its confiscation under sub-section (5) or sub-section (7) of section
8 or section 58B or subsection (2A) of section 60, it becomes practical to
seize a frozen property, the officer authorised under subsection (1) may
seize such property. (2) The authority, who has been authorised under
subsection (1) shall, immediately after search and seizure or upon
issuance of a freezing order forward a copy of the reasons so recorded
along with material in his possession, referred to in that sub-section, to
the Adjudicating Authority in a sealed envelope, in the manner, as may
be prescribed and such Adjudicating Authority shall keep such reasons
and material for such period, as may be prescribe c’ (3) Where an
authority, upon information obtained during survey under section 16 is
satisfied that any evidence shall be or is likely to be concealed or
tampered with, he may, for reasons to be recorded in writing, enter and
search the building or place where such evidence is located and seize
that evidence: Provided that no authorisation referred to in sub-section
(1) shall be required for search under this sub-section. (4). The authority
seizing any record or property under sub-section (1) or freezing any
record or property under sub-section (IA) shall, within a period of thirty
days from such seizure or freezing, as the case may be, file an
application, requesting for retention of such record or property seized
52

under subsection (1) or for continuation of the order of freezing served
under sub-section (IA), before the Adjudicating Authority.”

16. The scheme of the Act provides for an initial attachment
of the proceeds of the crime in the possession of any person for an initial
period of 180 days by the Director or any other Officer not below the
rank of Deputy Directo, r Authorised by the Director, for the purposes of
Section 5 of the Act. This attachment can be made only when the said
officer records, in writing, his reason to believe that such a person is in
possession of any proceeds of crime and that such proceeds of crime are
likely to be concealed or transferred or debited in any manner which
may result in frustration of any proceedings relating to confiscation of
such proceedings of the crime. After such provisional attachment is
made, the said order of attachment, along with the material in
possession of the said officer, shall be forwarded to the adjudicating
authority in a sealed envelope for further proceedings. Upon receipt of
such provisional attachment order, the adjudicating authority, after due
notice to such a person, shall, under Section 8, adjudicate on the
question of whether the property under attachment is involved in Money
Laundering and direct the confiscation of such property or direct the
release of the said attachment.

17. Similarly, where the authority has, recorded in writing,
his reason to believe, that any person is in possession of the proceeds of
crime involved in Money Laundering. may authorize any officer
subordinate to him to search and seize such property. Upon such
seizure, the adjudicating authority is again informed and the
adjudicating authority would have to further confirm the said seizure of
the property.

18. It is clear from the above that, the sine qua non for
exercise of the powers under either section 5 or section 17 of the Act is
the formation of an opinion, by a competent officer, that the conditions
set out in these sections are found to exist. In the absence of such a
finding, the exercise of power under these Sections would be without
basis and cannot survive in the absence of these requirements. There
are no such reasons recorded in the order dated 6.11.2020.
53

19. The Hon’ble Supreme Court in OPTO Circuit India
Limited v. Axis Bank, dated 03.02.2021 passed in Criminal Appeal No.
102 of 2021, had considered a similar situation. In this case, the
concerned authority, without any findings either under Section 5 of the
Act or under Section 17 of the Act, had directed a debit-freeze/stop
operation of the accounts of the petitioner therein. The Hon’ble Supreme
Court after considering the provisions of the Act had held that while the
provisions of the Act empower the appropriate authority to attach or
seize the proceeds of the crime, the due process set out in the Act would
have to be followed and the minimum requirement for such due process
is the formation of an opinion, that he has “reason to believe”, set down
in writing. The Hon’ble Supreme court had also held that this formation
of opinion, at the very least should be available in the file of the
authority. In the present case also no finding, recorded in writing, either
under Section 5 or Section 17 of the Act, has been placed before this
Court, nor has any material been placed to show that such a finding is
available in the files of the Enforcement Directorate.

20. Sri. T. Niranjan Reddy submits that, even if the order of
Debit freeze was issued, under either of these provisions, the
proceedings would have to be forwarded to the adjudicating authority,
which has not been done. He would point to the fact that the 3rd
Respondent had filed an application under Section 17 (4) in relation to
the documents seized on11.12 2020, while no such application has been
filed in relation to the Debit freeze order dated 6.11.2020. He submits
that it would have to be treated that the impugned order dated
6.11.2020 does not meet the requirements of complying with the due
process set out by the Hon’ble supreme Court.

21. Sri. Josyula Bhaskar Rao, the learned standing counsel,
appearing for the Enforcement Directorate, submits that the Judgment
of the Hon’ble Supreme Court was passed with a view to ensure that the
statutory dues, payable by the petitioner before the Hon’ble Supreme
Court, were cleared and the ratio of the said judgment cannot be applied
in the present case. He submits that the impugned proceedings were
passed under the ancillary powers of the 3rd respondent and this is
54

clearly explained in the Judgment of the Hon’ble High Court at Calcutta,
dated 30.03.2015 in the case of Rose Valley Real Estate and
Constructions Limited v. Union of India in F.M.A. No. 4031 of 2014.

22. The contention of Sri. Josyula Bhaskar Rao, that the
ratio of the Hon’ble Supreme Court would not apply to the present case,
has to be rejected. A perusal of the judgment would show that the
judgment is on the interpretation and meaning of the provisions of the
Act, and is not restricted in the manner set out by Sri. Josyula Bhaskar
Rao. The Hon’ble High Court at Calcutta had held, in a similar situation,
that such orders of freezing the bank accounts of the persons under
investigation, is permissible and should be treated as ancillary to the
investigation under progress. However, in view of the judgment of the
Hon’ble Supreme Court, it would not be appropriate to follow the
Judgment of the Hon’ble High Court at Calcutta.

23. In view of the above observations of the Hon’ble
Supreme Court, the action of the 3rd respondent in the present case in
issuing similar orders of debit-freeze/stop operations, cannot be
sustained.

24. In the circumstances, the said order dated 06.11.2020
of the 3rd respondent directing the 4th respondent to freeze the
accounts of the petitioners is not valid and has to be set aside.

25. Accordingly, the Writ Petitions are allowed, setting aside
the order of the 3rd respondent bearing F.No. ECIR/03/VKSZO/2017,
dated 06.11.2020, with a consequential direction to the 4th respondent
to permit the petitioners to operate their account No. 30108921948-
IFSC No. SBIN0004214, A/c No. 30078159489-IFSC No. SBIN0004214
and A/c No. 30078143718 & 10666398179-IFSC No. SBIN0004214.

26. However, this order shall not preclude the 3rd
respondent or the authorities under the Act to initiate action afresh, in
accordance with law, as deemed fit”,

19. The order referred to above is squarely applicable

to the facts of the present case. Other orders/judgments relied
55

by petitioners and respondents, are not required for

adjudication of the present lis.

20. Equally significant is the contention advanced by

Petitioners that notices were not issued to Petitioners 2 to 5

despite Respondents themselves acknowledging that substantial

portions of the seized jewellery belonged to them. The material

on record indicates that jewellery claimed by Petitioners 2 to 5

was also seized and retained. Yet, no independent notices

appear to have been issued to them before continuation of

retention proceedings. The principles of natural justice mandate

that persons whose property rights are directly affected must be

afforded reasonable notice and opportunity of hearing.

Retention of jewellery admittedly claimed by persons who were

neither accused in the scheduled offences nor were issued

notices in the proceedings raises serious concerns regarding

procedural fairness.

21. Respondents have also sought to justify retention of

the jewellery on the ground that discrepancies existed between

the jewellery seized and the valuation reports produced by the

Petitioners. However, petitioners explained that the jewellery

had been acquired over a period of nearly twenty-five years and

that fluctuations in valuation of gold and precious stones would
56

naturally result in differences in valuation. Whether such

explanation is acceptable or not again required objective

examination and recording of findings by the Adjudicating

Authority. Respondent No.1/Adjudicating Authority did not

make any such effort and such exercise.

22. This Court is equally unable to overlook the fact

that the Respondents themselves state in the counter affidavit

that the jewellery is being retained for “ascertaining whether any

part of the proceeds of crime is used for acquiring such

jewellery.” Such averment prima facie indicates that no

conclusive material exists linking the jewellery, etcetera with

proceeds of crime. The statute, undoubtedly, permits

investigation into suspected money laundering activities;

however, exercise of such investigative powers must

nevertheless remain within the limits prescribed by law. In the

instant case there is complete failure on the part of

Respondents in meeting the legal requirements in warranting

the retention of the seizure of the property of petitioners. The

constitutional guarantee prohibits deprivation of property save

by authority of law and such authority must necessarily be

exercised in a fair, reasonable and non-arbitrary manner.
57

23. The objection raised by respondents regarding

maintainability of Writ Petition on the ground of availability of

alternative remedy under Section 26 of the PMLA also cannot be

accepted in the peculiar facts and circumstances of the present

case. Availability of alternative remedy does not operate as an

absolute bar where proceedings are alleged to be without

jurisdiction, violative of principles of natural justice or contrary

to mandatory statutory provisions. The challenge in the present

writ petition is essentially directed against non-compliance with

Sections 17 and 20 of the PMLA and against failure of the

Respondent No. 1/Adjudicating Authority to record satisfaction

as mandated by law. Such issues legitimately fall within the

scope of judicial review under Article 226 of the Constitution of

India.

24. Upon cumulative consideration of the entire

material placed on record, this Court is of the opinion that the

impugned order dated 06.01.2025 passed in Original

Application No.1305/2024 suffers from absence of adequate

reasoning, non-consideration of the documentary material

produced by the Petitioners, failure to record satisfaction as

required under Section 20(4) of the PMLA and violation of
58

principles of natural justice insofar as Petitioners are

concerned, thereby the Impugned order is liable to be set aside.

25. Accordingly, while refraining from expressing any

final opinion on the merits of the allegations under

investigation, the Writ Petition is allowed and impugned order is

set aside. Investigating Agency can proceed with the

investigation in the registered crimes as against the Accused

and take appropriate steps against them.

26. Consequently, the miscellaneous Applications, if

any shall stand closed.

——– —————————–

NAGESH BHEEMAPAKA, J

15th June 2026

ksld