TaxTMI 
TaxTMI 
2017 (7) TMI 1304
X X X X Extracts X X X X
X X X X Extracts X X X X
.... courses in various medical colleges in Kerala and collected about Rs. 3.67 crores from their gullible parents. She along with certain other persons cheated those persons and used the proceeds of crime to buy vehicles and properties. To be explicit, the properties included two motor vehicles (two-wheelers) and a house of 2,100 sq. ft., on 1.89 acres of land in Edapally North Village, Kanayanoor Taluka, Ernakulam District. The immovable property is said to have cost Kavitha Rs. 1,07,00,000/-; and both the vehicles, Rs. 1,20,000/-. 3. Kavitha allegedly committed crimes--inducing and deceiving gullible people with false, deliberate, deceitful promises and mulcting money from them--between May 2013 and August 2013. As the record reflects, 17 crimes have been registered against her in various police stations for the alleged offences under Sections 120(B), 406, 419, 420 r/w Section 34 IPC, 1860. Among these, offences under Sections 120(B), 419 and 420 IPC are "Scheduled Offences" as per Section 2(1)(y)(i) of the Prevention of Money Laundering Act, 2002 ("the Act"). 4. Based on the reports of the police stations where crimes have been registered, on 07.02.2014 the Enforcement Direct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ow that Kavitha purchased the property without proper financial sources. 9. Elaborating further on the veracity of the witnesses' statements, the learned Senior Counsel has further contended that the Adjudicating Authority's relying on those statements without subjecting them to cross examination falls foul of the legislative mandate under Section 145 of the Evidence Act. He has further contended that pending the trial of the predicate offences before the courts, the Adjudicating Authority's relying on the untested, self-serving evidence of certain interested-witnesses prejudices Kavitha's rights in the trial. 10. The learned Senior Counsel has taken us through Sections 5 and 8 of the Act. According to him, the authorities, at both the stages, recorded cogent reasons why Kavitha's property should be, first, provisionally attached and, later, confiscated. Any grounds of whatever justification, asserts Sri Ramesh Chander, are blissfully absent. He has also submitted that the cryptic, non-speaking order under Section 5 of the Act provisionally attaching the property is vitiated. And the Adjudicating Authority's later order is a mere affirmation; it cannot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assertion that the Rule falls foul of the principal legislation, Kavitha has not elaborated, as a matter of legal principle, how the Rule does not pass constitutional muster. In this regard, Smt. Preetha asserts that even delegated legislation deserves due deference and cannot be trifled with for mere asking. 17. Summing up her submissions, the learned Standing Counsel has urged this Court to dismiss the appeal. 18. Heard Sri Ramesh Chander, the learned Senior Counsel for the appellant, and Smt. Preetha, the learned Standing Counsel for the respondent, besides perusing the record. Issues: I. Is the Rule 5 of the Rules ultra vires Section 26 of the Act? II. Did the Authority under Section 5(1) of the Act have "reason to believe" that Kavitha possessed any proceeds of crime and that she is likely to conceal, transfer, or deal with the property to frustrate any proceedings concerning the confiscation of the crime proceeds? III. Does the order under Section 8(3) merely affirm the provisional attachment under Section 5(1) of the Act? IV. Does the legality of the Adjudicating Authority's order under Section 8 depend on the validity of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....termed "the doctrine of constitutional avoidance", Justice Felix Frankfurter cautioned: "[i]f there is one doctrine more deeply rooted than any other in the process of constitutional adjudication, it is that we ought not to pass on questions of constitutionality ... unless such adjudication is unavoidable."1 First, the subordinate legislation does not stand on the same footing as the principal legislation does. But it deserves deference unless it comes in the way of substantial justice, and its adjudication is unavoidable. 24. Second, the doctrine of constitutional avoidance takes many shapes in an adjudication. Judicial Minimalism: the Court will not "formulate a rule of constitutional law broader than is required by the precise facts to which it is to be applied." The Last Resort Rule: the Court will not pass upon a constitutional question although properly presented by the record if there is also present some other ground upon which the case may be disposed of. Standing or Mootness: the Court will not pass upon the validity of a statute upon complaint of one who fails to show that he is injured by its operation. Constitutional Avoidance: when the validity of an act of the Con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the legal framework, came into force in 2005 and was amended in 2009 and 2013.5 30. The Prevention of Money Laundering Act aims to confiscate the property derived from, or involved in, money-laundering and to punish those who commit the offence of money laundering. The Directorate of Enforcement in the Department of Revenue, Ministry of Finance, ("the Directorate") is the investigating agency; the Financial Intelligence Unit - India (FIU-IND), under the Department of Revenue, Ministry of Finance, is the central national agency. The Act intends to strike at the organized crimes and the legitimation of the ill-gotten money through those "predicate" crimes. Illustratively we can mention illegal arms sales, smuggling, and other organized crime, including drug trafficking and prostitution rings, which can generate massive amounts of money. Embezzlement, insider trading, bribery, and computer fraud schemes are other instances. 31. The offences listed in the Schedule to the Act are also termed the scheduled offences in terms of Section 2(1)(y) of the Act. The scheduled offences are divided into two parts - Part A & Part C. In part A, offences to the Schedule have been listed in 28 p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in Chapter II of the Act defines the "offence of money laundering"; and Section 4 prescribes the punishment for that offence. As much depends on the definition of the offence, it pays to extract Section 3: 3. Offence of money-laundering.--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 with the proceeds of crime, including its concealment, possession, acquisition, or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering. The Preliminary or the Provisional Measures: 36. As we shall see, Chapter IV of the Act deals with attachment, adjudication, and confiscation. The pivotal provision is Section 5 of the Act dealing with "attachment of property involved in money-laundering. It reads: 5. Attachment of property involved in money-laundering.--(1) Where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble property attached under sub-section (1) from such enjoyment. Explanation.--For the purposes of this sub-section, "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. (5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority. (emphasis added) 37. Indeed, Section 5 of Act reflects the fluidity of any nascent enactment, undergoing frequent amendments and presenting apparent ambiguity and, so, calling on the judiciary to interpret and the legislature to correct it, if necessary. Section 5 is the curtain raiser: the action begins with that provision. The purpose of the provision, unmistakably, is provisional: to preserve the matter--for example, an asset--till the law-enforcing agency takes further concrete steps. Adjudication: 38. Section 8 of the Act, which deals with adjudication, reads: 8. Adjudication.--(1) On receipt of a complaint under sub-section (5) of Sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the property attached under Section 5 or frozen under sub-section (1-A) of Section 17, in such manner as may be prescribed: Provided that if it is not practicable to take possession of a property frozen under sub-section (1-A) of Section 17, the order of confiscation shall have the same effect as if the property had been taken possession of. (5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government. (6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it. (7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 3 proves to the contrary. With any other person the Authority or court may presume so. 43. "Aggrieved by an order made by the Adjudicating Authority under this Act," any person, including the Director, may prefer, under Section 26 of the Act, an appeal to the Appellate Tribunal within forty-five days from the date on which a copy of the order is received. The delay, if any, can be condoned, though. The Tribunal, in appeal, may confirm, modify, or set aside the order appealed against. Under sub-section (5) of Section 26, the Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the Adjudicating Authority or the Director concerned, as the case may be. It is felicitous for the Tribunal to dispose of the appeal in six months. 44. As a matter of legislative development, though not affecting this case, we may notice that the Finance Act 2016 abolished the Appellate Tribunal: The Appellate Tribunal constituted under sub-section (1) of section 12 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 shall be the Appellate Tribunal for hearing appeals against the orders of the Adjudicating Authority and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nning with a non obstante clause eclipsing the mandate in clause (b), it provides that "any property of any person may be attached under this section" if the authorized officer has material to believe that "the property involved in money-laundering" must be immediately attached, lest the proceedings under this Act should get frustrated. The second proviso was added in 2009. And the High Court of Madras, in A. Kamarunnisa Ghori v. The Chairperson, Prevention of Money Laundering, after analyzing various provisions of the Act, has held that "while the First Proviso deals with an order of attachment in respect of a property which is in possession of a person charged of having committed a scheduled offence, the Second Proviso relates to the property of any other person who may not even be charged of committing a scheduled offence." With due deference to the interpretative efforts of the High Court of Madras, we may, still, observe that the very provision--Section 5(1)(a)--has employed a sweeping expression "any person is in possession of any proceeds of crime." 49. The first proviso to Section 5 refers to "no such order of attachment," such referring to the "any proceeds of crime in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmise or a conjecture should not be the foundation for the belief. 53. Under Section 5 of the Act, "reason to believe" serves two purposes: that (a) any person is in possession of any proceeds of crime; and (b) such proceeds of crime are likely to be concealed, transferred, or dealt with in any manner that may frustrate any proceedings to confiscate such proceeds of crime. 54. Here, the authority has relied on complaints, statements, and investigation reports. This answers the first requirement that a person is in possession of proceeds of crime. But can we say with the same certainty that the information has led the officer to believe on the second count, too? There are analogous provisions, for example, in the Income Tax Act (Section 147) and the Narcotic Drugs and Psychotropic Substances Act (Section 41), besides the Indian Penal Code (Section 26), employing the expression "reason to believe." Even this Act has the same expression employed in Sections 8, 16, 17, 18, 19, 20, and 21. 55. In Income Tax Officer v. Lakhmani Mewal Das AIR 1976 SC 1753 the Supreme Court has, while examining Section 147 of the Income Tax Act, has held that the expression "reason to believe" doe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) or Section 8(3) of the Act? 59. The court is counter majoritarian. Its loyalty to legislation--short of judicial review--cannot be "more loyal than the king." Its sympathies to the citizen, equally, cannot be misplaced: it can neither hunt with the hound nor run with the hare. It strikes a golden-mean--a happy medium. A meta-discourse as it may sound, pitted against the might of the State, the common man assumes the role of an underdog, and the rule of law becomes his bulwark. The judicial wisdom dictates that the fundamental rights of an individual cannot be put on the altar of societal expediency. A nation is, after all, a sum of its individuals--an aggregate at best. The Court's primary duty is to balance the rights of an individual with his obligations to the society. If a right of an individual, ever, becomes incompatible or irreconcilable with that of a society, then the individual right yields subject to the constitutional constraints under Part III--and perhaps the interplay of Part III and Part IV--of the Constitution. 60. Another adjudicatory safeguard commanding attention is that any ambiguity in the penal provisions should be resolved in favour of the accuse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....teps, no doubt, aim at preserving the properties or records of whatever nature until the trial concludes. 64. Sub-section (5) speaks of what happens once the trial concludes. If the Special Court finds that the offence of money-laundering has been committed, it shall declare that the attached or seized property stands confiscated to the Central Government. The offence getting proved, the Special Court orders confiscation; that is, the property shall stand confiscated to the Central Government. If the finding is negative, the Court will release the property. Section 58A, too, elaborates on the Special Court's power to release the property. Under contingencies contemplated by sub-rule (7), the Special Court will pass orders. 65. Sections 9 and 10 of the Act describe how the vested property should be dealt with. Retention of property or records elaborated on in Section 20 and 21 needs no further comment, as the case on hand does not concern it. Adjudicating Authority's Order: 66. First, the Joint Director's complaint runs into many pages--25 pages, to be precise. It mostly reproduces the complaints and the statements of the de facto complainants verbatim. The A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Section 8, we can safely conclude that the Adjudicating Authority acts on the complaint he receives, not the order passed, under Section 5 of the Act. He is not an appellate authority. After receiving the complaint, he again must entertain a "reason to believe" that the person possesses the proceeds of crime. His "reason to believe" is independent, though the same material used by the authority under Section 5 could be the foundation. That apart, he undertakes an "adjudication," as very designation of the authority suggests. His role is adversarial, and his adjudication is judicial--at least, quasi-judicial. Section 8 - Stages: 71. Base: S. 5(1): Provisional attachment ≫ S. 8(1): Adjudicating Authority (AA) receives the application ≫ S. 8(2): considers it and hears all parties concerned ≫ S. 8(3): may confirm the provisional attachment ≫ S. 8(3)(a): this attachment continues during the pendency of proceedings relating to any offence under this Act ≫ S. 8(4): with the confirmation the authorities can take over possession ≫ S. 8(5): trial concluding, the offence getting established, forfeiture takes place ≫ S. 8(3)(b): the order then becom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er for anti-money laundering (AML) efforts, defines the term "money laundering" succinctly as "the processing of...criminal proceeds to disguise their illegal origin" in order to "legitimize" the ill-gotten gains of crime. 76. Money laundering has two phases or components: (1) the predicate offense and (2) the surface offence. The predicate offence is the underlying criminal activity that generates proceeds, which when laundered result in the offense of money laundering. By its terms, the Vienna Convention limits predicate offenses to drug trafficking offenses. As a consequence, crimes unrelated to drug trafficking, such as fraud, kidnapping, and theft, do not constitute money laundering offenses under the Vienna Convention. Over the years, however, the international community has developed the view that predicate offenses for money laundering should go well beyond drug trafficking. Thus, FATF and other international instruments have expanded the Vienna Convention's definition of predicate offenses to include other serious crimes. For example, the Palermo Convention requires all participant countries to apply that convention's money laundering offenses to "the widest ran....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... other offense, such as "theft" [or "cheating", as in India]. If it is possible to obtain a conviction for laundering the proceeds of fraudulent behavior, the country has discretion in terms of how to describe or categorize the conduct of that behavior.9 Predicate Offence: 80. Predicate offence, narrowly defined, is an earlier offence that can be used to enhance a sentence levied for a later conviction. Predicate offences are defined by statutes, not uniformly though.10 Broadly defined it is a 'lesser included offence.' Black's Law Dictionary, in turn, defines the 'lesser included offence' to mean a crime that is composed of some, but not all, of the elements of a more serious crime and that is necessarily committed in carrying out the greater crime. For example, battery is a lesser included offense of murder. For double-jeopardy purposes, a lesser included offense is considered the "same offense" as the greater offense, so that acquittal or conviction of either offense precludes a separate trial for the other. 'Lesser included offence' is also termed 'included offense', 'necessarily included offense', 'predicate act,' or, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt. 6(2) the European Convention on Human Rights is expressed in absolute terms, it is not regarded as imposing an absolute prohibition on reverse burden provisions. It is a matter of balancing the interests of the individual and those of society. English courts, too, have echoed the same view. 87. Though Woolmington v. DPP [1935] AC 462 has declared that "no attempt to whittle [the golden thread] down can be entertained," the English Parliament went ahead witling it down. Lord Hope in R. v. DPP exp Kebilene, [2000] 1 Cr App R 275, pp 321-33, one of the earliest judgments, observed that Art. 6(2) is wholly consistent with the common law, for it has always been open to Parliament, by way of a statutory exception, to transfer the burden of proof on a particular issue from the prosecution to the defendant. The ease of proof and the accused's peculiar knowledge can also be considered. 88. But the first major decision on reverse burden in criminal cases was R. v. Lambert, [2001] 3 All ER 577 a decision of the House of Lords. Lambert had been arrested for possessing a bag containing cocaine. He relied on a defence provided by Section 28 of the Misuse of the Drugs Act: the accus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dential burden or a more onerous legal or persuasive burden. India: 92. The courts have initially adopted a zero-tolerance approach to this common-law cannon. But with the march of time, crimes have transcended borders. Organized crime across the boundaries--be it terrorism, drug-peddling, or sex-trafficking--has become the order of the day, technology exposing the inadequacies of the conventional criminal investigation. 93. The Law Commission of India, in its 178th report, has suo moto responded to the growing trend of fastening the reverse onus on the accused. On a comparative perspective, it has decried the trends in the UK and Australia and goaded the Parliament to follow the US and Canadian models. It has pointed out that the principal procedural code for penal offences--Cr.P.C.--is replete with provisions that comply with the constitutional mandate: Sections 161(2), 313(3), and 315(1). It has felt that diluting the presumption of innocence is repugnant to ordinary notions of fairness. 94. True, when the English and the Australian statutes have diluted the-presumption-of-innocence cannon, the American and Canadian legislations, as noted by the Law Commission of Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lty according to law. The American Constitution, too, has a provision analogous to India's Article 20(3); perhaps, it is fairer to say India has as America does. Further, the American Courts have read the ubiquitous "due process" into the "presumption of innocence." 100. Almost all common-law countries and the constitutional democracies have either of the twin principles or both incorporated: The presumption of innocence and the right against testimonial compulsion. Article 11.1 of the Universal Declaration of Human Rights, 1948 and Article 14(3)(g) of the International Covenant on Civil and Political Rights, 1966, too, have declared against testimonial compulsion. 101. Cases like State of Bombay v. Kathi Kalu Oghad AIR 1954 SC 300, Selvi v. State of Karnataka AIR 1961 SC 1808, and State of Gujarat v. Shyamlal Mohanlal Choksi AIR 1965 SC 1251 have taken a tough stand against what was thought to be diluting the constitutional mandate under Article 20. Nandini Satpati v. P.L. Dani, 1978 (2) SCC 424 also, has asserted the accused's right to silence. 102. In Veera Ibrahim v. The State of Maharashtra AIR 1976 SC 1167 the Supreme Court has held that a person ought to hav....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e spawned quasi-criminal cases. Yet criminal proceedings have certain tell-tale signs: (a) usually the person accused of a crime faces a formal charge; the state--not the victim, with certain exceptions though--prosecutes--for the crime is supposed to be an offence against the society; (b) the State must establish the accused's guilt beyond reasonable doubt, but occasionally the accused may have an evidential burden; (c) the punishment usually is corporeal, such as jail term, though sometimes only penalty is levied; (d) the accused has constitutional or statutory safeguards, such as the presumption of innocence, the right to silence, with no legal or persuasive burden. 106. Examined further, the Act also reveals that the predicate offences, as well as the offences of money laundering, are triable by Special Courts. Section 44 of the Act mandates that the Special Court may, upon perusal of a police report or "upon a complaint made by an authority" under this Act, take cognizance of offence under section 3 of the Act. So the proceedings under Section 8 have nothing to do with the trying of offences under Section 44 of the Act. 107. Sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the property, the evidence only needs to pass the preponderance-of-probability test, and the conclusion are only prima facie--until the trial under Section 44 of the Act. 112. As we acknowledge, the presumption of innocence inheres in a judicial proceeding: there ought to be an accused facing a formal charge, and the proceedings must have the attributes of a criminal trial. Here the Adjudicating Authority's order leads to no sentencing, not even forfeiture. It only affects a person's civil right to hold property--for a limited period, at that. The forfeiture, we must observe, results not because of the Adjudicating Authority's findings, but, if ever, because of the finding of guilt by a court trying the predicate offences. 113. Further, the source of property and the manner of its acquisition are within the property holder's knowledge. In other words, the burden under Section 24 of the Act cast on Kavitha is mere evidential burden--shifting at times depending on the quality of evidence adduced on either side. 114. To our knowledge, Section 24 does not affect the predicate offences. It applies to "any proceeding relating to proceeds of crime" under this ....