Kerala High Court
Kavitha G.Pillai vs The Joint Director on 5 August, 2015
Author: Dama Seshadri Naidu
Bench: P.N.Ravindran, Dama Seshadri Naidu
C.R.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE P.N.RAVINDRAN
&
THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU
WEDNESDAY, THE 26TH DAY OF JULY 2017/4TH SRAVANA, 1939
MFA.No. 11 of 2016 (F)
----------------------
(Against judgment in MP-PMLA-1118/COCHIN/2014(STAY) &
FPA-PMLA-639/COCHIN/2014 DATED 5.8.2015)
APPELLANT/APPLICANT:
--------------------
KAVITHA G.PILLAI,
W/O.LATE SIVADASAN NAIR, VAISHANAVAM HOUSE,
JAWAHAR LANE, PONEKKARA, AIMS P O, ERNAKULAM.
BY ADV. SRI.M.RAMESH CHANDER (SR.)
RESPONDENTS/RESPONDENTS:
-----------------------
THE JOINT DIRECTOR,
DIRECTOR OF ENFORCEMENT, GOVERNMENT OF INDIA,
COCHIN ZONAL OFFICE, KANOOS CASTLE,
MUKLLASSERY CANAL ROAD, WEST, COCHIN 11
R1 BY ADV. SMT.C.G.PREETHA, CGC
R BY SRI.N.NAGARESH, ASSISTANT SOLICITOR GENERAL
THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ON
05-07-2017, THE COURT ON 26-07-2017 DELIVERED THE FOLLOWING:
mfa no.11 of 2016
APPENDIX
APPELLANT'S EXHIBITS:
ANNEXURE-A1 TRUE COPY OF THE DISCHARGE SUMMARY ISSUED BY THE KIMS
HOSPITAL, ERNAKULAM DATED 30.6.2015.
ANNEXURE-A2 TRUE COPY OF THE DISCHARGE SUMMARY ISSUED BY THE ASTER
MEDICITY HOSPITAL.
ANNEXURE A3 TRUE COPY OF THE DISCHARGE SUMMARY ISSUED BY KIMS HOSPITAL
DATED 18.12.2015.
ANNEXURE A4 PHOTOSTAT COPY OF THE EVICTION NOTICE DTD.21.10.2016.
ANNEXURE A5 PHOTOSTAT COPY OF THE PETITION FILED BEFORE THE AUTHORITY
DATED 27.10.2016.
RESPONDENT'S EXHIBITS:
ANNEXURE R1 TRUE COPY OF JUDGMENT DATED 22.9.2015.
ANN.R1(A) TRUE COPY OF THE LETTER DATED 17.8.2016 ISSUED BY THE
REGISTRAR OF THE APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING
ACT,NEW DELHI ALONG WITH THE ENCLOSURE.
ANNEXURE R2 TRUE COPY OF THE ORDER DATED 26.10.2015 IN I.A.NO.
14704/2015 IN WPC NO.28032/2015.
ANNEXURE R3 TRUE COPY OF THE JUDGMENT DATED 4.1.2016 IN WPC NO.
39898 OF 2015.
EXT.R1(a) TRUE COPY OF THE EVICTION NOTICE DTD.4.9.2014.
EXT.R1(b) TRUE COPY OF THE EVICTION NOTICE DTD.7.9.2015.
EXT.R1(c) TRUE COPY OF THE WRIT EPTITION NO.28032 OF 2015 DTD.
15.9.2015.
EXT.R1(d) TRUE COPY OF I.A.NO.13591 OF 2015 IN WRIT PETITION NO. 28032
OF 2015.
EXT.R1(e) TRUE COPY OF THE JUDGMENT DATED 22.9.2015 IN WRIT PETITION
NO.28032 OF 2015 PASSED BY THIS COURT.
EXT.R1(f) TRUE COPY OF THE ORDER DATED 26.10.2015 IN I.A.NO.14704 OF
2015 IN WRIT EPTITION NO.28032 OF 2015.
EXT.R1(g) TRUE COPY OF THE NOTICE DATED 23.11.2015.
EXT.R1(h) TRUE COPY OF THE NOTICE DTD.21.12.2015.
EXT.R1(i) TRUE COPY OF THE JUDGMENT DATED 4.1.2016 IN WRIT PETITION
NO.39898 OF 2015 PASSED BY THIS COURT.
EXT.R1(j) TRUE COPY OF THE EVICTION NOTICE DTD.21.10.2016.
True copy
css/ P.S.TO JUDGE
C.R.
P.N. RAVINDRAN & DAMA SESHADRI NAIDU, JJ.
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M.F.A.No.11 of 2016
----------------------------------------------------
Dated this the 26th day of July 2017
JUDGMENT
Dama Seshadri Naidu, J.
Someone owns brand-new vehicles and valuable house- property. Faced with the allegation of cheating and defrauding many people in the name of medical-college admissions, she is called on to explain that the funds she used to buy the property are not proceeds of crime. The burden is on her. Her failing to explain, she faces money laundering charges. How to prove the source of funds and how to discharge the burden are the questions we face in this case.
The Controversy:
2. Appellant Kavitha G. Pillai runs a proprietary concern, K.G.K. Group Software Training and Career Guidance Centre, at M.F.A.No. 11/2016 : 2 : Ernakulam. She faces these allegations: She promised to several students admission into MBBS/MD courses in various medical colleges in Kerala and collected about Rs.3.67 crores from their gullible parents. She along with certain other persons cheated those persons and used the proceeds of crime to buy vehicles and properties. To be explicit, the properties included two motor vehicles (two-wheelers) and a house of 2,100 sq. ft., on 1.89 acres of land in Edapally North Village, Kanayanoor Taluka, Ernakulam District. The immovable property is said to have cost Kavitha Rs.1,07,00,000/-; and both the vehicles, Rs.1,20,000/-.
3. Kavitha allegedly committed crimes--inducing and deceiving gullible people with false, deliberate, deceitful promises and mulcting money from them--between May 2013 and August 2013. As the record reflects, 17 crimes have been registered against her in various police stations for the alleged offences under Sections 120 (B), 406, 419, 420 r/w Section 34 IPC, 1860. Among these, offences under Sections 120 (B), 419 and 420 IPC are "Scheduled Offences" as per Section 2 (1) (y) (i) of the Prevention of Money M.F.A.No. 11/2016 : 3 : Laundering Act, 2002 ("the Act").
4. Based on the reports of the police stations where crimes have been registered, on 07.02.2014 the Enforcement Directorate registered a crime, ECIR/1/KCZO/2014, against Kavitha and others. If we indulge in a bit of chronology, we can see that on 31.03.2014, the Joint Director, invoking Section 5 (1) of the Act, provisionally attached Kavitha's property, on the premise that she had acquired those properties using the ill-gotten money. On 23.04.2014 he filed Original Complaint No.308 of 2014 before the Adjudicating Authority; he, thus, complied with the statutory mandate under Section 5 (5) of the Act.
5. As seen from the record, on 28.08.2014 the Adjudicating Authority, under Section 8 (2) of the Act, recorded a finding that the provisionally attached properties are involved in money-
laundering.
6. Aggrieved, Kavitha challenged the Adjudicating Authority's order before the Appellate Tribunal, New Delhi. On 05.08.2015 the Tribunal dismissed the appeal. As a result, the Directorate issued an M.F.A.No. 11/2016 : 4 : eviction notice on 07.09.2015. There is a flip-flop on Kavitha's part about whether she was willing to continue in the property by paying rent: she agreed, paid the rent in part, defaulted, then questioned the orders. Kavitha filed W.P. (C) No.28032 of 2015. This Court, through its Judgment, dt.04.11.2015, extended time up to 04.11.2015 for Kavitha to pay the arrears of rent. When Kavitha failed to pay the arrears as directed, the Directorate on 23.10.2015 issued another eviction notice, following it later with another notice, dt.21.12.2015. Kavitha is said to have asked the Directorate 5 days' time to vacate.
7. Still, challenging the eviction notice dt.21.12.2015, Kavitha filed WP(C) No. 39898 of 2015 but had it dismissed as withdrawn. Eventually, she filed this Appeal before this Court challenging the Tribunal's order dated 05.08.2015 in MP-PMLA- 1118/COCHIN/2014(STAY) & FPA-PMLA-639/COCHIN/2014. In the course of time, Kavitha amended her pleadings and introduced a challenge to Rule 5 of the Prevention of Money Laundering (Appeal) Rules, 2005 ("the Appeal Rules").
M.F.A.No. 11/2016 : 5 : Contentions:
Appellant's:
8. Sri Ramesh Chander, the learned Senior Counsel appearing for appellant Kavitha, has contended that though the Directorate maintains that the Adjudicating Authority has relied on the witnesses' statements, despite repeated requests, Kavitha never had an opportunity to cross-examine those witnesses. According to him, there was no evidence on record to show that Kavitha purchased the property without proper financial sources.
9. Elaborating further on the veracity of the witnesses' statements, the learned Senior Counsel has further contended that the Adjudicating Authority's relying on those statements without subjecting them to cross examination falls foul of the legislative mandate under Section 145 of the Evidence Act. He has further contended that pending the trial of the predicate offences before the courts, the Adjudicating Authority's relying on the untested, self- serving evidence of certain interested-witnesses prejudices Kavitha's rights in the trial.
M.F.A.No. 11/2016 : 6 :
10. The learned Senior Counsel has taken us through Sections 5 and 8 of the Act. According to him, the authorities, at both the stages, recorded cogent reasons why Kavitha's property should be, first, provisionally attached and, later, confiscated. Any grounds of whatever justification, asserts Sri Ramesh Chander, are blissfully absent. He has also submitted that the cryptic, non- speaking order under Section 5 (1) of the Act provisionally attaching the property is vitiated. And the Adjudicating Authority's later order is a mere affirmation; it cannot independently survive.
11. Sri Ramesh Chander has further drawn our attention to Rule 5 of the Appellate Rules and also Section 26(5) of the Act: he contends that Rule 5, a piece of delegated legislation goes beyond the parent legislation. To elaborate, he has contended that the notice ought to be, according to the principal legislation, served on the party herself, but the Rules, deviating, facilitate the serving of notice on the agent, too. According to him, this has caused immense prejudice to Kavitha, who could not file the appeal on time.
12. In the end, the learned Senior Counsel has submitted M.F.A.No. 11/2016 : 7 : that on a mere suspicion, and with nothing more, Kavitha's getting stripped of her property, especially its enjoyment, violates her constitutional right to property. So, he urges this Court to set aside the impugned order of the Adjudicating Authority and to allow the appeal.
Directorate's:
13. Smt. Preetha, the learned Standing Counsel for the respondent Directorate, on the contrary, has contended with equal vehemence that Kavitha is being tried under a special enactment, and she cannot insist on procedural niceties beyond what the Act provides for. According to her, the proceedings under Section 5 and those under Section 8 are independent proceedings having nothing to do with each other. The provisional attachment cannot survive beyond 180 days even if there is any delay in the authorities' invoking Section 8 (2) of the Act; at any rate, the former will not affect the latter.
14. Smt. Preetha has further contended that this Court is called upon only to decide the legality of the Tribunal's order, but M.F.A.No. 11/2016 : 8 : not that of the Deputy Director under Section 5 and that of the Adjudicating Authority under Section 8, for they stood merged in the impugned order.
15. The learned Standing Counsel has made Section 24 of the Act the sheet anchor of her submissions. According to her, the Special Act casts the evidentiary burden on the suspect, and Kavitha has miserably failed to discharge that burden by leading any positive evidence. She has also contended that given her admissions under Section 50 of the Act, the question of Kavitha's cross-examining any witnesses does not arise; her insistence on cross-examining is mere dilatory tactics.
16. On the invalidity of Rule 5 of the Appellate Rules, Smt.Preetha has contended that besides a bald assertion that the Rule falls foul of the principal legislation, Kavitha has not elaborated, as a matter of legal principle, how the Rule does not pass constitutional muster. In this regard, Smt. Preetha asserts that even delegated legislation deserves due deference and cannot be trifled with for mere asking.
M.F.A.No. 11/2016 : 9 :
17. Summing up her submissions, the learned Standing Counsel has urged this Court to dismiss the appeal.
18. Heard Sri Ramesh Chander, the learned Senior Counsel for the appellant, and Smt. Preetha, the learned Standing Counsel for the respondent, besides perusing the record. Issues:
I. Is the Rule 5 of the Rules ultra vires Section 26 of the Act? II. Did the Authority under Section 5 (1) of the Act have "reason to believe" that Kavitha possessed any proceeds of crime and that she is likely to conceal, transfer, or deal with the property to frustrate any proceedings concerning the confiscation of the crime proceeds?
III. Does the order under Section 8 (3) merely affirm the provisional attachment under Section 5 (1) of the Act? IV. Does the legality of the Adjudicating Authority's order under Section 8 depend on the validity of the provisional attachment under Section 5 of the Act?
V. Does the Act cast reverse onus (Sec.24) and compel the property holder to testify against himself or herself (Sec.50)? Discussion:
19. Kavitha has raised two issues: (1) Rule 5 of the Rules is M.F.A.No. 11/2016 : 10 : ultra vires as it deviates from or goes beyond the mandate of the principal legislation, namely, Section 26; (2) the Adjudicating Authority did not allow Kavitha to cross-examine the witnesses the Directorate has relied on.
Issue No.1:
Is the Rule 5 of the Rules ultra vires Section 26 of the Act?
20. Section 73 of the Act empowers the Central Government to frame Rules. Among the different sets of Rules framed is The Prevention of Money Laundering (Appeal) Rules, 2005. Rule 5 prescribes the procedure how a notice, requisition, or order must be served. The notice shall be (a) delivered or tendered on the person or the person duly authorized by him; or (b) it may be sent to the person by registered post with acknowledgement due "to the address of his place of residence or his last known place of residence or the place where he carried on, or last carried on, business or personally works or last worked for gain"; or (c) the notice must be affixed on the outer door or some other conspicuous part of the person's M.F.A.No. 11/2016 : 11 : residence, etc., witnessed by two persons; or (d) if the notice or requisition or order cannot be served under clause (a) or clause (b) or clause (c), then the authorities must publish it in a leading newspaper.
21. Let us see how the principal enactment deals with the notice of an appeal. Section 26 concerns the appeal to the Appellate Tribunal. Under sub-section (5), the Tribunal shall send a copy of every order made by it "to the parties to the appeal and to the concerned Adjudicating Authority or the Director, as the case may be."
22. Kavitha contends that the Tribunal had sent it to her counsel in Delhi and that counsel did not, in turn, communicate it to her. Later, after receiving the eviction notice, she applied and secured a copy of the order, and it delayed her approaching this Court. But the fact remains that this Court, through an elaborate order, condoned the delay. Kavitha's grievance thus stands redressed. Declaring any piece of legislation--including the delegation one-- cannot be for the mere asking. True.
M.F.A.No. 11/2016 : 12 :
23. Many years ago, to support what can be termed "the doctrine of constitutional avoidance", Justice Felix Frankfurter cautioned: "[i]f there is one doctrine more deeply rooted than any other in the process of constitutional adjudication, it is that we ought not to pass on questions of constitutionality ... unless such adjudication is unavoidable."1 First, the subordinate legislation does not stand on the same footing as the principal legislation does. But it deserves deference unless it comes in the way of substantial justice, and its adjudication is unavoidable.
24. Second, the doctrine of constitutional avoidance takes many shapes in an adjudication. Judicial Minimalism: the Court will not "formulate a rule of constitutional law broader than is required by the precise facts to which it is to be applied." The Last Resort Rule: the Court will not pass upon a constitutional question although properly presented by the record if there is also present some other ground upon which the case may be disposed of. Standing or Mootness: the Court will not pass upon the validity of 1Spector Motor Service, Inc. v. McLaughlin, 323 U.S. 101, 103 (1944) M.F.A.No. 11/2016 : 13 : a statute upon complaint of one who fails to show that he is injured by its operation. Constitutional Avoidance: when the validity of an act of the Congress is drawn in question, and even if a serious doubt of constitutionality is raised, it is a cardinal principle that this Court will first ascertain whether a construction of the statute is fairly possible by which the question may be avoided.2
25. On facts, the delay in Kavitha's approaching this Court has already been condoned. No particular, genuine grievance remains to be ventilated. So, we pass up the validity of Rule 5 of the Appeal Rules.
Issue Nos. II Did the Authority under Section 5 (1) of the Act have "reason to believe"?
Money Laundering:
26. All the three issues are interconnected, so a common reasoning.
27. Money laundering, according to Dennis Cox's 2Andrew Nolan, The Doctrine of Constitutional Avoidance: A Legal Overview, https://fas.org/sgp/crs/misc/R43706.pdf, accessed last on 9.7.2017 M.F.A.No. 11/2016 : 14 : Handbook of Anti Money Laundering,3 is simple in principle. The person who has received ill-gotten money or resources will seek to ensure that he can use these funds without people realising that the proceeds are the product of inappropriate behaviour. To do this, he must disguise the proceeds so the source of the proceeds is hidden and, therefore, the funds themselves appear to be legitimate. As it is often cash that needs to be disguised, the criminal will often seek out legitimate cash-based businesses to enable himself to disguise the source of the illegitimate cash.
28. Money laundering is generally seen as a three-phase process: (a) placement phase--the initial proceeds enter the banking system at "a perceived point of weakness"; (b) the layering phase-- then the funds are moved around such that the initial source of the funds is disguised; and (c) the integration phase--the funds are eventually reintegrated into the mainstream banking system as clean funds.4
29. As to a country's profile in an international perspective, 3John Wiley & Sons, Ltd, 2014 Ed., p.6 4Id., p.15 M.F.A.No. 11/2016 : 15 : Brian Cox observes that as a leader among the emerging economies in Asia with a strongly growing economy and demography, India faces a range of money-laundering and terrorist-financing risks. The main sources of money laundering in India result from a web of illegal activities committed within and outside the country, mainly drug trafficking, fraud, including counterfeiting of Indian currency, transnational organised crime, human trafficking, and corruption. . . The Anti-Money Laundering or Countering the Financing of Terrorism (AML/CFT) regime in India is relatively young. The Prevention of Money Laundering Act 2002 (the Act), the core of the legal framework, came into force in 2005 and was amended in 2009 and 2013.5
30. The Prevention of Money Laundering Act aims to confiscate the property derived from, or involved in, money- laundering and to punish those who commit the offence of money laundering. The Directorate of Enforcement in the Department of Revenue, Ministry of Finance, ("the Directorate") is the investigating 5Id., p.473 M.F.A.No. 11/2016 : 16 : agency; the Financial Intelligence Unit - India (FIU-IND), under the Department of Revenue, Ministry of Finance, is the central national agency. The Act intends to strike at the organized crimes and the legitimation of the ill-gotten money through those "predicate" crimes. Illustratively we can mention illegal arms sales, smuggling, and other organized crime, including drug trafficking and prostitution rings, which can generate massive amounts of money. Embezzlement, insider trading, bribery, and computer fraud schemes are other instances.
31. The offences listed in the Schedule to the Act are also termed the scheduled offences in terms of Section 2(1)(y) of the Act. The scheduled offences are divided into two parts - Part A & Part C. In part A, offences to the Schedule have been listed in 28 paragraphs; they comprise offences under Indian Penal Code, Narcotic Drugs and Psychotropic Substances, Explosive Substances Act, Unlawful Activities (Prevention) Act, Arms Act, and so forth. Part `C' deals with trans-border crimes. Before, 15th February 2013, the Schedule also had Part B offences with a monetary threshold of M.F.A.No. 11/2016 : 17 : 30 lakh rupees. Now, all Part B offences have been included in Part A of the Schedule. So, there is no monetary threshold to initiate investigations under PMLA.6 The Statutory Scheme:
32. Under Section 2, the lexical provision, sub-section (1), clause (d) defines "attachment" to mean prohibition of transfer, conversion, disposition, or movement of property by an order issued under Chapter III of the Act. As per clause (na) "investigation" includes all the proceedings under this Act conducted by the Director or an authority authorised by the Central Government under this Act for the collection of evidence. "Proceeds of crime," under clause (u), means any property derived or obtained, directly or indirectly, by any person because of criminal activity relating to a scheduled offence or the value of that property.
33. "Property," in turn, is defined in clause (v): any property or assets of every description and includes deeds and instruments 6For an elaborate primer on the Act, see the website maintained by the Enforcement Directorate: http://www.enforcementdirectorate.gov.in/FAQs_on_PMLA.pdf (accessed on 11.07.2017) M.F.A.No. 11/2016 : 18 : evidencing title to, or interest in, such property or assets, wherever located. Under clause (y) these are the "scheduled offences": (i) the offences specified under Part A of the Schedule; or (ii) the offences specified under Part B of the Schedule if the total value involved in such offences is one crore rupees or more; or (iii) the offences specified under Part C of the Schedule. And finally, for our purpose, "transfer", under clause (za), includes sale, purchase, mortgage, pledge, gift, loan, or any other form of transfer of right, title, possession or lien.
34. That apart, the lexical provision defines expressions such as "beneficial owner" in Section 2 (1) (fa); client (ha); dealer (ib);
intermediary (n); and "person" (s), too. Besides the generic expression "person," the Act has chosen to define the roles an individual can play; it is aimed at, we reckon, spreading the definitional dragnet for, for example, the economic offences present a complex web of activities--the guile of the offender and the gullibility of the victim always going in tandem. M.F.A.No. 11/2016 : 19 : The Offence:
35. Section 3 in Chapter II of the Act defines the "offence of money laundering"; and Section 4 prescribes the punishment for that offence. As much depends on the definition of the offence, it pays to extract Section 3:
3. Offence of money-laundering.--Whosoever directly or indirectly attempts to indulge, or knowingly assists, or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime, including its concealment, possession, acquisition, or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.
The Preliminary or the Provisional Measures:
36. As we shall see, Chapter IV of the Act deals with attachment, adjudication, and confiscation. The pivotal provision is Section 5 of the Act dealing with "attachment of property involved in money-laundering. It reads:
5. Attachment of property involved in money-laundering.--(1) Where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that--M.F.A.No. 11/2016 : 20 :
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed:
Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report complaint has been made or filed under the corresponding law of any other country: Provided further that, notwithstanding anything contained in clause (b), any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money- laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act.
(2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be M.F.A.No. 11/2016 : 21 : prescribed.
(3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (2) of Section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment.
Explanation.--For the purposes of this sub-section, "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property.
(5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.
(emphasis added)
37. Indeed, Section 5 of Act reflects the fluidity of any nascent enactment, undergoing frequent amendments and presenting apparent ambiguity and, so, calling on the judiciary to interpret and the legislature to correct it, if necessary. Section 5 is the curtain raiser: the action begins with that provision. The purpose of the provision, unmistakably, is provisional: to preserve the matter--for example, an asset--till the law-enforcing agency takes M.F.A.No. 11/2016 : 22 : further concrete steps.
Adjudication:
38. Section 8 of the Act, which deals with adjudication, reads:
8. Adjudication.--(1) On receipt of a complaint under sub-
section (5) of Section 5, or applications made under sub- section (4) of Section 17 or under sub-section (10) of Section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under Section 3 or is in possession of proceeds of crime, it may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of Section 5, or, seized or frozen under Section 17 or Section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government:
. . .
(2) The Adjudicating Authority shall, after--
(a) considering the reply, if any, to the notice issued under sub-section (1);
(b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and
(c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering:
. . .M.F.A.No. 11/2016 : 23 :
(3) Where the Adjudicating Authority decides under sub-
section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of Section 5 or retention of property or record seized or frozen under Section 17 or Section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property] or record shall--
(a) continue during the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and
(b) become final alter an order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8 or Section 58-B or sub-section (2-A) of Section 60 by the Adjudicating Authority.] (4) Where the provisional order of attachment made under sub-section (1) of Section 5 has been confirmed under sub- section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the property attached under Section 5 or frozen under sub-section (1-A) of Section 17, in such manner as may be prescribed:
Provided that if it is not practicable to take possession of a property frozen under sub-section (1-A) of Section 17, the order of confiscation shall have the same effect as if the property had been taken possession of.] (5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-
laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government.
(6) Where on conclusion of a trail under this Act, the Special M.F.A.No. 11/2016 : 24 : Court finds that the offence of money-laundering has not taken place or the property is not involved in money- laundering, it shall order release of such property to the person entitled to receive it.
(7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed under sub-section (3) of Section 8, pass appropriate orders regarding confiscation or release of the property, as the case may be, involved in the offences of money-laundering after having regard to the material before it.
(emphasis added)
39. A person may have indulged, attempted to indulge, or knowingly assisted another person, in any process or activity connected with the proceeds of crime. That involvement may be direct or indirect: by way of concealing, possessing, using the tainted money or assets. The involvement, further, may be by acquiring, projecting, or claiming the tainted money or property as untainted. Any of the above multitude of activities constitutes a crime under Section 3 of the Act.
M.F.A.No. 11/2016 : 25 :
40. The proceeds of crime take protean forms; the offender tries myriad methods to conceal or camouflage them, to stultify the trial and to make the proceeds unavailable in the end. This probability--almost a certainty--compels the authorized officer to be cautious: he provisionally attaches the properties under Section 5 of the Act. Then he complains to the Adjudicating Authority.
41. The Adjudicating Authority, in turn, exercises his powers under Section 8: he adjudicates on the ill-gotten assets allegedly connected with or acquired out of the offence. He may act under three circumstances--on a complaint under sub-section (5) of Section 5, on an application made under sub-section (4) of Section 17 (property seized or frozen), or under sub-section (10) of Section 18 (property, including records, "secreted about the suspect's person or in anything under his possession, ownership or control). Other Features of the Act:
42. As the Act deals with socio-economic offences, it deviates from the beaten-track of the common law on the burden of proof.
In fact, Section 24 of the Act casts a reverse burden on the suspect. M.F.A.No. 11/2016 : 26 : In any proceedings relating to the proceeds of crime under this Act, the Authority or court shall presume that "such proceeds of crime are involved in money-laundering" unless the person charged with the offence of money-laundering under Section 3 proves to the contrary. With any other person the Authority or court may presume so.
43. "Aggrieved by an order made by the Adjudicating Authority under this Act," any person, including the Director, may prefer, under Section 26 of the Act, an appeal to the Appellate Tribunal within forty-five days from the date on which a copy of the order is received. The delay, if any, can be condoned, though. The Tribunal, in appeal, may confirm, modify, or set aside the order appealed against. Under sub-section (5) of Section 26, the Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the Adjudicating Authority or the Director concerned, as the case may be. It is felicitous for the Tribunal to dispose of the appeal in six months.
44. As a matter of legislative development, though not M.F.A.No. 11/2016 : 27 : affecting this case, we may notice that the Finance Act 2016 abolished the Appellate Tribunal: The Appellate Tribunal constituted under sub-section (1) of section 12 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 shall be the Appellate Tribunal for hearing appeals against the orders of the Adjudicating Authority and the other authorities under this Act." As a result, Sections 27, 28, 30, 31, 32, 33 and 34 also have been omitted.
45. Section 41 bars the civil court's jurisdiction. Section 42 confers appellate power on the High Court. Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court "within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law or fact arising out of such order." The delay can be condoned by sixty more days. The High Court can exercise revisional as well as appellate powers as have been conferred under Chapter XXIX or Chapter XXX of the Code of Criminal Procedure, 1973. Section 43 empowers the Central Government to M.F.A.No. 11/2016 : 28 : establish Special Courts to try the offences punishable under Section 4 of the Act. Section 68 statutorily condones the procedural lapses in the Department's serving notice.
46. And the Act has an overriding effect. Section 73 delegates the rule-making power to the Central Government; Section 75 is the so-called Henry VIII clause--power to remove difficulties. Finally come the Schedules, which contain the lists of offences under various penal statutes, including the Indian Penal Code. The Interrelationship Between Section 5 & Section 8 of the Act:
47. Section 5, as we have already noted, deals with attachment--an interim or provisional attachment, at that. The Director or an officer authorized by him may have certain material prompting him to believe that a person--any person--possesses the proceeds of a crime. His belief, subjective though, should be verifiable and, hence, recorded. Further, that person might conceal, transfer, or deal with those proceeds of crime to frustrate the authorities' efforts to confiscate them. To prevent that, the officer may provisionally attach such property for a period not exceeding M.F.A.No. 11/2016 : 29 : one hundred and eighty days. But the officer's effort to provisionally attach, say, the property, as seen from the first proviso, has strings attached to it: he should ensure that he has (a) recorded the grounds of his belief; (b) sent a report to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973; or (c) filed a complaint before a Magistrate or court for taking cognizance of the scheduled offence.
48. The second proviso, however, carves out an exception. Beginning with a non abstante clause eclipsing the mandate in clause (b), it provides that "any property of any person may be attached under this section" if the authorized officer has material to believe that "the property involved in money-laundering" must be immediately attached, lest the proceedings under this Act should get frustrated. The second proviso was added in 2009. And the High Court of Madras, in A. Kamarunnisa Ghori v. The Chairperson, Prevention of Money Laundering7, after analyzing various provisions of the Act, has held that "while the First Proviso deals 7MANU/TN/1355/2012 M.F.A.No. 11/2016 : 30 : with an order of attachment in respect of a property which is in possession of a person charged of having committed a scheduled offence, the Second Proviso relates to the property of any other person who may not even be charged of committing a scheduled offence." With due deference to the interpretative efforts of the High Court of Madras, we may, still, observe that the very provision
--Section 5 (1) (a)--has employed a sweeping expression "any person is in possession of any proceeds of crime."
49. The first proviso to Section 5 refers to "no such order of attachment," such referring to the "any proceeds of crime in the hands of any person." The second proviso, too, refers to "any property of any person," without the exclusionary "other" before "person." But this semantic confusion, if any, need not bog us down, for this case does not compel us to rule on the supposed distinction between the person charged with the crime and the person dealing with the proceeds alone.
50. Under sub-section (2) of Section 5, the authorized officer must immediately forward the order of the provisional M.F.A.No. 11/2016 : 31 : attachment along with material to the Adjudicating Authority. Every order of attachment made under sub-section (1) shall cease to affect beyond 180 days or as soon as the Adjudicating Authority passes an order under sub-section (2) of Section 8, whichever is earlier. No doubt, initially, the authorised officer's subjective satisfaction or belief enables him to pass an order in writing "provisionally" attaching the property (the proceeds of crime) for a period not exceeding one hundred and eighty days.
Belief or Subjective Satisfaction:
51. As we see from the record, pages 9 to 11 of Ext.R1 (c) contain the order of provisional attachment, dt.31.03.2014. The Joint Director has recorded that he has considered all the FIRs registered against Kavitha; he is said to have examined the statements made by all the complainants, too, besides the report under Section 173 of Cr.P.C., in FIR No.1939 of 2013. After considering the material in his possession--gathered from the police stations and the very Directorate--he has entertained a belief about the property. Finally, the Joint Director has recorded that the M.F.A.No. 11/2016 : 32 : properties mentioned in the order are believed to be the proceeds of crime. He has also recorded that those properties are likely to be concealed, transferred, or dealt with in a manner that "may result in frustrating further proceedings relating to confiscation of such proceeds of crime under Chapter III of the PMLA."
52. Indeed, the reason "to believe" stands on a firmer footing than the reason "to suspect." Belief is a matter of faith or opinion--even in the secular sense. But "reason" to believe needs more than a nagging suspicion or personal conviction. At the same time, it is less emphatic than "reason to act." It stands in an intermediary position. So we may say that the information must be credible, and the conclusions from that information probable. In other words, a surmise or a conjecture should not be the foundation for the belief.
53. Under Section 5 of the Act, "reason to believe" serves two purposes: that (a) any person is in possession of any proceeds of crime; and (b) such proceeds of crime are likely to be concealed, transferred, or dealt with in any manner that may frustrate any M.F.A.No. 11/2016 : 33 : proceedings to confiscate such proceeds of crime.
54. Here, the authority has relied on complaints, statements, and investigation reports. This answers the first requirement that a person is in possession of proceeds of crime. But can we say with the same certainty that the information has led the officer to believe on the second count, too? There are analogous provisions, for example, in the Income Tax Act (Section 147) and the Narcotic Drugs and Psychotropic Substances Act (Section 41), besides the Indian Penal Code (Section 26), employing the expression "reason to believe." Even this Act has the same expression employed in Sections 8, 16, 17, 18, 19, 20, and 21.
55. In Income Tax Officer v. Lakhmani Mewal Das8 the Supreme Court has, while examining Section 147 of the Income Tax Act, has held that the expression "reason to believe" does not mean a purely subjective satisfaction by the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation 8AIR 1976 SC 1753 M.F.A.No. 11/2016 : 34 : of the belief have a rational connection with or a relevant bearing on the formation of the belief, not being extraneous or irrelevant. A mere mechanical recording, we must acknowledge, that the property is likely to be concealed, transferred, or dealt with would not meet the requirements of Section 5(1) of the Act.
56. To understand the import of Section 5 (1) (b), we need to see the purpose of the provisional attachment. Provisional as it is, it lasts only 180 days. The provisional attachment is an interim measure to preserve the property for a brief period so that, in the meanwhile, the authority can apply before the adjudicating authority to have the attachment adjudicated. Exacting standards, we believe, cannot be imposed on the authority's preliminary opinion, which has the sole aim of preserving the property for a brief period. The attachment does not amount to any expropriation, nor does it last beyond six months. Even the property-holder is not dispossessed.
57. To conclude, we observe that reasonable belief is a plausible belief. If we think of the synonyms to "reasonable", we M.F.A.No. 11/2016 : 35 : find these: acceptable, moderate, tolerable, equitable, fair, feasible, honest, impartial, judicious, justifiable, modest, plausible, proper, prudent, rational, sensible, understandable, conservative, just. It is, we may note, farfetched to insist that the officer should have had a third-party information about the person's efforts, for example, to secret away the property. Hot on the heels of crime, with investigation in full vigour, the authority must take sensible steps to ensure that the property is preserved provisionally for a very limited period before a proper hearing takes place on whether the properties can be attached--for a longer period--until the trial of the underlying crime.
58. Even otherwise, as has been rightly contended by the learned Standing Counsel for the Directorate, the proceedings under Section 5 (1) are ex parte and expedient. Once Section 8 adjudication takes place, the provisional attachment loses its identity; even otherwise, beyond 180 days it becomes a spent-force. What is the nature of proceedings under Section 5 (1) or Section 8 (3) of the Act?
M.F.A.No. 11/2016 : 36 :
59. The court is counter majoritarian. Its loyalty to legislation--short of judicial review--cannot be "more loyal than the king." Its sympathies to the citizen, equally, cannot be misplaced: it can neither hunt with the hound nor run with the hare. It strikes a golden-mean--a happy medium. A meta-discourse as it may sound, pitted against the might of the State, the common man assumes the role of an underdog, and the rule of law becomes his bulwark. The judicial wisdom dictates that the fundamental rights of an individual cannot be put on the altar of societal expediency. A nation is, after all, a sum of its individuals--an aggregate at best. The Court's primary duty is to balance the rights of an individual with his obligations to the society. If a right of an individual, ever, becomes incompatible or irreconcilable with that of a society, then the individual right yields subject to the constitutional constraints under Part III--and perhaps the interplay of Part III and Part IV--of the Constitution.
60. Another adjudicatory safeguard commanding attention is that any ambiguity in the penal provisions should be resolved in M.F.A.No. 11/2016 : 37 : favour of the accused, for his life, liberty, and reputation are at stake. And the penal provisions must be construed strictly, too. The question here is whether the attachment and the forfeiture under Sections 5 and 8 are civil or criminal proceedings. As we shall see, they are civil: the Adjudicatory Authority's conclusions do not prove the guilt of an accused, nor are they a step-in-aid to the accused's conviction. The conviction depends on the prosecution's proving the predicate offence--attachment or no attachment. Answer to the Issue No.II
61. We conclude that "the reasons to believe" are not those set in stone, immutable, imminent, and compelling. The appellant did not, at the earliest, question the provisional attachment. Once an order under Section 8 is passed, the provisional attachment loses its identity. As seen from Section 8, the Adjudicating Authority, once again, has to form an independent opinion; his attaching the properties is not mere affirmation of the provisional attachment. Having not been challenged when in force, the legality of provisional attachment renders itself an academic issue. M.F.A.No. 11/2016 : 38 : Issue No.III & IV Does Section 8 (3) order merely affirm Section 5 (1) provisional attachment?
Are the orders under Sections 5 (1) and 8 (3) interconnected or independent?
The adjudication under Section 8 of the Act:
62. Sub-section (1) of Section 8 describes the nature of power exercised by the Adjudicating Authority and the procedural parameters. Sub-section (2) describes the adjudication per se. If the result of hearing is positive, it leads to the Adjudicating Authority's acting further under Sub-section (3): to confirm the attachment under Section 5 (1) or to order retention of property under Section 17 (4) or Section 18 (10).
63. Once the order of attachment or retention is confirmed, it will (a) continue during the pendency of the proceedings relating to any offence under this Act before a court, and (b) become final after an order of confiscation is passed under sub-section (5) or sub- section (7) of Section 8 or Section 58-B or sub-section (2-A) of Section 60 by the Adjudicating Authority. Because of the seal of M.F.A.No. 11/2016 : 39 : approval by the Adjudicating Authority to the attachment or retention, the authorized officer, under sub-section (4), will `forthwith' take the possession of the property after following the due procedure. All these steps, no doubt, aim at preserving the properties or records of whatever nature until the trial concludes.
64. Sub-section (5) speaks of what happens once the trial concludes. If the Special Court finds that the offence of money- laundering has been committed, it shall declare that the attached or seized property stands confiscated to the Central Government. The offence getting proved, the Special Court orders confiscation; that is, the property shall stand confiscated to the Central Government. If the finding is negative, the Court will release the property. Section 58A, too, elaborates on the Special Court's power to release the property. Under contingencies contemplated by sub-rule (7), the Special Court will pass orders.
65. Sections 9 and 10 of the Act describe how the vested property should be dealt with. Retention of property or records elaborated on in Section 20 and 21 needs no further comment, as M.F.A.No. 11/2016 : 40 : the case on hand does not concern it.
Adjudicating Authority's Order:
66. First, the Joint Director's complaint runs into many pages--25 pages, to be precise. It mostly reproduces the complaints and the statements of the de facto complainants verbatim. The Adjudicating Authority, on his part, reproduces them, too. Eventually he holds under "discussion" that Kavitha has admitted having received Rs.3.67 crores in "the admission scam"; she has also admitted having purchased immovable property for Rs.1.07 crore, despite declaring in the deed that the consideration was Rs.40 lakhs. The Adjudicating Authority spells out Kavitha's other "admissions" as well.
67. The Adjudicating Authority finally declares on a thorough perusal of the Provisional Attachment Order, the complaint, the FIRs, the Charge sheet, the investigations conducted by the E. D., and the statements recorded under Section 50 of the Act that Kavitha has prima facie committed the scheduled offences, generated proceeds of crime, and laundered them. The Adjudicating M.F.A.No. 11/2016 : 41 : Authority, therefore, "orders confirmation of the above provisional attachment order. This order shall continue during the pendency of proceedings relating to any offence under this Act before court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India as the case may be and become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60."
The Tribunal's Order:
68. The Tribunal acknowledged that a duly authorised officer of the Directorate passed provisional attachment order on 31st March, 2014 under sub-section (5) of the Act and that he recorded his reasons of belief for effecting the provisional attachment. It has held that the appellant's (Kavitha's) contrary allegations are untenable as the respondent (Directorate) has refuted those allegations with proof. But this assertion or conclusion has not been elaborated upon.
69. The Tribunal has eventually held that Kavitha failed M.F.A.No. 11/2016 : 42 : "to refute the allegation made by several persons that she accepted money to medical colleges from various persons." She could not state even the dates when she was in Delhi. The Tribunal has also observed that Kavitha in her own statement under section 50 of the Act has admitted collecting money from the complainants on a false promise. The Tribunal further found that Kavitha has advanced no credible evidence that she had income to acquire the property; instead, she wanted to take advantage of minor issues.
70. From the scheme of Section 8, we can safely conclude that the Adjudicating Authority acts on the complaint he receives, not the order passed, under Section 5 of the Act. He is not an appellate authority. After receiving the complaint, he again must entertain a "reason to believe" that the person possesses the proceeds of crime. His "reason to believe" is independent, though the same material used by the authority under Section 5 could be the foundation. That apart, he undertakes an "adjudication," as very designation of the authority suggests. His role is adversarial, and his adjudication is judicial--at least, quasi-judicial.
M.F.A.No. 11/2016 : 43 : Section 8 - Stages:
71. Base: S.5 (1): Provisional attachment >> S.8 (1):
Adjudicating Authority (AA) receives the application >> S.8 (2):
considers it and hears all parties concerned >> S.8 (3): may confirm the provisional attachment >> S.8 (3) (a): this attachment continues during the pendency of proceedings relating to any offence under this Act >> S.8 (4): with the confirmation the authorities can take over possession >> S.8 (5): trial concluding, the offence getting established, forfeiture takes place >> S.8 (3) (b): the order then becomes final.
S.8 (6): Prosecution's failing to bring home the guilt, the property should be released >> S.8 (8): remedially the victim of the crime may be compensated.
Answer to Issues III & IV:
72. The adjudicating proceedings under Section 8 are independent proceedings, not appellate proceedings. By the same token, we must also hold, and we do, that the orders under Section 5 (1) and Section 8 (3) are not interconnected but independent. M.F.A.No. 11/2016 : 44 : Issue No. V Does the Act cast reverse onus (Sec.24) and compel the property holder to testify against himself or herself (Sec.50)?
73. Seen from the impugned order, there are three factors to be considered: (1) Was there a proper adjudication under Section 8 of the Act? (2) What is the probative value of the statements made under Section 50 of the Act? And to what extent does Section 24 bind the property holder?
The Offences of Money Laundering:
74. The statutory definition apart, if we examine the concept of money laundering, or its very origins, we find that money laundering can be defined in several ways. Most countries subscribe to the definition adopted by the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988) (Vienna Convention) and the United Nations Convention Against Transnational Organized Crime (2000) (Palermo Convention):
The conversion or transfer of property, knowing that such M.F.A.No. 11/2016 : 45 : property is derived from any [drug trafficking] offense or offenses or from an act of participation in such offense or offenses, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offense or offenses to evade the legal consequences of his actions;
The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from an offense or offenses or from an act of participation in such an offense or offenses, and;
The acquisition, possession or use of property, knowing at the time of receipt that such property was derived from an offense or offenses or from an act of participation in such offense...or offenses.
75. The Financial Action Task Force on Money Laundering (FATF), which is recognized as the international standard setter for anti-money laundering (AML) efforts, defines the term "money laundering" succinctly as "the processing of...criminal proceeds to disguise their illegal origin" in order to "legitimize" the ill-gotten gains of crime.
76. Money laundering has two phases or components: (1) the predicate offense and (2) the surface offence. The predicate offence M.F.A.No. 11/2016 : 46 : is the underlying criminal activity that generates proceeds, which when laundered result in the offense of money laundering. By its terms, the Vienna Convention limits predicate offenses to drug trafficking offenses. As a consequence, crimes unrelated to drug trafficking, such as fraud, kidnapping, and theft, do not constitute money laundering offenses under the Vienna Convention. Over the years, however, the international community has developed the view that predicate offenses for money laundering should go well beyond drug trafficking. Thus, FATF and other international instruments have expanded the Vienna Convention's definition of predicate offenses to include other serious crimes. For example, the Palermo Convention requires all participant countries to apply that convention's money laundering offenses to "the widest range of predicate offenses." In its 40 recommendations for fighting money laundering (The Forty Recommendations), FATF specifically incorporates the technical and legal definitions of money laundering set out in the Vienna and Palermo Conventions and lists 20 designated categories of offences that must be included as M.F.A.No. 11/2016 : 47 : predicate offences for money laundering.9 Scope of the Predicate Offense a. Widest Possible Range of Offenses to be Included as Predicate Offenses
77. A predicate offense for money laundering is the underlying criminal activity that generates proceeds, which when laundered leads to the offense of money laundering. Designating certain criminal activities as predicate offenses for money laundering is necessary to comply with international standards. And designating an increasingly wider range of criminal offenses as money laundering predicates has occurred as international standards have developed.
78. The Forty Recommendations has designated 20 categories of predicate offences: Participation in an organized criminal group and racketeering; Terrorism, including terrorism financing; Trafficking in humans and migrant smuggling; sexual exploitation, 9Paul Allan Schott & the World Bank's Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism, 2nd Ed. 2006, pp.I.2 & I.3 (internal quotes omitted) M.F.A.No. 11/2016 : 48 : including sexual exploitation of children; illicit trafficking in narcotic drugs and psychotropic substances; illicit arms trafficking; illicit trafficking in stolen and other goods; corruption and bribery; fraud; counterfeiting currency; counterfeiting and piracy of products; environmental crime; murder, grievous bodily injury; kidnapping, illegal restraint and hostage taking; robbery or theft; smuggling; extortion; forgery; piracy; and insider trading and market manipulation.10 The list may, in course of time, further increase. With the monetary cap removed, in India offences, such as cheating, have become a predicate offence.
79. Countries are provided with discretion on how to define the offenses in the above list and the nature of any particular elements of those offenses that make them money laundering predicate offenses. The essential requirement is to criminalize the proceeds from the type of conduct described in the above list. Furthermore, it is unnecessary to have an offense in the penal code described in exactly the terms used in the above list. For example, 10 Id., V.6 &V.7 M.F.A.No. 11/2016 : 49 : some countries [as with India] have no specific offense designated as "fraud," but criminalize fraudulent behavior under some other offense, such as "theft" [or "cheating", as in India]. If it is possible to obtain a conviction for laundering the proceeds of fraudulent behavior, the country has discretion in terms of how to describe or categorize the conduct of that behavior.11 Predicate Offence:
80. Predicate offence, narrowly defined, is an earlier offence that can be used to enhance a sentence levied for a later conviction. Predicate offences are defined by statutes, not uniformly though.12 Broadly defined it is a `lesser included offence.' Black's Law Dictionary, in turn, defines the `lesser included offence' to mean a crime that is composed of some, but not all, of the elements of a more serious crime and that is necessarily committed in carrying out the greater crime. For example, battery is a lesser included offense of murder. For double-jeopardy purposes, a lesser included 11 Id., V-7 & V-8 12 Black's Law Dictionary M.F.A.No. 11/2016 : 50 : offense is considered the "same offense" as the greater offense, so that acquittal or conviction of either offense precludes a separate trial for the other. `Lesser included offence' is also termed `included offense', `necessarily included offense', `predicate act,' or, with minimal variation, a `cognate offence', too.
81. Here cheating is the predicate offence and money laundering is the surface or the larger offence. The Burden of Proof & the Presumption of Innocence:
82. Section 24 of the Act defines burden of proof: In any proceeding relating to proceeds of crime under this Act:
(a) in the case of a person charged with the offence of money-
laundering under Section 3, the Authority or court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and
(b) in the case of any other person the Authority or court, may presume that such proceeds of crime are involved in money- laundering.
83. As we shall see, Section 24 of the Act casts reverse burden or reverse onus on the accused. It is against the grain but a compulsive cannon given the menace the international community M.F.A.No. 11/2016 : 51 : is condemned to face: terrorism, drug and human trafficking, to name a couple of crimes. There has been a raging debate in common-law countries, and especially in the constitutional democracies, about whether the doctrine of reverse onus undermines the rule of law--the golden thread of common law. Under criminal jurisprudence, as Viscount Sankey13 put it, it is the duty of the prosecution to prove the prisoner's guilt. The Constitutional Constraints:
84. Every person is presumed innocent until proven guilty according to the law: the maxim cannot be found in Magna Carta, the English Bill of Rights of 1689, in the works of the great English jurists, Bracton, Coke, or Blackstone, or any English case law before c.1800, argues Warwickblogs, a legal blogger.14 It "crept into the common law almost by accident in the mid-seventeenth century." Not every legal principle should be as old as the Thames, though.
85. Courts have been compelled to balance between the individual rights and the societal safety or welfare. Wedged between 13 Woolmington vs. DPP,1935 AC 462 at 481 14 Evidence, Proof, and English Law Through the ages M.F.A.No. 11/2016 : 52 : the two competing ideologies, the Courts have chosen the pragmatic path forward: that presumption of innocence is not inviolable, though valuable. The courts have felt that evidential burden can always be shifted as a matter of special knowledge or means, but the legal or persuasive burden always remains with the prosecution. In the UK:
86. First, in the continental jurisprudence, the cases decided by the European Court show that although Art 6(2) the European Convention on Human Rights is expressed in absolute terms, it is not regarded as imposing an absolute prohibition on reverse burden provisions. It is a matter of balancing the interests of the individual and those of society. English courts, too, have echoed the same view.
87. Though Woolmington v. DPP15 has declared that "no attempt to whittle [the golden thread] down can be entertained," the English Parliament went ahead witling it down. Lord Hope in R v DPP ex p Kebilene,16 one of the earliest judgments, observed that Art 6(2) is wholly consistent with the common law, for it has always 15 [1935] AC 462 16[2000] 1 Cr App R 275, pp 321-33.
M.F.A.No. 11/2016 : 53 : been open to Parliament, by way of a statutory exception, to transfer the burden of proof on a particular issue from the prosecution to the defendant. The ease of proof and the accused's peculiar knowledge can also be considered.
88. But the first major decision on reverse burden in criminal cases was R v Lambert,17 a decision of the House of Lords. Lambert had been arrested for possessing a bag containing cocaine. He relied on a defence provided by Section 28 of the Misuse of the Drugs Act: the accused should prove on a balance of probabilities that he did not know that a package proved to be in his possession contained controlled drugs. The majority, relying on Section 3(1) of the Human Rights Act 1998, held that it was possible to read section 28(2) as imposing only an evidential burden, and that it should be read in this way because to read it as imposing a legal burden would be to violate the presumption of innocence contained in Art 6(2) of the Convention. Lord Slynn has maintained metaphorically that `long or well entrenched ideas may have to be 17 [2001] 3 All ER 577.
M.F.A.No. 11/2016 : 54 : put aside, sacred cows culled'.
89. The UK's most porminent decisions on the compatibility of reverse burden with Art 6(2) of the European Convention are these: R v Johnstone18 and Sheldrake v DPP19, heldrake v DPP and Attorney General's Reference (No 4 of 2002).20
90. In these cases, the House of Lords was consistent in holding that (1)Presumptions of fact or law are not prohibited by the European Convention, but they must be confined within reasonable limits. (2)A reasonable balance has to be held between the public interest and the interests of the individual.
(3)Derogation from the presumption of innocence requires justification.
(4)There must be a `compelling reason' that makes its existence fair and reasonable.
(5)The more serious the crime and so the greater the public interest in securing convictions, the more important the constitutional protection of the accused becomes.
18 [2003] 1 WLR 1736.
19[2005] 1 AC 264.
20[2005] 1 AC 264 M.F.A.No. 11/2016 : 55 : (6)Parliament, not the court, must decide, as a matter of policy, what should be the constituent elements of the criminal offence. The role of the court is one of review only.
(7)Relevant to any judgment about reasonableness or proportionality will be the opportunity given to the accused to rebut the presumption, maintenance of the rights of the defence, flexibility in application of the presumption, retention by the court of a power to assess the evidence, the importance of what is at stake, and the difficulty that a prosecutor may face absent a presumption.
91. The above decisions in England, it strikes us, suffer no constitutional constraints; the House of Lords, functioning under the accepted parliamentary supremacy, has in fact equivocated whether the accused has a mere evidential burden or a more onerous legal or persuasive burden.
India:
92. The courts have initially adopted a zero-tolerance approach to this common-law cannon. But with the march of time, crimes have transcended borders. Organized crime across the boundaries-- be it terrorism, drug-peddling, or sex-trafficking--has become the order of the day, technology exposing the inadequacies of the M.F.A.No. 11/2016 : 56 : conventional criminal investigation.
93. The Law Commission of India, in its 178th report, has suo moto responded to the growing trend of fastening the reverse onus on the accused. On a comparative perspective, it has decried the trends in the UK and Australia and goaded the Parliament to follow the US and Canadian models. It has pointed out that the principal procedural code for penal offences--Cr.P.C.--is replete with provisions that comply with the constitutional mandate: Sections 161 (2), 313 (3), and 315 (1). It has felt that diluting the presumption of innocence is repugnant to ordinary notions of fairness.
94. true, when the English and the Australian statutes have diluted the-presumption-of-innocence cannon, the American and Canadian legislations, as noted by the Law Commission of India in its 178th Report, have stood steadfast; they put the principle on a secure pedestal.
95. To paraphrase T. S. Eliot, we note that the present may be controlled by the past, but the past needs to be seen in the light M.F.A.No. 11/2016 : 57 : shed by the present. The vintage common law of 17th and 18th century hardly ever thought it possible that one blows oneself up to kill another. O tempora, o mores! So started the courts world over, Indian including, making exceptions: that neither the presumption of innocence nor the right against testimonial compulsion is a cul- de-sac; it has a way out.
96. To appreciate it better, we may well bear in mind that the presumption of innocence is no rule of law; it is only a rule of evidence. It applies to judicial proceedings--and criminal proceedings, at that. If a person has not been made an accused and arraigned to answer incriminating issues, he cannot avail himself of this benefit.
The Right to Silence & Testimonial Compulsion:
97. The presumption of innocence and the right to silence are cognate concepts. If a person has the reverse onus on him but has the right to remain silent, his silence leads to his acquiescence--a constructive confession of his guilt. On the other hand, if a person has no reverse onus on him but is compelled to speak, his speaking M.F.A.No. 11/2016 : 58 : incriminates him, despite the presumption of innocence.
98. The `right to silence,' as observed by the Law Commission of India21, is a common-law cannon, and it means that normally courts or tribunals of fact should not be invited or encouraged to conclude, by parties or prosecutors, that a suspect or an accused is guilty merely because he has refused to respond to questions put to him by the police or by the Court. Does this cardinal common law principle admit of exceptions?
99. India's Constitution, a distillate of the received wisdom of many other constitutional democracies, negates self- incrimination. It abhors testimonial compulsion. Article 20 (3) of the Constitution mandates that "no person accused of any offence shall be compelled to be a witness against himself." The Parliament- dominated monarch of England has no such constitutional constraint, besides its malleable conventions. Of late, it has to contend itself with Article 6 (2) of European Convention on Human Rights: Everyone charged with a criminal offence shall be 21 Justice M. Jagannadha Rao's One hundred Eightieth Report on Article 20 (3) of the Constitution of India and the Right to Silence (2002). M.F.A.No. 11/2016 : 59 : presumed innocent until proved guilty according to law. The American Constitution, too, has a provision analogous to India's Article 20 (3); perhaps, it is fairer to say India has as America does. Further, the American Courts have read the ubiquitous "due process" into the "presumption of innocence."
100. Almost all common-law countries and the constitutional democracies have either of the twin principles or both incorporated: The presumption of innocence and the right against testimonial compulsion. Article 11.1 of the Universal Declaration of Human Rights, 1948 and Article 14 (3) (g) of the International Covenant on Civil and Political Rights, 1966, too, have declared against testimonial compulsion.
101. Cases like State of Bombay v. Kathi Kalu Oghad22, Selvi v. State of Karnataka23, and State of Gujarat v. Shyamlal Mohanlal Choksi24 have taken a tough stand against what was thought to be diluting the constitutional mandate under Article 20 (3). Nandini 22 AIR 1954 SC 300 23 AIR 1961 SC 1808 24 AIR 1965 SC 1251 M.F.A.No. 11/2016 : 60 : Satpati v. P.L. Dani,25 also, has asserted the accused's right to silence.
102. In Veera Ibrahim v. The State of Maharashtra26 the Supreme Court has held that a person ought to have been an "accused" to claim immunity from testimonial compulsion. To the same effect is the holding in Poolpandi v. Superintendent, Central Excise27. In Ramanlal Bhogilal Shah v. D. K. Guha28 the Supreme Court has held that Article 20 (3) insulates no accused from giving information regarding matters which do not incriminate him, as is the legislative mandate under Section 177 of IPC read with Section 27 of the Indian Evidence Act.
How do Sections 24 and 50 affect the proceedings?
103. In the Act, Section 24, as we have already noticed, casts the reverse burden, and Section 50 compels the property holder to speak. Section 50 of the Act, to the extent relevant, reads:
50. Powers of authorities regarding summons, production of documents and to give evidence, etc.--(1) The Director shall, for the purposes of section 13, have the same powers as are 25 1978 (2) SCC 424 26 AIR 1976 SC 1167 27 (1976) 2 SCC 302 28 (1992) 3 SCC 259 M.F.A.No. 11/2016 : 61 : vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:--
(a) discovery and inspection; . . .
(2) . . .
(3) All the persons so summoned shall be bound to attend in person or through authorised agents, as such officer may direct, and shall be bound to state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required.
(4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860).
(emphasis added)
104. Are the proceedings under Section 8 of the Act judicial proceedings? First, we must acknowledge that the line between the judicial and quasi-judicial proceedings, if ever exists, is the thinnest. Almost invisible. Second, here whatever the label we give, the consequences will not vary. An Adjudicating Authority puts the affected on notice, holds a hearing, examines and sifts through evidence, and passes orders affecting--albeit as an interim measure-- M.F.A.No. 11/2016 : 62 : the property, or civil rights of a person. The order is appealable. So the proceedings are judicial. Then, are they criminal proceedings?
105. Criminal proceedings and civil proceedings once had a water-tight division. But later the complexity of crimes and the legal fictions that have entered the adjudication have spawned quasi- criminal cases. Yet criminal proceedings have certain tell-tale signs:
(a)usually the person accused of a crime faces a formal charge; the state--not the victim, with certain exceptions though--prosecutes--for the crime is supposed to be an offence against the society;
(b)the State must establish the accused's guilt beyond reasonable doubt, but occasionally the accused may have an evidential burden;
(c)the punishment usually is corporeal, such as jail term, though sometimes only penalty is levied;
(d)the accused has constitutional or statutory safeguards, such as the presumption of innocence, the right to silence, with no legal or persuasive burden.
106. Examined further, the Act also reveals that the predicate offences, as well as the offences of money laundering, are triable by Special Courts. Section 44 of the Act mandates that the Special M.F.A.No. 11/2016 : 63 : Court may, upon perusal of a police report or "upon a complaint made by an authority" under this Act, take cognizance of offence under section 3 of the Act. So the proceedings under Section 8 have nothing to do with the trying of offences under Section 44 of the Act.
107. Section 50, in fact, is analogous to Section 108 of the Customs Act and Section 171-A of the Sea Customs Act. In 1968, the Supreme Court, considering the latter Act, in Haroon Haji Abdulla v. State of Maharashtra29 observed that the statements are not confessions recorded by a Magistrate under Section 164 of the CrPC but are the statements made in answer to a notice under Section 171-A of the Sea Customs Act. As they are not made subject to the safeguards under which confessions are recorded by Magistrates, they must be specially scrutinised to find out if they were made under a threat or promise from someone in authority. After such such scrutiny, if they are found to be voluntary, they may be relied on.
29 [1968] 2 SCR 641 M.F.A.No. 11/2016 : 64 :
108. Ramesh Chandra Mehta v. State of West Bengal30 reiterated the same proposition: when an inquiry is being conducted under Section 108 of the Customs Act, and a statement is given by a person against whom the inquiry is being held, "it is not a statement made by a person accused of an offence, and the person who gives the statement does not stand in the character of an accused person."
109. In Percy Rustomji Basta v. The State of Maharashtra31, one of the questions was whether Section 24 of the Evidence Act was a bar to the admissibility of a statement given by a person accused of having committed the offences under the Customs Act. The Supreme Court repelled the contention. So asserts Harbans Singh Sardar Lenasingh v. The State of Maharashtra32, too.
110. The Assistant Collector of Central Excise, Rajamundry v. Duncan Agro Industries Ltd.,33 considered all the above decisions and held that a statement recorded by customs officers under 30 1970 Cri LJ 863 31 1971 Cri LJ 933 32 1972 Cri LJ 759 33 AIR 2000 SC 2901 M.F.A.No. 11/2016 : 65 : Section 108 of the Customs Act is admissible in evidence. The court must test whether the inculpating portions were made voluntarily or whether they were vitiated on the grounds envisaged in Section 24 of the Evidence Act.
111. Here, too, the principle of law cannot vary. The statements under Section 50 of the Act are not extra-judicial confessions; nor are they self-incriminating. They are used for the limited purpose of Section 8 of the Act. As observed by the Tribunal, Kavitha has no grievance about her statements under Section 50; she has not retracted them; and rightly the Adjudicating Authority has relied on them. For interim protection of the property, the evidence only needs to pass the preponderance-of-probability test, and the conclusion are only prima facie--until the trial under Section 44 of the Act.
112. As we acknowledge, the presumption of innocence inheres in a judicial proceeding: there ought to be an accused facing a formal charge, and the proceedings must have the attributes of a criminal trial. Here the Adjudicating Authority's order leads to no M.F.A.No. 11/2016 : 66 : sentencing, not even forfeiture. It only affects a person's civil right to hold property--for a limited period, at that. The forfeiture, we must observe, results not because of the Adjudicating Authority's findings, but, if ever, because of the finding of guilt by a court trying the predicate offences.
113. Further, the source of property and the manner of its acquisition are within the property holder's knowledge. In other words, the burden under Section 24 of the Act cast on Kavitha is mere evidential burden--shifting at times depending on the quality of evidence adduced on either side.
114. To our knowledge, Section 24 does not affect the predicate offences. It applies to "any proceeding relating to proceeds of crime" under this Act. Then comes the legislative mandate that "in the case of a person "charged with the offence of money-laundering"
under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money- laundering." First, even without a formal charge, which only follows the proceedings under Sections 5 and 8 of the Act, Section M.F.A.No. 11/2016 : 67 : 24 operates. Second, the reverse onus which this Section casts on any person relates only to the "proceeds of crime." The further presumption is that the proceeds of crime--if exist, we emphasize-- are "involved in money laundering." But pertinently there is no presumption--rebuttable as it is--that the very proceeds are ill-gotten. The proceeds relate to the predicate offence, and only the proof of the predicate offence determines the ill-gotten nature of the proceeds. In a case of money laundering, the proceeds of crime are the means; their laundering is the end: legitimation of ill-gotten money. If the first exists, the second must be presumed. The converse, however, does not apply.
115. To reiterate, we hold that all the proceedings under Sections 5 & 8 of the Act are preparatory to preserve the property, a likely product of the ill-gotten proceeds, until the predicate offences are tried. So, the burden--reverse onus as it may seem--discharged by the property holder is evidentiary, serving a limited purpose, and does not incriminate him or her.
M.F.A.No. 11/2016 : 68 : Answer to Issue No. V:
116. Neither the reverse onus under Section 24 nor the statements made under Section 50 are vitiated.
117. Given the constitutional constraints and common-law cannons discussed above, whether the reverse onus under Section 24 operates and whether the statements under Section 50 of the Act bind during the trial are moot. We leave them open.
Result:
We hold that the impugned order of the Tribunal dated 5.8.2015 is unassailable. So we dismiss the Appeal. No order on costs.
Sd/- P.N. Ravindran, Judge sd/- Dama Seshadri Naidu, Judge css/ true copy P.S.TO JUDGE