TaxTMI 
TaxTMI 
2015 (6) TMI 1173
X X X X Extracts X X X X
X X X X Extracts X X X X
.....Sejalben Gopalbhai Shah, (2) Shri Mit Gopalbhai Shah, (3) Shri Milan Dilipbhai Suthar, (4) Shri Hiren Dilipbhai Suthar, (5) Shri Kalpesh Dilipbhai Parmar, (6) Shri Ashokbhai Amarsingh Makwana and (7) Shri Tarang R.Dave. Shri Mit Gopalbhai Shah (A-2) and Ms.Sejalben Gopalbhai Shah (A-1) are the son and daughter respectively of the petitioner herein. One FIR was registered alleging cheating in the sale of the immovable properties which were running in the name of the first informant and his brother on the basis of a forged Power of Attorney. The FIR led to filing of a Regular Case No.ECIR/02/ AZO/2014/1413 by the Directorate of Enforcement, Ahmedabad, on 27th March 2014 for the offence punishable under Sections 120B, 417, 420, 467 and 471 of the Indian Penal Code, which are scheduled offences as defined under Section 2(y) of the PMLA. A provisional attachment order no.13 of 2014 was passed on 28th November 2014 by the Directorate of Enforcement in exercise of his powers under Section 5 of the PMLA on the premise that the proceeds of crime generated by the accused named in the FIR to the tune of Rs. 28,59,600=00 was by way of money laundering. An amount of Rs. 2,80,000=00 was transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Criminal Procedure, 1973 (for short, 'the Code') as there is no provisional order of attachment passed by the authority under Section 5 of the PMLA. Mr.Raju vehemently submitted that the authority could not have invoked the provisions of Section 102 of the Code for freezing the account, thereby circumventing the mandatory provisions as contained under Section 5 of the PMLA. Mr.Raju submitted that Section 65 of the PMLA states that the provisions of the Code shall apply in so far as they are not inconsistent with the provisions of the PMLA. He submits that when Section 5 of the PMLA mandates certain procedure and requirements, then Section 102 of the Code cannot be utilized as that would amount to overriding the provisions of the PMLA. He submitted that Section 102 of the Code could be used for the purpose of freezing a bank account, but Section 102 of the Code cannot be a source of independent order for the authorities. He has submitted that assuming for the moment that Section 102 of the Code could have been invoked, still the mandatory provisions under Section 102(3) of the Code has not been complied with. He submitted that Section 102 of the Code even otherwise is not applic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r in the case of the present petitioner, had the powers to issue directions to freeze the account of the petitioner, especially when the petitioner, in course of the recording of her statement, clearly disowned the subject account stating that she was not operating her account. The petitioner, in her statement during the investigation, further revealed that she was a house wife and was also involved with the share market, however, she was unable to explain the source of money lying in the subject bank account which was in her name. He submitted that in the case of FFR Software Pvt Ltd. v. Union of India, Special Civil Application No.2183 of 2012, a learned Single Judge of this Court, held that a conjoint reading of Sections 7 and 8 would indicate that its main purpose is to search and seize the incriminating material in cases where prosecution is intended and even in cases where it is not immediately intended and, therefore, where the prosecution is not immediately intended, the compliance with Section 157 of the Code or filing of the complaint is not mandatory. The said judgement of this Court explains in detail the authority vested in the Directorate of Enforcement to freeze the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d (v) Whether the order of attachment of the bank account in exercise of the power under Section 102 of the Code can continue for an indefinite period of time, more particularly, when the life of an order of the provisional attachment under Section 5 of the PMLA is maximum upto 150 days. The Prevention of Money Laundering Act, 2002, was enacted in pursuance of the Political Declaration adopted by the Special Session of the United Nations General Assembly held in June 1998, calling upon the member States to adopt National Money Laundering Legislation and Program, primarily with a view to meet out the serious threat posed by money laundering to the financial systems of countries and to their integrity and sovereignty. If we have a look at the statement of objects and reasons and also trace the historical basis for the Political Declaration and Global Program of Action adopted by the General Assembly, it could be seen that the concern of the global community which led to the above resolutions, was about the illicit traffic in narcotic drugs and the huge amount of money generated from the same. The original object of the Declaration of the General Assembly and the 2002 Act, was not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ings 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 fifty days from the date of the order, in the manner provided in the Second Schedule to the Income-tax Act, 1961 (43 of 1961) and the Director or the other Officer so authorised by him, as the case may be, shall be deemed to be an Officer under sub-rule (e) of rule 1 of that Schedule: 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 (2 of 1974), or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or Court for taking cognizance of the scheduled offence, as the case 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entral Government. Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property. (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 subsection (2) that any property is involved in money laun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a scheduled offence" which represents the proceeds of crime, that could be attached under Section 5(1). However, the Second Proviso to Section 5(1), which contains a non abstante clause, enables the concerned Officer to attach "any property of any person", if such property is believed to be involved in money laundering and the nonattachment of the same is likely to frustrate the proceedings under the Act. It is only by virtue of the Second Proviso inserted by way of amendment under Amendment Act 21 of 2009 that the Director derives his powers, even to attach the property standing in the name of any person other than those charged of having committed a scheduled offence. Keeping the above in mind, let me now turn on to Section 8 of the PMLA. The Officer who passes the order of attachment under Section 5(1) is obliged to file a complaint within 30 days under Section 5(5) before the Adjudicating Authority. Upon receipt of the said complaint, the Adjudicating Authority is obliged to serve a notice upon the person against whom the complaint is made, calling upon him to indicate the sources of his income, earning or assets, out of which he had acquired the property. After such person g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al" in Clause (b) under Section 8(3). Thus, it is clear from the provisions of Section 5(1) of the PMLA that five conditions are prerequisite for attaching the proceeds of crime provisionally without issuing notice prior to the attachment. They are : i. The Director, or any other officer, who provisionally attaches any property, shall have reasons to believe on the basis of materials in his possession; ii. The person, against whom proceedings under P.M.L.A., 2002 has been initiated, must be in possession of any proceeds of crime; iii. Such person must be charged of having committed any scheduled offence; iv. Such proceeds of crime are likely to be concealed, transferred or dealt with in any manner; and v. If the provisional attachment is not ordered immediately such concealment or transfer of such proceeds of crime may result in frustrating the proceedings relating to confiscation of such proceeds of crime. I shall now look into Section 65 of the PMLA. Section 65 reads as under : "65. Code of Criminal Procedure, 1973 to apply.- The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall apply, in so far as they are not inconsistent with the provisions of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s used the words "reason to believe". The second requirement is that the reason for such belief has to be recorded in writing on the basis of the material in the possession of the authority. On the other hand, Section 102 of the Code speaks only about suspicion. Section 102 of the Code is much different than Section 5 of the PMLA. The expression "reason to believe" is not defined under the Act. Section 26 of the Indian Penal Code explains the term. Accordingly, a person is said to have "reason to believe" a thing, if he has sufficient cause to believe that thing but not otherwise. The reason to believe must be tangible in law and if the material in hand has no nexus with the belief or there is no material or tangible information for the formation of the belief, then in such a case, the whole process would get vitiated. It may happen that initially the authority may not be in a position to collect adequate material sufficient enough to record the reasons for such belief for the purpose of passing a provisional order of attachment. He may be in possession of some material which may create some doubt or suspicion, and in such circumstances, the authority may have to carry out some inv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- (1) Any police officer may seize any property which may be alleged or suspected to have been stolen, or which may be found under circumstances which create suspicion of the commission of any offence. (2)Such police officer, if subordinate to the officer in charge of a police station shall forthwith report the seizure to that officer. (3) Every Police Officer acting under subsec.( 1) shall forthwith report the seizure to the Magistrate having jurisdiction and where the property seized is such that it cannot be conveniently transported to the Court, he may give custody thereof to any person on his executing a bond undertaking to produce the property before the Court as and when required and to give effect to the further orders of the Court as to the disposal of the same." 6. A plain reading of sub-section(1) of Section 102 indicates that the Police Officer has the power to seize any property which may be found under circumstances creating suspicion of the commission of any offence. The legislature having used the expression "any property" and "any offence" have made the applicability of the provisions wide enough to cover offences created under any Act. But the two pre- condition....
X X X X Extracts X X X X
X X X X Extracts X X X X
....used in Section 102 Cr.P.C. means actual taking possession in pursuance of a legal process and, therefore, in exercise of the said power, a bank cannot be prohibited not to pay any amount out of the account of the accused to the accused nor can the accused be prohibited from taking away any property from the locker, as such an order would not be a `seizure' within the meaning of Section 102 of the Criminal Procedure Code. The learned Single Judge agreed with the view taken by Allahabad High Court in the case of Textile Traders Syndicate Ltd., Bulandshahr vs. The State of U.P., AIR 1960 Allahabad 405 (Vol.47). In the Allahabad Case on which Gauhati High Court relied upon (AIR 1960 Allahabad 405), what was decided by the Court is, once money passes on from the accused to some other person or to the bank, money itself becomes unidentifiable and, therefore, there cannot be any question of seizure of the same by the Police Officer. 7. In the case of M/s Malnad Construction Co., Shimoga and Ors. vs. State of Karnataka and Ors., 1994 Criminal Law Journal(Vol.100) 645, a learned Single Judge of Karnataka High Court examined the provisions of Section 102 of the Criminal Procedure Code....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the expression `property' would include the money in the bank account of the accused and there cannot be any fetter on the powers of the police officer in issuing prohibitory orders from operating the bank account of the accused when the police officer reaches the conclusion that the amount in the bank is the outcome of commission of offence by the accused. The Court considered the fact as to how in modern days, commission of white collar crimes and bank frauds are very much on the increase and banking facilities have been extended to the remotest rural areas and, therefore the expression `property' may not be interpreted in a manner so as to exclude the money in a bank which in turn would have the effect of placing legal hurdles, in the process of investigation into the crimes. According to the learned Judge, such literal interpretation of the expression `property' could not have been the intent of the framers of the Criminal Procedure Code. In paragraph 11 of the said judgment, the learned Judge referred to the object behind investing the police with powers of seizure. It will be appropriate to extract the same in extenso: "It would now be useful to refer to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eas Bank Ltd. vs. Mrs.Prema Ramalingam, 1991 Madras Law Weekly (Criminal) 353, wherein the learned Judge agreeing with Padmini Jesudurai, J in Bharat Overseas Bank's case came to hold that money in bank account is `property' within the meaning of Section 102 of the Criminal Procedure Code, which could be seized by prohibiting order. In the aforesaid case, the learned Judge has also noticed the fact that the Judgment of Padmini Jesudurai, J, in 1988 LW(Crl.)106, was upheld by the Division Bench subsequently. 11. In the case of Dr. Gurcharan Singh vs. The State of Punjab, 1978(80) Punjab Law Reporter, 514, a Division Bench of the Punjab & Haryana High Court differing with the view taken by the Allahabad High Court in AIR 1960 Allahabad 405, came to hold that the bank account would be `property' and as such would be capable of being seized under Section 102 of the Code of Criminal Procedure. 12. Having considered the divergent views taken by different High Courts with regard to the power of seizure under Section 102 of the Code of Criminal Procedure, and whether the bank account can be held to be `property' within the meaning of said Section 102(1), we see no justi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould not have issued any direction to the bank officer, prohibiting the account of the accused from being operated upon. Though we have laid down the law, but so far as the present case is concerned, the order impugned has already been given effect to and the accused has been operating upon his account, and so, we do not interfere with the same." At this stage, it deserves to be noted that the Supreme Court considered a Division Bench decision of the Delhi High Court in the case of Swaran Sabharwal v. Commissioner of Police, 1988 Cri.L.J. 241 (Del).The Division Bench of the Delhi High Court took the view that the suspicion of an offence did not arise on account of discovery of the property (bank account). There were no circumstances attendant upon the bank account or its operation that had led the officer to suspect that some offence had been committed somewhere. The discovery of the bank account was a sequel to the discovery of the commission of the offence. The police suspected that some of the proceeds realized by the sale of official secrets had been passed on to the petitioner by her husband. The Division Bench of the Delhi High Court finally concluded that it was not suffici....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... positive knowledge or absolute certainty; ..................................... conviction of the mind founded on evidence that a fact exists that an act was done, that a statement is true". In K. J. Aiyer's 'Manual of Law Terms and Phrases' at page 510 the phrase 'reason to believe' is explained thus: "A person is said to have "reason to believe" a thing if he has sufficient cause to believe that thing but not otherwise". Similarly in Prem's "Judicial Dictionary" the meaning given to the phrase "reason to believe" which is found at page 1377 is: "A person "has reason to believe" under Section 26, I. P. C. if he has sufficient cause to believe the thing but not otherwise". From the meanings attributed to the words "suspect" and "reason to believe", it is evident that the initial stage for believing the existence of a certain thing or an alleged fact is suspicion. After suspecting the existence of a thing, condition or a statement of fact, you collect information and then examine that information and come to a final conclusion on the basis of that information that the thing, condition a statement or a fact exists. If I accept the submission of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the properties where prosecution is intended. Conjoint reading of Sections 5 and 8 clearly indicates their purpose being the prevention of money-laundering activity if such case is made out, by confiscating properties involved in Money- Laundering Act, either during pendency of prosecution or at the conclusion of the trial. Similarly, conjoint reading of Sections 17 and 8 would indicate that its main purpose is to search and seize incriminating material in cases where prosecution is intended and even in cases where it is not immediately intended. Thus, where the prosecution is not immediately intended, compliance with Section 157 of Cr.P.C. or lodgment of the complaint is not mandatory. Under Section 8 various acts undertaken under Sections 5, 17 and 18 with which Adjudicating Authority or the Court is authorized to deal with can be confirmed by the Adjudicating Authority or by the Special Court on conclusion of the trial. 31. In light of the aforementioned scheme of several provisions of P.M.L. Act, the question as to whether the proceedings under Sections 5, 8 and 17 are civil proceedings or criminal is required to be addressed. The argument is that unless a report or the comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e lodgment of two FIRs, it appears that the respondents intend to inquire into the fact as to whether properties in question or the petitioners herein are involved in either offence of money-laundering or are connected with such an offence or proceeds of crime or are in possession of such proceeds. Pertinently, in view of Section 65 of P.M.L. Act, the powers to search, seizure, attach, confiscate, investigate and all other proceedings under the Act can be performed with the assistance of the provisions made in the Cr.P.C. The respondents have frozen the accounts of the petitioners. Considering the fact that the Cr.P.C. is applicable as above at this stage, it cannot be said that an act of freezing the account is illegal. As noticed hereinabove, proviso to Section 17(1) indicates that the report under Section 157 of Cr.P.C. may not be necessary and therefore, freezing of accounts under Section 17(1-A) without such report is prima facie permissible. However, in view of the preliminary stage of the proceedings initiated against the petitioners, no final verdict can be pronounced on that aspect. However, in this context, FFR Software Private Limited (supra) explains in detail the autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are issued to the concerned authorities viz. the letter dated 12.07.2011 issued by the respondent No.2 to respondent No.3 in the instant case, the rationale behind such orders being the property would otherwise might change hands frustrating the objectives of the Act. I also find force in the averments of the respondents that the power of the authorities under PMLA to issue such directions is ingrained in the powers of conducting investigation as defined in the PMLA which includes all proceedings under the Act. On the contrary, if the plea of the petitioners in regard to the statutory scheme under the PMLA is accepted, it will cause violence to the spirit and the objects of the Act. 34. Assuming that Sections 5 and 17 can be interpreted as canvassed by the learned counsel for the petitioners, pertinent observations made in FFR Software Private Limited (supra) in Paragraphs-8 & 9 are thus: 8. It is trite that Article 226 is not meant to short circuit or circumvent statutory procedures. The court must have good and sufficient reasons to bypass the alternative remedies provided by the statute. In the case of Asstt. Collector of Central Excise, Chandan Nagar, West Bengal Vs. Dunlop....
X X X X Extracts X X X X
X X X X Extracts X X X X
....visions of Cr.P.C. is permissible. Looking to the fact that the petitioners are not arrayed as accused, it appears that they are sought to be interrogated to ascertain their complicity in the offence if any. Such action cannot be thwarted at a preliminary stage where only summons have been issued after freezing the accounts of the petitioners. Even if the argument of the petitioners that freezing of the accounts was not permissible that Sections 5 and 17 of P.M.L.A. Act were applicable at this stage is accepted, as noticed in a greater detail, acts under Sections 5 and 17 are only provisional and subject to confirmation by the Adjudicating Authority. Before such adjudication, a notice to the interested person is contemplated under Section 8 of P.M.L. Act and therefore, by convincing the Adjudicating Authority that no offence under Section 3 is committed by the petitioners, the orders de-freezing their accounts can be obtained from the such authority. In the facts and circumstances discussed hereinabove, it is difficult to accept the contention that initiation of the proceedings against the petitioners are illegal.." I am also not impressed by the submission of the learned counsel ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e order or instructions of attachment/freezing of the bank account should not remain for an indefinite period of time like in the present case. In the present case, the instructions were issued to the bank to freeze the account of the petitioner way back in the month of August 2014. Indisputably, till this date, the authority has not been able to pass any order of provisional attachment under Section 5 of the Act. This would suggest two things : (i) there is no sufficient material collected by the authority so that the authority can record its reasons to believe that if the account is not freezed, then the non freezing of the property would frustrate the proceeding under the PMLA, and (ii) the authority does not intend to file any complaint against such person whose account has been ordered to be freezed. For the aforesaid reasons, although the judgment was reserved CAV, this matter was once again notified on 8th June 2015 only with a view to ascertain from the learned Assistant Solicitor General of India, whether in the mean time the authority had passed any order of provisional attachment under Section 5 of the Act or whether it intended to pass such order in the near future if ....