TaxTMI 
TaxTMI 
2014 (11) TMI 1134
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....er, though the writ petitions are by different persons and they have come up at different points of time. 3. I have heard Mr.N.Anand Venkatesh, learned counsel appearing for the petitioner in the first writ petition, Mr.A.Ramesh, learned Senior Counsel appearing for the petitioner in the second writ petition and Mr.M.Dhandapani, learned Standing Counsel appearing for the Directorate of Enforcement and Mr.P.Sanjay Gandhi, learned Additional Government Pleader appearing for the State Police, which is the second Respondent in the first writ petition. 4. A criminal case in Crime No. 29/2013 was registered by the District Crime Branch, Dharmapuri District, against four persons including the petitioner in the first writ petition. The petitioner in the first writ petition is a Nephrologist. The offences alleged against those four persons are under Sections 294(b), 406, 420, 465, 468, 471, 197, 419, 506(ii) of Indian Penal Code, 1860 read with Section 19 of Transplantation of Human Organs Act, 1994. Simultaneously, two more complaints were also registered in Crime Nos. 28 and 31 of 2013. 5. Out of the offences for which the aforesaid criminal complaints had been registered, some o....
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....the petitioner in the first writ petition challenges only the Provisional Order of Attachment, but the petitioner in the second writ petition challenges both the Provisional Order of Attachment and the show cause notice issued by the Adjudicating Authority, the discussion has to be necessarily split into two portions, the first dealing with the validity of the order of Provisional Attachment and the second dealing with the validity of the show cause notice. CHALLENGE TO THE PROVISIONAL ORDER OF ATTACHMENT: 10. The challenge to the Provisional Order of Attachment is primarily on two grounds. They are:- (i) that by virtue of the first proviso to Section 5(1) of the Prevention of Money-Laundering Act, 2002, the Provisional Order of Attachment cannot be passed unless a Final Report had been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973, in cases where the foundation for the initiation of proceedings is the registration of a criminal complaint for the Scheduled Offences under the Act; and (ii) that when even as per Provisional Order of Attachment, the properties in entirety do not represent the proceeds of crime, the attachme....
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....ndent that the attachment in this case has been ordered pursuant to a report or complaint made under the corresponding law of any other country. Therefore, the orders of attachment in these cases should satisfy either of the other two contingencies stipulated in the first proviso after the amendment. 16. As seen from the first proviso, no order of attachment can be made, unless (i) in relation to a Scheduled Offence a report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure; or (ii) unless a complaint has been filed by a person authorised to investigate the offence mentioned in the Schedule before the Magistrate or a Court taking cognizance of the Scheduled Offence. 17. In the cases on hand, no report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure in relation to Crime No. 29 of 2013, in which the petitioner in the first writ petition is one of the accused. It is not the case of the Respondents that the case of Dr.V.M.Ganesan can be brought within the second contingency, namely that of filing of a complaint by a person authorised to investigate the offence mentioned in the Schedule. As a matter of fac....
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.... competent Court. 22. There is no dispute about the fact that out of the above three categories of persons, the case of a person coming under the first category is covered by the second proviso. Similarly, the case of a person coming under the third category is covered by the first proviso. Both these persons represent individuals standing at two extremes of a spectrum. An interpretation to Section 5(1) of the Act that would make persons standing at two extremes of the spectrum liable to suffer an order of attachment, but would leave out persons standing in between, as not liable to suffer an order of attachment, would tantamount to reading the two provisos under Section 5(1) of the Act in complete disregard to the object sought to be achieved. 23. In my considered view, if a complaint has been registered against an individual and the complaint is under investigation, his case would at least be covered by second proviso. To say that a person accused of committing an offence will not even come within the meaning of the expression "any person" under the second proviso, would tantamount to placing him in a much better position than a third party who do not commit any offence, bu....
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..... In order to understand the scope of this ground of attack, it is necessary to have a look at some of the provisions of the Act. The power to attach the property is conferred by Section 5(1)(a). But the pre-requisite for ordering attachment is that the property to be attached should constitute the proceeds of crime. Therefore, unless the property comes within the definition of the expression "proceeds of crime" under Section 2(1)(u) of the Act, it cannot be attached under Section 5(1)(a) of the Act. The expression "proceeds of crime" is defined in Section 2(1)(u) of the Act as follows:- "(u) "proceeds of crime" means 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 any such property." 29. A careful look at the definition of the expression "proceeds of crime" would show that to come within the definition of the said expression, the following pre-requisites are to be satisfied:- (i) that the same should be any property or the value of any such property; (ii) that it should have been derived or obtained directly or indirectly; (iii) that it sh....
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....Section 2(i)(v); (ii) such property should satisfy the definition of the expression "proceeds of crime" under Section 2(1)(u); and (iii) the Competent Authority has reason to believe that 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. 35. Though the second proviso to Section 5(1) enables the Competent Authority to attach "any property of any person", the word "property" should be understood only in the context of the definition under Section 2(1)(v). Consequently, such property should also satisfy the following criteria, namely, (a) that it was derived or obtained directly or indirectly, (b) by any person, and (c) as a result of criminal activity relating to a scheduled offence. 36. Keeping the above in mind, if we have a look at the facts out of which the present writ petitions arise, two things are very clear. They are;- (a) that the petitioner in the second writ petition has not derived or obtained the property as a result of any criminal activity relating to a scheduled offence done by him, though his liability t....
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....o more than a stonewalling effect and whether it is nothing but an empty formality, it is necessary to take note of Sub-sections (2) and (3) of Section 8 and Section 26(4). Sub-sections (2) and (3) of Section 8 read as follows: "8. Adjudication.- (1) ... (2) The Adjudicating Authority shall, after - (a) considering the reply, if any, to the notice issued under sub-section (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and (c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering. (3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of th....
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....by the Central Government; (iii) The person on whom such a notice is served under Section 8(1), is obliged to indicate the sources of his income, earning or assets out of which or by means of which he has acquired the property and the evidence on which he relies; (iv) After considering the reply to the show cause notice, after hearing the aggrieved person and after taking note of relevant materials, the Adjudicating Authority may pass an order recording a finding whether all or any of the properties referred to in the show cause notice are involved in money laundering; and (v) If the decision of the Adjudicating Authority under Sub-section (2) is to the effect that the property is involved in money laundering, the Adjudicating Authority may confirm the attachment. 45. Therefore, it is clear that in the first instance, the Adjudicating Authority can issue a show cause notice under Section 8(1) only "if he has reason to believe that the noticee has committed an offence of money laundering or is in possession of the proceeds of crime". The phrase "reason to believe" appearing in many of the taxation statutes has been interpreted by the Apex Court to indic....
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....e power to set aside an order of attachment is not correct. The Adjudicating Authority is empowered to record a finding, in view of the express language of Section 8(2) that all or any of the properties are not involved in money laundering. Once such a finding is recorded, the provisional order of attachment passed under Section 5(1) will automatically lapse without the Adjudicating Authority doing anything further. 47. For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first writ petition and which consequently has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced. I do not think that the Directorate of Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution made by the borrowers towards their share of the sale consideration was lawfully earn....
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....e dismissed. 51. However, it appears from the show cause notices issued by the Adjudicating Authority, that the first hearing of the case was slated for 10th November 2014. Since that date has expired, the Adjudicating Authority is directed to serve a fresh notice upon the petitioners as well as LIC Housing Finance Limited and all other interested parties, fixing a fresh date of hearing. On the fresh date of hearing, the petitioners as well as LIC Housing Finance Limited and all other interested parties shall appear before the Adjudicating Authority and submit their reply as well as evidence regarding the factual details. Thereafter, the Adjudicating Authority shall take note of what is stated above and record a finding in terms of Section 8(2). 52. With the above limited directions, the writ petitions are disposed of, rejecting the challenge to the provisional orders of attachment and to the show cause notices. There will be no order as to costs. Consequently, connected M.Ps. are closed. ============= Document 1 Section 5(1) before amendment "(1) Where the Director, or any other Section 5(1) after the amendment "(1) Where the Director, or any other officer n....
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....strate under section case may be, or a similar report or 173 of the Code of Criminal Procedure, complaint has been made or filed under the 1973 (2 of 1974), or a complaint has been corresponding law of any other country: filed by a person, authorised to investigate Provided further that, notwithstanding the offence mentioned in the Schedule, anything contained in clause (b), any before a Magistrate or court for taking property of any person may be attached cognizance of the scheduled offence, as the under this section if the Director or any case may be: other officer not below the rank of Deputy Provided further that, notwithstanding Director authorised by him for the purposes anything contained in clause (b), any of this section has reason to believe (the property of any person may be attached reasons for such belief to be recorded in under this section if the Director or any writing), on the basis of material in his other officer not below the rank of Deputy possession, that if such property involved in Director authorised by him for the purposes money-laundering is not attached of this section has reason to believe (the immediately un....