HPZ token fraud case: Sections 6(2), 6(3)(a)(ii), 6(5)(b) of Prevention of Money Laundering Act upheld as constitutional

The Madras HC dismissed a writ petition challenging the constitutional validity of Sections 6(2), 6(3)(a)(ii), and 6(5)(b) of the Prevention of Money Laundering Act, 2002. The case involved HPZ token fraud where investors were promised cryptocurrency mining gains but couldn't withdraw funds. The HC held that the Adjudicating Authority's composition without judicial officers is valid as it performs administrative functions, not judicial ones. The court ruled that the Chairman's power to constitute single-member benches doesn't render provisions unconstitutional, emphasizing available appellate remedies.

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Issues Involved:
1. Whether the composition of the Adjudicating Authority under the Prevention of Money Laundering Act (PMLA) is illegal for not being manned by a Judicial Officer.
2. Whether the power conferred on the Chairman to constitute single/two-member Benches, which can be without a legal Member, is illegal.

Summary:

Issue 1: Composition of Adjudicating Authority
The petitioner challenged the constitutionality of Sections 6(2), 6(3)(a)(ii), and 6(5)(b) of PMLA, arguing that the Adjudicating Authority acts as a Tribunal and must include a judicial member. The respondents countered that the Adjudicating Authority is not a Tribunal but an additional internal safeguard, similar to authorities under the Income Tax Act and Customs Act.

The court examined the functions and powers of the Adjudicating Authority under Section 8 of PMLA, noting that it primarily forms an opinion on the existence of "reason to believe" that an offense of money laundering has occurred. The court concluded that the Adjudicating Authority exercises administrative functions, not judicial or quasi-judicial functions, and thus does not require judicial officers. The court referred to various Supreme Court judgments, including the Madras Bar Association Case, to support its conclusion that the Adjudicating Authority does not have the trappings of a Court/Tribunal.

The court held that the Adjudicating Authority's role is to ensure administrative fairness and compliance with natural justice principles, similar to authorities under other legislations like the Customs Act and Income Tax Act. Therefore, the composition of the Adjudicating Authority is not illegal for want of judicial officers.

Issue 2: Power to Constitute Benches
The petitioner argued that the power of the Chairman to constitute single/two-member Benches, which can be without a legal Member, is self-contradictory and inherently incompatible with the requirement of having members from different fields of expertise.

The court held that the provisions of Section 6 must be read harmoniously. The statute creates one Adjudicating Authority with a Chairperson and two members, each from different fields of expertise. The Chairman has the discretion to decide whether a case should be heard by a full quorum or by Benches, including single-member Benches. This discretion does not make the provisions incongruous or self-contradictory.

The court referred to similar provisions under the Administrative Tribunals Act, 1985, which were upheld by the Supreme Court. The court concluded that the power to constitute single-member Benches does not render the provision unconstitutional, as the Chairman and Members can refer a matter to a larger Bench if needed.

Conclusion:
The court dismissed the Writ Petition, finding no merits in the challenge to the constitutionality of the provisions of PMLA related to the composition and functioning of the Adjudicating Authority. The court held that the Adjudicating Authority's composition and the power to constitute Benches are not unconstitutional.

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