Karnataka High Court
Smt.K.Sowbaghya vs Union Of India on 28 January, 2016
Author: Anand Byrareddy
Bench: Anand Byrareddy
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 28TH DAY OF JANUARY 2016
BEFORE:
THE HON'BLE MR. JUSTICE ANAND BYRAREDDY
WRIT PETITION No.14649 OF 2014 (GM-RES)
CONNECTED WITH
WRIT PETITION No.19732 OF 2014 (GM-RES)
BETWEEN:
Smt. K. Sowbaghya,
Wife of Sri. Katta Subramanya Naidu,
Age: 58 years,
Resident of No.9,
6th "A" Cross, Sadashivanagara,
Bangalore 560 094. ...PETITIONER
COMMON
(By Shri Rajeev Awasthi, Advocate for Shri Kiran S Javali and
Shri Chandrashekara .K, Advocates)
AND:
1. Union of India,
Ministry of Finance,
North Block Department of Revenue,
Through its Secretary (Revenue),
New Delhi 110 024.
2
2. The Director,
Directorate of Enforcement,
6th Floor, Lok Nayak,
Bhavan Khan Market,
New Delhi 110 024.
3. Joint Director,
Directorate of Enforcement,
Bangalore Zonal Office,
3rd Floor, 'B' Block-BMTC-TTMC
Building, K.H.Road,
Shanthinagar,
Bangalore 560 027. ... RESPONDENTS
COMMON
(By Shri Prabhuling K Navadgi, Additional Solicitor General for
Shri Krishna S Dixit, Assistant Solicitor General for Respondent
No.1 and Shri Prabhuling K Navadgi, Additional Solicitor
General for Shri Mahesh S, Special Public Prosecutor for
Respondent Nos.2 and 3)
IN W.P.No.14649/2014:
This Writ Petition is filed under Articles 226 and 227 of the
Constitution of India, praying to direct/commanding/ordering
Sections 2(U), 3, 5(1), 8(1), 8(2), 8(3), 8(4), 8(5), 8(6), 9, 17(1),
18(1), 19, 23, 24 and Section 44 of the Prevention of Money-
Laundering Act 2002, (Central Act 15 of 2003) [the Act] amended
by the Prevention of Money Laundering (Amendment) Act, 2005
(Central Act 20 of 2005) [the Amendment Act]; further amended
by the Prevention of Money-Laundering (Amendment) Act, 2009
[Central Act 21 of 2009] (the 2nd Amendment Act) and further
amended by the Prevention of Money-Laundering (Amendment)
3
Act, 2012 [Central Act 2 of 2013] (the 3rd Amendment Act)
(w.e.f.15.2.2013), ultra virus , oppressive and unconstitutional.
Set aside the Provisional attachment order No.7/2012 in
ECIR No.7/BZO/2011 dated 25.9.2012 vide Annexure-A passed
by the third respondent is arbitrary unconstitutional and or
contrary to law.
Declare that the order dated 21.2.2013 vide Annexure-B
passed in Original Complaint No.158/2012 by the adjudicating
authority is illegal, arbitrary to the provisions of PMLA (as
amended in 2013) and / or unconstitutional and therefore liable to
be set aside.
IN W.P.No. 19732/2014
This Writ Petition is filed under Articles 226 and 227 of the
Constitution of India, praying to direct in the nature of
mandamus/directing/commanding/ordering the Amended
Provisions Sections 2(U), 3, 5(1), 8(1), 8(2), 8(3), 8(4), 8(5), 8(6),
9, of the Money-Laundering Act 2002, and as amended by the
Prevention of Money-Laundering (Amendment) Act, 2012
(Central Act 2 of 2013) [the 3rd Amendment Act)
(w.e.f.15.2.2013), ultra virus , oppressive and unconstitutional and
declare the complaint Spl.C.C.No.124/2014 under Section 3 and 4
of The PML Act and all proceedings culminating therefrom are
illegal, oppressive as being filed under the Amended 2013
provisions of the PML Act which are offending Article 14, 20, 21
and Article 300 of the Constitution of India being ultra vires and
set aside the order of taking cognizance dated 24.3.2014
(Annexure-A) passed by the Special Judge, PMLA as per 2013
amended provisions in the Prevention of Money Laundering Act,
2002 and in violation of the order dated 24.3.2014 passed by this
Hon'ble Court in W.P.No.14649/2014.
4
These Writ Petitions having been heard and reserved on
04.01.2016 and coming on for pronouncement of Orders this day,
the Court delivered the following:-
ORDER
These petitions are disposed of by this common order.
2. The brief facts of the case in the first of these petitions is as follows:
The petitioner's husband and son are politicians and businessmen. The Karnataka Lokayukta Police are said to have registered a case in Crime no. 57/2010 against the petitioner's husband, her son and several others alleging offences punishable under Sections 7, 8, 12, 13 (1) & (2) of the Prevention of Corruption Act, 1988, read with Sections 419, 420, 465, 468,471 read with Section 120 B of the Indian Penal Code, 1860 (hereinafter referred to as 'the IPC', for brevity).
As the Charge sheet disclosed the commission of "Scheduled Offences", as contemplated under the provisions of the Prevention of Money Laundering Act, 2002, (hereinafter 5 referred to as 'the PML Act', for brevity), the Directorate of Enforcement, Government of India has registered a case under the PML Act. A provisional Order of Attachment passed in respect of movable and immovable properties standing in the name of the petitioner and other family members of the petitioner's husband having been confirmed by the competent authority, in proceedings duly initiated under the PML Act, the present petition is filed.
In so far as the connected petition in WP 19732/ 2014, is concerned, it is by the same petitioner as in the first of these petitions, to contend that inspite of a restraint order passed in the first of these petitions, restraining the respondent from proceeding to take action pursuant to the Amendment no. 2 / 2013 of the PML Act, the respondent having instituted a complaint before the Special Court, before the restraint order could be served on the respondent, and the Special Court having taken cognizance of the offences alleged, has sought to file the second of these petitions, 6 with an additional prayer seeking the quashing of the order of the Special Court, taking cognizance.
The common feature in these petitions is that the petitioner seeks to challenge the vires of certain provisions of the Prevention of Money Laundering Act, 2002 (Central Act no. 15 of 2003) as amended by the Prevention of Money Laundering (Amendment ) Act, 2005 (Central Act no. 20 of 2005) and as further amended by the Prevention of Money Laundering (Amendment) Act, 2009 (Central Act 21 of 2009) and further amended by the Prevention of Money Laundering (Amendment) Act, 2013 (Central Act no. 2 of 2013) .
3. The historical background to the enactment of the Prevention of Money Laundering Act, 2002 (Hereinafter referred to as the PML Act , for brevity) is that the General Assembly of the United Nations passed a resolution as on 14-12-1984, to initiate preparation of a draft convention about illicit traffic in Narcotic drugs. The Convention, to which India is a party, called for preventing of laundering of proceeds of drug crimes and other 7 connected activities and confiscation of proceeds derived from such crimes. The PML Act is enacted keeping in view the main purpose of attaching and confiscating the proceeds of crime which are derived or obtained from the commission of offences having cross border implications. As such proceeds of crime are used for terrorist financing, which can cause a serious threat to the security of the country and pose a threat to the economy of the country as well.
It is contended by the learned counsel Shri Rajeev Awasthi, appearing for the counsel for the petitioners that the phrase 'proceeds of crime' is defined under Section 2 (u) of the PML Act , to mean any property derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence or the value of the property. A 'scheduled offence' is again defined under the Act, to mean an offence falling under Part-A, or Part-B or Part-C of the Schedule to the Act.
Section 3 of the Act is the charging section. The Section read as follows prior to the 2013 Amendment Act : 8
"3. Offence of money-laundering.--Whosoever directly or indirectly attempts to indulge or knowingly assists is a party or is actually involved in any process or activity connected proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering."
Post amendment, it reads as follows :
"3. Offence of money-laundering.--Whosoever directly or indirectly attempts to indulge or knowingly assists is a party or is actually involved in any process or activity connected 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."
It is pointed out that the main requirement to proceed under Section 3 was the presence of mens rea. But by virtue of the amendment substituting the phrase - 'with the proceeds of crime and projecting' - with the phrase 'concealment, possession, acquisition or use and projecting or claiming'- the Section has armed the competent officers under the Act with unfettered 9 powers to proceed against persons who may have innocently acquired, what is possibly proceeds of crime. There is now no need to demonstrate the presence of mens rea to prosecute any person accused of money laundering. This circumstance was never intended by the legislation nor is it in consonance with the Scheme of the Act . Shri Awasthi would therefore contend that the amended Section is violative of Article 14 and 21 of the Constitution of India.
It is next contended that the Scheme of the Act envisaged two parallel proceedings. Firstly, in terms of Section 5 of the Act, if the authorized officer under the Act has reason to believe that any person is in possession of any proceeds of crime he may provisionally attach the property for a period of 180 days, as an urgent measure to prevent the property from being concealed, transferred or dealt with in any manner. Secondly, there follows prosecution and punishment under Sections 3 & 4 of the PML Act.
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It is pointed out that till the year 2009, Section 5 contained three sub-clauses under Sub-section (1), which empowered a competent officer under the Act to provisionally attach property, as referred to above, if :
a) any person was in possession of any proceeds of crime;
b) such person had been charged of having committed a Scheduled offence and
c) such proceeds of crime were likely to be concealed, transferred or dealt with in any manner which would result in frustrating any proceedings relating to confiscation of such proceeds of crime.
The first proviso to sub-section (1) makes it mandatory that no attachment order shall be made unless in relation to a Scheduled offence, a report had been forwarded to the Magistrate under Section 173 of the Code of Criminal Procedure, 1973 (Hereinafter referred to as the 'Cr.PC ' , for brevity ) As Clause (b) above ensured that the property of a person could be attached only if he had committed a Scheduled offence, 11 and to obviate this requisite, in the year 2009, a second proviso was added which reads as follows :
"(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 the Magistrate under Section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorized 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 or 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 12 Director authorized 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."
This was obviously an amendment which was clarificatory in nature - vis-a-vis, Clause (b) above. Now as per the 2013 Amendment, clause (b) of sub-section (1) of Section 5 has been omitted and the erstwhile clause (c) is transposed as clause (b). In the result, the second proviso is left in a vacuum and is incongruous. It is contended that the 2013 Amendment is contrary to the legislative Scheme and has denuded the basic protection granted to persons as provided under the second proviso to Section 5 (1) which empowers officers to attach property of any person even without there being a charge sheet under Section 173 of the Cr.P.C. It places him in a worse position 13 than a person who is accused of having committed a Scheduled offence - where the attachment could take place only if there was a final report under Section 173 Cr.P.C. It is also pointed out that the expression employed in the Second proviso is 'attachment ' and not 'provisional attachment', as in the case of an accused in a Scheduled offence. And the limit of 180 days is also absent, while it is available under the first proviso. This, it is contended, is again violative of Article 14 and 21 of the Constitution of India.
It is contended that Section 8 mandates that any provisional attachment order made under Section 5 (1) of the PML Act would only remain valid upto 180 days. During the said period the complaint was to be filed under Section 5 (5) of the Act, before the Adjudicating Authority, who after issuing notice and affording a hearing, would either confirm the provisional attachment order or if no order is passed within 180 days the attachment order shall cease to have any effect as per Section 8 (3) . If the adjudicating authority confirms the order and holds that the property is involved in money laundering, he could confirm the attachment 14 order, if the conditions under Section 8(3) are satisfied and the order of confirmation of provisional attachment, which order of attachment shall :
a) continue during the pendency of the proceedings relating to any Scheduled offence before the court and
b) would become final after the guilt of the person is proved before the trial court and the order of the trial court becomes final.
It is pointed out that Section 8 (5) as it existed under the 2009 Amendment Act provided that if a person is acquitted in the Scheduled offence, the attachment of property would cease to have effect, meaning thereby - if there was no crime there could be no question of the existence of 'proceeds of crime'.
It is hence contended that under the 2013 Amendment Act the entire Scheme is overhauled, the Act is rendered a stand alone legislation. This is evident from the fact that the amendment corresponding to Section 8(5), Section 8(6) is introduced, whereby even if the person is acquitted of a Scheduled offence, he could 15 still be prosecuted under Section 3 & 4 of the PML Act. This was never the intention of the legislation as originally envisaged. It is contended that if the genesis of action under the PML Act is the commission of the Scheduled offence, as no action under the Act could be initiated unless there was a report under Section 173 of the Cr.P.C, in relation to the Scheduled offence - then it followed that if there was an acquittal of the alleged Scheduled offence it would have a direct bearing on the proceedings under the PML Act; Hence it is inexplicable as to how it is envisaged that there could be prosecution under the PML Act when the proceeds of crime, which was certainly a reference to generation of proceeds by the commission of a Scheduled offence, could no longer be considered as 'proceeds of crime', on acquittal in the case pertaining to the Scheduled offence.
It is further contended that as per the 2013 Amendment, if the Adjudicating Authority confirms the provisional attachment order , the said attachment has to pass the test under Section 8 (3) . And as amended now, the attachment can continue : 16
a) during the pendency of the proceedings relating to any offence under the PML Act and
b) become final after an order of confiscation is passed under sub-
section (5) or sub-section (7) of Section 8 of the PML Act.
Further, as per the amended Section 8(5), where upon conclusion of the trial for an offence under the PML Act, the Special Court finds that the offence of money laundering has been committed, it shall order such property to be confiscated to the State. This procedure results in a situation where even before a statutory remedy of appeal attains finality, no sooner there is a conviction under the PML Act, the Special Court is empowered to pass an order of confiscation, unlike under the 2009 Amendment. It is contended that the same takes away a valuable right and inflicts serious injury to the right to possess property. And is violative of Article 14 and 21 of the Constitution of India.
It is contended that Section 9 provides for vesting of property in the Central Government. As per the 2009 17 Amendment, no property could be finally confiscated unless an order of confiscation was made under Sub-section (6) of Section 8, which mandated that unless the person was proved guilty of a Scheduled offence and that order attained finality, no property could be finally confiscated. However, under the 2013 Amendment, even if the Adjudicating Authority confirms the provisional attachment order and the guilt is recorded under Section 3 & 4 by the Special Judge without that order becoming final, confiscation is provided for.
It is further contended that Section 17 provides for Search and Seizure of premises, while Section 18 provides for Search of persons. Till the year 2009, if action under Section 17 and 18 was initiated it was required, as a condition precedent, that there be a report under Section 173 of the Cr.P.C. in relation to a Scheduled offence filed before the competent court. However, under the 2013 Amendment, action under Section 17 and 18 could be taken merely if a report has been forwarded to a Magistrate under Section 157 of the Cr.P.C. This, it is contended, is blatantly 18 incongruous. In that, when the initiation of proceedings under the PML Act contemplates a report under Section 173 Cr.P.C. being on record, it is inexplicable that for action in terms of Section 17 & 18 the stage could be altered to the FIR stage. The plea of urgency for such precepitative action would not justify the same. Such action would always follow the action already initiated in relation to a Scheduled offence and the investigating agency would be expected to seize or recover such incriminating material, which be very much a part of the charge sheet, a copy of which is forwarded to the Enforcement Directorate for action under the PML Act. At that stage, after scrutiny of the report, the Enforcement Directorate would reach further conclusions for initiation of appropriate action under Section 17 & 18 of the PML Act.
Section 19 of the PML Act provides for power of arrest. It is contended that such power cannot be exercised unless the person is found guilty of having committed a Scheduled offence. Such arrest would inflict bodily injury, when the most immediate 19 or urgent situation as contemplated under the Act is the attachment of properties that could be construed as derived and obtained from proceeds of crime, which is a civil consequence and does not inflict bodily injury. It is also contended that the power of arrest under the PML Act is not circumscribed by any other procedural requirement as in the case of arrest by recourse to the Cr.P.C., and it is outside the ken of judicial scrutiny.
It is contended that under Section 23 of the Act a presumption in interconnected transactions is contemplated, where money laundering involves two or more inter-connected transactions and one or more such transactions is or are proved to be involved in money laundering, then for purposes of adjudication or confiscation, by virtue of the 2013 Amendment is not dependant on the proceeding under Section 8, unlike under the 2009 position - where if a person is acquitted in respect of the Scheduled offence the presumption with regard to inter-connected transaction would cease to exist.
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It is also contended that Section 24 of the Act which prescribes the burden of proof casts the burden on the accused to establish that the alleged proceeds of crime are untainted property by creating a presumption in favour of the Authority or the Court. This is opposed to the first principle of criminal law apart from being violative of Article 14 and Article 21 of the Constitution of India.
In so far as Section 44 of the Act is concerned, under the 2013 Amendment it is provided that the trial in respect of the Scheduled offence as well as the offence under Section 3 and 4 are made triable by the Special Court constituted under the PML Act.
It is contended that it is an established principle of law that the evidence tendered at one trial could not be considered or appreciated for purposes of another trial. It is wholly incomprehensible as to the wisdom of the two cases proceeding simultaneously before the same court. This is especially so as under the 2009 Amendment if a person was acquitted in respect of 21 the Scheduled offence, the attachment ceases to have any effect and a person could not also be prosecuted under Section 3 and 4. It is pointed out that unless the trial in respect of the Scheduled offence is completed, it is difficult to countenance the prosecution of a person under Sections 3 & 4 of the PML Act. Or for that matter there could be a situation where the trial under Section 3 & 4 is completed and a person is convicted, but is acquitted for the Scheduled offence.
It is contended that under Sub-section (2) of Section 50 of the Act, the officers named therein are empowered to summon or call any person for the purpose of recording his statement and in terms of Sub-section (4) , the same is made admissible under the Evidence Act, 1872. This would imply that any and whatever material on being produced before the Special Court, a conviction could follow on the basis of a statement of a person which may have been recorded under duress - which is however made admissible under the Evidence Act. This is a draconian provision 22 and not only inflicts injury on the person but is also grossly violative of a person's fundamental rights.
It is contended that though Section 62 of the Act provides for punishment in the event of a vexatious search, this in practice would be illusory - for Section 64 dilutes the rigour of Section 62 by providing for the requirement of a sanction by the Central Government, which is again left to the discretion of the Central Government, without which no court is empowered to take cognizance of an offence under Section 62.
It is also pointed out that Section 65 of the Act provides that the provisions of the Cr.P.C., in so far as the same not inconsistent with the provisions of the PML Act, would be applicable to the proceedings under the PML Act. This in effect would enable the Officers under the PML Act to proceed with unfettered vigour and flout the fundamental rights guaranteed to a citizen. In that, a criminal case can be prosecuted without there being any First Information Report, without an investigation, without the need for 23 any case diary and without the supervision of any judicial authority. The first stage of judicial scrutiny under the PML Act arrives only when a complaint is filed under Section 3 & 4 of the Act, before the Special Court.
4. The learned Counsel for the petitioner places reliance on the following authorities :
1. Rajiv Chanana vs. Deputy Director, W.P.(C).6293/2014 dated 19.09.2014 of Delhi High Court;
2. Indian Bank vs. Govt. of India 2012, Writ LR 702 of High Court of Madras;
3. M/s. Ajanta Merchants Pvt. Ltd. vs. Directorate of Enforcement, Crl. M.C.No.5581/2014 dated 9.4.2015 of Delhi High Court;
4. Arun Kumar Mishra vs. Directorate of Enforcement, Crl.M.C.5508/2014 dated 9.4.2015 of Delhi High Court;
5. State of Punjab vs. Bhajan Kaur, (2008) 12 SCC 112; 24
6. M/s. Punjab Tin Supply vs. Central Government, AIR 1984 SC 87;
7. Madisetti Bala Ramul vs. Land Acquisition Officer, (2007) 9 SCC 650;
8. Anant Gopal Sheorey vs. The State of Bombay, AIR 1958 SC 915;
9. Sangram Singh vs. Election Tribunal Kotah and another, AIR 1955 S.C. 425;
10. Sharif Ud Din vs. Abdul Gani Lone AIR 1980 SC 303;
11. The Workman of M/s. Firestone Tyer & Rubber Co. of India Private Limited vs. The Management and others, AIR 1973 SC 1227;
12. K.S. Paripoornum vs. State of Kerala AIR 1995 SC 1012;
13. Dr. Subramanium Swamy vs. Director CBI, JT 2014 (7)SC 474;
14. Globle Energy vs. Central Electricity Regulatory Commission, AIR 2009 SC 3194;
15. Shreya Singhal vs. Union of India, AIR 2015 SC 1523; 25
16. Vijay Madanlal Choudhary vs. Union of India 2015 Law suit (MP) 1105 dated 20.10.2015;
It is hence contended that the amendments brought to the PML Act, after it stood amended by the 2009 Amendment Act, have rendered the provisions extremely onerous and are clearly in violation of the fundamental rights of the petitioners apart from the fact that the said provisions are inconsistent and contrary to other provisions of law, both substantially and procedurally and hence seeks that the petitions be allowed as prayed for.
5. Per contra, Shri Prabhuling K. Navadgi, learned Additional Solicitor General of India, appearing for the Union of India, contends as follows:
The petitioner has called in question the constitutional validity of Sections 2(1)(u), 3, 5,8, 9, 17, 18, 19, 23, 24 and 44 of the Prevention of Money Laundering Act, 2002 (as amended from time to time).26
In so far as Section 3 is concerned, it is the contention of the petitioner that the section is too widely worded so as to include innocent persons and therefore it is arbitrary, offending Article 14 of the Constitution of India and hence the same is liable to be struck down.
A bare perusal of the definition would go to show that the word 'knowingly' is advisedly used in Section 3 so as to ensure that an element of mens rea is present to attract the offence of money laundering. In these circumstances, the question of any innocent person being prosecuted for the said offence does not arise.
At any rate, even if in a given case, a person who is not guilty of money laundering is prosecuted erroneously then the remedy is to move the appropriate forum, for termination of such prosecution and not for striking down the Section itself.
Prior to 2013, the definition of Section 3 of the Money Laundering read as under:27
"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 and projecting it as untainted property shall be guilty of offence of money-laundering."
The Financial Action Task Force (FATF) an inter- Governmental body for development and promotion of policies to combat money laundering and terrorist financing, which ensures adherence to its standards by making sure that countries across the world bring about legislative and regulatory reforms in these areas.
It is contended that FATF Mutual Evaluation (ME) Team made a Mutual Evaluation Report in 2009 and suggested certain changes in so far as definition of Money-Laundering is concerned. It suggested that, among other things, the definition of Money- Laundering also should include possession, acquisition and use as well.
28
The said recommendations were referred to the Standing Committee, Finance, seeking suitable changes in the Act. The Standing Committee, Finance, in its 56th Report submitted the Prevention of Money Laundering (Amendment) Bill 2011 on 9th May 2012 in both the Houses of Parliament. It is in this Report, the Standing Committee on Finance observed that there is a necessity of enhancing the definition pursuant to the mutual evaluation done by FATF and Article 6 of the Palermo Convention.
On the Report being tabled, the definition included possession, acquisition, concealment in the 2013 amendment. No exception whatsoever could be taken by the petitioner in so far as the present definition is concerned. It is contended that except for making a statement that it is arbitrary, the petitioner has not shown under what circumstances the same is liable to be struck down as unconstitutional.
29
Attention is drawn to Attorney General of India vs. Amratlal Prajivandas, reported in (1994) 5 SCC 54 in support of the above proposition.
Therefore it is contended that the assertion that Section 3 of the Act is too widely worded to include innocent persons, is liable to be rejected.
In so far as the challenge to the constitutional validity of Section 2(1)(4) is concerned, no factual foundation or legal argument is advanced to show as to how the said provision is unconstitutional. The definition of "proceeds of crime" is defined as being the same as, any property derived or obtained as a result of criminal activity relating to a scheduled offence.
The scheduled offence is itself defined in Section 2(1)(y) as offences mentioned in Part A, Part B and Part C of the schedule to the Act. The definition is necessary since the whole object of Money laundering is to stem the commission of offence relating to 30 ill gotten wealth which will be pumped into the economy, thereby destabilizing the economy of the country.
Infact, in the Palermo Convention, the comity of nations decided that heinous crimes, including crimes arising out of corruption by persons holding public office, should not be allowed to launder wealth and it had become absolutely necessary to criminalize each of the offences. Therefore, the definition "Proceeds of Crime", forms the basis of the Act and no exception whatsoever could be taken by the petitioner.
The amended Section 5 is called into question on the ground that it gives wide power to the authorities to even attach properties of persons who are not accused of scheduled offences. It could be seen that Section 5 of the Act, as it stands after the amendment, contemplates provisional attachment of the property against three categories of persons;
(1) Persons who are accused of having committed scheduled offence.
31(2) Persons who are accused of having committed the offence of money laundering.
(3) Persons who come in possession of 'proceeds of crime' without either having committed scheduled offence or not holding the proceeds of crime knowingly.
Whereas Section 5(1)(a) of the Act contemplates that attachment could be proceeded against any person in possession of any proceeds of crime. That is to say, that if a person comes in possession of proceeds of crime even without any offence of money laundering, attachment of such property in his hands could be effected.
Proviso (1) contemplates that before such attachment is done, there has to be proceeding in respect of scheduled offence before the Competent Court. Proviso (2) contemplates that if an officer has reason to believe that any property of any person is involved in money laundering, he can then attach the property. Section 5(1)(a) and proviso (2) of Section 5(1) operate in a situation where a person comes in possession of any proceeds of 32 crime without actually being involved in money laundering or in a scheduled offence. In such a situation, as long as there is a proceeding in respect of any some scheduled offence, the authorities could attach such property if such properties are involved in money laundering. Whereas under proviso (2) of Section 5(1), the authority contemplated under such proviso is expected to attach the property, if it is found that the property is involved in money laundering. The difference between proviso (1) of Section 5(1) and proviso (2) of Section 5(1) is that in case there is an urgency and if the officer concerned is of the opinion that if immediate attachment of the property is not done, it is likely to be taken away and would not be available for confiscation, he could resort to proviso (2).
At any rate, the attachments are for a limited period. This is made clear from a reading of sub-section (3) of Section 5, which contemplates that attachments effected under sub-section (1) would cease to have effect after the expiry of the period specified 33 in that sub-section, which is 180 days. Apart from this, necessary safeguard is provided under the Act as the Director should send the order of attachment to the Adjudicating Authority immediately and a complaint has to be filed within a period of 30 days from the date of attachment under section 5(5) of the Act. The provisional attachment itself will be decided before the adjudicating authority, who again has to prima facie decide, whether the provisional attachment requires to be confirmed. The authority after issuing notice to the persons concerned would decide upon the confirmation of the attachment. In these circumstances, the argument that Section 5(1) and (2) have become redundant or there is no period specified in proviso (2), is liable to be rejected.
As regards Section 8 of the Act, it contemplates confirmation of attachment proceedings made under Section 5 of the Act by the Adjudicating Authority. The said provision is in accordance with law and meets the requirement of constitutional provision. It has been stated by the petitioner that Section 8 of the 34 Act is unconstitutional in so far as it is not made dependent upon the conviction of a scheduled offence, but conviction is based on the offence of money laundering. The Financial Action Task Force, which undertook Mutual Evaluation exercise made 40 recommendations. One of the recommendations was that the attachment proceedings cannot be made contingent upon the commission of predicate offence/scheduled offence. It indicated that money laundering is an independent offence. The said recommendations were made by the FATF as under:
"2. Legal system and related institutional:
2.3 Confiscation, freezing and seizing of proceeds of crime (R.3) Although the confiscation regime in India allows for a broad spectrum of seizure and forfeiture measures in the AML/CFT context, it is not fully comprehensive and does show a number of (legal) deficiencies.
Therefore it is recommended that:
• Legal measures are taken to allow for confiscation of the money 35 laundered as subject of the ML offence and which is not contingent on a conviction for the predicate offence (stand-alone ML offence)."
The Standing Committee of Finance considered the recommendations of the FATF and having regard to the fact that India became a member of FATF and an obligation is cast upon it by making necessary changes in the domestic law so as to bring about the money laundering legislation in consonance with the international policy, necessary changes were suggested. It can further be seen that the changes now brought about under Section 5 and 8 of the Act is clearly in accordance with the object of the Act and would result in a fair dispensation of the attachment proceedings. Under the scheme of Sections 5 and 8 all the attachment proceedings could be initiated against three types of persons.
(a) Persons who are accused of a scheduled
offence.
(b) Persons who are accused of having committed
an offence of money laundering alone.
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(c) Persons who come in possession of the
proceeds of the crime.
The present provision which makes the attachment proceeds to be dependent upon the offence of money laundering is fair and is to be upheld.
Money laundering is a stand alone offence. A person who has not committed a scheduled offence could be prosecuted for an offence of money laundering. In such a situation, the prosecution need not wait for the scheduled offence to be established. It can independently prosecute and lay material to show that he had knowingly assisted or was responsible for laundering of the illicit wealth. In such a situation, the property would then stand attached and the person who is being prosecuted for money laundering has to show the Court that he is not guilty of money laundering. The same would work to his advantage as to whether a scheduled offence has been committed or not. He could show that the property in question has not come in his possession and that he 37 has not knowingly appropriated the same. In such a situation, if the offence is not established, the property would revert back to him.
The changes that were brought about to Sections 5 and 8 synchronize with other provisions contained in the Act. Section 44, which now stands amended contemplates trial of both, the scheduled offence and the offence of money laundering by the same Special Court. In these circumstances, there is no likelihood of conflict of orders relating to the said offences.
It is further contended that pre-trial confiscation is a well recognized mechanism in order to stem ill-gotten wealth. Though under the present enactment, there is no pre-trial confiscation, but only attachment which is temporary in nature, it would result in confiscation only after conclusion of the trial.
Reliance is placed on Yogendra Kumar Jaiswal vs. State of Bihar and others (Civil Appeal Nos. 6448-6452 of 2011, decided 38 on December 10, 2015), which was a decision considering provisions relating to confiscation of proceeds prior to conclusion of the trial.
It is pointed out that Supreme Court has upheld even a pre- trial confiscation, whereas, in the present case, it is just a pre-trial attachment of properties, which would be confiscated only after the guilt is proved and the offence is established under this Act. Therefore, Sections 5 and 8 being in accordance with law, the same are liable to be upheld.
The validity of Section 9 has been challenged on the ground that if adjudicating authority confirms provisional attachment order and guilt is recorded under Section 3 and 4, there is provision for confiscation which denies a statutory challenge to that order. The said argument is not clear since even after an order of confiscation is passed there could be an appeal against the order of the trial court for offences under Section 3 before the Appellate Court. Section 9 is only consequential and if any 39 person is held guilty it is only natural to confiscate his property in favour of the State, which meets the object of the Act.
It is urged that the contentions of the petitioner in assailing the validity of Sections 17, 18 and 19 are two fold, namely:
(a) that the persons, who have been empowered to arrest are not police officers under the Act;
(b) for effective search, seizure and arrest, only a report under Section 157 Cr.P.C. needs to be forwarded.
Whereas for attachment of property final report under Section 173 of the Cro.P.C. is required.
Both the arguments, being fallacious, are liable to be rejected.
The power of arrest, search and seizure are considered an important tool in any investigation. They cannot be considered as being foreign in matters relating to economic offences. In fact, such provisions are contained in the following enactments.
(a) Customs Act, 1962 (b) Prevention of Food Adulteration Act, 1954 40 (c) Railway Property (Unlawful Possession) Act, 1966
In so far as Section 65 of the Act is concerned, a reading of the same makes it clear that arrest, search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings are subjected to power of jurisdictional Court as contemplated under the provisions of the Cr.P.C.
The further argument advanced by the petitioner is that, a mere report under Section 157 of the Cr.P.C. being sufficient for effecting search, seizure and arrest even before pre-charge-sheet stage and hence the same being arbitrary, is not correct. It is settled law that investigation is prior to filing of charge sheet under Section 173 of Cr.P.C. The power of search, seizure and arrest is a part of investigation to detect the crime and apprehend the accused and prevent evidence being destroyed. All these proceedings are therefore required to be done prior to filing of charge sheet itself. Hence, filing of FIR is justified. No prejudice 41 would be caused to any accused if search, seizure and arrest is made, since it is controlled by the other provisions of the Cr.P.C.
Section 19 has been assailed on the ground that "no judicial body is provided to scrutinize initial action as in the case of scheduled offences". This contention is wholly incorrect since section 19 (3) itself provides that every person arrested under the Act would be produced before the Judicial Magistrate within 24 hours.
Apart from this, Section 65 of the Act clearly states that provisions of Criminal Procedure Code would be applicable including the provisions for investigation carried out under the Act. Therefore the argument that provisions of arrest, etc are not subjected to judicial scrutiny is incorrect. The further argument that there is no necessity of arrest is not correct as the authorized officer has power to arrest on the basis of material in his possession and if he has reasons to believe that the person is guilty of an offence punishable under this Act.
42
It is contended that Section 24 has been assailed on the ground that it places initial burden upon the accused and violates the principle of Criminal Jurisprudence relating to right of the accused to remain silent. The said Section was also called in question before the Andhra Pradesh High Court in the case of B.Rama Raju vs. Union of India (2011) 164 Comp Cases 149 AP, and it is contended that the decision is a complete answer to the challenge.
That apart, the very nature of the offence of money laundering places the initial burden necessarily on the accused, because it is for the accused to explain the source of his property of which he is in possession. After he discharges the same, the burden shifts back upon the prosecution.
There are similar provisions relating to burden of proof in various enactments such as Section 20 of Prevention of Corruption Act, 1988, Section 139 of Negotiable Instruments Act, 1881 and Section 53 of Prevention of Terrorism Act, 2002. 43
It is contended that Section 43 provides for creation of Special Courts and for the trial of such cases expeditiously as a part of legislative mechanism to ensure that the offence of money laundering is stemmed at the earliest. The same is valid and not liable to be struck down.
Section 44 now provides for both the offences of money laundering and of scheduled offences to be tried by the Special Court, if the same is connected to Sections 3 and 4. This would prevent conflict of orders and ensures a composite trial. It has been argued that unless the scheduled offence is established before the Competent Court, the offences of money laundering cannot be tried since the person who is acquitted for money laundering cannot be tried for the scheduled offences. It is contended that this argument is incorrect. It requires to be seen that after the 2013 amendment both the offences are to be tried by the same Court. This has been made clear by Section 44(1)(a). Further Section 44(1)(c) now provides for transfer of a case for a scheduled 44 offence to the court where the proceeding for Money laundering is tried.
This provision entirely takes away the argument of the petitioner that one trial has to wait until the completion of the other trial. If the said contention is accepted, Section 44(1)(a) would stand defeated, as the provision is made exactly to meet such a requirement. The contention that prosecution for the offence of money laundering cannot be tried until the person is found guilty for the scheduled offence, assumes that both the accused would be the same person.
It would be well within the rights to show before the Court for prosecution of Money laundering that a person who is not accused of a scheduled offence could be punished for knowingly assisting including concealment, possession, acquisition or projecting proceeds of crime, as untainted property. 45
In a situation in which the petitioner contemplates that a person who is acquitted of the scheduled offence cannot be prosecuted for an offence of money laundering, is also not correct since the judgment of the court acquitting for a scheduled offence would be relevant evidence for the proceedings of money laundering offences. Further as is being contemplated Money laundering is independent and a stand alone offence. In these circumstances, it is contended that the said argument of the petitioner is liable to be rejected.
There could also be a situation that where a person accused of a scheduled offence may not be available on account of his death or if he absconds. There could also be cases where the accused may be acquitted on technical grounds. In these circumstances, it cannot be said that the offence of money laundering cannot be proved.
It has been stated that Section 50 provides for recording of statements by officers concerned in aid of investigation under the 46 Act. The petitioner further has stated that this could be the basis for conviction. This is wholly incorrect. There cannot be a conviction solely on the basis of statement made to an officer and unless there is a confession as provided under Section 164 of the Code of Criminal Procedure, 1973; Any statement recorded before a quasi-judicial body cannot be the basis for conviction.
It is contended that having regard to the contentions raised in the writ petition, the following principles are also required to be examined.
A] That the provisions of the Act are capable of being misused.
Merely because the provisions contemplate measures relating to search, seizure and arrest, the same cannot be considered draconian. This could be seen from the following:
(a) The provisions of attachment is not final, but it is only provisional in nature;47
(b) The officer concerned, before effecting attachment, has to record reasons only on the basis of the material in his possession;
(c) The matter once again goes before the adjudicating authority, which re-examines the entire issue and affords hearing to both sides including the persons whose properties have been attached;
(d) Any person aggrieved by the order of adjudicating authority, has a right to file an appeal under Section 26 of PMLA.
(e) The Appellate Authority consists of retired High Court Judges or retired Supreme Court Judges along with other members.
(f) There is further provision of appeal before the High Court.
(g) The proceedings in respect of offences for scheduled offences are tried by the Special Court and all other proceedings are subject matter of the result of such trials.
48If any person falsely files a complaint or falsely arrests a person, he is liable for imprisonment. Having regard to the safeguards under Section 63, the liberty of an individual is adequately protected. Therefore, the enactment cannot be termed as arbitrary. Apart from this, the Hon'ble Supreme Court of India has enunciated the principle relating to arbitrariness and held that merely because the provision is liable to be misused, it cannot be a reason to strike down the same as unconstitutional in People's Union for Civil Liberties and another vs. Union of India, (2004) 9 SCC 580 and in the following:
i) Manzoor Ali Khan vs. Union of India and others, (2015) 2 SCC 33;
ii) Sushil Kumar Sharma vs. Union of India and others (2005) 6 SCC 281;
iii) Mehmood Alam Tariq vs. State of Rajasthan (1988) 3 SCC 241; and in
iv) Sanjay Dutt vs. State through CBI, Bombay (II) (1994) 5 SCC
410. 49
It is contended that the Constitutional Validity of any law is to be tested on the principles laid down in
i) State of Bihar and others vs. Bihar Distillery Limited and others (1997) 2 SCC 453,
ii) Bhanumati vs. State of Uttar Pradesh through its Principal Secretary and others, (2010) 12 SCC 1 and
iii) State of A.P. vs. Mc.Dowell and Co., (1996) 3 SCC 709.
It is further contended that the argument advanced that the provisions of money laundering contemplates prosecution of persons, who have acquired wealth from offences, which were not part of the schedule when the said offence was committed. In this regard, various High Courts have considered this aspect as in
i) Hari Narayan Rai vs. Union of India - W.P. (Cr.) No.325 of 2010,
ii) Hasan Ali Khan vs. Union of India - Criminal Bail Application No.994/2011, 50
iii) Sanjay Kumar Choudhary vs. Government of India, (2010) Crl.L.J. 1960, and
iv)B. Ramaraju vs. Union of India and others, (2011) 164 CompCas 149 (AP).
It is also pointed out that the petitioner in the entire course of oral arguments has argued only on the questions of law and not on the facts. There is conspicuous silence as to the facts. It is contended that none of the questions of law raised apply to the present case stricto sensu. The petitioner, in the writ petition, has suppressed the fact that a prosecution complaint was filed by the respondent and the charge sheet was filed against other accused as well.
It is contended that the petitioners are unable to show as to how the impugned provisions are unconstitutional. It could be seen from the synopsis above that most of the actions taken by the respondent under the Act is prior to 2013 amendment itself. The 51 provisions now assailed are not clearly established or demonstrated.
Hence Shri Navadagi seeks the dismissal of the petitions.
6. It would be useful to refer to and keep in view the background in which the PML Act came into being, in proceeding to address the rival contentions.
i) On 14.12.1984, the General Assembly of the U.N. by a resolution requested the Economic and Social Council of the U.N. to request the Commission on Narcotic Drugs in its 31st Session, 1985, to initiate preparation of a draft convention about illicit traffic in Narcotic Drugs by considering the problem holistically on a priority basis. Eventually the U.N Conference for Adoption of A convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (NDPS) met in Vienna and with participation of delegates of 106 States including India; specialized agencies; and representatives of Inter-Governmental Organizations; interested agencies and bodies drew up the U.N convention Against Illicit Traffic in NDPS. The conference 52 adopted a draft of resolutions pertaining to exchange of information; provisional application of the U.N. Convention against Illicit Traffic in NDPS and provision of necessary resources to the Division of Narcotic Drugs and the Secretariat of the International Narcotic Board to enable discharge of the task entrusted to them under International Drug Control Treaties. The purpose of the contention was to promote cooperation among the parties and to more effectively address various aspects of illicit traffic in NDPS, having an international dimension. The Convention enumerated measures for incorporation as offences, conduct promoting NDPS and for confiscation of proceeds derived from offences established in relation to NDPS.
ii) In 1990, the Financial Action Task Force (FATF- an inter governmental body, which sets standards, develops and promotes policies to combat money-laundering and terrorist financing with a membership of a number of countries and international organizations) drew up forty recommendations as 53 initiatives to combat money-laundering and terrorist financing to provide an enhanced, comprehensive and consistent frame work of measures for combating money laundering and terrorist financing.
iii) The Palermo Convention (United Nations convention against transnational organized crime) was held from 12th to 15th of December 2000 in Palermo, of which India is a signatory. Under this convention, all the nations were requested to adopt the comprehensive legislation to prevent and punish money laundering.
iv) Article 253 of the Constitution of India confers power on the Parliament to make laws for implementation of any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body. Article 253 of the Constitution of India reads as under:
"253. Legislation for giving effect to international agreements- Notwithstanding 54 anything in the foregoing provisions of this Chapter, Parliament has power to make any law for the whole or any part of the territory of India for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body."
The PML Act was enacted in the year 2002 and came into effect from 1.7.2005. The Act has undergone four amendments - in the year 2005, 2009, 2013 and by the Finance Act, 2015 (with effect from 14th May, 2015) under Part VI thereof, respectively . The last of the amendments was not brought to the attention of this court by the counsel for the parties. The same however, is kept in view in considering the case of the petitioners, on merits.
7. Keeping in view the settled principles that while examining a challenge to the constitutionality of an enactment, the court starts with the presumption of constitutionality. And the endeavour would be to sustain its validity to the extent possible. The enactment is not examined to find defects of drafting, or the 55 inexactitude of language employed. Nor can the enactment be struck down on the ground that the provisions are not found to be justified.
The petitioners have called in question the constitutional validity of Sections 3, 5, 8, 9, 17 to 19, 23, 24 & 44 of the PML Act.
The petitioners would have no grievance if the Act as amended in 2009, is maintained. The challenge is mainly to the Amendment Act 2 of 2013. The Act as it was originally enacted and amended from time to time, in so far as the amended provisions under challenge are concerned, are reproduced hereunder for ready reference :
Section Original After 2005 After 2009 After 2013 After 2015 enactment as Amendment Amendment Amendment Amendment on 2002 Act Act Act Act Section 3.Offence of 3.Offence 3.Offence 3.Offence of -------- 3 money of money- of money- money-
laundering.-- laundering.- laundering.- laundering.- Whosoever Whosoever Whosoever Whosoever directly or directly or directly or directly or indirectly indirectly indirectly indirectly attempts to attempts to attempts to attempts to indulge or indulge or indulge or indulge or knowingly knowingly knowingly knowingly 56 2002 2005 2009 2013 2015 assists or assists or assists or assists or knowingly is knowingly knowingly knowingly is a party or is is a party or is a party or a party or is actually is actually is actually actually involved in involved in involved in involved in any process any process any process any process or activity or activity or activity or activity connected connected connected connected with the with the with the proceeds of proceeds of proceeds of proceeds of crime crime and crime and crime and including its projecting it projecting it projecting it concealment, as untainted as untainted as untainted possession, property shall property property acquisition be guilty of shall be shall be or use and offence of guilty of guilty of projecting or money- offence of offence of claiming it laundering. money- money- as untainted laundering. laundering. property shall be guilty of offence of money-
laundering.
As can be seen above, the change brought about by the amendment to Section 3 is the inclusion of the following phrase , "including its concealment, possession, acquisition or use". This according to the petitioners is an inclusion which was significantly excluded by the legislature, after much debate and the section was accordingly redrafted, to avoid unnecessary harassment to 57 innocent people who may have acquired the possible 'proceeds of crime' innocently, without knowledge or without the requisite mens rea. The amendment of the Section has given scope for an expansive definition to the expression 'proceeds of crime' and is wholly unreasonable and draconian.
According to the respondent, this amendment was warranted on account of the recommendation made by the Financial Action Task Force (FATF), an intergovernmental body for development and promotion of policies to combat money laundering and terrorist financing . It also ensures adherence to its standards by member countries across the world, including India, to bring about legislative and regulatory reforms. It transpires that the FATF Mutual Evaluation Team in a report of the year 2009, had suggested the change which has been incorporated by the 2013 amendment.
Though the petitioners have claimed the inclusion of the above offending phrase as being arbitrary, it is not evident as to 58 how the same renders the Section to be unconstitutional. For it would still have to be established that such concealment, possession, acquisition or use of the 'proceeds of crime' was indeed so and that a person has knowingly attempted to indulge or assist or was involved in any activity connected with the proceeds of crime and had projected it as untainted property. The same person could have been accused of the very offence even prior to the amendment. The amendment does not arm the authorities concerned with any greater latitude.
The Apex Court has, in the case of Attorney General of India v. Amratlal Prajivandas, (1994) 5 SCC 54, while examining a similar provision under the Smugglers and Foreign Exchange Manipulators ( Forfeiture of Property) Act , 1976, has held thus :
"44. ........ It is a well-known fact that persons indulging in illegal activities screen the properties acquired from such illegal activity in the names of their relatives and associates. Sometimes they transfer such properties to them, may be, with an intent to transfer the ownership and title. In fact, it is immaterial how such relative or associate 59 holds the properties of convict/detenu-whether as a benami or as a mere name-lender or as a bona fide transferee for value or in any other manner. He cannot claim those properties and must surrender them to the State under the Act. Since he is a relative or associate, as defined by the Act, he cannot put forward any defence once it is proved that property was acquired by the detenu-whether in his own name or in the name of his relatives and associates..."
Section 5 of the PML Act has undergone the following transition.
Section Original After 2005 After 2009 After 2013 After 2015
enactment as Amendment Amendment Amendment Amendment
on 2002 Act Act Act Act
Section "5.Attachment "5.Attachment "5. Attachment "5. Attachment "5. Attachment
5 of property of property of property of property of property
involved in involved in involved in involved in involved in
money- money- money- money- money-
laundering.-- laundering.-- laundering.-- laundering.-- laundering.--
(1) Where the (1) Where the (1) Where the (1) Where the (1) Where the
Director, or Director, or Director, or any Director, or any Director, or any
any other any other other officer other officer other officer
officer not officer not not below the not below the not below the
below the rank below the rank rank of Deputy rank of Deputy rank of Deputy
of Deputy of Deputy Director Director Director
Director Director authorised by authorised by authorised by
authorised by authorised by him for the the Director for the Director for
him for the him for the purposes of this the purposes of the purposes of
purposes of purposes of section, has this section, has this section, has
this section, this section, reason to reason to reason to
has reason to has reason to believe (the believe (the believe (the
believe (the believe (the reason for such reason for such reason for such
reason for reason for belief to be belief to be belief to be
such such recorded in recorded in recorded in
60
2002 2005 2009 2013 2015
belief to be belief to be writing), on the writing), on the writing), on the
recorded in recorded in basis of basis of basis of
writing), on writing), on material in his material in his material in his
the basis of the basis of possession, possession, possession,
material in his material in his that-- that-- that--
possession, possession, (a) any person (a) any person (a) any person
that-- that-- is in possession is in possession is in possession
(a) any person (a) any person of any proceeds of any proceeds of any proceeds
is in is in of crime; of crime; of crime;
possession of possession of (b) such person
any proceeds any proceeds has been (b) such (b) such
of crime; of crime; charged of proceeds of proceeds of
(b) such (b) such having crime are likely crime are likely
person has person has committed a to be to be
been charged been charged scheduled concealed, concealed,
of having of having offence; and transferred or transferred or
committed a committed a (c) such dealt with in dealt with in
scheduled scheduled proceeds of any manner any manner
offence; and offence; and crime are likely which may which may
(c) such (c) such to be result in result in
proceeds of proceeds of concealed, frustrating any frustrating any
crime are crime are transferred or proceedings proceedings
likely to be likely to be dealt with in relating to relating to
concealed, concealed, any manner confiscation of confiscation of
transferred or transferred or which may such proceeds such proceeds
dealt with in dealt with in result in of crime under of crime under
any manner any manner frustrating any this Chapter, he this Chapter, he
which may which may proceedings may, by order may, by order
result in result in relating to in writing, in writing,
frustrating any frustrating any confiscation of provisionally provisionally
proceedings proceedings such proceeds attach such attach such
relating to relating to of crime under property for a property for a
confiscation of confiscation of this Chapter, period not period not
such such he may, by exceeding one exceeding one
proceeds of proceeds of order in hundred and hundred and
crime under crime under writing, eighty days eighty days
this Chapter, this Chapter, provisionally from the date of from the date of
he may, by he may, by attach such the order, in the order, in
order in order in property for a such manner as such manner as
61
2002 2005 2009 2013 2015
writing, writing, period not may be may be
provisionally provisionally exceeding one prescribed: prescribed:
attach such attach such hundred and Provided that Provided that
property for a property for a fifty days from no such order no such order
period not period not the date of the of attachment of attachment
exceeding exceeding order, in the shall be made shall be made
ninety days ninety days manner unless, in unless, in
from the date from the date provided in the relation to the relation to the
of the order, in of the order, in Income-tax scheduled scheduled
the manner the manner Act, 1961 (43 offence, a offence, a
provided in the provided in the of 1961) and report has been report has been
Income-tax Income-tax the Director or forwarded to a forwarded to a
Act, 1961 (43 Act, 1961 (43 the other officer Magistrate Magistrate
of 1961) and of 1961) and so authorised under section under section
the Director or the Director or by him, as the 173 of the Code 173 of the Code
the other the other case may be, of Criminal of Criminal
officer so officer so shall be deemed Procedure, Procedure,
authorised by authorised by to be an officer 1973 (2 of 1973 (2 of
him, as the him, as the under sub-rule 1974), or a 1974), or a
case may be, case may be, (e) of rule 1 of complaint has complaint has
shall be shall be that Schedule: been filed by a been filed by a
deemed deemed Provided that person person
to be an officer to be an officer no such order authorized to authorized to
under sub-rule under sub-rule of attachment investigate the investigate the
(e) of rule 1 of (e) of rule 1 of shall be made offence offence
that Schedule: that Schedule: unless, in mentioned in mentioned in
Provided that Provided that relation to the that Schedule, that Schedule,
no such order no such order scheduled before a before a
of attachment of attachment offence, a Magistrate or Magistrate or
shall be made shall be made report has been court for taking court for taking
unless, in unless, in forwarded to a cognizance of cognizance of
relation to an relation to an Magistrate the scheduled the scheduled
offence under- offence under- under section offence, as the offence, as the
(i) Paragraph 1 (i) Paragraph 1 173 of the case may be, or case may be, or
of Part A and of Part A and Code of a similar report a similar report
Part B of the Part B of the Criminal or complaint or complaint
Schedule, a Schedule, a Procedure, has been made has been made
report has report has 1973 or a or filed under or filed under
been been complaint has the the
62
2002 2005 2009 2013 2015
forwarded to a forwarded to a been filed by a corresponding corresponding
Magistrate Magistrate person, law of any law of any
under section under section authorised to other country: other country:
173 of the 173 of the investigate the Provided Provided
Code of Code of offence further that, further that,
Criminal Criminal mentioned in notwithstanding notwithstanding
Procedure, Procedure, the Schedule, anything anything
1973 (2 of 1973 (2 of before a contained in contained in
1974), or 1974), or Magistrate or clause (b), any first proviso,
(ii) Paragraph (ii) Paragraph court for taking property be any property be
2 of Part A of 2 of Part A of cognizance of attached under attached under
the Schedule, a the Schedule, a the scheduled this section if this section if
police report police report offence, as the the Director or the Director or
or a complaint or a complaint case may be: any other any other
has been filed has been filed Provided officer not officer not
for taking for taking further that, below the rank below the rank
cognizance of cognizance of notwithstanding of Deputy of Deputy
an offence by an offence by anything Director Director
the Special the Special contained in authorized by authorized by
Court Court clause (b), any him for the him for the
constituted constituted property of any purposes of this purposes of this
under sub- under sub- person may be section has section has
section (1) of section (1) of attached under reason to reason to
Section 36 of Section 36 of this section if believe (the believe (the
the Narcotic the Narcotic the Director or reasons for reasons for
Drugs and Drugs and any other such belief to such belief to
Psychotropic Psychotropic officer not be recorded in be recorded in
Substances Substances below the rank writing), on the writing), on the
Act, 1985 (61 Act, 1985 (61 of Deputy basis of basis of
of 1985). of 1985). Director material in his material in his
(2) The (2) The authorised by possession, that possession, that
Director, or Director, or him for the if such property if such property
any other any other purposes of this involved in involved in
officer not officer not section has money- money-
below the rank below the rank reason to laundering is laundering is
of Deputy of Deputy believe (the not attached not attached
Director, shall, Director, shall, reasons for immediately immediately
immediately immediately such belief to under this under this
63
2002 2005 2009 2013 2015
after after be recorded in Chapter, the Chapter, the
attachment attachment writing), on non-attachment non-attachment
under sub- under sub- the basis of of the property of the property
section (1), section (1), material in his is likely to is likely to
forward a copy forward a copy possession, that frustrate any frustrate any
of the order, of the order, if such property proceeding proceeding
along with the along with the involved in under this Act. under this Act.
material in his material in his money- (2) The (2) The
possession, possession, laundering is Director, or any Director, or any
referred to in referred to in not attached other officer other officer
that sub- that sub- immediately not below the not below the
section, to the section, to the under this rank of Deputy rank of Deputy
Adjudicating Adjudicating Chapter, the Director, shall, Director, shall,
Authority, in a Authority, in a non-attachment immediately immediately
sealed sealed of the property after after
envelope, in envelope, in is likely to attachment attachment
the manner as the manner as frustrate any under sub- under sub-
may be may be proceeding section (1), section (1),
prescribed and prescribed and under this Act. forward a copy forward a copy
such such of the order, of the order,
Adjudicating Adjudicating (2) The along with the along with the
Authority shall Authority shall Director, or any material in his material in his
keep such keep such other officer possession, possession,
order and order and not below the referred to in referred to in
material for material for rank of Deputy that sub- that sub-
such period as such period as Director, section, to the section, to the
may be may be shall, Adjudicating Adjudicating
prescribed. prescribed. immediately Authority, in a Authority, in a
(3) Every (3) Every after sealed sealed
order of order of attachment envelope, in the envelope, in the
attachment attachment under sub- manner as may manner as may
made under made under section (1), be prescribed be prescribed
sub-section (1) sub-section (1) forward a copy and such and such
shall cease to shall cease to of the Adjudicating Adjudicating
have effect have effect order, along Authority shall Authority shall
after the after the with the keep such order keep such order
expiry of the expiry of the material in his and material for and material for
period period possession, such period as such period as
specified in specified in referred to in may be may be
64
2002 2005 2009 2013 2015
that sub- that sub- that sub- prescribed. prescribed.
section or on section or on section, (3) Every order (3) Every order
the date of an the date of an to the of attachment of attachment
order made order made Adjudicating made under made under
under sub- under sub- Authority, in a sub-section (1) sub-section (1)
section (2) of section (2) of sealed shall cease to shall cease to
section 8, section 8, envelope, in the have effect have effect
whichever is whichever is manner as may after the expiry after the expiry
earlier. earlier. be of the period of the period
(4) Nothing in (4) Nothing in prescribed and specified in that specified in that
this section this section such sub-section or sub-section or
shall prevent shall prevent Adjudicating on the date of on the date of
the person the person Authority shall an order made an order made
interested in interested in keep such order under sub- under sub-
the enjoyment the enjoyment and material section (2) of section (2) of
of the of the for such period section 8 section 8
immovable immovable as may be whichever is whichever is
property property prescribed. earlier. earlier.
attached under attached under (3) Every order
sub-section (1) sub-section (1) of attachment (4) Nothing in (4) Nothing in
from such from such made under this section this section
enjoyment. enjoyment. sub-section (1) shall prevent shall prevent
Explanation.-- Explanation.-- shall cease to the person the person
For purposes For purposes have interested in the interested in the
of this sub- of this sub- effect after the enjoyment of enjoyment of
section section expiry of the the immovable the immovable
"person "person period specified property property
interested", in interested", in in that sub- attached under attached under
relation to any relation to any section or on sub-section (1) sub-section (1)
immovable immovable the date of an from such from such
property, property, order made enjoyment. enjoyment.
includes all includes all under sub-
persons persons section (2) of Explanation.-- Explanation.--
claiming or claiming or section 8,
For the For the
entitled to entitled to whichever is
purposes of this purposes of this
claim any claim any earlier. sub-section sub-section
interest in the interest in the "person "person
property. property. (4) Nothing in interested" in interested" in
(5) The (5) The this section relation to any relation to any
65
2002 2005 2009 2013 2015
Director or Director or shall prevent immovable immovable
any other any other the person property, property,
officer who officer who interested in the includes all includes all
provisionally provisionally enjoyment of persons persons
attaches any attaches any the immovable claiming or claiming or
property under property under property entitled to entitled to
sub-section (1) sub-section (1) attached under claim any claim any
shall, within a shall, within a sub-section (1) interest in the interest in the
period of thirty period of thirty from such property. property.
days from days from enjoyment.
such such Explanation.-- (5) The (5) The
attachment, attachment, Forthe purposes Director or any Director or any
file a file a of this sub- other officer other officer
complaint complaint section "person who who
stating the stating the interested", in provisionally provisionally
facts of such facts of such relation to any attaches any attaches any
attachment attachment immovable property under property under
before the before the property, sub-section (1) sub-section (1)
Adjudicating Adjudicating includes all shall, within a shall, within a
Authority. Authority. persons period of thirty period of thirty
claiming or days from such days from such
entitled to attachment, file attachment, file
claim any a complaint a complaint
interest in the stating the facts stating the facts
property. of such of such
(5) The attachment attachment
Director or any before the before the
other officer Adjudicating Adjudicating
who Authority. Authority.
provisionally
attaches any
property under
sub-section (1)
shall, within a
period of thirty
days from such
attachment,
file a complaint
stating the facts
66
2002 2005 2009 2013 2015
of such
attachment
before the
Adjudicating
Authority.
Before the 2013 amendment, the attachment of property involved in money laundering could take place only if a person was in possession of any proceeds of crime ( and ? ) such person has been charged of having committed a scheduled offence and that such proceeds of crime are likely to be concealed, transferred or dealt with, there by frustrating any proceedings relating to confiscation. And a report had been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973.
As Clause (b) of Sub-section (1) did indicate that not only was a person required to be found in possession of proceeds of crime, it seemed that he was also required to have been accused of having committed a scheduled offence and that a report under Section 173 Cr.P.C. had been forwarded to a Magistrate. Clause 67
(b) was deleted by the 2009 Amendment, while clause (c) took its place as Clause (b).
Now with the amendment of 2013, the reference to the earlier Clause (b) being incongruous is one of the contentions of the petitioner . By virtue of the 2015 Amendment, where by the words "clause (b) " found in the second proviso to Sub-section (1), has been substituted by the words "first proviso". It has now rendered meaning to the Second proviso.
Section 5 (1) (a) and the second proviso thereto operate in a situation where a person is found to be in possession of what is believed to be proceeds of crime by the competent officer, without actually being involved in money laundering or in a scheduled offence. While in terms of the first proviso to sub-section(1) of Section 5, it is necessary that there be a report under Section 173 Cr.P.C., before a Magistrate as regards a scheduled offence. In terms of the second proviso in case of urgency where the competent authority believes that the property is likely to be 68 secreted or dealt with otherwise, thereby frustrating the attachment proceedings, power is afforded to take action.
It is noticed that such attachment by recourse to the second proviso to Section 5 (1) is for a limited period, as is clear from a reading of sub-section (3) thereto, which contemplates that attachments affected under sub-section (1) would cease to have effect after the expiry of 180 days. Apart from this there is a safeguard provided under the Act whereby the competent officer is required to send the order of attachment to the Adjudicating Authority immediately and a complaint is to be filed within 30 days from the date of attachment under Section 5 (5) of the Act. The Adjudicating Authority is required to decide whether the provisional attachment should be confirmed.
It may therefore be said that the second proviso is not rendered otiose nor can it be said that the second proviso is bad in law for want of such safe guards as are present in the first proviso.
69
A Division Bench of the Andhra Pradesh High Court in the case of B. Rama Raju v. Union of India (2011) 164 Comp Cases 149 AP, had occasion to consider the constitutional validity of Section 5 of the Act on the following Issue :
"Whether property owned by or in possession of a person, other than a person charged of having committed a scheduled offence is liable to attachment and confiscation proceedings under Chapter-III and if so whether Section 2(1)(u) which defines "proceeds of crime" broadly, is invalid?;"
......
32. On the afore-stated scheme the provisions of the Act, the prosecution under the Act; and attachment and eventual confiscation proceedings are distinct proceedings. These two sets of proceedings may be initiated against the same person if he is accused of the offence of money-laundering. Even when a person is not so accused, the property in his possession may be proceeded against for attachment and confiscation, on a satisfaction by the appropriate and competent authority that such property constitutes proceeds of crime.
33. In our considered view, the provisions of the Act which clearly and unambiguously enable initiation 70 of proceedings for attachment and eventual confiscation of property in possession of a person not accused of having committed an offence under Section 3 as well, do not violate the provisions of the Constitution including Articles 14, 21 and 300-A and are operative proprio vigore.
34. While the offence of money-laundering comprises various degrees of association and activity with knowledge and information connected with the proceeds of crime and projection of the same as untainted property; for the purposes of attachment and confiscation (imposition of civil and economic and not penal sanctions) neither mens rea nor knowledge that a property has a lineage of criminality is either constitutionally necessary or statutorily enjoined. Proceeds of crime (as defined in Section 2(u) is property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence or the value of any such property. "Property" is defined in Section 2(v) to include property of every description corporeal, incorporeal, movable, immovable, tangible, and intangible and includes deeds and instruments evidencing title to or interest in such property or assets wherever located.
35. The matrix of the relevant provisions of the Act compel the inference that the legislation subsumes 71 that property which satisfies the definition of "proceeds of crime", prima facie is considered as property whose transfer (defined in Section 2(za)) is subject to verification to consider whether the transfer is a stratagem of a money laundering operation and is part of a layering transaction. As the provisions of the Act target malfeasants charged of an offence under Section 3 and the proceeds of crime in the possession of a person so charged and any other person as well, the legislative intent is manifest that attachment and confiscation constitute a critical and clearly intended and specifically enacted strategy to combat the evil of money-laundering. A person though not accused / charged of an offence under Section 3, when in possession of any proceeds of crime, from the provisions of the Act it is clear, has but a defeasible and not a clear title thereto. In the context of attachment and confiscation proceedings, knowledge that a property is proceeds of crime is not legislatively prescribed.
36. Proceeds of crime is defined to include not merely property derived or obtained as a result of criminal activity relating to a scheduled offence but the value of any such property as well. The bogey of apprehensions propounded on behalf of the petitioners is that where proceeds of crime are sequentially 72 transferred through several transactions, in favour of a series of individuals having no knowledge or information as to the criminality antecedent to the property; the authorities may proceed against each and all of such sequential transaction, thus bringing within the vortex of Chapter-III of the Act, all the properties involved in several transactions. The above reasoning is sound and is endorsed by this Court.
Section 8 of the Act as amended from time to time is reproduced hereunder:
Section Original After 2005 After 2009 After 2013 After 2015 enactment as Amendment Amendment Amendment Amendment on 2002 Act Act Act Act Section 8. 8. 8. 8. 8.
Adjudication. Adjudication. Adjudication. Adjudication. Adjudication. 8
--(1) On --(1) On --(1) On --(1) On --(1) On
receipt of a receipt of a receipt of a receipt of a receipt of a
complaint complaint complaint complaint complaint
under sub- under sub- under sub- under sub- under sub-
section (5) of section (5) of section (5) of section (5) of section (5) of
section 5, or section 5, or section 5, or section 5, or section 5, or
applications applications applications applications applications
made under made under made under made under made under
sub-section sub-section sub-section sub-section sub-section
(4) of section (4) of section (4) of section (4) of section (4) of section
17 or under 17 or under 17 or under 17 or under 17 or under
sub- section sub- section sub- section sub- section sub- section
(10) of (10) of (10) of (10) of (10) of
section 18, if section 18, if section 18, if section 18, if section 18, if
the the the the the
73
2002 2005 2009 2013 2015
Adjudicating Adjudicating Adjudicating Adjudicating Adjudicating
Authority has Authority has Authority has Authority has Authority has
reason to reason to reason to reason to reason to
believe that believe that believe that believe that believe that
any person any person any person any person any person
has has has has has
committed an committed an committed an committed an committed an
offence offence offence offence under offence under
under section under section under section section 3, or section 3, or
3, he may 3, he may 3, or is in is in is in
serve a serve a possession of possession of possession of
notice of not notice of not proceeds of proceeds of proceeds of
less than less than crime, he crime, he may crime, he may
thirty days thirty days may serve a serve a notice serve a notice
on such on such notice of not of not less of not less
person person less than than thirty than thirty
calling upon calling upon thirty days days on such days on such
him to him to on such person calling person calling
indicate the indicate the person upon him to upon him to
sources of sources of calling upon indicate the indicate the
his income, his income, him to sources of his sources of his
earning or earning or indicate the income, income,
assets, assets, sources of earning or earning or
out of which out of which his income, assets, assets,
or by means or by means earning or out of which out of which
of which he of which he assets, or by means or by means
has acquired has acquired out of which of which he of which he
the property the property or by means has acquired has acquired
attached attached of which he the property the property
under under has acquired attached attached
sub-section sub-section the property under under
(1) of section (1) of section attached sub-section sub-section
5, or, seized 5, or, seized under (1) of section (1) of section
2 under 2 under sub-section 5, or, seized 5, or, seized
section 17 or section 17 or (1) of section or frozen or frozen
section 18, section 18, 5, or, seized under section under section
the evidence the evidence 2 under 17 or section 17 or section
on which he on which he section 17 or 18, the 18, the
relies and relies and section 18, evidence on evidence on
74
2002 2005 2009 2013 2015
other other the evidence which he which he
relevant relevant on which he relies and relies and
information information relies and other relevant other relevant
and and other information information
particulars, particulars, relevant and and
and to show and to show information particulars, particulars,
cause why all cause why all and and to show and to show
or any of or any of particulars, cause why all cause why all
such such and to show or any of such or any of such
properties properties cause why all properties properties
should not be should not be or any of should not be should not be
declared to declared to such declared to declared to
be the be the properties be the be the
properties properties should not be properties properties
involved in involved in declared to involved in involved in
money- money- be the money- money-
laundering laundering properties laundering laundering
and and involved in and and
confiscated confiscated money- confiscated confiscated
by the by the laundering by the Central by the Central
Central Central and Government: Government:
Government: Government: confiscated Provided that Provided that
by the where a where a
Provided that Provided that Central notice under notice under
where a where a Government: this sub- this sub-
notice under notice under Provided that section section
this sub- this sub- where a specifies any specifies any
section section notice under property as property as
specifies any specifies any this sub- being held by being held by
property as property as section a person on a person on
being held by being held by specifies any behalf of any behalf of any
a person on a person on property as other person, other person,
behalf of any behalf of any being held by a copy of a copy of
other person, other person, a person on such notice such notice
a copy of a copy of behalf of any shall also be shall also be
such notice such notice other person, served upon served upon
shall also be shall also be a copy of such other such other
served upon served upon such notice person: person:
such other such other shall also be Provided Provided
75
2002 2005 2009 2013 2015
person: person: served upon further that further that
Provided Provided such other where such where such
further that further that person: property is property is
where such where such Provided held jointly held jointly
property is property is further that by more than by more than
held jointly held jointly where such one person, one person,
by more than by more than property is such notice such notice
one person, one person, held jointly shall be shall be
such notice such notice by more than served to all served to all
shall be shall be one person, persons persons
served to all served to all such notice holding such holding such
persons persons shall be property. property.
holding such holding such served to all
property. property. persons (2) The (2) The
holding such Adjudicating Adjudicating
(2) The (2) The property. Authority Authority
Adjudicating Adjudicating shall, after-- shall, after--
Authority Authority (2) The (a) (a)
shall, after-- shall, after-- Adjudicating considering considering
(a) (a) Authority the reply, if the reply, if
considering considering shall, after-- any, to the any, to the
the reply, if the reply, if (a) notice issued notice issued
any, to the any, to the considering under sub- under sub-
notice issued notice issued the reply, if section (1); section (1);
under sub- under sub- any, to the (b) hearing (b) hearing
section (1); section (1); notice issued the aggrieved the aggrieved
(b) hearing (b) hearing under sub- person and person and
the aggrieved the aggrieved section (1); the Director the Director
person and person and (b) hearing or any other or any other
the Director the Director the aggrieved officer officer
or any other or any other person and authorised by authorised by
officer officer the Director him in this him in this
authorised by authorised by or any other behalf, and behalf, and
him in this him in this officer (c) taking into (c) taking into
behalf, and behalf, and authorised by account all account all
(c) taking (c) taking him in this relevant relevant
into account into account behalf, and materials materials
all relevant all relevant (c) taking placed on placed on
materials materials into account record before record before
76
2002 2005 2009 2013 2015
placed on placed on all relevant him, by an him, by an
record before record before materials order, record order, record
him, by an him, by an placed on a finding a finding
order, record order, record record before whether all or whether all or
a finding a finding him, by an any of the any of the
whether all whether all order, record properties properties
or any of the or any of the a finding referred to in referred to in
properties properties whether all the notice the notice
referred to in referred to in or any of the issued under issued under
the notice the notice properties sub-section sub-section
issued under issued under referred to in (1) are (1) are
sub-section sub-section the notice involved in involved in
(1) are (1) are issued under money- money-
involved in involved in sub-section laundering: laundering:
money- money- (1) are Provided that Provided that
laundering: laundering: involved in if the property if the property
Provided that Provided that money- is claimed by is claimed by
if the if the laundering: a person, a person,
property is property is Provided that other than a other than a
claimed by a claimed by a if the person to person to
person, other person, other property is whom the whom the
than a person than a person claimed by a notice had notice had
to to person, other been issued, been issued,
whom the whom the than a person such person such person
notice had notice had to shall also be shall also be
been issued, been issued, whom the given an given an
such person such person notice had opportunity opportunity
shall also be shall also be been issued, of being of being
given an given an such person heard to heard to
opportunity opportunity shall also be prove that the prove that the
of being of being given an property is property is
heard to heard to opportunity not involved not involved
prove that prove that of being in money- in money-
the property the property heard to laundering. laundering.
is not is not prove that
involved in involved in the property (3) Where the (3) Where the
money- money- is not Adjudicating Adjudicating
laundering: laundering: involved in Authority Authority
Provided that Provided that money- decides under decides under
77
2002 2005 2009 2013 2015
if the if the laundering. sub-section sub-section
property is property is (2) that any (2) that any
claimed by a claimed by a (3) Where property is property is
person, other person, other the involved in involved in
than a person than a person Adjudicating money- money-
to whom the to whom the Authority laundering, he laundering, he
notice has notice has decides shall, by an shall, by an
been issued, been issued, under sub- order in order in
such person such person section (2) writing, writing,
shall also be shall also be that any confirm the confirm the
given an given an property is attachment of attachment of
opportunity opportunity involved in the property the property
of being of being money- made under made under
heard to heard to laundering, sub-section sub-section
prove that prove that he shall, by (1) of section (1) of section
the property the property an order in 5 or retention 5 or retention
is not is not writing, of property or of property or
involved in involved in confirm the record seized record seized
money- money- attachment of or frozen or frozen
laundering. laundering. the property under section under section
made under 17 or section 17 or section
(3) Where (3) Where sub-section 18 and record 18 and record
the the (1) of section a finding to a finding to
Adjudicating Adjudicating 5 or retention that effect, that effect,
Authority Authority of property whereupon whereupon
decides decides or record such such
under sub- under sub- seized under attachment or attachment or
section (2) section (2) section 17 or retention or retention or
that any that any section freezing of freezing of
property is property is 18 and the seized or the seized or
involved in involved in record a frozen frozen
money- money- finding to property or property or
laundering, laundering, that effect, record shall-- record shall--
he shall, by he shall, by such
an order in an order in attachment or (a) continue (a) continue
writing, writing, retention of during the during the
confirm the confirm the the seized pendency of pendency of
attachment of attachment of property or the the
the property the property record proceedings proceedings
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2002 2005 2009 2013 2015
made under made under shall-- relating to relating to
sub-section sub-section any offence any offence
(1) of section (1) of section (a) continue under this Act under this Act
5 or retention 5 or retention during the before a court before a court
of property of property pendency of or under the or under the
or or the corresponding corresponding
record seized record seized proceedings law of any law of any
under section under section relating to other country, other country,
17 or section 17 or section any before the before the
18 and 18 and scheduled competent competent
record a record a offence court of court of
finding to finding to before a criminal criminal
that effect, that effect, court and jurisdiction jurisdiction
such such (b) become outside India, outside India,
attachment or attachment or final after the as the case as the case
retention of retention of guilt of the may be; and may be; and
the seized the seized person is (b) become (b) become
property or property or proved in the final after an final after an
record record trial court order of order of
shall-- shall-- and order of confiscation confiscation
such trial is passed is passed
(a) continue (a) continue court under under
during the during the becomes subsection (5) subsection (5)
pendency of pendency of final. or sub-section or sub-section
the the (7) of section (7) of section
proceedings proceedings (4) Where 8 or section 8 or section
relating to relating to the 58B or sub- 58B or sub-
any any provisional section (2A) section (2A)
scheduled scheduled order of of Section 60 of Section 60
offence offence attachment by the by the
before a before a made under Adjudicating Special
court and court and sub-section Authority. Court.
(b) become (b) become (1) of
final after the final after the section 5 has (4) Where the (4) Where the
guilt of the guilt of the been provisional provisional
person is person is confirmed order of order of
proved in the proved in the under sub- attachment attachment
trial court trial court section (3), made under made under
and order of and order of the Director sub-section sub-section
79
2002 2005 2009 2013 2015
such trial such trial or any other (1) of (1) of
court court officer section 5 has section 5 has
becomes becomes authorised by been been
final. final. him in this confirmed confirmed
behalf shall under sub- under sub-
(4) Where (4) Where forthwith section (3), section (3),
the the take the the Director the Director
provisional provisional possession of or any other or any other
order of order of the attached officer officer
attachment attachment property. authorised by authorised by
made under made under him in this him in this
sub-section sub-section (5) Where on behalf shall behalf shall
(1) of (1) of conclusion of forthwith take forthwith take
section 5 has section 5 has a trial for any the the
been been scheduled possession of possession of
confirmed confirmed offence, the the property the property
under sub- under sub- person attached attached
section (3), section (3), concerned is under Section under Section
the Director the Director acquitted, the 5 or frozen 5 or frozen
or any other or any other attachment of under sub- under sub-
officer officer property or section (1A) section (1A)
authorised by authorised by retention of of Section 17, of Section 17,
him in this him in this the seized in such in such
behalf shall behalf shall property or manner as manner as
forthwith forthwith record under may be may be
take the take the sub-section prescribed: prescribed:
possession of possession of (3) and net Provided that Provided that
the attached the attached income, if if it is not if it is not
property. property. any, shall practicable to practicable to
cease to have take take
(5) Where on (5) Where on effect. possession of possession of
conclusion of conclusion of (6) Where a property a property
a trial for any a trial for any the frozen under frozen under
scheduled scheduled attachment of sub-section sub-section
offence, the offence, the any property (1A) of (1A) of
person person or retention Section 17, Section 17,
concerned is concerned is of the seized the order of the order of
acquitted, the acquitted, the property or confiscation confiscation
attachment of attachment of record shall have the shall have the
80
2002 2005 2009 2013 2015
property or property or becomes same effect as same effect as
retention of retention of final under if the property if the property
the seized the seized clause (b) of had been had been
property or property or sub-section taken taken
record under record under (3), the possession of. possession of.
sub-section sub-section Adjudicating
(3) and net (3) and net Authority (5) Where on (5) Where on
income, if income, if shall, after conclusion of conclusion of
any, shall any, shall giving an a trial of an a trial of an
cease to have cease to have opportunity offence under offence under
effect. effect. of being this Act, the this Act, the
(6) Where (6) Where heard to the Special Court Special Court
the the person finds that the finds that the
attachment of attachment of concerned, offence of offence of
any property any property make an money- money-
or retention or retention order laundering laundering
of the seized of the seized confiscating has been has been
property or property or such committed, it committed, it
record record property. shall order shall order
becomes becomes that such that such
final under final under property property
clause (b) of clause (b) of involved in involved in
sub-section sub-section the money- the money-
(3), the (3), the laundering or laundering or
Adjudicating Adjudicating which has which has
Authority Authority been used for been used for
shall, after shall, after commission commission
giving an giving an of the offence of the offence
opportunity opportunity of money- of money-
of being of being laundering laundering
heard to the heard to the shall stand shall stand
person person confiscated to confiscated to
concerned, concerned, the Central the Central
make an make an Government. Government.
order order
confiscating confiscating (6) Where on (6) Where on
such such conclusion of conclusion of
property. property. a trial under a trial under
this Act, the this Act, the
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2002 2005 2009 2013 2015
Special Court Special Court
finds that the finds that the
offence of offence of
money- money-
laundering laundering
has not taken has not taken
place or the place or the
property is property is
not involved not involved
in money- in money-
laundering, it laundering, it
shall order shall order
release of release of
such property such property
to the person to the person
entitled to entitled to
receive it. receive it.
(7) Where the (7) Where the
trial under trial under
this Act this Act
cannot be cannot be
conducted by conducted by
reason of the reason of the
death of the death of the
accused or the accused or the
accused being accused being
declared a declared a
proclaimed proclaimed
offender or offender or
for any other for any other
reason or reason or
having having
commenced commenced
but could not but could not
be concluded, be concluded,
the Special the Special
Court shall, Court shall,
on an on an
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2002 2005 2009 2013 2015
application application
moved by the moved by the
Director or a Director or a
person person
claiming to be claiming to be
entitled to entitled to
possession of possession of
a property in a property in
respect of respect of
which an which an
order has order has
been passed been passed
under sub- under sub-
section (3) of section (3) of
Section 8, Section 8,
pass pass
appropriate appropriate
orders orders
regarding regarding
confiscation confiscation
or release of or release of
the property, the property,
as the case as the case
may be, may be,
involved in involved in
the offence of the offence of
money- money-
laundering laundering
after having after having
regard to the regard to the
material material
before it. before it.
(8) Where a
property
stands
confiscated to
the Central
Government
83
2002 2005 2009 2013 2015
under sub-
section (5),
the Special
Court, in such
manner as
may be
prescribed,
may also
direct the
Central
Government
to restore
such
confiscated
property or
part thereof of
a claimant
with a
legitimate
interest in the
property, who
may have
suffered a
quantifiable
loss as a
result of the
offence of
money-
laundering:
Provided that
the Special
Court shall
not consider
such claim
unless it is
satisfied that
the claimant
has acted in
good faith
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2002 2005 2009 2013 2015
and has
suffered the
loss despite
having taken
all reasonable
precautions
and is not
involved in
the offence of
money-
laundering.
It is the case of the petitioners that Section 8 (5) as it stood under the Amended Act of 2009, contemplated that if a person was acquitted of the scheduled offence, the attachment of the property ceased to have effect. The same was in consonance with the logic that if no crime under the scheduled offence could be established there could be no 'proceeds of crime'. But under the Amendment Act of 2013, it is now contemplated that even if the case instituted in respect of a scheduled offence results in acquittal of the accused, a person could still be prosecuted under Sections 3 & 4 of the PML Act. It is contended that if the genesis of the proceedings is relatable only to the scheduled offence as no action 85 could be initiated under the PML Act unless there was a report under Section 173 Cr.P.C. in relation to a Scheduled offence. Therefore, on acquittal in respect of such offence, should ipso facto, result in the proceedings under the PML Act coming to a close. In other words, without the guilt of the accused in the scheduled offence being proved there could be no proceedings under Sections 3 and 4 of the PML Act.
There is substance in the above contention of the petitioners for the definition of the phrase "proceeds of crime" read with Section 3 if construed strictly. It can be said that having regard to the meaning attributed to 'proceeds of crime' under the PML Act, whereby the 'crime' contemplated is the alleged scheduled offence, the 'proceeds of crime' , contemplated under Sections 3 and 4 are clearly and inextricably linked to the scheduled offence and it is not possible to envision an offence under PML Act as a 'stand alone' offence without the guilt of the offender in the Scheduled offence being established.86
However, it is to be seen that proceeds of crime is "property" of all kinds as defined under clause (v) of Section 2(1). The "Explanation" inserted to the said clause reads thus:
"Explanation.--For the removal of doubts, it is hereby clarified that the term "property" includes property of any kind used in the commission of an offence under this Act or any of the scheduled offences;"
Hence, it is possible to extend the definition of 'proceeds of crime' to property used in the commission of an offence under the Act or any of the Scheduled offences. It is therefore possible to reconcile the amendments made elsewhere in the Act proceeding on the basis that money laundering is also treated as a 'stand alone' offence, de hors, a scheduled offence, if circumstances warrant.
The endeavour under the Amendment Act, 2013, vis-a-vis Sections 5 & 8 is to enable attachment proceedings against the following :
87
a) persons who are accused of a scheduled offence.
b) persons who have been accused of money laundering alone.
c) persons who have come in possession of the proceeds of crime.
It is evident that in view of the 2013 Amendment to the PML Act, a person can be tried for an offence of money laundering alone without restricting the meaning attributable to it as being with reference to a scheduled offence alone.
Hence Section 8, as amended by the Amendment Act of 2013, cannot be said to be arbitrary and violative of the fundamental right of a person if the proceedings are continued under the PML Act, even if the trial of a scheduled offence results in an acquittal and the alleged proceeds of crime pertained to that scheduled crime.
The challenge to Section 9 of the Act on the ground that if the Adjudicating Authority confirms a provisional attachment order and the guilt is recorded under Sections 3 and 4, there is a 88 provision for confiscation and hence the statutory remedy of appeal is foreclosed. This proposition may not be accurate . Even after an order of confiscation is made, an appeal is provided for to challenge the basis of such order when the finding of guilt is naturally challenged in appeal. It is merely an enabling provision providing for the consequence of a finding of guilt in respect of the offences alleged under the PML Act.
The petitioners have challenged the validity of Sections 17, 18 and 19 of the Act, which provide for Search and seizure, Search of persons and Arrest, respectively, on two grounds - namely, that by virtue of the Amendment Act of 2013, officers who have been empowered to arrest are not police officers under the Act; And secondly, that the said officers are enabled to carry out the above measures merely on a report being made under Section 157 of the Cr.P.C. to the Magistrate, whereas for attachment of property, a final report under Section 173 Cr.P.C. is required. It is highlighted that the urgency for such action would 89 not be a valid justification, as such action always follows action apparently initiated in respect of the scheduled offence and the concerned investigating agency therein would have recovered, seized all such incriminating material, which would form part of the charge sheet, a copy of which is forwarded to the Enforcement Directorate for action under the PML Act. It is only thereafter that the Enforcement Directorate could initiate action under Section 17 and 18.
The power of search, seizure and arrest are considered an important tool in any investigation. Such power being available in matters relating to economic offences is not unusual. Identical provisions are found in the Customs Act, 1962, the Prevention of Food Adulteration Act, 1954, the Railway Property ( Unlawful Possession Act, 1966, etc. Further, as investigation precedes the filing of a charge sheet under Section 173 Cr.P.C , the exercise of power of search, 90 seizure and arrest as part of investigation would not prejudice any person as such measures are controlled by other provisions of the Cr.P.C. Section 65 of the PML Act does provide that the provisions of the Cr.P.C. would be applicable including the provisions for investigation under the Act. Section 19 is assailed also on the ground that there is no judicial body provided to scrutinize the initial action as in the case of scheduled offences. However, Section 19 (3) itself provides that every person arrested under the Act would be produced before a Magistrate within 24 hours of such arrest. Further, the contention that such arrest may not be warranted by an officer under the Act, may not be tenable. If the authorized officer, on the basis of material in his possession has reason to believe that the person is guilty of an offence punishable under the Act , he being empowered to arrest is akin to powers conferred on authorized officers under other legislation which power of arrest has been upheld by the Apex court in the case of Directorate of Enforcement v. Deepak Mahajan, (1994) 3 SCC 440.
91
Section 23 of the Act has been amended in the following terms :
Section Original After 2005 After 2009 After 2013 After 2015 enactment as Amendment Amendment Amendment Amendment on 2002 Act Act Act Act Section 23. 23. 23. 23. -------
23 Presumption Presumption Presumption Presumption
in inter- in inter- in inter- in inter-
connected connected connected connected
transaction.-- transaction.-- transaction.-- transaction.--
Where Where Where Where
money- money- money- money-
laundering laundering laundering laundering
involves two involves two involves two involves two
or more inter- or more inter- or more inter- or more inter-
connected connected connected connected
transactions transactions transactions transactions
and one or and one or and one or and one or
more such more such more such more such
transaction is transaction is transaction is transaction is
or are proved or are proved or are proved or are proved
to be to be to be to be
involved in involved in involved in involved in
money- money- money- money-
laundering, laundering, laundering, laundering,
then for the then for the then for the then for the
purposes of purposes of purposes of purposes of
adjudication adjudication adjudication adjudication
or or or or
confiscation confiscation confiscation confiscation
under Section under Section under Section under Section
8, it shall 8, it shall 8, it shall 8, or for the
unless unless unless trial of the
otherwise otherwise otherwise money-
proved to the proved to the proved to the laundering
satisfaction of satisfaction of satisfaction of offence, it
the the the shall unless
Adjudicating Adjudicating Adjudicating otherwise
Authority, be Authority, be Authority, be proved to the
presumed that presumed that presumed that satisfaction of
the remaining the remaining the remaining the
92
2002 2005 2009 2013 2015
transactions transactions transactions Adjudicating
form part of form part of form part of Authority or
such inter- such inter- such inter- the Special
connected connected connected Court, be
transactions. transactions. transactions. presumed that
the remaining
transactions
form part of
such inter-
connected
transactions.
It is evident that as it existed post the Amendment Act, 2009, in so far as the presumption arising in inter-connected transactions, where money laundering was alleged to be involved in two or more transactions , and if one or more such transactions was proved to be involved in money laundering then for purposes of adjudication or confiscation under Section 8 , unless otherwise proved, it could be presumed that the remaining transactions formed such inter-connected transactions. Hence if the scheduled offence resulted in acquittal, in terms of Section 8 the presumption with regard to inter connected transaction ceased to exist.
However, with the Amendment Act of 2013, by the inclusion of 93 the phrase "or for the trial of the money laundering offence" after the words "for the purpose of adjudication or confiscation under Section 8" - the offence of money laundering is sought to be treated as not being dependent on the result of the trial of the scheduled offence. Such a presumption is now possible by virtue of the 2013 Amendment. As already noticed, the offence of money laundering is no more inextricably linked to the proceeds of crime of a scheduled offence.
Section Original After 2005 After 2009 After 2013 After 2015
enactment as Amendment Amendment Amendment Amendment
on 2002 Act Act Act Act
Section 24. Burden of 24. Burden of 24. Burden of 24. Burden of ---
24 proof.-- proof.-- proof.-- proof.-- In
When a When a When a any
person is person is person is proceeding
accused of accused of accused of relating to
having having having proceeds of
committed committed committed crime under
the offence the offence the offence this Act, --
under Section under Section under Section (a) in the case
3, the burden 3, the burden 3, the burden of a person
of proving of proving of proving charged with
that proceeds that proceeds that proceeds the offence of
of crime are of crime are of crime are money
untainted untainted untainted laundering
property shall property shall property shall under section be on the be on the be on the 3, the accused. accused. accused. Authority or court shall, unless the 94 2002 2005 2009 2013 2015 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.
In so far as Section 24 of the Act as it stood prior to or after the amendment by the Amendment Act of 2013, cannot be found fault with. Similar provisions relating to burden of proof in various enactments are to be found. As for instance Section 20 of the Prevention of Corruption Act, 1988, which reads as under :
"20. Presumption where public servant accepts gratification other than legal remuneration.--
(1) Where, in any trial of an offence punishable under section 7 or section 11 or clause (a) or clause (b) of sub-95
section (1) of section 13 it is proved that an accused person has accepted or obtained or has agreed to accept or attempted to obtain for himself, or for any other person, any gratification (other than legal remuneration) or any valuable thing from any person, it shall be presumed, unless the contrary is proved, that he accepted or obtained or agreed to accept or attempted to obtain that gratification or that valuable thing, as the case may be, as a motive or reward such as is mentioned in section 7 or, as the case may be, without consideration or for a consideration which he knows to be inadequate.
(2) Where in any trial of an offence punishable under section 12 or under clause (b) of section 14, it is proved that any gratification (other than legal remuneration) or any valuable thing has been given or offered to be given or attempted to be given by an accused person, it shall be presumed, unless the contrary is proved, that he gave or offered to give or attempted to give that gratification or that valuable thing, as the case may be, as a motive or reward such as is mentioned in section 7, or as the case may be, without consideration or for a consideration which he knows to be inadequate.
(3) Notwithstanding anything contained in sub- sections (1) and (2), the court may decline to draw the presumption referred to in either of the said sub-sections, if the gratification or thing aforesaid is, in its opinion, so 96 trivial that no interference of corruption may fairly be drawn."
Section 139 of the Negotiable Instruments Act, 1881 :
"139. Presumption in favour of holder.--It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability."
Section 53 of the Prevention of Terrorism Act, 2002 :
"53. Presumption as to offences under section 3.-
(1)In a prosecution for an offence under sub-section (1) of Section 3, if it is proved--
(a) that the arms or explosives or any other substances specified in Section 4 were recovered from the possession of the accused and there is reason to believe that such arms or explosives or other substances of a similar nature, were used in the commission of such offence; or
(b) that the finger-prints of the accused were found at the site of the offence or on anything including arms and vehicles used in connection with the commission of such offence, the Special Court shall draw adverse inference against the accused.97
(2) In a prosecution for an offence under sub-section (3) of Section 3, if it is proved that the accused rendered any financial assistance to a person, having knowledge that such person is accused of, or reasonably suspected of, an offence under that section, the Special Court shall draw adverse inference against the accused."
Under the Amendment Act of 2013, there is an initial presumption that the alleged proceeds of crime on the basis of which an offence under Section 3 of the Act is alleged, are involved in money laundering. In a proceeding under Section 8 (1) of the Act , the defendant is not an accused. It is now possible for the Adjudicating Authority in construing the provisions of Section 24 as applicable to proceedings under Section 8 (1) as well. This places a person being proceeded against under Section 8 (1) at some disadvantage. This construction, by virtue of the impugned amendment, cannot be held to be violative of Article 14 of the Constitution of India, merely on the ground that it may cause hardship on account of such proceedings being initiated.
Hence, Section 24 as amended by the Amendment Act of 2013 is held to be constitutionally valid.
98
In so far as Section 44 of the Act is concerned it is sought to be contended that Section 44 mandates that the offence under this Act shall be triable by a Special Court. Sub-section (1) of Section 44 starts with the caption 'notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974)'. The Section also mandates that the scheduled offence as well as the offence under this Act shall be tried jointly by the Special Court of PML Act. The Scheme of the Section completely violates the principles of natural justice and also takes away the valuable legal right of an affected person. There seems to be no justification for insistence of joint trial, as both the trials are independent in nature based their own independent evidence and even while trying the offence of money laundering, the evidence recorded during the trial of scheduled offence could not be looked into and the same is in the either case. This is absolutely an incongruous situation and contrary to the procedure of a trial. The other main ambiguity created is that, as per the scheme of the PML Act, the action under Money Laundering starts when there is a charge sheet under 99 Section 173 Cr.P.C or a complaint in relation to the scheduled offence, which sets in motion any action under the PML Act. The process of attachment itself takes on end and by the time the prosecution for the offence under money laundering is filed the scheduled offence would have already moved far ahead. In case of a joint trial, the trial of the scheduled offence will be hampered and will cause undue delay in the decision which violates the right of speedy trial envisaged under the law. It is also contended that the other relevant fact is that the offence of money laundering shall be tried notwithstanding anything contained in the Code of Criminal Procedure, however, the trial of the scheduled offence would be conducted as per the Code of Criminal Procedure. Therefore, no useful purpose will be achieved in instituting a joint trial. The provisions of Section 44 violates the fundamental right of the under trial as in case the scheduled offence is triable by the Magistrate and as per the mandate of Section 44 upon making an application before the Special Judge PMLA which is a Court of Sessions, the trial of the scheduled offence shall be sent to the 100 Special Judge PMLA who will try both the offences, meaning thereby that the under trial will lose his most important right to appeal before the Sessions Court being aggrieved by the order of the Magistrate. The entire scheme of this section is vague, violates the right to speedy trial and also is ambiguous, vague oppressive, arbitrary, discriminatory, unconstitutional and offending Articles, 14, 20, 21 and Article 300 of the Constitution of India and is ultra-vires.
The above challenge proceeds on several assumptions. There is no material placed before the Court as to any incongruous situation having arisen wherein the Special Court not being able to reconcile the provisions in arranging the manner in which it has proceeded, thereby resulting in any prejudice being caused to any person or resulting in a miscarriage of justice. This court is not therefore in a position to proceed on a speculation as to particular situations having arisen that could be held as rendering the procedure prescribed, or other infirmity rendering, the creation of 101 the Special Courts or the procedure contemplated as being unconstitutional.
The other incidental contentions raised are frivolous and are not discussed.
The petitions lack merit and are dismissed.
Sd/-
JUDGE KS*