Delhi High Court Upholds Section 132(1) Search Authority Over Third-Party Premises and Bank Locker in Chowdhary Case

Overview of the Dispute

The Delhi High Court, in Shilpa Chowdhary Vs Principal Director of Income Tax (Investigation), W.P. (C) 5207/2020, decided on 07.12.2020, examined the legal validity of search and seizure operations carried out at a residential-cum-office premises and a jointly held bank locker belonging to the petitioners. The Court dismissed both writ petitions filed by the husband and wife, holding that the searches were lawfully conducted under Section 132(1) of the Income Tax Act, 1961, and that the warrants of authorization (WoA) were backed by sufficient reasons to believe as required under the statute.

The case raised significant questions regarding the scope and operation of Section 132(1) versus Section 132(1A) of the Income Tax Act, 1961, the authority to search premises belonging to persons other than those directly under investigation, and the judicial scrutiny applicable to "reason to believe" forming the basis of a search warrant.

Background Facts

The Kochar Group Investigation

On 05.02.2019, warrants of authorization under Section 132(1) of the Income Tax Act, 1961 were issued against persons constituting the 'Kochar Group' — comprising Sh. Avtar Singh Kochar, Sh. Gyandeep Singh Kochar, Sh. Hari Singh Kochar, and M/s HL Impex (P.) Ltd. (collectively referred to as "Primary Persons"). Among the several WoAs issued on that date, one identified the residence-cum-office of Sh. Vikas Chowdhary located at E-12/3, Vasant Vihar, New Delhi, as a premises to be searched in relation to the Kochar Group proceedings.

Search at the Petitioner's Premises

Pursuant to WoA No. 7257 dated 05.02.2019, a search and seizure operation was conducted at the premises of Sh. Vikas Chowdhary commencing at 12:30 PM on 06.02.2019. The search continued over approximately four days and was temporarily concluded on 09.02.2019 at 09:00 PM. A panchnama dated 09.02.2019 documented the following items recovered from the premises:

  • Loose papers
  • One hard disk (working copy seized)
  • One Digital Video Recorder (DVR)
  • Cash (released at the time of search)
  • One Godrej-branded key to Locker No. 150F, Bank of India, Punjabi Bagh, New Delhi
  • Three keys belonging to cylindrical containers
  • Two keys belonging to a wooden cupboard in the petitioner's daughter's bedroom

Statements of both petitioners were recorded on oath on 06.02.2019 under Section 132(4) of the Income Tax Act, 1961.

On 12.02.2019, a fresh WoA No. 7275 was issued under Section 132(1) in the names of both Shilpa Chowdhary and Vikas Chowdhary, specifically in respect of Locker No. 150F held with Bank of India, Punjabi Bagh, New Delhi. On 03.04.2019 at 5:30 PM, the locker was searched pursuant to this warrant. Jewellery valued at Rs. 1,00,67,181/- was found and seized.

The search at the petitioner's premises resumed on 04.04.2019 under the original WoA dated 05.02.2019 against the Primary Persons, and a final panchnama was drawn on 05.04.2019. On 20.04.2019, a notice for assessment proceedings was issued to the petitioners under Sections 153A/143(3) of the Income Tax Act, 1961.

Writ Petitions Filed

Aggrieved by these proceedings, both Shilpa Chowdhary and Vikas Chowdhary filed separate writ petitions under Articles 226 and 227 of the Constitution of India seeking:

  1. Quashing of the impugned WoA
  2. A declaration that the search and seizure was illegal, void, and without authority of law
  3. Release of all seized material and valuables
  4. Quashing of the notices under Sections 153A/143(3) of the Income Tax Act, 1961

Given that the factual narrative and reliefs in both petitions were substantially identical, the Court disposed of them through a common judgment.

Petitioners' Arguments

The petitioners, represented by Mr. Srivastava, advanced the following grounds of challenge:

  • The search was arbitrary and mala fide, amounting to a general search without any credible evidence that the petitioners were in possession of documents or valuables belonging to the Primary Persons.
  • The WoA dated 05.02.2019 covered the Kochar Group alone, and the officers exceeded their mandate by conducting what amounted to a full-fledged independent search against the petitioners and their family members.
  • The search conducted between 06.02.2019 and 09.02.2019 at the petitioner's premises was effectively conducted under Section 132(1A) of the Income Tax Act, 1961, which operates on the lower threshold of "reason to suspect" as opposed to "reason to believe" under Section 132(1).
  • Even if the action was taken under Section 132(1), the conditions specified in clauses (a), (b), or (c) of Section 132(1) were never independently examined or satisfied in the case of the petitioners.
  • The locker key was not known to the authorities before the search on 06.02.2019, and hence no pre-existing material could have grounded an independent reason to believe for the locker warrant.
  • The petitioners were not questioned about the locker, its key, or its contents during the search itself, making the subsequent WoA dated 12.02.2019 unsustainable.