TaxTMI 
TaxTMI 
2016 (5) TMI 981
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....f National Agricultural Cooperative Marketing Federation of India (hereafter 'NAFED') wherein it was alleged that Mr Homi Rajvansh - the Additional Managing Director of NAFED, had hatched a conspiracy, in connivance with the directors of M/s M.K. Agri International Ltd. (hereafter 'MKAIL'), for making wrongful gains by executing Memoranda of Understandings (MOUs) with MKAIL on behalf of NAFED for import of raw sugar and selling the same by entering into three High Seas Sale (HSS) Agreements with M/s M.K. International Ltd. (hereafter 'MIL'), a sister concern of MKAIL, without charging/recovering any cost for the commodity. 2.2 On 16.10.2003, NAFED through Mr Homi Rajvansh entered into an MOU with M/s Earthtech Enterprises Ltd. (EEL) which is a sister concern of MKAIL and run by one of the accused Manish Kant Agarwal for import of petroleum products. On 12.02.2004, an addendum to the above MOU was signed between NAFED and EEL and certain other items were added for purchase. On the request of EEL, vide two letters dated 27.09.2004, NAFED allowed two import orders each containing 38,000/- MT of raw sugar to be imported from M/s Noble Resources SA, Switzerland. The request of EEL fo....
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....n charged of having committed a scheduled offence for provisionally attaching his property which is considered to be the proceeds of crime. It was contended that the provisions of the Act have been applied retrospectively as Section 420 and 120B of Indian Penal Code for which the petitioner has been charged with were not a part of scheduled offences at the time of commission of the offence in the year 2005 and said provisions were added in Part A of the Schedule by the Prevention of Money- Laundering (Amendment) Act, 2009 effective from 01.06.2009. 3.2 That the amendment made in 2009 is substantive and is prospective in nature and, therefore, the impugned order is bad in law as provisions of the Act have been applied retrospectively and in violation of the mandate of Article 20(1) of the Constitution of India. Reference was made to Rao Shiv Bahadur Singh and Anr. v. The State of Vindhya Pradesh: AIR 1953 SC 394 and Soni Devrajbhai Babubhai v. State of Gujarat: (1991) 4 SCC 298. 3.3 That there cannot be any question of attachment of the property under Section 8(5) of the Act as the petitioner cannot be prosecuted under the provisions of the Act for the offence of money launder....
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....07.2013. 4.6 That the impugned order was passed after considering all the material on record and recording the reasons to believe that the said property is the proceeds of crime. 4.7 That the impugned provisional order was confirmed by the Adjudicating Authority by an order dated 21.07.2014. (This was not mentioned during oral submissions but was included in a note filed subsequently). 5. Despite sufficient opportunity, the respondent did not file any counter affidavit to the petition. After the hearings were concluded, a written note on submissions was filed which indicated that the Adjudicating Authority had, subsequent to the impugned order, recorded a finding that the property in question was involved in money laundering. This Court was further informed that the petitioner had preferred an appeal under Section 26 of the Act before the Appellate Tribunal impugning the order of the Adjudicating Authority. However, both the parties requested that the contentions raised be decided on merit. Conclusion and Reasons 6. It is not disputed that the property sought to be attached under Section 5 of the Act - E-14/3, Vasant Vihar, New Delhi - was purchased on 18.03.2....
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....ney laundering and connected activities confiscation of proceeds of crime, setting up of agencies and mechanisms for coordinating measures for combating money-laundering, etc". It was also indicated that the proposed Act was "an Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto". 9. Chapter II of the Act contains provisions relating to the offence of money-laundering. Section 2(p) of the Act defines money-laundering to have the meaning assigned to it in Section 3 of the Act. Section 3 of the Act enacts money-laundering to be an offence. It is relevant to note that Section 3 of the Act was amended by Prevention of Money-Laundering (Amendment) Act, 2012 with effect from 03.01.2013. Prior to the said Amendment, Section 3 of the Act read as under:- "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 it as untainted property shall be guilty of offence of money-laundering." After the amendment effective from 03.01.2013, the said Section reads a....
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....3 of the Code Of Criminal Procedure, 1973 (2 of 1974); or (ii) Paragraph 2 of Part A of the Schedule, a police report or a complaint has been filed for taking cognizance of an offence by the Special Court constituted under sub-section (1) of Section 36 of the Narcotic and Psychotropic Substances Act, 1985 (61 of 1985) (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed. (3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (2) of section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment. Explanation -For the purposes of....
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....n writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed: PROVIDED that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report 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 Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the nonattachment of the prope....
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.... where the Adjudicating Authority confirms that the property is involved in money-laundering, he is required to record a finding that the property attached is involved in money-laundering. Such attachment shall continue during the proceedings relating to the offence under the Act before any Court or any other corresponding law or before the competent court outside India. The order of the Adjudicating Authority shall become final after the order of confiscation is passed by the Special Court either under Section 8(5) of the Act where the trial has been concluded or under Section 8(7) of the Act where the trial cannot be conducted. In cases where the property has been attached or seized relates to a crime tried in a country outside India and with whom India has reciprocal arrangement, the order of adjudication shall become final on an order passed under Section 58B of the Act or Section 60(2A) of the Act. 16. In cases where the order of confiscation has been made either under Section 8(5), 8(7), 58B or Section 60(2A) of the Act, the property ordered to be confiscated shall vest with the Central Government free from all encumbrances. 17. It is clear from the above scheme ....
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....ricable link between the Act and the occurrence of a crime. It cannot be disputed that the offence of money-laundering is a separate offence under section 3 of the Act, which is punishable under Section 4 of the Act. However as stated earlier, the offence of money-laundering relates to the proceeds of crime, the genesis of which is a scheduled offence. In the aforesaid circumstances, before initiation of any proceeding under Section 5 of the Act, it would be necessary for the concerned authorities to identify the scheduled crime. The First Proviso to Section 5 also indicates that no order of attachment shall be made unless in relation to a schedule offence a report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973 or a complaint has been filed by a person authorised to investigate the scheduled offence before a Magistrate or Court for taking cognizance of the scheduled offence. Thus, in cases where the scheduled offence is itself negated, the fundamental premise of continuing any proceedings under the Act also vanishes. Such cases where it is conclusively held that a commission of a scheduled offence is not established and such decision....
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.... offence. In the circumstances, the order of provisional attachment could be issued against any property in possession or any person even if the said person is not alleged to have committed the scheduled offence. 25. However, such powers are not unbridled and there are several conditions that must be met before any property can be attached or confiscated. First and foremost, it is necessary that the property sought to be attached is one, which the concerned officer has reason to believe is the proceeds of a scheduled crime. Secondly, a provisional attachment under Section 5 is only in aid of adjudication under Section 8(2) of the Act, which may result in the Adjudicating Authority recording a finding that the property concerned is involved in money-laundering; therefore, it is also necessary that an offence of money-laundering is believed to have been committed and the same bears a live link with the property sought to be provisionally attached. Section 5 of the Act does not stand independent of Section 3 of the Act and unless it is believed that an offence of moneylaundering has been committed the question of attaching any property provisionally under Section 5 would not arise.....
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.... involved in any process or activity connected with concealment, possession, acquisition or use of proceeds of crime. However, the subject of the offence continues to be the proceeds of crime and its involvement in money-laundering. This again draws one to the central controversy in this petition, that is, whether any property of any person could be attached as allegedly involved in money laundering prior to the enactment of the Act or acquired as a result of a crime, committed prior to the Act coming into effect. 29. The Act is a penal statute and, therefore, can have no retrospective or retroactive operation. Article 20(1) of the Constitution of India expressly forbids that no person can be convicted of any offence except for the violation of a law in force at the time of the commission of the act charged as an offence. Further, no person can be inflicted a penalty greater than what could have been inflicted under the law at the time when the offence was committed. Clearly, no proceedings under the Act can be initiated or sustained in respect of an offence, which has been committed prior to the Act coming into force. However, the subject matter of the Act is not a sc....
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....aundering'. In this respect it is relevant to note that the sale deed in respect of the property was executed on 18.03.2005. Thus, even if the allegations made by the respondent are assumed to be correct, the proceeds of crime had been used by the petitioner for acquisition of the property much prior to the Act coming into force. The process of activity of utilising the proceeds of crime, if any, thus, stood concluded prior to the Act coming into force. Even if it is assumed that the funds received from M/s Duoroyale Enterprises Ltd. and M/s Shri Radhey Trading Pvt. Ltd. were proceeds of crime and were properties involved in money-laundering, such funds had come into possession of the petitioner prior to the Act coming into force. Thus, funds were already projected as untainted funds unconnected with the crime for which Mr Homi Rajvansh and other persons are accused. The funds had, thus, been laundered at a time when money-laundering was not an offence and proceedings under the Act cannot be initiated. 32. Although, the Respondent has not contended so in clear terms, it appears that the respondents are proceeding on the basis that an offence under Section 3 of th....
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....ive effect. 33. The Act was enacted as the international community recognised the threat of money-laundering whereby money generated from illegal activities such as trafficking and drugs etc. was finding its way into the economic system of a country and funding further criminal activity. The expression money-laundering would ordinarily imply the conversion and infusion of tainted money into the main stream of economy as legitimate wealth. According to the respondent, there are three stages to a transaction of money-laundering: The first stage is Placement, where the crimnals place the proceeds of the crime into normal financial system. The second stage is Layering, where money introduced into the normal financial system is layered or spread into various transactions within the financial system so that any link with the origin of the wealth is lost. And, the third stage is Integration, where the benefit or proceeds of crime are available with the criminals as untainted money. There is much merit in this description of money-laundering and this also indicates that, by its nature, the offence of money-laundering has to be constituted by determinate actions and the process or activi....
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....o be unconstitutional. In view of this undisputed principle, the resistance offered by the petitioners to the impugned orders, is totally misconceived and unacceptable. The present one is not the stage for securing protection under Article 20 of our Constitution." On the strength of the aforesaid view, it was urged that, whereas, the trial in respect of an offence of money-laundering may be continued and the proceeds of crime sought to be believed to be laundered may also be attached but a conviction for an offence of money-laundering committed prior to the enforcement of the Act may not follow. 36. In my view, the aforesaid contention is also without any merit. There is no question of any trial being conducted for an offence for which a conviction cannot, in law, follow. A law which seeks to impose penalty for any act constituting an offence which when done or committed was not an offence would itself fall foul of Article 20(1) of the Constitution of India. In Rao Shiv Bahadur Singh & Another v. State of Vindhya Pradesh (supra) the Supreme Court had unequivocally held that Article 20 of the Constitution of India was not confined to the validity of the law but extended....
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....h Ordinance 48 of 1948. The appellants were tried by a Special Judge under the Vindhya Pradesh Criminal Law Amendment (Special Court) Ordinance 5 1949 and were acquitted. The State filed an appeal to the Judicial Commissioner which led to the conviction of the appellants. The validity of the convictions and sentences were challenged on the ground of violation of Articles 14 and 20 of the Constitution. The appellants contended that the trial conducted under the Special Procedure prescribed by the aforesaid Ordinance was discriminatory and therefore unconstitutional. 38. The challenge in relation to Article 20 of the Constitution arose as the appellants had been convicted for offences under various Sections of the Indian Penal Code as adapted in the United States of Vindhya Pradesh by Ordinance 48 of 1949 which was passed on 11th September, 1949. The said Ordinance was passed on 11th September, 1949 while the offences were found to have been committed in the month of February, March and April, 1949 - prior to the Ordinance. It is in this context that it was urged that the convictions which were made after the constitution came into force were in respect of an ex post facto law cre....
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....itted before the actual passing of the Act, and it can well be urged that by such retrospective operation it becomes the law in force at the time of the commencement of the Act. It is obvious that such a construction which nullifies Article 20 cannot possibly be adopted. It cannot therefore be doubted that the phrase "law in force" as used in Article 20 must be understood in its natural sense as being the law in fact in existence and in operation at the time of the commission of the offence as distinct from the law "deemed" to have become operative by virtue of the power of legislature to pass retrospective laws. It follows that if the appellants are able to substantiate their contention that the acts charged as offences in this case have become such only by virtue of Ordinance 48 of 1949 which has admittedly been passed subsequent to the commission thereof, then they would be entitled to the benefit of Article 20 of Constitution and to have their convictions set aside. This leads to an examination of the relevant pre-existing law. " 40. In view of the above, the ratio of the aforesaid decision cannot be read to support the view of the Andhra Pradesh High Court in the ....
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....er of several decisions of the Supreme Court albeit in the context of other laws. In the case of Aslam Mohd. Merchant v. Competent Authority & Ors: (2008) 14 SCC 186, the Supreme Court considered the meaning of the expression 'reason to believe' in the context of Narcotic Drugs and Psychotropic Substances Act, 1985. The Supreme Court referred to its earlier decisions rendered in the context of Section 147 of the Income Tax Act, 1961 where a similar expression has been used to clothe an Assessing Officer with the power to reopen income tax assessments. In Phool Chand Bajrang Lal v. ITO: (1993) 203 ITR 456 (SC), the Supreme Court held as under: "Since the belief is that of the Income- tax Officer, the sufficiency of reasons for forming this belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non- specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could b....