2024 (2) TMI 720 - HC - Money Laundering

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 ... Money Laundering - proceeds of crime - Constitutional Validity of Sections 6 (2), 6 (3)(a)(ii) and 6 (5)(b) of the Prevention of Money Laundering Act, 2002 - violation of Article 14 of the Constitution of India - HPZ token, an application based token promised users, of large gains against investment by investing in mining machines for Bitcoin and other crypto currencies - application stopped working and the investors were not allowed to withdraw the money. Whether the composition of Adjudicating Authority is bad in law, in as much as it is not manned by a Judicial Officer/person eligible to be appointed as Judicial Officer? - HELD THAT:- Originally Section 6 (1) of the Act envisaged more than one Adjudicatory Authority to exercise jurisdiction, powers and authority conferred under this Act. The said provision has been amended to make the Adjudicating Authority as a single entity and the current provision is extracted in paragraph No.7, which establishes now a single Adjudicating Authority for the entire country. Any law providing for the constitution of any authority would be legal if only it is manned by Judges/Judicial Officers or persons who were or eligible to be appointed as Judicial Officers (i) if it is a Judicial Tribunal created under Article 323A or 323B of the Constitution of India; (ii) if it transfers any adjudicatory functions hitherto exercises by the Courts in India; (iii) if it adjudicates the rights of parties has the trappings of a Court/Tribunal - In the instant case, the Adjudicating Authority is constituted under Section 6 of the PMLA. Admittedly, the said authority is not a Tribunal, constituted under Article 323-A or 323-B of the Constitution of India. It cannot also be said that any power which was being hitherto exercised by the Courts are transferred to the authority. The submission made on behalf of the petitioner is that since a complaint is filed and the authority hears the aggrieved person whose properties are attached, decides the lis and as such discharges judicial function. It can be seen that the function of the Adjudicatory Authority is that of the original authority exercising the administrative function under the Act, that is, formation of an opinion as to ‘reason to believe’ and making the orders absolute after satisfying as to the correctness of its opinion after hearing the parties. It can be seen that the Adjudicating Authority itself is in place as a check and balance so that the power is not exercised solely by the investigating officer - It is trite that even in an administrative actions, principles of natural justice are to be followed. The Administrative Authority conducts a statutory hearing and in that process, it only deals with the ‘administrative case’. The enquiry is limited to confirmation of prima facie opinion / reason to believe. The same does not manifest into a lis. In the scheme of PMLA, it transforms the issue into a ‘lis’ only from the stage of appeal to the Appellate Tribunal, thus, the Adjudicating Authority remains the Original Authority which makes the decision. Accordingly, the question answered that constitution of Adjudicating Authority as such by Section 6 is not illegal for want of Judicial Officers/persons qualified to be appointed as Judicial Officers or who were Judicial Officers. When the Adjudicating Authority is considered to be a single entity / institution, whether the power conferred on the Chairman to constitute single / two member Benches which an be even without a legal Member is illegal? - HELD THAT:- The provisions of a statute have to be read harmoniously. A careful reading of Section 6, would make it clear that the statute creates one Adjudicating Authority with a Chairperson and two members. All the three of them have to be from the three different fields of expertise. The provision only envisages that in a given case, that the expertise of the persons in these fields, namely, law, administration and finance/accountancy would be relevant in forming an opinion. The Chairperson is given the discretion as to whether in a given case, the authority would make its decision with a full quorum or in Benches including single member Bench would decide the matter. Such discretion does not make the provisions incongruous or self contradictory. Since the petitioner has ample opportunity to contest before the Adjudicating Authority and even if the ad-interim order of attachment is made, a right of appeal is provided to a Appellate Tribunal and ultimately all contentions that the properties or materials are not the proceeds of the crime are not involved in money-laundering etc., has to be established and finally determined only by the Special Court and when such remedy is wide open to the Writ Petitioner herein, we do not find any reason to grant any other relief to the petitioner. Accordingly the question is answered that merely because there is power to the Chairman to constitute Single Member Bench, the same will not render the provision unconstitutional. Thus, finding no merits, the Writ Petition stands dismissed. 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 AuthorityThe 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 BenchesThe 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.