Is It Confidential In Character Or Nor?: Gauhati High Court Refers "Reason To Believe" Disclosure Under PMLA To Larger Bench

While making the reference, the Court upheld the provisional attachment of properties worth ₹52.66 lakh belonging to the petitioner, observing prima facie that fraudulent Input Tax Credit (ITC) generated through shell entities and subsequently utilised for discharge of GST liabilities constituted “proceeds of crime” under Section 2(1)(u) of the PMLA. The Court further held that where the original proceeds of crime are unavailable, properties of equivalent value may be subjected to attachment.

Justice Manish Choudhury observed, “From the perspective of this Court, the points of reference are : [i] whether the reason to believe, which is to be recorded in writing by the Authorized Officer on the basis of material in his possession to pass a Provisional Attachment Order [PAO] under Section 5[1] of the PMLA, is confidential in character or not, and/or is to be furnished to the affected person or not? and [ii] if such reason to believe is made part of the PAO, whether the PAO suffers from any jurisdictional error or not?”.

Senior Advocate Dr. A. Saraf appeared for the petitioner and Senior Advocate R.K. Deb Choudhury, Deputy Solicitor General of India appeared for the respondent.

The Court noted that the alleged fake ITC chain originated from M/s Siddhi Vinayak Trader, which had passed on fraudulent ITC of about ₹99.31 crore to multiple entities, including M/s Fama Marketing.

As per the facts, the case arose from an investigation into an alleged GST fraud involving M/s Siddhi Vinayak Trader, which was found to have allegedly generated and passed on fraudulent Input Tax Credit (ITC) of approximately ₹99.31 crore through fake invoices without actual supply of goods.

The investigation revealed that the ITC was further routed through suspected shell entities, including M/s Krishti Enterprise and M/s L.S. & Company, from which M/s Fama Marketing, represented by the petitioner Mrig Mrinal Dhawan, allegedly availed and utilised fraudulent ITC of ₹52.66 lakh.

The Enforcement Directorate treated the utilised ITC as proceeds of crime under the Prevention of Money Laundering Act, 2002 and provisionally attached properties of equivalent value, leading the petitioner to challenge the Provisional Attachment Order (PAO).

Rejecting the argument that assets purchased before the alleged GST fraud could not be attached, the Court relied on the wide interpretation of "proceeds of crime" and held that where the original proceeds are no longer available, equivalent-value properties can be subjected to attachment.

“…Even if PoC is transferred multiple times wholly or partly to one or many to other entities in different modes, the original tag attached to it as tainted money does not go away and it remains, and as a result, the last of the person in possession of the PoC or a part of the PoC comes under the purview of the attachment and confiscation proceeding. Attachment and confiscation apply not only to money but to any assets purchased using illicit funds of PoC or value thereof”, the Bench noted.

However, on the issue of whether the "reason to believe" recorded by the Authorized Officer under Section 5(1) of the PMLA must remain confidential or can form part of the Provisional Attachment Order (PAO), the Court disagreed with a coordinate bench view and referred the question to a larger bench for consideration.

“The Court cannot read into a restriction which the legislature itself has not incorporated. From the above analysis, this Court does not reach a conclusion that if the reason to believe, which if recorded by the Authorized Officer to exercise the power under Section 5 [1] of the PMLA in a file at a prior point of time, is made part of the PAO, the PAO would suffer from any kind of illegality. Rather, this Court is of the view that such reason to believe is required to be furnished to the affected person, sooner or later, if a request is made to that effect by the affected person. If the reason to believe is made part of the PAO, the same would be in alignment with the constitutional principles of natural justice and fair play; and the same would lessen the possibility of subjective fishing expeditions. The Court has, thus, negates the contention advanced on behalf of the petitioner that as reason to believe is made part of the impugned PAO, the impugned PAO has suffered from any defect from the point of jurisdiction”, the Bench observed.

Cause Title: Mrig Mrinal Dhawan v. Union of India & Anr. (Neutral Citation: 2026:GAU-AS:9425)

Appearances:

Petitioner: Dr. A. Saraf, Senior Advocate, S. P. Sarma, Advocate.

Respondent: R.K. Deb Choudhury, Senior Counsel & Deputy Solicitor General of India, R. Dhar, Retainer Counsel, Enforcement Directorate.

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