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Jammu and Kashmir HC quashes ECIR filed by Enforcement Directorate against local company

In 2017, the Enforcement Directorate registered an ECIR under the provisions of the Prevention of Money Laundering Act, 2002 against Zahoor Ahmad Shah Watali, one of the Promoter Directors of the Company.

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The Jammu and Kashmir High Court has quashed an Enforcement Case Information Report (ECIR) filed by the Enforcement Directorate (ED) against one of the Promoter Directors of a Kashmir-based Company.

A Division Bench comprising Justice Ali Mohammad Magrey and Justice Vinod Chatterji Koul asked yesterday, “Whether it is permissible for the Assistant Director, Directorate of Enforcement, acting under the provisions of Prevention of Money Laundering Act, 2002, to ask the Tehsildar, Narbal, Budgam, Kashmir, not to issue revenue extracts vis-à-vis certain properties which, admittedly, have not been attached under Section 5 of the said Act and have, in fact, been left out of attachment order already made by and confirmed by the competent authority?”

The Court made the observation on a petition filed by one Sarwa Begum, wife of Zahoor Ahmad Shah Watali, stating that her husband is one of its Directors of a Private Limited Company, incorporated on September 7, 1999 under the provisions of the Indian Companies Act, 1956. She said the Company is engaged in real estate business, buying land, developing it, raising construction of residential colonies and residential apartments and later selling them.

In 2017, the Enforcement Directorate registered an ECIR under the provisions of the Prevention of Money Laundering Act, 2002 against Zahoor Ahmad Shah Watali, one of the Promoter Directors of the Company.

Consequent to the registration of ECIR and after seeking information from the concerned revenue authorities about the properties held by Zahoor Ahmad Shah Watali and his family, a total of 30 Kanals and 8.5 Marlas of land situated at Sozeith, Goripora, Tehsil Narbal, District Budgam, Kashmir was attached.

Information about the provisional attachment of the land belonging to Zahoor Ahmad Shah Watali and his named family members under the provisions of the Act, and confirmation of the provisional attachment orders by the Adjudicating Authority was communicated by Assistant Director, Enforcement Directorate, Zonal Office, Srinagar, to the Deputy Commissioner, Budgam.

In furtherance of taking possession of the attached properties, it was stated that notice was required to be issued to the Registrar having jurisdiction of the area not to transfer or create any interest in such properties until further orders.

It was stated by the petitioner that the properties attached under Section 5 of the Prevention of Money Laundering Act (PMLA), 2002, were not the properties derived from the proceeds of any crime, but have been attached merely being the properties equivalent in value to the alleged proceeds of crime.

It was averred that the buyers of the residential plots and apartments from the petitioner-Company approached the Tehsildar concerned, for issuance of revenue extracts in order to enable them to register their sale deeds.

However, the Tehsildar arbitrarily did not provide the same to them, citing the attachment by Assistant Director, Enforcement Directorate, Zonal Office, Srinagar, as ground for the same, even though the said lands/apartments were not subject matter of any attachment under the attachment orders in question.

It was further stated that Assistant Director, Enforcement Directorate, Zonal Office, Srinagar addressed the communication dated March 18, 2020 to Tehsildar, requiring him that revenue extracts of even those properties earlier belonging to Zahoor Ahmad Shah Watali and his family members may not be issued. The petitioner-Company was aggrieved of this communication and challenged the same on various grounds.

In the reply affidavit filed on behalf of respondents, it was stated that ECIR was recorded on June 14, 2017, consequent upon the registration of an FIR by the National Investigation Agency (NIA) dated May 30, 2017 against Hafiz Muhammad Saeed and Watali. NIA filed the charge sheet against several persons on January 18, 2018.

It is averred that the specific allegation against the Zahoor Ahmad Shah Watali was that he was one of the conduits responsible for arranging, raising, receiving and collecting funds domestically and abroad through various illegal channels, including ‘hawala’, for funding separatist and terrorist activities in the then State of Jammu and Kashmir.

It is specifically stated that during the investigation of the said ECIR, proceeds of crime amounting to Rs 8.93 crore received by Watali were identified.

The Prosecution Complaint against Zahoor Ahmad Shah Watali and the Petitioner-Company and others have been filed under Section 45 of the Act, before the Special Court, Patalia House, New Delhi, which Court is stated to have taken cognizance of the Complaint on February 6, 2021. 14. It is admitted by the Respondent that that communication dated March 18, 2020 was sent to Tehsildar on receipt of his communication dated February 25, 2020 intimating that the investigation under the Act is still under way against Zahoor Ahmad Shah Watali and his family members, the revenue extracts of even those properties earlier belonging to Zahoor Ahmad Shah Watali and his family members may not be issued.

The Bench held that the factual circumstance and foundation on which the action of Assistant Director, Enforcement Directorate, Zonal Office, Srinagar, as stated in the communication, was premised, is now non-existent, in as much as the investigation has already been completed and culminated into filing of a final report/complaint before the Court of Additional Sessions Judge, Patiala House, New Delhi; therefore, the communication is without any basis.

On the other hand, it is not denied on behalf of the respondents that there is no order of attachment by the competent authority under Section 5 of the Act, the properties with respect to which the communication has been issued. However, it is their stand that further investigation against Zahoor Ahmad Shah Watali and his family members is still in progress; that if the properties are transferred and mutated in the name of third parties, it may result in non-availability of these properties for further attachments and may also jeopardise the ongoing investigation; and that there is possibility of siphoning off the proceeds of crime in the guise of such transfers and mutations in revenue records, the Court further held.

It said, “In the instant case, except issuing the communication dated March 18, 2020 to the concerned Tehsildar directing him not to issue revenue extracts of even those properties earlier belonging to Zahoor Ahmad Shah Watali and his family members, that too, by an officer of the rank of Assistant Director, not designated in sub-section (1) of Section 5 of the Act, no other procedure contemplated by the provision of law has been followed.

“Instead, it is consistently stated that the case is under further investigation and that mutations and registration of the properties at this stage in favour of third party may result in non-availability for attachments and may also jeopardise the ongoing investigation and siphoning off the proceeds of crime.

“Even this satisfaction is not attributed to the officer designated in Section 5(1) or authorised in accordance with the mandate contained therein. Assistant Director is no body either in terms of the provision of Section 5(1) of the Act or in terms of Rule 5 of the Prevention of Money-laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013, which prescribes the manner of taking possession of immovable property,” it added.

It is clarified by the Bench that once the final report/complaint has been filed by the Directorate of Enforcement and there being no other attachment order passed by the competent authority relating to any other properties, legally, there should be no impediment in the way of Tehsildar concerned in discharging his official functions in accordance with law in relation to the properties, which are not covered by the attachment orders passed by the competent authority.

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“The respondent is expected to understand what does this legally mean and legally he is bound to act in the matter in accordance with the provisions of the Land Revenue Act and the rules framed thereunder,” said the Court, while declaring the communication dated March 18 as illegal and liable to be quashed. ILNS/SHV/RJ

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