Delhi HC sets aside freezing of bank accounts of 66 companies under PMLA on Brazil request

The Delhi High Court has set aside orders passed by the Adjudicating Authority under Section 8 of the Prevention of Money Laundering Act (PMLA) whereby bank accounts of 66 companies were frozen, upon a “request for legal assistance” from the Office of the Prosecutor General, Rio De Janeiro, Brazil.

India and Brazil have signed a Mutual Legal Agreement Treaty, whereby both countries have agreed to cooperate in criminal matters. The Office of the Prosecutor General, Rio De Janeiro had contacted Indian authorities in relation to a criminal matter involving a former Governor of Brazil, Sergio Cabral, against whom allegations of corruption and money laundering of more than $ 100 million have been leveled. The specific allegation in respect of Indian companies was about $ 13.24 million.

The Prosecutor General from Brazil sought freezing/seizure of the bank accounts of the companies stated to be involved, as also digital copies of all the documents relating to the identified bank accounts.

Pursuant to this Letter of Request, the ED passed freezing orders under Section 17(1A) of the Prevention of Money Laundering Act, 2002 (hereinafter, “Act”), in July 2020, freezing various bank accounts of the Petitioners and other companies in India, and also commenced proceedings under the Act against all the 66 companies.

The matter was referred by the ED to the Adjudicating Authority (hereinafter, “AA”) under section 17(4) the Act, pursuant to which, the AA issued notices to the Petitioner under Section 8(1) of the Act to show-cause as why their properties seized or frozen should not be retained as involved in Money Laundering under the Act. The AA directed the Petitioners herein to file replies to the show cause notice, based on the ‘Relied Upon Documents’ (hereinafter, “RUDs”) that were supplied to them (Panchnamas).

ED upon receiving clarifications from the Central Authority in Brazil, in November 2020, the freezing orders have been amended and restricted to the actual amounts which were mentioned in the request letters. Parallelly, after hearing the parties, the AA passed a lengthy order on 28th December 2020, confirming the freezing orders passed by the ED, in respect of the amounts mentioned therein, which was restricted to the actual amounts mentioned in the request letters.

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Advocate Amit Mahajan, Central Government Standing Counsel, appearing on behalf of the ED, on instructions from Deepak Chauhan, Deputy Director, ED, submitted: “That since these are one of the first set of matters that have arisen under Section 60 of the Prevention of Money Laundering Act, 2002, the ED would be willing to have a fresh look at the freeing orders dated that have been passed, and any other proceedings pursuant thereto based on the averments made in the writ petitions and in the peculiar facts and circumstances of the respective cases.”

A single-judge bench of Justice Pratibha M. Singh held that non-transmission of all the “material in its possession” to the Adjudicating Authority, prior to the issuance of the show cause notice by ED, would be contrary to Rule 8 of the 2005 PMLA Rules.

“Such freezing of bank accounts could lead to disruption of personal lives and/or of businesses. Thus, measures such as freezing of bank accounts ought to be proportionate and taken only to the extent required. If any clarifications are required from authorities in the contracting state, the ED ought to seek those clarifications, prior to resorting to such measures of freezing……………. These cases afford a stark example of mechanical execution of a letter of request received from a contracting state, which would not be permissible under the scheme of PMLA, and would also be contrary to the provisions of the Merida and the Palermo Conventions,”

-held Justice Singh.

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The court passed the following directions:

• A Copy of the Letter of Request received from the Central Authority of Brazil, the Plea Bargain Agreement referring to Annex 2 of Claudio Barboza, the Plea Bargain Agreement referring to Annex 46 of Vinicus Claret, the Digital Media (CD) with the bank account identified, with their number, bank, transaction amount and transaction dates, the details of bank accounts of Petitioners viz. Bank account Statement and theKYC, FIRC etc. obtained for verification of alleged transaction from concerned bank/branch, be provided to the petitioners by the ED, on or before 15th November, 2021.

• All parties/Petitioners shall be permitted to file their submissions based on the material received by them from the ED, on or before 15th December, 2021.

• The ED shall consider the submissions made by all the parties and then pass fresh orders in accordance with law by 15th February, 2022.

• In the interregnum, the specific amounts as referred to in the order dated 28th December 2020 of the Adjudicating Authority, shall remain frozen. However, the Petitioners are permitted to furnish either bank guarantees, or securities to the satisfaction of the ED, subject to which the said accounts may be directed to be de-frozen by the ED.