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2018 (1) TMI 535
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.... Constitution of India, one prayer is for a declaration that the second proviso to Section 5 (1) of the Prevention of Money-laundering Act, 2002 (PMLA) is ultra vires Article 14 of the Constitution of India. 2. All the Petitioners are facing proceedings under the PMLA as a result of an Enforcement Case Information Report (ECIR) filed under Sections 3 and 4 PMLA leading to the filing of original complaints (OC) under Section 5 (5) PMLA. Consequently, provisional attachment orders have been issued under Section 5 (1) PMLA against the Petitioners. The Adjudicating Authority (AA) has served them with show cause notices (SCNs) under Section 8 PMLA. The challenge in these petitions is also, therefore, to the OCs, the SCNs, the provisional attachment orders and to all further proceedings in the aforementioned ECIR. 3. Although the above prayers in the petitions (other than the prayer concerning the challenge to the constitutional validity of the second proviso to Section 5 (1) PMLA) are to be dealt with by learned Single Judges of this Court, since the first prayer concerns the constitutional validity of a statutory provision, these writ petitions have been consolidated before this ....
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....undering to financial systems as well as to the territorial integrity and sovereignty of nations. This included the United Nations' Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, to which India is a party. The said Convention calls for the prevention of laundering of the proceeds of drug crime and other connected activities and confiscation of proceeds derived from such offences. 8. The SOR further noted that the Basel Statement of Principles, enunciated in 1989, outlined basic policies and procedures that banks should follow in order to assist law enforcement agencies in tackling the problem of money-laundering. It also considered the recommendations of the Financial Action Task Force established at the 1989 G7 summit held in Paris from 14th to 16th July 1989 which inter alia recommended that a comprehensive legislation be enacted to combat money-laundering. 9. The SOR also noted that initially a Bill was introduced in the Lok Sabha on 4th August 1988 as the Prevention of Money-laundering Bill (PMLB) which came to be referred to the Standing Committee on Finance, which in turn gave its report on 4th March 1989 to the Lok Sabha. Those recomm....
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....side the country, then the property equivalent in value held within the country;" 14. Further, the word 'property' has a wide meaning and has been defined in Section 2(1) (v) PMLA as under: "(v) "property" means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located; 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;" 15. It may be noticed that the definition of 'proceeds of crime' in Section 2 (1) (u) PMLA requires the property to be derived or obtained "as a result of criminal activity relating to a scheduled offence". 16. The expression 'scheduled offence' is defined under Section 2(1) (y) PMLA as under: "(y) "scheduled offence" means-- (i) the offences specified under Part A of the Scheduled; or (ii) the offences specified under Part B of the Scheduled if the total value involved in such offences is one crore rupees or more; ....
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....ly 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." 20. Under Section 5 (5) PMLA, the Director or any other officer who provisionally attaches any property under Section 5 (1) PMLA must mandatorily file, within a period of thirty days from such attachment, a complaint before the AA stating the facts of such attachment. This effectively means that, within thirty days of the order of provisional attachment, the matter has to proceed before the AA. 21. There are two provisos to Section 5 (1) PMLA. Under the first proviso, no order for provisional attachment under that provision 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 (CrPC) or a complaint has been filed by a person, authorised to investigate the offence mentioned in that Schedule, before a Magistrate or ....
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....se may be. 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 non-attachment of the property is likely to frustrate any proceeding under this Act." 24. Therefore, under Section 5(1), as it stood prior to the amendment effective from 15th February 2013, the charging of a person whose property is sought to be attached for having committed a scheduled offence was one of the prerequisites. This changed with effect from 15th February 2013 by the amended Section 5 (1) wherein the second proviso read as under: "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....
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.... 17 or 18 PMLA. 29. The above SCN would require the noticee to produce evidence on which he relies and other relevant information and particulars to show cause why all or any of the property "should not be declared to be the properties involved in money-laundering and confiscated by the Central Government". 30. Section 8 (2) requires the AA to consider the reply to the SCN issued under Section 8(1) PMLA; to hear the aggrieved person as well as the officer issuing the order of provisional attachment and also taken to account "all relevant materials placed on record before the AA". After following the above procedure, the AA will record its finding whether all the properties referred to in the SCN are involved in money-laundering. 31. If the AA is satisfied that any such property is in fact involved in money-laundering the AA will confirm the attachment of such property and record a finding to that effect. Thereupon, the attachment of such property will continue during the pendency of the criminal proceedings. It will become final after an order of confiscation is passed either under Section 8(5) or 8(7) PMLA, or Section 58B PMLA or Section 60(2A) PMLA by the special court c....
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....ised by the Union of India in some of these petitions as to their maintainability on the ground that no cause of action has arisen within the jurisdiction of this Court. 39. The Court does not agree with the Union of India on this aspect because of the judgment of five Judges of this Court in Sterling Agro Industries v. Union of India 2011 (124) DRJ 633. In that decision, the five-judge Bench of this Court affirmed the Full Bench decision in New India Assurance Company Limited v. Union of India AIR 2010 Del 43 (FB) after noting that the Full Bench had held that: "...as the appellate authority is situate in New Delhi, the Delhi High Court has the jurisdiction under Article 226 of the Constitution of India and, therefore, there was no occasion for the learned Single Judge to apply the principle of forum non conveniens to refuse exercise of jurisdiction". 40. The five-judge Bench in Sterling Agro Industries v. Union of India (supra), inter alia, held: "(b) Even if a miniscule part of cause of action arises within the jurisdiction of this court, a writ petition would be maintainable before this Court, however, the cause of action has to be understood as per the ratio laid d....
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....ion of the trial and, under Section 8(5) PMLA, such criminal court may order the property "involved in money-laundering" or used for the commission of money-laundering to stand confiscated to the Central Government. Therefore, only in exceptional circumstances can resort be had to attachment pending trial under the PMLA. (iii) The attachment pending conclusion of the trial has to be only upon recording of "reason to believe" that: (a) A person is in possession of the proceeds of crime; and (b) The proceeds of crime are likely to be concealed, resulting in frustration of proceedings relating to confiscation. (iv) The first proviso to Section 5(1) PMLA erects a threshold bar to the exercise of the power of attachment pending conclusion of the trial. This mandates that the final report should have been forwarded to the Magistrate under Section 173 Cr PC. (v) The second proviso to Section 5(1) PMLA cannot be interpreted in the manner that negates the safeguard contemplated under the first proviso to Section 5(1) PMLA. The expression "any property of any person" occurring in the second proviso must necessarily be read as a person in possession of any proceeds ....
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....stantive right of the Petitioners, it should be applied only prospectively. Reliance is placed on the decisions in K.S. Paripoornan v. State of Kerala (1994) 5 SCC 593, State of M.P. v. G.S. Dal & Flour Mills (1992) Suppl. 1 SCC 105 and Hitendra Vishnu Thakur v. State of Maharashtra (1994) 4 SCC 602. Submissions of the Union of India on constitutional validity of second proviso to Section 5 (1) PMLA 44. In this context, the submissions of the learned counsel for the Union of India are as under: (i) The mere possibility of abuse of power is not a ground to strike down the provision on the basis that it is ultra vires or unconstitutional. In such case, the decisions in individual cases can be the subject matter of judicial review. Reliance is placed on the decisions in Sushil Kumar Sharma v. Union of India (2005) 6 SCC 281, Collector of Customs v. Nathella Sampathu Chetty (1961) 3 SCR 786 and State of Rajasthan v. Union of India (1978) 1 SCR 1. (ii) There are sufficient safeguards in the second proviso to Section 5(1) PMLA which in no way obliterates the first proviso thereto. The second proviso kicks in only where there is urgency and the officer believes that the proper....
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.... Radhey Mohan Lakhotia v. Deputy Director 2010 (5) BomCR 625, Gautam Khaitan v. Union of India 218 (2015) DLT 183. Decision on constitutional validity of the second proviso to Section 5(1) 45. The Court first would like dwell on the definition of 'proceeds of crime' under Section 2 (1) (u) of the PMLA. It is defined to mean: a) any property derived or obtained, directly or indirectly, by any person; as a result of criminal activity relating to a scheduled offence, or b) the value of any such property, or c) where such property is taken or held outside the country, then the property equivalent in value held within the country. 46. It was sought to be contended by the Petitioners that the latter portion of (c) viz., that it could also be a property equivalent in value held within the country should also apply to the situation in (b). In other words, for (b) to be the subject matter of 'proceeds of crime', the property which is the proceeds of crime should be taken out of or held outside the country and not be available in the country. 47. The above submissions ignore the important disjunctive 'or' occurring between the expression 'the value of any such property' ....
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....eet/final report is filed in the criminal court under Section 173 CrPC or cognizance is taken of the scheduled offence by a Magistrate before whom a complaint was filed, no provisional order of attachment can be made under Section 5(1) PMLA. 52. However, the second proviso deals with "any property of any person". This "any person" could be a person in possession of proceeds of crime, which is likely to be "concealed, transferred or dealt with" in a manner that would frustrate the proceedings relating to confiscation. The second proviso, therefore, is consistent with Section 5(1) PMLA insofar as the person in possession of the proceeds of crime may not be a person who is facing trial for a scheduled offence. 53. As pointed out rightly by the Madras High Court in Dr. V.M. Ganeshan v. Joint Director (supra), there are three categories of persons who come within the ambit of the second proviso to Section 5(1) PMLA: "(i) person who is not accused of any offence, but who was merely come to possess, under fortunate or unfortunate circumstances, a property that represents the proceeds of crime; (ii) person against whom a complaint is lodged, but the investigation is not yet com....
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....not a ground to strike it down under Article 14 of the Constitution. The law in this regard has been explained in a number of decisions. Illustratively, reference may be made to Sushil Kumar Sharma v. Union of India (supra) where it was observed as under: "In Mafatlal Industries Ltd. and Ors. v. Union of India and Ors., [1997] 5 SCC 536, a Bench of 9 Judges observed that mere possibility of abuse of a provision by those in charge of administering it cannot be a ground for holding a provision procedurally or substantively unreasonable. In Collector of Customs v. Nathella Sampathu Chetty, [1962] 3 SCR 786 this Court observed: "The possibility of abuse of a statute otherwise valid does not impart to it any element of invalidity." It was said in State of Rajasthan v. Union of India, [1977] 3 SCC 592 "it must be remembered that merely because power may sometimes be abused, it is no ground for denying the existence of power. The wisdom of man has not yet been able to conceive of a Government with power sufficient to answer all its legitimate needs and at the same time incapable of mischief."" 58. A Court examining the constitutional validity of a provision, particularly on the g....
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.... read and considered in relation to the principal matter to which it is a proviso. It is not a separate or independent enactment. 'Words are dependent on the principal enacting words, to which they are tacked as a proviso. They cannot be read as divorced from their context". (Thompson v. Dibdin). If the rule of construction is that prima facie a proviso should be limited in its operation to the subject matter of the enacting clause, the stand we have taken is sound. To expand the` enacting clause, inflated by the proviso, sins against the fundamental rule of construction that a proviso must be considered in relation to the principal matter to which it stands as a proviso. A proviso ordinarily is but a proviso, although the golden rule is to read the whole section, inclusive of the proviso, in such manner that they mutually throw light on each other and result in a harmonious construction." 61. Later, in Union of India v. Dilip Kumar (supra), the Supreme Court reiterated, "it is settled law that a proviso does not travel beyond the provision to which it is a proviso." Therefore, there has to be a satisfaction that the 'proceeds of crime' are likely to be concealed, transferre....
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....der Section 8 PMLA. This is the further reason why it cannot be said that the powers under Section 5(1) read with the second proviso thereto are so wide and uncanalised or arbitrary as to warrant its striking down under Article 14 of the Constitution. 67. The Court is unable to agree that there is any manifest arbitrariness vitiating the second proviso to Section 5(1) PMLA, as contended by the Petitioners. As explained in Shayara Bano v. Union of India (supra): "Manifest arbitrariness, therefore, must be something done by the legislature capriciously, irrationally and/or without adequate determining principle. Also, when something is done which is excessive and disproportionate, such legislation would be manifestly arbitrary. We are, therefore, of the view that arbitrariness in the sense of manifest arbitrariness as pointed out by us above would apply to negate legislation as well under Article 14." 68. Therefore, the Court is not satisfied that the second proviso to Section 5(1) PMLA of the PMLA is so excessive and disproportionate so as to render it arbitrary. Reasons to believe 69. What should constitute the 'reasons to believe' that are to be recorded? In this co....
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....ing the investigation carried out in terms of Section 68-E or otherwise. Indisputably therefore, he must have some materials before him. If no such material had been placed before him, he cannot initiate a proceeding. He cannot issue a show cause notice on his own ipse dixit. A roving enquiry is not contemplated under the said Act as properties sought to be forfeited must have a direct nexus with the properties illegally acquired. 29. It is now a trite law that whenever a statute provides for 'reason to believe', either the reasons should appear on the face of the notice or they must be available on the materials which had been placed before him. We have noticed hereinbefore that when the authority was called upon to disclose the reasons, it was stated that all the reasons were contained in the show cause notices themselves. They, however, in our opinion, do not contain any reason so as to satisfy the requirements of sub-section (1) of Section 68H of the Act." 72. Reasons to believe cannot be a rubber stamping of the opinion already formed by someone else. The officer who is supposed to write down his reasons to believe has to independently apply his mind. Further, and mo....
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....ntries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the life blood of judicial decision making justifying the principle that reason is the soul of justice. i. Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. j. Insistence on reason is a requirement for both judicial accountability and transparency. k. If a Judge or a quasi-judicial authority is not candid enough about his/her decision making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. l. Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or `rubber-stamp reasons' is not to be equated with a valid decision making process. m. It cannot be doubted that transparency is the sine qua non of restraint on ab....
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....are two reasons to believe. One recorded by the officer passing the order under Section 5(1) PMLA and the other recorded by the AA under Section 8(1) PMLA. Both these reasons to believe should be made available to the person to whom notice is issued by the AA under Section 8(1) PMLA. The failure to disclose, right at the beginning, the aforementioned reasons to believe to the noticee under Section 8(1) PMLA would not be a mere irregularity but an illegality. A violation thereof would vitiate the entire proceedings and cause the order of provisional attachment to be rendered illegal. 76. The Court disagrees with the learned counsel for the Union of India that there is no mandatory requirement, under Section 8(1) PMLA, to communicate to the noticee the reasons to believe. On a collective reading of Section 5(1) PMLA and Section 8(1) PMLA, such an interpretation is contraindicated and cannot satisfy the requirement of what the AA is supposed to do under Section 8(2) PMLA, viz. to consider the reply of the noticee, give them and the Director a hearing and 'take into account' all relevant materials placed on record. 77. Although at the stage of issuance of notice under Section ....
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....oes not connote plurality. There could, even under Section 6(5)(b) PMLA, be a 'single member bench'. When Section 6(6) PMLA states that a Chairperson can transfer a member from one bench to another bench, it has to be understood in the above context of there also being single-member benches. 81. The Court is unable to agree with the submission that since the Adjudicating Authority (Procedure) Regulations 2013 requires every ordersheet to have the signatures of the Chairperson and members constituting the bench, it necessarily means that every matter has to be heard by a bench comprising the Chairperson and members. This would be an erroneous interpretation which is contrary to the main provision of the PMLA itself, viz., Section 6(5)(b) PMLA. Likewise, under Rule 3 of the Prevention of Money-laundering (Appointment and Conditions of Service of Chairperson and Members of the Adjudicating Authorities) Rules 2007, although it states that the AA should have three members, that has to be read along with Section 6(5)(b) that there can be single-member benches. A contrary interpretation would actually frustrate the working of the AA. The Court, therefore, rejects the contention of the ....
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.... the AT under Section 25 PMLA. These authorities, i.e. the AA and the AT, need not be entirely manned only by JMs. They can be AMs as well. 86. No two tribunals are alike. The National Company Law Tribunal (NCLT) comprises of both JMs and AMs. The circumstances under which the Supreme Court insisted that a Bench of the NCLT should be presided over by a JM is that the NCLT seeks to exercise the powers earlier vested in a High Court. That is not the case as far as the PMLA is concerned. Neither the AA nor the AT exercises the power that would otherwise be available to a High Court. That power, in fact, remains with the High Court in an expanded capacity. Under Section 42 PMLA, an appeal is provided to the High Court, both on questions of law as well as on facts. That makes it a full-fledged appeal, the scope of which would be wider than the exercise of powers of a judicial review by a High Court under Article 226/227 of the Constitution. Summary of conclusions 87. This Court summarizes its conclusions as under: (i) The second proviso to Section 5(1) PMLA is not violative of Article 14 of the Constitution of India; the challenge in that regard in these petitions is hereby ....