J. SEKAR @SEKAR REDDYversusDIRECTORATE OF ENFORCEMENT

698                     [2022]REPORTS
              SUPREME COURT    3 S.C.R. 698                [2022] 3 S.C.R.


A                       J. SEKAR @SEKAR REDDY
                                      v.
                    DIRECTORATE OF ENFORCEMENT
                       (Criminal Appeal No. 738 of 2022)
B                               MAY 05, 2022
            [VINEET SARAN AND J. K. MAHESHWARI, JJ.]
             Prevention of Money Laundering Act, 2002: ss. 3 and 4 – On
      facts, seizure of large amount of currency notes and gold from the
      appellant – Registration of FIR against the appellant under the
C
      provisions of PMLA in addition to schedule offences under the Penal
      Code and Prevention of Corruption Act – Petition seeking quashing
      of proceedings – Dismissed by the High Court – On appeal, held:
      Chances to prove the allegations in the court are very bleak – CBI
      filed closure report in respect of the FIR registered with respect
D     scheduled offence – Schedule offence not made out because of
      lack of evidence – In cases of PMLA, allegations must be proved
      beyond reasonable doubt, the the court cannot proceed on the basis
      of preponderance of probabilities – Order of attachment of property
      not confirmed by the adjudicating authority holding that the said
      allegations based on speculations and not on any specific material
E
      – For the currency seized, the tax is already paid – Department
      unable to collect any incriminating material and also not produced
      before this Court even after a lapse of 5 1D 2 years to prove its
      case beyond reasonable doubt – From the material collected by the
      Agency, they themselves not satisfied that the offence under PMLA
F     could be proved beyond reasonable doubt – High Court recorded
      the finding without due consideration of the letter of the I.T.
      Department and other material in right perspective – Thus, the
      findings of the High Court cannot be sustained and the order is set
      aside – Code of Criminal Procedure, 1973 – s. 482.
G           Allowing the appeal, the Court
            HELD: 1.1 The I.T. Department made search in the official/
      commercial premises of the appellant and other connected
      persons. Later, I.T. Department vide communication dated
      16.5.2019 which was issued in response to the letter of the
H     appellant dated 13.5.2019 was satisfied that the cash which was
                                   698
      J. SEKAR @SEKAR REDDY v. DIRECTORATE OF                         699
                   ENFORCEMENT

recovered from the officials/commercial premises of the appellant     A
is explained and tax was paid in the self-assessment for the
Financial Year 2016-17. Therefore, the proceedings started on
the basis of intriguing recovery of cash and other items in fact,
does not exist and the I.T. Department itself was satisfied with
the recovery after investigation in the year 2019. Therefore, the
                                                                      B
finding recorded in the impugned order by the High Court with
regard to recovery of new currency notes of denomination of
Rs. 2000 cannot be accepted. [Para 14][705-F-G; 708-C-D]
      1.2 It is clear that the FIR with respect to schedule offence
registered by the CBI with respect to proceeds of the crime
including property attached has been closed. On the basis of the      C
intimation given by the I.T. Department and registration of the
FIR by the CBI which was closed, the Directorate of ED
registered ECIR/CEZO/19/2016 under Sections 3, 4 & 8(5) of
PMLA. After the said FIR, Deputy Director (ED) passed an order
under Section 5(1) of PMLA on 1.6.2017 attaching the property.        D
For confirmation of attachment, OC No. 785 of 2017 was filed by
the Department which is rejected by the Adjudicating Authority
while exercising the power under Section 5(5) of PMLA. [Paras
15, 16][709-G; 710-A-B]
      1.3 In view of the legal position that when chance of           E
conviction in a criminal case appeared to be bleak, the accused
may be exnoerated and on analysing the report of I.T. Department
and the reasoning given by CBI while submitting the final closure
report in RC MA1 2016 A0040 and the order passed by the
Adjudicating Authority, it is clear that for proceeds of crime, as
defined under Section 2(1)(u) of PMLA, the property seized would      F
be relevant and its possession with recovery and claim thereto
must be innocent. In the instant case, the schedule offence has
not been made out because of lack of evidence. The Adjudicating
Authority, at the time of refusing to continue the order of
attachment under PMLA, was of the opinion that the record             G
regarding banks and its officials who may be involved, is not on
record. Therefore, for lack of identity of the source of collected
money, it could not be reasonably believed by the Deputy Director
(ED) that the unaccounted money is connected with the

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700            SUPREME COURT REPORTS                        [2022] 3 S.C.R.


A     commission of offence under PMLA. Simultaneously, the letter
      of the I.T. Department dated 16.5.2019 and the details as
      mentioned, makes it clear that for the currency seized, the tax is
      already paid, therefore, it is not the quantum earned and used for
      money laundering. Even in cases of PMLA, the court cannot
      proceed on the basis of preponderance of probabilities. On perusal
B
      of the statement of Objects and Reasons specified in PMLA, it is
      the stringent law brought by Parliament to check money
      laundering. Thus, the allegation must be proved beyond
      reasonable doubt in the court. Even otherwise, it is incumbent
      upon the court to look into the allegation and the material
C     collected in support thereto and to find out whether the prima
      facie offence is made out. Unless the allegations are substantiated
      by the authorities and proved against a person in the court of law,
      the person is innocent. [Para 18][713-E-H; 714-A-C]
             1.4 Looking to the facts of this case, it is clear by a detailed
D     order of acceptance of the closure report of the schedule offence
      in RC MA1 2016 A0040 and the quashment of two FIRs by the
      High Court of the schedule offence and of the letter dated
      16.5.2019 of I.T. Department and also the observations made by
      the Adjudicating Authority in the order dated 25.2.2019, the
      evidence of continuation of offence in ECR CEZO 19/2016 is not
E     sufficient. The Department itself is unable to collect any
      incriminating material and also not produced before this Court
      even after a lapse of 5 1D 2 years to prove its case beyond
      reasonable doubt. From the material collected by the Agency,
      they themselves are prima facie not satisfied that the offence
F     under PMLA can be proved beyond reasonable doubt. Thus,
      looking to the facts, the chance to prove the allegations even for
      the purpose of provisions of PMLA in the Court are bleak.
      Therefore, this court is of the firm opinion that the chances to
      prove those allegations in the court are very bleak. It is trite to
      say, till the allegations are proved, the appellant would be
G     innocent. The High Court by the impugned order has recorded
      the finding without due consideration of the letter of the I.T.
      Department and other material in right perspective. Therefore,
      the findings of the High Court cannot be sustained. The impugned
      order passed by the High Court is set aside. [Para 19, 20][714-
H     C-H; 715-A]
       J. SEKAR @SEKAR REDDY v. DIRECTORATE OF                                 701
                    ENFORCEMENT

      Radheshyam Kejriwal v. State of West Bengal (2011) 3                     A
      SCC 581 : [2011] 4 SCR 889; Ashoo Surendranath
      Tewari v. Deputy Superintendent of Police, EOW, CBI
      and Another (2020) 9 SCC 636 – relied on.
                         Case Law Reference
[2011] 4 SCR 889                  relied on               Para 17, 18, 19      B

(2020) 9 SCC 636                  relied on               Para 17, 19
      CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
738 of 2022.
      From the Judgment and Order dated 04.02.2021 of the High Court           C
of Judicature at Madras in Crl. O.P. No. 24200 of 2017.
      Vikram Chaudhri, Sr. Adv., Rishi Sehgal, S. Eiambharathi, Abdul
Saleem, Ms. Ria Khanna, Ms. Anzu K. Varkey, Advs. for the Appellant.
      S. V. Raju, ASG, M. K. Maroria, Zoheb Hussain, Kanu Agarwal,
                                                                               D
Ms. Sairica Raju, Ms. Deepabali Dutta, Anshuman Singh, Ankit Bhatia,
Arpit Goel, Harsh Paul Singh, Advs. for the Respondent.
      The following Judgment of the Court was delivered
                                 JUDGMENT
      1. Leave granted.                                                        E

       2. This appeal arises out of the judgment dated 04.02.2021 passed
by the Division Bench of the High Court of Madras in Crl. O.P. No. 24200
of 2017 which was filed for quashing of the proceedings in C.C. No. 2 of
2017. The High Court, while dismissing the petition under Section 482 of the
Criminal Procedure Code (for short ‘Cr.P.C.’) inter-alia held that the         F
argument of the appellant that the FIR with respect to schedule offence
was closed for want of evidence and in absence of connected evidence
with a crime of schedule offence, the prosecution for offences under
Sections 3 & 4 of the Prevention of Money Laundering Act, 2002 (for
short “PMLA”) cannot be sustained. It is also held that the commission         G
of schedule offence may be a fundamental pre-condition for initiating
the proceedings but the offence of money laundering is independent of
the schedule offence because the PMLA deals with the process or activity
with respect to the proceeds of crime including concealment, possession,
acquisition or use, however in the light of the explanation of Section
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702             SUPREME COURT REPORTS                           [2022] 3 S.C.R.


A     44(1) of PMLA, the argument of the appellant was repelled. The High
      Court further held that if any observation has come in the bail application,
      having no material to connect with the commission of any offence, would
      not be enough to quash the proceedings. The Court relied upon the seizure
      made by the I.T. Department including that of the currency notes of
      denomination of Rs. 2000 in the context that the currency notes of
B
      denomination of Rs. 500 and Rs. 1000 ceased to be legal tender by
      order of the Government at the time of demonetization and the people
      were in queue to exchange those old currency notes for new ones. As
      the seizure of currency notes of Rs. 33 crores in the denomination of
      Rs. 2000 was made, therefore, the closure report made by Central Bureau
C     Investigation (in short ‘CBI’) in schedule offence cannot be relied upon.
             2. Briefly, the facts relevant for the purpose of the appeal are that
      the appellant J. Sekar Reddy is the Managing Partner of M/s SRS Mining
      which is a partnership firm engaged in sand mining since 2013 and he
      had deposited Rs 312.64 Crores in three bank accounts of the firm. On
D     08.12.2016 and 09.12.2016, the Income Tax Department, Chennai (for
      short “I.T. Department”) conducted search in the official/commercial
      premises of the appellant and others and seized currency amounting to
      Rs.106,98,89,800/- and 128.495 kg of gold (valued at Rs.36,72,07,311).
            3. Thereafter, from 08.12.2016 to 12.12.2016, appellant joined
E     inquiry before the IT Department about the seizure of currency notes
      and gold. Subsequently on 19.12.2016, the CBI registered RC 40(A)
      2016/CBI/ACB/CHENNAI for offences under Sections 120-B r/w 409,
      420 of Indian Penal Code (in short ‘IPC’) and Section 13(2), r/w 13(1)(c)
      and 13(1)(d) of the Prevention of Corruption Act,1988 (in short ‘PC
      Act’) against the appellant and two others.
F
             4. The Enforcement Directorate after perusing the FIR of the
      CBI felt that in addition to the scheduled offences, the provisions of
      under Sections 2(1)(x) and 2(1)(y) of the PMLA attract, however
      registered the offence at ECIR No. 19 of 2016 dated 19.12.2016 against
      the appellant and others. The respondent had enquired and conducted
G     the investigation and, recorded the statement of the appellant and others
      and found new currency notes of denomination of Rs.2,000/- of a total
      value of Rs.33,74,92,000/ in a subsequent search on the official and
      commercial premises of the appellant.

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       J. SEKAR @SEKAR REDDY v. DIRECTORATE OF                                  703
                    ENFORCEMENT

      5. In the meantime, the CBI had filed the custody petition which          A
was dismissed by the Special Court vide order dated 30.12.2016. The
CBI had also registered two FIRs being Crime No. RC MA1 2016 A0051
at 1500 hrs. and RC MA1 2016 A0052 at 1510 hrs on 30.12.2016 by a
margin of ten minutes time. The appellant filed the bail application in RC
MA1 2016 A0040 and RC MA1 2016 A0051 before the Principal Special
                                                                                B
Judge for CBI Cases, Chennai. The Special Court, by order dated
17.3.2017 granted bail to the appellant imposing certain conditions.
       6. Subsequently, Deputy Director (ED), Chennai in ECIR CEZO/
19/2016 passed an order for provisional attachment in exercise of the
power under Section 5(1) of PMLA for a specified period of one month.
On submitting the complaint OC No. 785 of 2017 before the Adjudicating          C
Authority for confirmation of the order of provisional attachment, it
refused to confirm the order of attachment and dismissed the same. In
the order, the Adjudicating Authority stated that the description of the
bank or bank officers is not on record. In absence of any identification,
who were the bank officers who converted the denomination of old                D
currency notes into new and that too from which bank, there was no
material with the Deputy Director for making a reasonable belief for
change of old into new currency notes through the bank officers and
observed that the said allegation is based on speculations, which are not
legally tenable.
                                                                                E
       7. It is relevant to note that RCMA1 2016 A0051 and RCMA1
2016 A0052 were challenged by the appellant as well as other co-accused
before the Madras High Court by filing Crl. O.P. Nos. 24200 and 24202
of 2017 invoking the power under Section 482 Cr.P.C., which were
decided by a common order dated 27.6.2018 and the High Court in para
32 quashed the RC MA1 2016 A0051 and RC MA1 2016 A0052 against                  F
the appellant and other co-accused giving liberty to the CBI to treat the
allegations made in FIRs as supplementary allegations or to merge the
same in first FIR RC MA1 2016 A0040.
      8. It is most relevant to note that CBI after investigation in the
main case in RC MA1 2016 A0040 submitted the closure report before              G
the Additional Sessions Judge, CBI Court, Chennai in exercise of power
under Section 173(2) Cr.P.C. The said report was accepted vide order
dated 25.9.2020 with an observation that for lack of sufficient evidence,
nothing incriminating is found which may surface on the part of accused
persons. Therefore, from the above facts, it is clear that the CBI registered   H
704            SUPREME COURT REPORTS                          [2022] 3 S.C.R.


A     three cases out of which in the main case RC MA1 2016 A0040, the
      final closure report was submitted by CBI itself which was accepted by
      the Court and in remaining two cases bearing Nos. RC MA1 2016 A0051
      and RC MA1 2016 A0052, the High Court quashed the FIRs with respect
      to schedule offence.
B             9. So far as the investigation made by the I.T. Department on the
      basis of search is concerned, the same is closed. The appellant sought
      information from the I.T. Department vide communication dated
      11.5.2019. In respect to the same, the I.T. Department vide letter dated
      16.5.2019 provided the details of seizure made by it from the appellant.
      It is apparent that the new currency notes of denomination of Rs. 2000
C     belonged to M/s SRS Mining which is recorded in its cash book. Those
      currency notes seized are from the proceeds of the sand sales by
      M/s SRS Mining. The details of the tax, paid before or after self-
      assessment for Financial Year 2016-17 satisfied the Authority that money
      so seized was accounted money or tax paid.
D            10. The appellant contending all the above facts, approached the
      High Court of Madras invoking the jurisdiction under Section 482 Cr.P.C.
      seeking quashment of the proceedings related to PMLA case and prayed
      for the following reliefs:
            (i) To stay all further proceedings in CC No. 2 of 2017 on the
E               file of the Hon’ble Principal Sessions Court, Chennai pending
                disposal of the above criminal original petition.
            (ii) To call for the records in CC No. 2 of 2017 on the file of the
                 Hon’ble Principal Sessions Court, Chennai and quash the
                 same and pass such further other order, orders as deemed fit
F                and proper in the circumstances of the case and thus render
                 justice.
            By the impugned order dated 4.2.2021, the High Court of Madras
      dismissed the said petition.
             11. We have heard Shri Vikram Chaudhari, learned Senior Counsel
G
      for the appellant and Shri S.V. Raju, learned Additional Solicitor General
      on behalf of the respondent.
             12. Learned senior counsel for the appellant urged that for
      invocation of PMLA, pre-existing occurrence of the scheduled offence
      is required because the proceeds of crime are essential property derived
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       J. SEKAR @SEKAR REDDY v. DIRECTORATE OF                               705
                    ENFORCEMENT

from criminal activity of the said offence. The Adjudicating Authority       A
dealt with the order of the Deputy Director (ED) and for lack of evidence
refused to pass an order for attachment. As per the material available
on record, the offence of money laundering specified in Section 2(1)(p)
and also in Section 3 of PMLA is not made out. It is further urged that as
per Section 8(1) of PMLA, a show cause notice may be issued regarding
                                                                             B
the attached property if the said Authority is having reason to believe
that any person has committed an offence under Section 3 or is in
possession of proceeds of crime. The adjudication proceedings and
criminal proceedings are independent to each other but the material for
commission of offence recorded by the authorities in those proceedings
may be a relevant factor, in particular when for lack of evidence, the       C
Authority itself is satisfied that the attachment of the proceedings in
PMLA case cannot be continued. Reliance has been placed on the
judgments of this Court in Radheshyam Kejriwal Vs. State of West
Bengal (2011)3SCC 581 and Ashoo Surendranath Tewari vs. Deputy
Superintendent of Police, EOW, CBI and Another (2020) 9 SCC 636.
                                                                             D
       13. On the other hand, Shri S.V. Raju, learned Additional Solicitor
General on behalf of the respondent contends that the order passed by
the Adjudicating Authority under Section 5(5) PMLA is subject to the
appeal which is pending before the Appellate Authority. Therefore, the
order of the Adjudicating Authority and the finding recorded therein are
not sufficient to quash the proceedings in the present case. Learned         E
ASG is not in a position to controvert the arguments on merits as advanced
by the learned senior counsel for the appellant.
       14. After having heard learned counsels and on perusal of the
material available on record, it is clear that the I.T. Department made
search in the official/commercial premises of the appellant and other        F
connected persons. Later, I.T. Department vide communication dated
16.5.2019 which was issued in response to the letter of the appellant
dated 1.5.2019 and also of I.T. Department dated 13.5.2019 was satisfied
that the cash which was recovered from the officials/commercial premises
of the appellant is explained and tax was paid in the self-assessment for    G
the Financial Year 2016-17. The said letter is reproduced as thus:
                  “GOVERNMENT OF INDIA
 OFFICE OF THE JOINT DIRECTOR OF INCOME-TAX (INV)
     (OSD) UNIT-2(1), Room No. 223, 2nd Floor, Income Tax
 Investigation Wing, M G Road Nungambakkam, Chennai-600 034.                 H
706            SUPREME COURT REPORTS                         [2022] 3 S.C.R.


A                           Telefax : 044-28253651
                          Kg.arunraj@incometax.gov.in
            UNIT2(1)/2019-20                                    16.05.2019
            To:
B           The Managing Partner
            M/s SRS Mining
            317, Elite Empire
            G-12, Valluvarkottam High Road
C           Nungambakkam
            Chennai-34


            Sir,
D               Sub: Search in the case of M/s SRS Mining and others-request
      to provide information-Reg
               Ref: Your letter dated 01.05.2019 received in this office on
      13.05.2019
            ****
E
            Please refer to the above.
            2. The details requested by you are given below point wise:-
            (i) The date of initiation of search action in the case of M/s SRS
            Mining and others is 08.12.2016. This office didn’t refer the case
F           to the CBI and the CBI suo-moto initiated proceedings after news
            of seizure of huge amount of new Rs 2000 notes emerged.
            (ii) The seized cash and gold belong to M/s SRS Mining, a
            partnership firm whose partners are Shri S. Ramachandran, Shri
            K.Rethinam and Shri J.Sekar
G
            (iii) From the residence of Shri J.Sekar cash of Rs. 12,00,000/- in
            old currencies was seized
            (iv) The details of seizure of new currencies of Rs. 2000 notes
            made in the various premises are given below:-
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J. SEKAR @SEKAR REDDY v. DIRECTORATE OF                         707
             ENFORCEMENT

                                                                A




                                                                B




                      rd

                                                                C




                                                                D
        th




                                                                E

The new currencies belong to M/s SRS Mining and they were
recorded in the parallel cash book of M/s SRS Mining.
(v) As per the seized documents, the source of new currencies
seized is from proceeds of sand sales by M/s SRS Mining.        F

(vi) The details of prepaid tax paid by SRS Mining before the
search action are given below:-


                                                                G




                                                                H
708            SUPREME COURT REPORTS                         [2022] 3 S.C.R.


A           Post Search, M/s SRS Mining has paid Rs. 22,00,00,000/- towards
            self-assessment tax for AY 2017-18 relevant to FY 2016-17.


                                                       Yours faithfully
B
                                                    (K G ARUNRAJ IRS)
                                 Joint Director of Income Tax (Inv.) (OSD)
                                                     Unit 2 (1), Chennai”
             Therefore, the proceedings started on the basis of intriguing
C     recovery of cash and other items in fact, does not exist and the I.T.
      Department itself was satisfied with the recovery after investigation in
      the year 2019. Therefore, the finding recorded in the impugned order by
      the High Court in paragraph 14 with regard to recovery of new currency
      notes of denomination of Rs. 2000 cannot be countenanced.
D            15. Reverting to the issue of registration of the main FIR by the
      CBI bearing No. RC MA1 2016 A0040 and thereafter two other cases
      RC MA1 2016 A0051 and RC MA1 2016 A0052 are based upon the
      information furnished by the I.T. Department. As discussed above, the
      cases bearing Nos. RC MA1 2016 A0051 and RC MA1 2016 A0052
E     have been quashed by the High Court vide order dated 27.6.2018 passed
      in Criminal O.P. No. No. 409 of 2017. Thereafter in the main FIR RC
      MA1 2016 A0040, CBI submitted its closure report. The said closure
      report has been accepted by the Court in exercise of the power under
      Section 173(2) Cr.P.C. on 25.9.2020. The relevant extracts of closure
      report find mention in the court order is reproduced thus:
F
            “The Inspector of Police, CBI, ACB, Chennai has submitted a
            final report through Senior Public Prosecutor, CBI, praying
            an order to close the FIR pending before this court in RC
            MA1 2016 A 0040 U/s 120-B r/w 409, 420 IPC and Sec. 13(2)
            r/w 13 (1) (c) (d) of PC Act, 1989…..This court perused all
G           the relevant records including the FIR, Statement recorded
            under Section 161 of Cr.P.C., the documents collected during
            investigation, by the Investigating Officer and in the final
            report it is submitted that this court may be pleased to accept
            this Closure Report under Section-173(2) of Cr.P.C. and may
H           drop the action against A1 to A6 for lack of sufficient
       J. SEKAR @SEKAR REDDY v. DIRECTORATE OF                             709
                    ENFORCEMENT

      Evidence. There was nothing incriminating surfaced on the            A
      part of accused persons, as these accused 1 to 6 had in
      conspiracy with unknown bank officials and public servants
      cheated the Government of India.
      4. The evidence on record is not adequate to launch
      prosecutable case against the accused persons beyond                 B
      reasonable doubt to establish that they fraudulently converted
      the unauthorised cash held by them in old currency notes in
      to NHD, thereby depriving the public, in enforcing their right
      and thus the accused 1 to 6 had in conspiracy with unknown
      bank officials and public servants cheated the Government
      of India.                                                            C

      6. The investigation has not established the allegations levelled
      against A1 to A6. On the basis of statement of witnesses of
      LW1 to 170 and documents D1 to D879 and M.O.I to 8
      collected during the investigation, there is no sufficient
      evidence to launch prosecution against the accused 1 to 6            D
      persons, for the offences of Criminal Conspiracy, Cheating,
      Criminal misconduct.
      7. As per the oral and documentary evidence, the allegations
      in the FIR to the effect that the accused persons have caused
      wrongful loss to the Government of India to the tune of              E
      approximately 247.13 Crores and obtaining corresponding
      wrongful gain to themselves, is not substantiated with
      prosecutable evidence. Hence the final report has been filed
      for recommending closure of the case report has been filed
      for recommending closure of the case                                 F
      8. …..Hence this court is convinced and satisfied to accept
      the prayer of closure of the case…..
      9. …..The reasons submitted by the prosecution for closure of
      F.I.R. in the absence of any evidence is acceptable.”
                                                                           G
       Thus, it is clear that the FIR with respect to schedule offence
registered by the CBI with respect to proceeds of the crime including
property attached has been closed.
      16. On the basis of the intimation given by the I.T. Department
and registration of the FIR by the CBI which was closed, the Directorate
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710            SUPREME COURT REPORTS                           [2022] 3 S.C.R.


A     of ED registered ECIR/CEZO/19/2016 under Sections 3, 4 & 8(5) of
      PMLA. After the said FIR, Deputy Director (ED) passed an order under
      Section 5(1) of PMLA on 1.6.2017 attaching the property. For
      confirmation of attachment, OC No. 785 of 2017 was filed by the
      Department which is rejected by the Adjudicating Authority while
      exercising the power under Section 5(5) of PMLA. The Adjudicating
B
      Authority observed as thus:
            “It is pertinent to note that about two years have lapsed since
            passing of the said bail order dated 17.03.2017, and over two
            years have passed after filing of FIR, however till date no Final
            Report is filed by the concerned Investigating Officer investigating
C           the scheduled offences. Most material is the fact that so far no
            bank or bank officers are identified, either by the officer
            investigating the schedule offences or even the Enforcement
            Directorate, Chennai. In view of the absence of any bank or bank
            officers having been identified, it was necessary for the Deputy
D           Director to consider the absence and/ or non-identification of any
            bank or bank officers. Nothing is adduced or available on record
            as to which banks and which bank officers are involved, who
            have unauthorizedly converted demonetized old currency into new
            currency. The reasonable belief as is formed by the Deputy
            Director reveals that the vital aspect concerning the fact that no
E           such bank or bank officers are existing or found is not considered
            by the Deputy Director at all. The Reasonable Belief is thus
            impaired. The Reasonable Belief formed by the Deputy Director
            inter alia is that the accused persons have laundered their
            unaccounted money in conspiring with the bank officials of various
F           banks who helped them laundering the unaccounted money. There
            is nothing on record which reveals the name of even single bank,
            much less, the various banks as stated by the Deputy Director.
            Similarly not a single bank official is identified or named and there
            is nothing on record which reveals any such detail. Consequently
            the Reasonable Belief becomes baseless and is mere speculation
G           of the Deputy Director. Such a belief can not be justified and
            sustained. The aspect concerning non-identification and/ or non-
            availability of any bank and bank officials, goes to the root of the
            formation of the entire Reasonable Belief. The Additional Director/
            Joint Director/ Deputy Director ought to have directed the
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J. SEKAR @SEKAR REDDY v. DIRECTORATE OF                                  711
             ENFORCEMENT

Enforcement Directorate Officers to investigate or cause to be           A
investigated the aspect concerning the bank or bank officers. The
Deputy Director ought to have deliberated on the issue and
proceeded, which is not done. In the absence of such basic material
the Reasonable Belief entertained by the Deputy Director
specifically forming the Reasonable Belief that the accused
                                                                         B
laundered their unaccounted money in conspiring with the bank
officials of various banks who helped them in laundering the
unaccounted money, can not be legally tenable.
The Reasonable Belief of the Deputy Director further upon it’s
analysis indicates that the Deputy Director has entertained the
Reasonable Belief as stated in para 21, 26 & 27 of the Provisional       C
Attachment Order, only in respect of a part of the seized amount
of Rs. 334792000/-, without specifying as to what quantum and
as to what part of the seized amount of Rs. 334792000/- in the
form of movable properties is related to the schedule offences.
The formation of the Reasonable Belief only for part of the seized       D
amount and yet proceeding to attach the entire seized amount
vitiates the entire Reasonable Belief and renders it as illegal. It is
seen from the Reasonable Belief that such an exercise was not
carried out by the Deputy Director.
The reasonable belief formed by the Deputy Director that the             E
new currency, which were seized by the Income Tax Authorities
are nothing but the currency received in lieu of exchange of old
currency notes (demonetized currency) inclusive of commission
for such exchange received by S/ Shri J. Sekar Reddy, M.
Premkumar, S. Srinivaslu, S. Ramachandran & K. Rethinam, is              F
neither based on any specified material nor is justified.
It is therefore, concluded that the reasonable belief formed by the
Deputy Director in this regard cannot be sustained, the same having
been not based on any specifically material and the same is merely
surmises, conjectures and speculation.                                   G
Considering the material in O.C., the written replies/ additional
written reply/ submissions of the Defendants and the arguments
above referred, I find that the property provisionally attached by
PAO No. 14/2017 dated 12.06.2017, i.e. 49,480 kgs of gold valued
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712               SUPREME COURT REPORTS                        [2022] 3 S.C.R.


A           of Rs. 13,96,88,246 mentioned in para 22 of PAO(para 1 of this
            order) is not involved in money laundering. ’’
             17. In the said sequel of facts, the legal position emerges by the
      judgment of Radheshyam Kejriwal (supra) is relevant in which this
      Court has culled out the ratio of the various other decisions pertaining to
B     the issue involved and has observed as thus:
            “12 After referring to various judgments, this Court then culled
            out the ratio of those decisions in para 38 as follows: (Radheshyam
            Kejriwal Case)
                  38. The ratio which can be culled out from these
C           decisions can broadly be stated as follows:
            (i)     Adjudication proceedings and criminal prosecution can
                    be launched simultaneously;
            (ii)    Decision in adjudication proceedings is not necessary
D                   before initiating criminal prosecution;
            (iii)   Adjudication proceedings and criminal proceedings are
                    independent in nature to each other;
            (iv)    The finding against the person facing prosecution in
                    the adjudication proceedings is not binding on the
E                   proceeding for criminal prosecution;
            (v)     Adjudication proceedings by the Enforcement
                    Directorate is not prosecution by a competent court of
                    law to attract the provisions of Article 20(2) of the
                    Constitution or Section 300 of the Code of Criminal
F                   Procedure;
            (vi)    The finding in the adjudication proceedings in favour
                    of the person facing trial for identical violation will
                    depend upon the nature of finding. If the exoneration
                    in adjudication proceedings is on technical ground and
G                   not on merit, prosecution may continue; and
            (vii) In case of exoneration, however, on merits where the
                  allegation is found to be not sustainable at all and the
                  person held innocent, criminal prosecution on the same
                  set of facts and circumstances cannot be allowed to
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        J. SEKAR @SEKAR REDDY v. DIRECTORATE OF                                  713
                     ENFORCEMENT

              continue, the underlying principle being the higher                A
              standard of proof in criminal cases.”
       13. It finally concluded: (Radheshyam Kejriwal case
          “39. In our opinion, therefore, the yardstick would be to
          judge as to whether the allegation in the adjudication
          proceedings as well as the proceeding for prosecution is               B
          identical and the exoneration of the person concerned in
          the adjudication proceedings is on merits. In case it is found
          on merit that there is no contravention of the provisions of
          the Act in the adjudication proceedings, the trial of the
          person concerned shall be an abuse of the process of the               C
          court.
       14. From our point of view, para 38(vii) is important and if the
       High Court has bothered to apply this parameter, then on a reading
       of the CVC report on the same facts, the appellant should have
       been exonerated.”                                                         D
       In the case of Ashoo Surendranath Tewari (supra), this Court
relied upon the judgment of Radheyshyam Kejriwal (supra) and set-
aside the judgment of the High Court while exonerating the appellants
because the chance of conviction in a criminal case in the same facts
appeared to be bleak.                                                            E
       18. In view of the aforesaid legal position and on analysing the
report of I.T. Department and the reasoning given by CBI while submitting
the final closure report in RC MA1 2016 A0040 and the order passed by
the Adjudicating Authority, it is clear that for proceeds of crime, as defined
under Section 2(1)(u) of PMLA, the property seized would be relevant             F
and its possession with recovery and claim thereto must be innocent. In
the present case, the schedule offence has not been made out because
of lack of evidence. The Adjudicating Authority, at the time of refusing
to continue the order of attachment under PMLA, was of the opinion
that the record regarding banks and its officials who may be involved, is
not on record. Therefore, for lack of identity of the source of collected        G
money, it could not be reasonably believed by the Deputy Director (ED)
that the unaccounted money is connected with the commission of offence
under PMLA. Simultaneously, the letter of the I.T. Department dated
16.5.2019 and the details as mentioned, makes it clear that for the
currency seized, the tax is already paid, therefore, it is not the quantum
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714             SUPREME COURT REPORTS                            [2022] 3 S.C.R.


A     earned and used for money laundering. In our opinion, even in cases of
      PMLA, the Court cannot proceed on the basis of preponderance of
      probabilities. On perusal of the statement of Objects and Reasons
      specified in PMLA, it is the stringent law brought by Parliament to check
      money laundering. Thus, the allegation must be proved beyond reasonable
      doubt in the Court. Even otherwise, it is incumbent upon the Court to
B
      look into the allegation and the material collected in support thereto and
      to find out whether the prima facie offence is made out. Unless the
      allegations are substantiated by the authorities and proved against a
      person in the court of law, the person is innocent. In the said backdrop,
      the ratio of the judgment of Radheshyam Kejriwal (supra) in paragraph
C     38 (vi) and (vii) aptly applicable in the facts of the present case.
             19. As discussed above, looking to the facts of this case, it is clear
      by a detailed order of acceptance of the closure report of the schedule
      offence in RC MA1 2016 A0040 and the quashment of two FIRs by the
      High Court of the schedule offence and of the letter dated 16.5.2019 of
D     I.T. Department and also the observations made by the Adjudicating
      Authority in the order dated 25.2.2019, the evidence of continuation of
      offence in ECR CEZO 19/2016 is not sufficient. The Department itself
      is unable to collect any incriminating material and also not produced
      before this Court even after a lapse of 5 ½ years to prove its case
      beyond reasonable doubt. From the material collected by the Agency,
E     they themselves are prima facie not satisfied that the offence under
      PMLA can be proved beyond reasonable doubt. The argument advanced
      by learned ASG regarding pendency of the appeal against the order of
      Adjudicating Authority is also of no help because against the order of
      the Appellate Authority also, remedies are available. Thus, looking to the
F     facts as discussed hereinabove and the ratio of the judgments of this
      Court in Radheshyam Kejriwal (supra) and Ashoo Surendranath
      Tewari (supra), the chance to prove the allegations even for the purpose
      of provisions of PMLA in the Court are bleak. Therefore, we are of the
      firm opinion that the chances to prove those allegations in the Court are
      very bleak. It is trite to say, till the allegations are proved, the appellant
G     would be innocent. The High Court by the impugned order has recorded
      the finding without due consideration of the letter of the I.T. Department
      and other material in right perspective. Therefore, in our view, these
      findings of the High Court cannot be sustained.

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        J. SEKAR @SEKAR REDDY v. DIRECTORATE OF                          715
                     ENFORCEMENT

      20. Accordingly, we set-aside the impugned order passed by the     A
High Court. Consequently, this appeal is allowed. ECR CEZO 19/2016
including Complaint bearing No. 2 of 2017 stands quashed.

Nidhi Jain                                             Appeal allowed.
(Assisted by : Shashwat Jain, LCRA)
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