TaxTMI 
TaxTMI 
2022 (7) TMI 877
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....LLOCATION OF COAL IS PROCEEDS OF CRIME J. THE IMPACT OF QUASHING OF THE FIRST CHARGESHEET K. WHETHER ARTICLE 20(1) IN FACT VIOLATED L. IMPUGNED ATTACHMENT AND EQUIVALENT VALUE M. CONCLUSIONS N. OPERATIVE DIRECTIONS A. INTRODUCTION 2. These two writ petitions challenge proceedings initiated by the Directorate of Enforcement, the respondents herein, under the provisions of the Prevention of Money Laundering Act, 2002 (The Act). The leading writ petition had come to be preferred at a time when a provisional order of attachment came to be made under the Act. The Court, by its order of 06 January 2022, entertained the writ petition and called upon the respondents to file their replies. On 03 March 2022, this Court took notice of the proceedings initiated by the Adjudicating Authority before whom the matter came to be placed for the purposes of confirmation of the provisional order of attachment. Taking note of the rival submissions, this Court on that date allowed the amendments proposed and passed the following detailed order: - "CM APPL. 10948/2022 (for amendment of petition) in W.P.(C) 14999/2021 CM APPL. 10951/2022 (for amendment of petition....
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....he earlier order of 06 January 2022 as well as the submission of Mr. Sibal, learned Senior Counsel appearing for the petitioners, who submits that the offences of which the petitioners are charged did not even form part of scheduled offences as contemplated under the PMLA. Additionally, the Court notes that the recordal of satisfaction by the Adjudicating Authority, prima facie, does not appear to satisfy the requirements of Section 8 of the PMLA. The matter requires consideration. Till the next date of listing, there shall be stay of further proceedings before the Adjudicating Authority. Let this matter be posted again on 31.03.2022." 3. The aforesaid order was taken in appeal by the respondents in terms of LPA Nos. 179/2022 and 180/2022 which were dismissed by the Court on 22 March 2022 in the following terms: - "1. Aggrieved by the order dated 3rd March 2022 passed by the learned Single Judge in W.P.(C) Nos. 1499/2021 and 1500/2021, staying the proceedings before the adjudicating authority, the appellant has preferred the present appeals. 2. After some arguments, learned counsel for the appellant, on instructions, confines his relief only t....
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....tation by PIL in order to obtain the coal allocation as well as diversion of coal extracted from the said block. The Special Judge CBI taking cognizance of the chargesheet which was submitted on conclusion of investigation, framed charges against PIL and other accused in CC No. 3/2012 (First Chargesheet). The aforesaid chargesheet came to be challenged by PIL before this Court which in terms of its judgment of 05 September 2014 quashed the FIR as well as the consequential chargesheet which was submitted. That judgment rendered by this Court presently forms subject matter of challenge before the Supreme Court in SLP (Crl.) 2576/2015. Although that special leave petition remains pending on the board of the Supreme Court as on date, the judgment of this Court has neither been stayed nor placed in abeyance. 6. The record further reflects that subsequent to the allocation of the coal block in favour of PIL coming to be cancelled in terms of the directions issued in Manohar Lal Sharma, a second FIR came to be registered by CBI on 02 December 2016 numbered as RC No.221/2016/E0035. On conclusion of investigation, CBI proceeded to file a chargesheet numbered as 1/2022 (Second Chargesheet....
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....ave deferred proceedings awaiting a final verdict being handed down by the Supreme Court. Those decisions are noticed hereinafter. The decision in D.K. Trivedi & Sons Vs. State of Gujarat 1986 Supp. SCC 20 was dealing with a case where the High Court had dismissed writ petitions challenging the constitutional validity of a particular statutory provision while an identical challenge was pending before the Supreme Court. It was in that backdrop that the Supreme Court observed that since an identical question was engaging the attention of that Court, the High Court should have deferred hearing on the writ petitions rather than dismissing the same and directing parties to approach the Supreme Court. The order of Deepak Talwar W.P. (Crl) 385/2019 which was cited pertained to a matter where prayers (b) and (c) and the challenge to the vires of a provision was identical to a challenge pending before the Supreme Court. In Asst. Director, Directorate of Enforcement CRL.M.C. 1455/2021 again the Court found that the proposed issues which were filed in proceedings before the Supreme Court were identical to those which arose in the appeals laid before this Court. 9. Having conferred its thou....
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.... initiated under the Act are wholly without jurisdiction. It was further contended that activities undertaken by the petitioners post 04 September 2003 including the extraction of coal and its alleged diversion were activities and events which formed subject matter of the first chargesheet. It was in the aforesaid backdrop that Mr. Sibal argued that once that chargesheet had come to be quashed, no proceedings could have been validly initiated under the Act. In any case and without prejudice to the above, Mr. Sibal submitted that since undisputedly the impugned proceedings emanate from the second chargesheet and stand restricted to events upto 04 September 2003 only, and since the allocation of coal cannot constitute proceeds of crime, the writ petitions are liable to be allowed on this short ground alone. It was further urged by Mr. Sibal that admittedly the coal block had came to be allocated on 04 September 2003. It was pointed out that the Act itself came to be enforced subsequently on 01 July 2005. The provisions of Section 120B and 420 of the Indian Penal Code came to be included as scheduled offences only on 01 June 2009. In view of the aforesaid facts, Mr. Sibal, learned Sen....
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....he burden of proof under PMLA violate fundamental rights of the accused persons? 6. What are the contours of the offence under Section 3 of the PMLA? Does the Explanation to Section 3 of PMLA (added by an amendment in 2019) expand the meaning of the offence under Section 3 [as it stood prior to the amendment] and if so, is it permissible to do so? 7. Whether the filing of a chargesheet/complaint/FIR in the predicate offence is a prerequisite for an exercise of power of arrest under the PMLA? Can money laundering not be a standalone offence in the context of Section 3 read with Section 2(u) of the PMLA? 8. Whether the reliance on the statements recorded by the officers of the Enforcement Directorate during the investigation in judicial proceedings, violate Article 20[3] of the Constitution and are inadmissible in light of section 25 of the Evidence Act? 9. Whether the provisions concerning attachment of property under the PMLA violates the right to property under Article 300A? 10. Whether the PMLA can be applied to acts which occurred prior to the addition of offence under the Schedule to the said Act? 11. Whether a writ court ca....
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....proceedings impugned in these two writ petitions is again an issue which would have to be adjudged on the facts obtaining in these two writ petitions. A decision on that issue cannot possibly be contended to be connected in any manner with the submissions addressed either by Mr. Raju or the learned Solicitor General of India before the Supreme Court. The arguments addressed by Mr. Sibal as well as Mr. Chawla essentially turn and rest on the facts leading to the filing of the present petitions, the past history of litigation inter partes and the jurisdiction of the Adjudicating Authority to proceed under the Act. In fact the submissions advanced at the behest of the petitioners proceeded on the assumption that the provisions of the Act were valid. 15. As noted hereinabove, these writ petitions do not call in question the constitutional validity of any provision of the Act. The writ petitions as well as the submissions addressed thereon proceed on the basis of the submission that an allocation of a coal block cannot constitute proceeds of crime and that the proceedings impugned here are wholly illegal and arbitrary in light of the facts noticed hereinabove as well as the quashing ....
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....tice was founded on any legal premises, is a jurisdictional issue which can even be urged by the recipient of the notice and such issues also can be adjudicated by the authority issuing the very notice initially, before the aggrieved could approach the court. Further, when the court passes an interim order it should be careful to see that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition is not accorded to the writ petitioner even at the threshold by the interim protection granted. 6. In the instant case, the High Court has not indicated any reason while giving interim protection. Though, while passing interim orders, it is not necessary to elaborately deal with the merits, it is certainly desirable and proper for the High Court to indicate the reasons which have weighed with it in granting such an extraordinary relief in the form of an interim protection. This, admittedly, has not been done in the case at hand. 7. While issuing notice on 7-7-2003, this Court had granted....
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....in the adjudication proceedings, which are pending under Section 8 of the PML Act." 17. While it is true that Courts have on more than one occasion refrained from entertaining a writ petition at the stage of issuance of a show cause notice, the principle enunciated in the various judgments rendered on the question is that a challenge at the stage of the issuance of a show-cause notice should not "ordinarily" be entertained. However, those very decisions have also carved out the exceptions in which such a challenge would be sustainable. The Court takes note of the following principles as were enunciated in the celebrated and oft cited decision of the Supreme Court in Whirlpool Corporation Vs. Registrar of Trademarks (1998) 8 SCC 1:- "14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for "any other purpose....
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....oms v. Ramchand Sobhraj Wadhwani [AIR 1961 SC 1506 : (1962) 1 SCR 753] and was affirmed and followed in the following words: "The passages in the judgments of this Court we have extracted would indicate (1) that the two exceptions which the learned Solicitor General formulated to the normal rule as to the effect of the existence of an adequate alternative remedy were by no means exhaustive, and (2) that even beyond them a discretion vested in the High Court to have entertained the petition and granted the petitioner relief notwithstanding the existence of an alternative remedy. We need only add that the broad lines of the general principles on which the Court should act having been clearly laid down, their application to the facts of each particular case must necessarily be dependent on a variety of individual facts which must govern the proper exercise of the discretion of the Court, and that in a matter which is thus pre-eminently one of discretion, it is not possible or even if it were, it would not be desirable to lay down inflexible rules which should be applied with rigidity in every case which comes up before the Court." 18. The jurisdictional grounds on which th....
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.... development. Pursuant to the aforesaid communication, PIL is stated to have apprised the Ministry of Coal of it having undertaken preparatory steps for exploration of the Chotia block falling within the Hasdeo-Arand and Panchvahini coalfields. The application for allocation of the Chotia coal block remained pending for consideration till it was allocated to PIL on 04 September 2003. On 07 April 2010, the first FIR came to be registered. That FIR alluded to acts of PIL which were alleged to amount to a misrepresentation with respect to its captive activity, submission of false and incorrect information in order to obtain allotment of the coal block and diversion of coal extracted from that block in the open market. In terms of that first FIR and chargesheet, PIL was alleged to have diverted 2,27,000 tons of coal in the open market and thus earned illegal profits amounting to Rs. 22.7 crores. The allegations forming subject matter of the first chargesheet were succinctly noticed by the Court in its judgment of 05 September 2014 as follows:- "3. During the course of hearing, the facts adverted to by learned Senior Counsel for petitioners as culled out from the charge-sheet a....
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....y 4,00,000 MT P.A. whereas the application also stipulates that its capacity had already been increased to 8, 00, 000 MT P.A. for which coal allocation had already been done from Chotia Coal Block. X. The above-said Application was forwarded to the Ministry of Steel for examination and recommendation. (Para-17.4 at page-147 of Charge-Sheet refers). XI. Ministry of Steel vide OM dated December 6, 2007 recommended allocation in favour of PIL for Vijay Central Coal Block showing its existing capacity as of 8, 00, 000 MTPA for the proposed additional 12,00,000MTPAfor an over all capacity of 20,00,000 MTPA (Para-17.5 at page-147 of Charge-Sheet refers). XII. The Screening Committee in meetings of 7th & 8th December, 2008 requested applicants to make individual presentations and on July 3, 2008 met to finalize all recommendations pending with them. The recommendation for allocation of additional 12,00,000 MT P.A. by Ministry of Steel in favour of PIL from Vijay Central Coal Block was cleared. (Para-17.6 atpage-147 of Charge-sheet refers). XIII. However, before the final orders of allocation were made, M/s. SKS Ispat Power Ltd (SKS) on July 7, 2008 ques....
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....spection at PIL site was conducted by accused-Mr. G.K. Basak and Mr. Soumen Chatterjee on September 4, 2008. They submitted a verification report on September 5, 2008 and forwarded it to the Ministry of Steel. The Inspection Report indicated that the PIL had four kilns and annual installed capacity of sponge iron at 7.2 lacs MT P.A. The visits and the report of G.K. Basak and Soumen Chatterjee Accused No.1 & 2 are not disputed. (Para-17.14 on page 150 of Charge-Sheet refers). XXI. The minutes of the joint meeting dated July 25, 2008 (at page 348 in Vol.II), reflect that in the year 2008, both the Ministry of Steel and Ministry of Coal were aware that the then current capacity for production of sponge iron was 6, 00, 000 MT P.A. and that the allege false representation of capacity by PIL is not substantiated. (at Para 6 page 349 in Vol. II refers). XXII. On further complaints, clarification was sought from AccusedNo.1 &2 on the contents of their spot verification report and they substantially reiterated their position on production capacity of PIL. XXIII. The crux of the prosecution is that the quantities of sponge iron manufactured by PIL as reflected in ....
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....nspiracy ought to be there. During the course of hearing, attention of this Court was not drawn to any such circumstance, to enable this Court to prima facie infer that petitioners had conspired with their co-accused to commit the offences in question. Trial court was not at all justified in observing that the stand of petitioners relates to facts in issue. At this stage, it would be pertinent to refer to petitioners' communication of 23rd July, 2008 and the documents accompanying it (Annexure P-14) which is part of the charge-sheet. Undisputedly, aforesaid communication (Annexure P-I4) reflects the correct factual position and in the face of aforesaid undisputed document, there remains no justification to put petitioners on trial in this case. 14. It would be worthwhile to note that the correct factual position was disclosed by petitioners, not only in its communication of 23rd July, 2008 (Annexure P-14), but at the earliest opportunity i.e. in petitioners' application of 12th January, 2007 for allotment of captive coal blocks, which is also a document (D-55) forming part of the charge-sheet. On behalf of respondent-CBI, it was much emphasized that petitioners' co....
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.... concerns. However, and as noticed in the introductory part of this judgment, the impugned proceedings rest upon the allegations which form part of the second chargesheet. That chargesheet takes due notice of the fact that the original FIR as well as the first chargesheet already stands quashed. It is perhaps in that background that the said chargesheet restricts itself to activities and events which transpired up to the allocation of the coal block itself on 04 September 2003. This is evident from the following recitals as appearing in the second chargesheet: - "16.57 A case RC AC2 2010 A0001 was registered by CB I, AC-I, -New Delhi on 07 .04.201 0 against Mis Prakash Industries Limited and others. The matters related to post allocation and diversion aspects in "respect of Chotia coal block were investigated in the said case and Charge-sheet and Supplementary Chargesheets were filed. Since, the post allocation aspect has already been investigated, the investigation in the present case is limited upto allocation stage only. 16.59. From the above facts, it is evident that Sh. V. P. Agarwal and Sh. A. K. Chaturvedi misrepresented before Ministry of Coal/Screen....
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....r to those urged on behalf of PIL. E. SUBMISSIONS 26. Mr. Sibal, learned Senior Counsel appearing in the main writ petition being W.P.(C) 14999/2021 has assailed the initiation of proceedings under the Act on the following jurisdictional grounds. Mr. Sibal contended that the allocation of coal cannot be construed as being proceeds of crime since it clearly does not represent property which may be said to be derived or obtained as a result of criminal activity relating to a scheduled offence. It was submitted that the allocation of coal in itself cannot possibly be understood as being proceeds of crime since it only conferred upon the petitioner the right to apply for the grant of a mining lease. It was submitted that the entire allegation levelled against PIL is of having obtained that allocation by way of misrepresentation and fraudulent conduct. According to Mr. Sibal it was only monies and profits that may have been generated by the utilisation of that allocation which could have possibly fallen within the scope of the expression "proceeds of crime" as defined in Section 2(1)(u) of the Act. Mr. Sibal then submitted that the allocation of coal would also not fall within the....
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....in force nor an offence of money laundering in existence. It was pointed out that the Act itself came to be promulgated on 01 July 2005. Mr. Sibal also drew the Court's attention to the fact that Sections 120B and 420 of the Penal Code came to be included as scheduled offences only on 1 June 2009. According to Mr. Sibal, bearing in mind the fact that the allocation of coal was made on 04 September 2003, the invocation of the provisions of the Act would clearly amount to violation of Article 20(1) of the Constitution. According to Mr. Sibal, the impugned proceedings essentially seek to penalize the petitioners for the commission of an offence which was not even in existence on 04 September 2003. It was also pointed out that the impugned proceedings lay no allegation of any offence of money laundering having been committed by the petitioners after the Act had come into force. For the purposes of explaining the extent of the guarantee enshrined in Article 20(1) of the Constitution, Mr. Sibal placed reliance upon the decision of the Supreme Court in Mahipal Singh vs. CBI (2014) 11 SCC 282 and more particularly to the following paragraphs which are extracted hereunder: - "14. W....
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....asten to add here that there may not be any impediment in complying with the procedural requirement later on in case the ingredients of the offence are satisfied, but satisfying the requirement later on to bring the act within the mischief of penal provision is not permissible. In other words, procedural requirement for prosecution of a person for an offence can later on be satisfied but ingredients constituting the offence must exist on the date the crime is committed or detected. Submission of charge-sheets in more than one case and taking cognizance in such number of cases are ingredients of the offence and have to be satisfied on the date the crime was committed or came to be known. 15. Now we proceed to apply the principle aforesaid to the facts of the present case. We find that on the date the offence was committed or came to be known, one of the ingredients of the offence i.e. submission of charge-sheet and cognizance of offence of specified nature in more than one case within the preceding period of ten years, has not been satisfied. Therefore, we have no other option than to hold that the accused cannot be prosecuted for the offence under Section 3 of MCOCA." R....
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....urisdiction but also violative of the constitutional guarantee enshrined in Article 20(1) of the Constitution. Mr. Sibal also raised the issue of the Explanation to Section 3 not only expanding but going beyond the contours of the main provision itself. According to learned senior counsel, an Explanation cannot travel beyond the ambit of the principal provision itself. In support of the aforesaid contention, learned senior counsel referred the Court to the decision in S. Sundaraman Pillai Vs. V.R. Pattabiraman (1985) 1 SCC 591. 30. Mr. Chawla, learned counsel appearing for the petitioners in the connected petition, while adopting the aforesaid submissions has additionally contended that the provisional order of attachment fails to record any satisfaction or "reason to believe" that the petitioners are in possession of proceeds of crime and which is a sine qua non for exercise of powers under Sections 5 and 8 of the Act. Referring to the order passed by the Adjudicating Authority while issuing notice to the petitioners, it was pointed out that the Adjudicating Authority has failed to record any independent reasons which may have led to the formation of a reasonable belief that th....
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....ity relatable to the scheduled offence. There are three limbs of Section 2(1)(u) of the PMLA namely: i) Any property derived or obtained directly or indirectly as a result of criminal activity relating to scheduled offence; ii) Value of property derived or obtained from criminal activity; iii) Property equivalent in value held in India or outside where property obtained or derived from criminal activity is taken or held outside the country. 14. The first limb deals with property directly or indirectly obtained from criminal activity. The third limb is applicable where property obtained from criminal activity is held or taken outside India. In case property derived/obtained from criminal activity is held or taken outside India, property of equivalent value held in India or abroad would be proceeds of crime. The second limb, which is the core issue involved in present appeals covers 'value of property' derived/obtained from criminal activity. 15. The phrase 'property' has been defined under Section 2(1)(v) of the PMLA which is reproduced as under: Section 2(1)(v) "property" means any property or assets of every descriptio....
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....d property or claiming it as untainted property in any manner whatsoever. Section 4. Punishment for money-laundering.- Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine: Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words "which may extend to seven years", the words "which may extend to ten years" had been substituted. xxxx xxxx xxxx 34. We deem it appropriate to examine contention of Respondents from another angle i.e. offence of money laundering as defined under Section 3 of the PMLA. As per Section 3 of the PMLA, any person who has directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is involved in concealment, possession, acquisition or use or projecting as untainted property or claiming as untainted property shall be guilty of an offence. If property purchased prior to commiss....
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....roperty in the form of cash or any other form of property may be available. The cash or any other form of property movable or immovable, tangible or intangible would be 'value of property' derived from commission of scheduled offence. 32. Controverting the aforesaid submissions, Mr. Raju, learned ASG, has addressed the following submissions. It was firstly contended that merely because Sections 420 and 120B came to be included as scheduled offences on 1 June 2009, it cannot be said that the provisions of the Act have been accorded retroactive application. Mr. Raju submitted that the Act essentially targets the offence of money laundering. The learned ASG submitted that merely because the predicate offence may have been committed prior to the enforcement of the Act, that would not invalidate the proceedings initiated by the respondents. Mr. Raju drawing the attention of the Court to the written submissions submitted by the learned ASG in proceedings before the Supreme Court has contended that it is well settled that merely because a part of the requisite for action initiated under a statute is drawn from a point prior to the enforcement of the Act that does not make the Act retro....
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.... down in Seema Garg are clearly contrary to the judgment rendered by this Court in Deputy Director, Directorate of Enforcement vs. Axis Bank 2019 SCC OnLine Del 7854 and therefore it is the principles laid down in the latter which would bind and apply. According to the learned ASG, Axis Bank has clearly held that the Act empowers the respondents not only to proceed against properties which may be directly linked to proceeds of crime but also against properties which would be equivalent in value thereof. It was submitted that in the present case the properties which have been provisionally attached are equivalent in value to the quantification of proceeds of crime and therefore the action as initiated by the respondents cannot be faulted. According to Mr. Raju even though the associate or sister companies may not have been directly charged with the commission of the predicate office, they can still be proceeded against if it is found that they are in possession of properties which were acquired or are the fruits of proceeds of crime. 34. Mr. Raju controverting the submissions of Mr. Sibal with respect to the validity of the Explanation as appended to Section 3 submitted that in t....
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....relating to a scheduled offence. It is only when it is found that a person has derived property as a result of criminal activity that the offence of money laundering can be said to have been committed. Absent the element of criminal activity, the provisions of the Act itself would not be attracted. The offence of money laundering is essentially aimed at depriving persons of the fruits and benefits that may have been derived or obtained from criminal activity. However, once it is found that a criminal offence does not stand evidenced, the question of any property being derived or obtained therefrom or its confiscation or attachment would not arise at all and in any case, proceedings if initiated under the Act would be wholly without jurisdiction or authority. The Court notes that the issue of whether proceedings under the Act would survive even after the acquittal of a person in proceedings relating to the predicate offence was duly answered by a learned Judge of the Court in Rajiv Chanana vs. Dy. Director, Directorate of Enforcement 2014 SCC OnLine Del 4889. The relevant paragraphs are extracted hereinbelow: - "18. The suggestion of the learned ASG that an attachment order....
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....t, 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 has attained finality pose no difficulty; in such cases, the proceedings under the Act would fail. 28. It was contended by Mr. Bhardwaj that, in terms of Secti....
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....adhering to precedent. The Court has deemed it apposite to refer to Mahanivesh Oil for the completeness of the record and to essentially record the views that have been expressed on the questions posited in the decisions handed down by this Court as well as other High Courts. 40. Reverting then to the issue at hand, the Court observes that a similar view was expressed by the Allahabad High Court in Sushil Kumar Katiyar vs. Union of India, Thru Dir. and Another 2016 SCC OnLine All 2632 as would be evident from paragraph 38 of that decision which is extracted hereinbelow: - "38. In view of what has been discussed above, I am of the view that the petitioner has been able to make out a good case for quashing of the summoning order for the simple reason that from the allegations made in the complaint, no offence under section 3 of the Money-Laundering Act is made out against the petitioner in view of the fact that the petitioner has been discharged from the scheduled offences and except the present complaint in which the impugned summoning order has been passed, no case is pending against him. The learned Sessions Judge while passing the impugned summoning order has not take....
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....crime, second, proceeds of crime arising out of the offences specified in the Schedule of the Act and third, the factum of knowledge while commission of the offence of money laundering. In the present matter, at the initial stage of proceedings, the Respondents were charged for offences under Section 21/25/29 of the NDPS Act and 420/468/471/120B of the IPC, however, the learned Additional Sessions Judge, Amritsar, observed that material produced before the Court as well as the allegations made against the Respondents were largely made upon suspicion. Though certain material, properties and cash, were recovered and attached/seized but the fact that such properties were obtained through proceeds of crime of drug trafficking could not be established. 31. In view of the observation that the no scheduled offence was made out against the Respondents, this Court finds that an investigation and proceedings into the PMLA could not have been established against them at the first instance. 41. Keeping in view the facts of the case, the submissions made, documents on record, judgments cited and the contents of the impugned Order, this Court finds force in the argument that si....
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....speaks of any property derived or obtained, directly or indirectly, by any person. It is no doubt true that the complaint has been made by the respondent only in pursuant to the scheduled offence. However, the object, rationale and the scope enshrined under the Prevention of Money Laundering Act, 2002, being a special statute is distinct and different from the one enshrined under the Penal Code, 1860 and the Prevention of Corruption Act. Though the facts may be overlapping the nature of investigation differs. Therefore, it cannot be stated that a mere closure by the Central Bureau of Investigation would provide a death knell to the proceedings of the respondent. In a given case, the complaint may emanate from a registration of a case involving scheduled offence. But the fate of the investigation in the said scheduled offence cannot have bearing to the proceedings under the Prevention of Money Laundering Act, 2002. Section 2(u) of the Act merely speaks of a criminal activity relating to a scheduled offence. Therefore, we are concerned with the criminal activity qua a scheduled offence. Section 3 deals with the offence on money laundering. Once the respondent is of the view that a pe....
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..... It further does not depend upon the ultimate result of the Predicate/Scheduled Offence. Even if the Predicate/Scheduled Offence is compromised, compounded, quashed or the accused therein is/are acquitted, the investigation of ED under PMLA does not get affected, wiped away or ceased to continue. It may continue till the ED concludes investigation and either files complaint or closure report before the Court of competent jurisdiction. 29. The language of Sections 3 and 4 of PMLA, makes it absolutely clear that, the investigation of an offence under Section 3, which is punishable under Section 4, is not dependent upon the ultimate result of the Predicate/Scheduled Offence. In other words, it is a totally independent investigation as defined and contemplated under Section 2(na), of an offence committed under Section 3 of the said Act. 30. PMLA is a special statute enacted with a specific object i.e. to track and investigate cases of money-laundering. Therefore, after lodgment of Predicate/Scheduled Offence, its ultimate result will not have any bearing on the lodgment/investigation of a crime under the PMLA and the offence under the PMLA will survive and stand alon....
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.... wipe out or cease to continue the investigation of Respondent No. 1 (ED) in the offence of money-laundering being investigated by it. The investigation of Respondent No. 1 will continue on its own till it reaches the stage as contemplated under Section 44 of the PMLA." 46. It becomes pertinent to note that in Babulal Verma a closure report came to be submitted in proceedings relating to the predicate offence since the dispute between the complainant and the accused developer had come to be settled. However, there were serious allegations levelled against the developer of having diverted huge sums of monies obtained as loans from various financial institutions. Those allegations did not form part of the settlement nor had they been compounded. The refusal therefore by that High Court to accord closure to proceedings initiated under the Act would have to be understood and appreciated in that backdrop. 47. In Jagati Publication Ltd. vs. Enforcement Directorate MANU/TL/0588/2021, a learned Judge of the Telangana High Court observed as follows: - "12. By way of amendment to Section 44 of PML Act in the year 2013, it has been explicitly brought out that the proceedings in....
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....y not booked for a scheduled offence but booked later, and subsequently acquitted of the said scheduled offence, still such person can be proceeded under PML Act. It is not necessary that a person has to be prosecuted under the PML Act, only in the event of such person having committed scheduled offence. Prosecution can be independently initiated under PML Act only for the offence of money laundering. 15. A careful perusal of Section 2(1)(u) of PML Act and the explanation thereof makes it clear that a wider definition is given to 'proceeds of crime' including property not only derived or obtained from the scheduled offence, but also any property which may directly or indirectly be derived or obtained as a result of criminal activity relatable to a scheduled offence. Section 3 of PML Act further clarifies that a person shall be guilty of offence of money laundering, if such person is found to have directly or indirectly attempted to indulge or knowingly assists or knowingly is a party or is actually involved in concealment, possession, acquisition, use, projecting as untainted property, claiming as untainted property and the process or activity connected with the pr....
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....sfer of the scheduled offence to the Special Court and the Special Court, on receipt of such case, proceed to deal with it from the stage at which it is committed. Therefore, it is clear from the provisions of the Act that the offence of money laundering stands by itself. As evident from Section 8(6) of the Act, the Court will release the property only if it is found on the conclusion of trial under PMLA that the offence of money laundering has not taken place or if the property is not involved in money laundering. Therefore, adjudication, prosecution, trial under PMLA is independent of scheduled offence. This is also clear in view of Section 24 of the PMLA, 2002, which deals with burden of proof as it clearly stated that the burden of proof relating to proceeds of crime involved in money laundering is on the accused whereas the burden of proof in the scheduled offences is on the prosecution. Therefore, though the ECIR may have been registered following a scheduled offence, the property in possession of the person, against whom allegations are made, is found to be involved in money laundering, then he can be punished independently of the scheduled offence. Therefore, mere stay of t....
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....Therefore, if the contention of the learned senior counsel for the petitioners that when the foundation (predicate/scheduled offence) is removed, the structure/frame work thereon (offence under PML Act) falls is accepted, it will have frustrating effect on the intention of Legislature in enacting the PML Act, so also on its enforcement. 19. Further, if an accused in a predicate/scheduled offence is highly influential, either monetarily or by muscle power, and by use of his influence he/she gets the predicate/scheduled offence compromised or compounded to avoid further investigation in the offence under PML Act, it will put to an end to the independent investigation of Enforcement Directorate, which is certainly not the intention of Legislature in enacting the PML Act. Therefore, if the contention of the learned senior counsel for the petitioners that offence under PML Act necessarily depend upon the predicate/scheduled offence and the fate of offence under PML Act depends upon the fate of predicate/scheduled offence is accepted, probably it would be the easiest mode to the accused to put an end to the investigation and trial of offences under PML Act, as the case may be. ....
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....ed offence, is unsustainable." 48. It would be pertinent to note that in Jagati Publication, the learned Judge was evaluating the merits of a challenge laid to an order passed by the Trial Judge which had refused to accede to the prayer made by the petitioner there for deferral of proceedings relating to allegations of money laundering till the conclusion of trial relating to a schedule offence. It was in the aforesaid backdrop that the decision in Jagati Publication referred to the Explanation appended to Section 44. As is evident from a reading of that Explanation, the jurisdiction of the Special Court while dealing with offences under the Act is mandated not to be dependent upon any orders passed in proceedings relating to a scheduled offence. Section 44 and the Explanation appended thereto thus enables the Special Court to proceed with the trial of offences relating to money laundering unhindered by the pendency of proceedings relating to trial of a scheduled offence. While this Court is in agreement with the view expressed in Jagati Publication to the aforesaid extent, it with respect observes that Section 44 cannot be interpreted to mean that proceedings under the Act woul....
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....tatute enacted with a specific object to track and investigate cases of money-laundering. Therefore, if the contention of the learned senior counsel for the petitioners that when the foundation (predicate/scheduled offence) is removed, the structure/frame work thereon (offence under PML Act) falls is accepted, it will have frustrating effect on the intention of Legislature in enacting the PML Act, so also on its enforcement. 18. Further, the burden of proof in the predicate/Scheduled offences and the offence under PML Act is different. Section 24 of the PML Act reads as follows: 24. Burden of proof: In any proceeding relating to proceeds of crime under this Act:- a) In the case of a person charged with the offence of money laundering under Section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money- laundering; and b) In the case of any other person the Authority or court, may presume that such proceeds of crime are involved in money-laundering. In view of the aforesaid mandate, the requisite burden of proof in both the cases is different. Further, Section 71 of PML Ac....
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....Therefore, the contention raised that without proving the guilt of the accused in predicate/scheduled offences, trial of offences under PML Act cannot be proceeded with, is unsustainable. In view of the above observations, it cannot be held that unless proceeds of crime are established by putting the accused on trial, any prosecution of the person under PML Act would be premature and would be futile exercise. Since the offence under PML Act is a stand-alone offence and not dependent on predicate/scheduled offences, it can be proceeded with independently without awaiting the outcome of result of scheduled offences or commencement of trial in the predicate/scheduled offences. Further, there is no requirement under law to conduct trials of both category of cases simultaneously. Therefore, the contention that Money Laundering offence starts at the end of predicate offence and commencement of trial in offence under PML Act shall not precede trial of predicate/scheduled offence, is unsustainable." 50. As is evident from a reading of the aforesaid extracts, that decision too principally proceeded on the basis of the provisions of Section 44 of the Act. All that this Court deems apposit....
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.... was the submission of Mr. Sibal that since the allocation was made on 04 September 2003 and thus evidently before the promulgation of the Act coupled with the fact that even Sections 420 and 120B of the Penal Code were not scheduled offenses on that date, any action initiated under the Act would clearly violate the constitutional guarantee conferred by Article 20(1). Mr. Chawla learned counsel addressing submissions on behalf of the petitioners in the connected writ petition additionally argued that since the aforenoted two provisions of the Penal Code were included in the Schedule only on 01 June 2009 and the properties provisionally attached had been purchased prior thereto, even on this score the proceedings impugned are rendered without jurisdiction and authority of law. Mr. Chawla argued that since these provisions came to be included as scheduled offenses only in 2009, any action initiated under the Act founded on a predicate offense which came to be included and recognised by inclusion in the Schedule subsequently would be violative of Article 20(1) of the Constitution. 53. On a fundamental plane, Article 20(1) raises a constitutional injunction or bar in respect of pena....
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....t facto laws in the post-Constitution period but that the validity of the pre-Constitution laws in this behalf was not intended to be affected in any way. The case in Keshavan Madhavan Menon v. State of Bombay [1951 SCR 228] has been relied on to show that the fundamental rights guaranteed under the Constitution have no retrospective operation, and that the invalidity of laws brought about by Article 13(1) of the Constitution relates only to the future operation of the pre-Constitution laws which are in violation of the fundamental rights. On this footing it was argued that even on the assumption of the convictions in this case being in respect of new offences created by Ordinance 48 of 1949 after the commission of the offences charged, the fundamental right guaranteed under Article 20 is not attracted thereto so as to invalidate such convictions. This contention, however, cannot be upheld. On a careful consideration of the respective articles, one is struck by the marked difference in language used in the Indian and American Constitutions. Sections 9(3) and 10 of Article 1 of the American Constitution merely say that "No ex post facto law shall be passed...." and "No State shall p....
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....tion has been drawn to the fact that the Vindhya Pradesh Ordinance 48 of 1949, though enacted on 11th September, 1949 i.e. after the alleged offences were committed, was in terms made retrospective by Section 2 of the said Ordinance which says that the Act "shall be deemed to have been in force in Vindhya Pradesh from the 9th day of August, 1948," a date long prior to the date of the commission of the offences. It was accordingly suggested that since such a law at the time when it was passed was a valid law and since this law had the effect of bringing this Ordinance into. force from 9th August, 1949, it cannot be said that the convictions are not in respect of "a law in force" at the time when the offences were committed. This, however, would be to import a somewhat technical meaning into the phrase "law in force" as used in Article 20. "Law in force" referred to therein must be taken to relate not to a law "deemed" to be in force and thus brought into force but the law factually in operation at the time or what may be called the then existing law. Otherwise, it is clear that the whole purpose of Article 20 would be completely defeated in its application even to ex post facto laws....
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....redicate offense which in turn may have resulted in a pecuniary benefit being obtained and derived. It fundamentally aims at confiscation of benefits that may be derived as a result of criminal activity and the commission of a scheduled offense. It is aimed at countering and penalising the malaise of wealth and assets acquired as a result of criminal activity. Accordingly, while the commission of the predicate offense may be described as the sine qua non for an allegation of money laundering being laid against a person, it is an offense created independently owing its genesis to the Act which came to be promulgated on 01 July 2005. It would also be pertinent to note that while the punishment in respect of various crimes created under different statutes and which are included in the Schedule did exist prior to 01 July 2005, the crime of money laundering as set out in Section 3 came into being only on that date. Prior to 01 July 2005, there was undisputedly no law in force which constructed or statutorily prescribed an offense for money laundering and empowered the respondents to attach and confiscate proceeds of crime derived from criminal activity. 57. Having outlined the contou....
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....ther the scheduled offence was committed, but whether the attachment under Section 5 of the Act can be sustained where the principal offence as well as the offence of using its proceeds is alleged to have been committed prior to the Act coming into force. 33. As stated hereinbefore, the scope of the offence of money-laundering was widened by virtue of the Prevention of Money-Laundering (Amendment) Act, 2012 and the rigor of Section 3 of the Act also extends to any person who assists or is a party or is 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. 34. The Act is a penal statute and, therefore, can have no retrospective or retroactive operation. Article 20(1) of the Constitution of India expressly for....
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....nterprises Ltd. and M/s. Shri Radhey Trading Pvt. Ltd. and these companies in turn issued two cheques of Rs. 75 lacs each in favour of the petitioner. It is suggested that these amounts were proceeds of crime received by the petitioner as a result of a criminal activity and bulk of these funds were utilized by the petitioner for paying the consideration for acquiring the property in question. It was argued that all actions of integrating the money by purchase of immovable property would fall within the definition of 'money-laundering'. 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 co....
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.... alleged to have been derived or obtained by criminal activity relating to the scheduled offence. This would be notwithstanding that the proceeds derived from a scheduled offence have undergone significant changes and have been integrated in legitimate economic activity. The properties could also be traced in the hands of persons unconnected with the scheduled offence. There is no indication from the express language of the Act, that the Legislature intended the Act to be retroactive or operative with retrospective effect. 38. 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 criminals place the proceeds of the crime into normal financial system. The second stage is Layering....
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....reof. He relied on the decision of the Andhra Pradesh High Court in V. Suryanarayhana Prabhakara Gupta v. Union of India (UOI) : W.P. No. 27898 of 2010, decided on 25.08.2011 in support of the aforesaid contention and drew attention of this Court to the following passage. "From the abovementioned Judgment, the principle that can be deducted is that, Article 20 prohibits only conviction or sentence under an "ex post facto" law and not the trial thereof and such trial cannot "ipso facto" be held to 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."" 59. In A.K. Samsuddin, the Kerala High Court made the following pertinent observations: - "6. It is evident from the aforesaid provisions in the Act that though the commission of a scheduled offence is a fundamental pre-condition for initiating proceedings under the Act, the offence of money laundering is independent of the scheduled offences. The scheme of the Act indicates that it deals only with laundering ....
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....rpetrated prior to the amendment of the schedule to the PML Act and therefore, the action initiated against them falls within the mischief of Article 20(1) of the Constitution of India. This contention, in my view, in the factual setting of the case, is totally misplaced and misconceived and appears to have been canvassed by misconstruing the provisions of sections 3, 2(1)(u) and the Schedule appended to the PML Act. No-doubt, it is true that the Schedule to the PML Act was amended by Act 21 of 2009 and the various offences specified therein came to be included therein with effect from 1.06.2009. Nonetheless, in the instant cases, as on the date of initiation of action against petitioners, be it under section 3 or under section 5 of the PML Act, these provisions were very much there in the statute book. As already stated above, in all the cases, the prosecution under section 3 of the PML Act and adjudication proceedings under section 5 of the PML Act have been initiated against the petitioners subsequent to 1.06.2009. Therefore, the contention urged by learned counsel appearing for the petitioners that the petitioners are sought to be prosecuted on the basis of ex post facto laws i....
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....partment of Revenue and others, had an opportunity to examine the various provisions of PML Act while deciding the constitutionality or validity of the sections 2(1) (u), 3, 5, 8, 9, 17, 18, 19, 23, 24 and 44 of the PML Act 2002(as amended from time to time) and held that:- "Money laundering is a stand alone offence. A person who has not committed a scheduled offence could be prosecuted for an offence of money laundering. In such a situation, the prosecution need not wait for the scheduled offence to be established. It can independently prosecute and lay material to show that he had knowingly assisted or was responsible for laundering of the illicit wealth. In such a situation, the property would then stand attached and the person who is being prosecuted for money laundering has to show the Court that he is not guilty of money laundering. The same would work to his advantage as to whether a scheduled offence has been committed or not. He could show that the property in question has not come in his possession and that he has not knowingly appropriated the same. In such a situation, if the offence is not established, the property would revert back to him. The change....
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....f 'possession', the Hon'ble Supreme Court considered the issue as to whether the appellant could be convicted and sentenced under the Opium Act, as that was the law in force at the time of commission of an offence and if he is convicted under section 18 of the NDPS Act, whether it would tantamount to retrospective operation of law imposing penalty which is prohibited, under Article 20(1) of the Constitution of India. The Hon'ble Supreme Court held as under:- Article 20(1) gets attracted only when any penal law penalises with retrospective effect i.e. when an act was not an offence when it was committed and additionally the persons cannot be subjected to penalty greater than that which might have been inflicted under the law in force at the time of commission of the offence. The Article prohibits application of ex post facto law. In Rao Shiv Bahadur Singh and Anr. v. State of Vindhya Pradesh [MANU/SC/0010/1955 : AIR 1955 SC 446], while dealing with the import under Article 20(1) of the Constitution of India, the Court stated what has been prohibited under the said Article is the conviction and sentence in a criminal proceeding under ex post facto law and not....
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....x post facto laws offending the constitutional protection granted to them under Article 20(1) of the Constitution of India." 62. Again, in Dyani Antony Paul & Ors. vs. Union of India & Ors. MANU/KA/4442/2020, the Karnataka High Court held that it is the date of laundering of proceeds of crime which is relevant and determinative as would be evident from the following extracts of that decision: - "76. The expression "schedule offence" is defined under Section 2(y), which means-(i) the offences specified in Part-A of the Schedule; or (ii) the offences specified under Part-B of the Schedule if the total value involved in such offences is one crore rupees or more; or (iii) the offences specified under Part-C of the Schedule. Section 5 relates to attachment of the property involved in money laundering. Thus, it is evident from the aforesaid provision of the PML Act that commission of a schedule offence is not a fundamental precondition for initiating proceedings under the PML Act, since the offence of money laundering is independent of schedule offence. From a plain reading of the PML Act or on a conjoint reading of the provisions of the PML Act, it would leave no manner of d....
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....e condition precedent for proceeding against such person under the PML Act. The reasons which have weighed with this Court to hold to the contrary have been duly spelt out in the preceding paragraphs of this decision and are therefore not being repeated." 64. The Court thus holds that the fact that the predicate offense which gave rise to proceeds of crime was committed prior to 01 July 2005 or that it came to be included in the Schedule on 01 June 2009 would clearly not be determinative and in any case an action under the Act founded on the commission of that offense provided the act of money laundering is alleged to have been committed after the coming into force of the Act cannot be held or understood to be a violation of Article 20(1) of the Constitution. As long as the act of money laundering is alleged to have been committed post the enforcement of the Act, proceedings initiated in respect thereof would clearly be sustainable. 65. As stated hereinabove, the Act is aimed at the offense of money laundering. While the commission of a predicate offense may be a condition precedent for an allegation of money laundering being laid, it is the activities of money laundering alo....
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.... property is taken or held outside the country, then the property equivalent in value held within the country [or abroad] "proceeds of crime, means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to the scheduled offence or the value of any such property, or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. Explanation- For removal of doubts, it is hereby clarified that "proceeds of crime" including property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence Section 2(1)(y)- "Scheduled offence" means- (i) the offences specified under Part A of the schedule Section 2(1)(y)- "Scheduled offence" means- (i) the offences specified under Part A of the schedule; or (ii) the offences specified under Part B of the schedule if the total value involved in such offences is thirty lakh rupees or more; or (iii) the offences specified under Part C of the Schedule Section 2(1)(y)-....
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....prises of three limbs. Those limbs have been described to comprise of (a) properties derived or obtained (directly or indirectly) as a result of criminal activity relating to a scheduled offence, (b) the value of any such property as above and (c) property equivalent in value whether held in India or abroad. Explaining the extent of these three limbs which constitute proceeds of crime, the learned Judge in Axis Bank has held thus:- "103. The special legislation against money-laundering (PMLA) seeks to enforce the sanction of confiscation (initiated by attachment) against ill-gotten assets expecting to ensnare them in a net wider than under most of the existing laws germane to the issue of economic well-being, security and integrity of India as a sovereign State. The expansive definition of the targeted property, described as "proceeds of crime", as given in Section 2(1)(u) is as under: "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 or where such property is taken or held outside the country, then the propert....
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....y other property acquired using such bribe as consideration is also "proceeds of crime", it having been obtained "indirectly" from a prohibited criminal activity within the meaning of first limb of the definition. 107. In contrast, the second and third kinds of properties mentioned above would ordinarily be "untainted property" that may have been acquired by the suspect legitimately without any connection with criminal activity or its result. The same, however, are intended to fall in the net because their owner is involved in the proscribed criminality and the tainted assets held by him are not traceable, or cannot be reached, or those found are not sufficient to fully account for the pecuniary advantage thereby gained. This is why for such untainted properties (held in India or abroad) to be taken away, the rider put by law insists on equivalence in value. From this perspective, it is essential that, before the order of attachment is confirmed, there must be some assessment (even if tentative one) as to the value of wrongful gain made by the specified criminal activity unless it be not possible to do so by such stage, given the peculiar features or complexities of the ca....
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....s "equivalent in value". Though these words are not used in the second category, it is clear that the said kind also has to be understood in the same sense. 110. Thus, it must be observed that, in the opinion of this court, if the enforcement authority under PMLA has not been able to trace the "tainted property" which was acquired or obtained by criminal activity relating to the scheduled offence for money-laundering, it can legitimately proceed to attach some other property of the accused, by tapping the second (or third) abovementioned kind provided that it is of value near or equivalent to the proceeds of crime. But, for this to be a fair exercise, the empowered enforcement officer must assess (even if tentatively), and re-evaluate, as the investigation into the case progresses, the quantum of "proceeds of crime" derived or obtained from the criminal activity so that proceeds or other assets of equivalent value of the offender of money-laundering (or his abettor) are subjected to attachment to such extent, the eventual order of confiscation being always restricted to take over by the Government of illicit gains of crime, the burden of proving facts to the contrary being....
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....a direct or indirect relationship with the criminal activity itself. This was explained by the learned Judge in Axis Bank as is evident from paragraphs 109 to 110 extracted hereinabove. 70. Axis Bank also takes note of a contingency where a third-party interest may stand created in the deemed tainted property and the conflict which may arise in case such property comes to be attached under the Act. Dealing with the issue of a bona fide third party right claimed in such property, the Court held thus: - "148. In view of the conclusions reached as above, rejecting the argument of prevalence of RDBA, SARFAESI Act and Insolvency Code over PMLA, the said laws (or similar other laws, some referred to above) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other, with regard to assets respecting which there is material available to show the same to have been "derived or obtained" as a result of "criminal activity relating to a scheduled offence" rendering the same "proceeds of crime", within the mischief of PMLA. The PMLA, declares, by virtue of Section 71, that it has over-riding effect over other existing laws, such provision....
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.... "acted in good faith", taking "all reasonable precautions", himself not being involved in money-laundering, to seek its "release" or "restoration". In this context, however, as also earlier noted, the presumptions that can be drawn in terms of Sections 23 and 24 of PMLA are to be borne in mind, the burden of proving facts contrary to the case of money-laundering being on the person claiming to have acted bonafide." 71. Proceeding then to the issue of balancing of competing interests in a deemed tainted property, the Court held as follows: - "159. As noted earlier, there are three parts of the definition of the expression "proceeds of crime", the first clearly referring to a property respecting which there is material to show the same to have been "derived or obtained", directly or indirectly, by a person "as a result of criminal activity (of specified nature)". In case such property is held by the person who is "charged with the offence of money-laundering", there is a statutory presumption under Section 24(a) PMLA, using the expression "shall presume", about it being proceeds of crime involved in such money-laundering. It is a rebuttable presumption, the onus to prove....
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....e wrong-doer for damages, the encumbrance, if created with the objective of defeating the law, being treated as void (Section 9). 162. But, in case an otherwise untainted asset (i.e. deemed tainted property) is targeted by the enforcement authority for attachment under the second or third part of the definition of "proceeds of crime", for the reason that such asset is equivalent in value to the tainted asset that was derived or obtained by criminal activity but which cannot be traced, the third party having a legitimate interest may approach the adjudicating authority to seek its release by showing that the interest in such property was acquired bona fide and for lawful (and adequate) consideration, there being no intent, while acquiring such interest or charge, to defeat or frustrate the law, neither the said property nor the person claiming such interest having any connection with or being privy to the offence of money-laundering. 163. Having regard to the above scheme of the law in PMLA, it is clear that if a bonafide third party claimant had acquired interest in the property which is being subjected to attachment at a time anterior to the commission of the cri....
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.... be made available for purposes of PMLA." 72. From a reading of the aforesaid passages of Axis Bank, it is evident that the learned Judge took into consideration bona fide third-party interests that may come to be created or exist in deemed tainted property. Axis Bank while dealing with third party interests has also taken into consideration both secured as well as unsecured interests in such deemed tainted properties. The learned Judge while proceeding to notice the aforesaid conflicts which may arise also culled out certain salutary safeguards with respect to such interests. Axis Bank holds that in order to recognise a right inhering in the respondents to proceed against such property, it must be established that there was "some nexus or link between such property on one hand and the person accused or charged of money laundering on the other". It further held that in such cases it would have to be found that the person accused of money laundering had an interest in such property at least till the time of engagement in the proscribed criminal activity from which a pecuniary interest had been derived or obtained. It was on a construction of the provisions of the Act as such as w....
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....at the outset to note that the challenge in those proceedings was with respect to the attachment of properties purchased prior to the period of commission of the scheduled offence and in some instances before the enforcement of the Act itself. The Division Bench in Seema Garg formulated the questions which arose for consideration in paragraph 26 of the report which is reproduced hereinbelow: - "26. From the conceded position and arguments of both sides, we find that following questions arise for our adjudication: i) Whether provisional attachment of property is sustainable after the expiry of 90 or 365 days from the date of order passed by adjudicating authority? ii) Whether property acquired prior to enactment of PMLA i.e. prior to 1.7.2005 can be provisionally attached under Section 5 of the PMLA? iii) Whether phrase 'value of such property' occurring in definition of 'proceeds of property' includes any property of any person irrespective of source of property? iv) Whether officer attaching property is required to record reason that property is likely to be concealed, transferred or dealt with in any manner which may frustrate proceedi....
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....given full meaning and effect. Accordingly, words 'value of such property' and 'property equivalent in value held within the country or abroad' cannot be given same meaning and effect. Had there been intention of legislature to include any property in the hands of any person within the ambit of proceeds of crime, there was no need to make three limbs of definition of proceeds of crime. It was very easy and convenient to declare that any property in the hands of a person who has directly or indirectly at any point of time had obtained or derived property from scheduled offence. There was even no need to declare property derived or obtained from scheduled offence as proceeds of crime. The legislature w.e.f. 01.08.2019 has inserted explanation in Section 2(1)(u) of the PMLA. As per Mr. Mittal, counsel for the Respondents, the said explanation enlarges scope of first limb of definition 'proceeds of crime' and does not affect second limb of definition. We find some substance in the contention of Respondents, however it is trite law that entire scheme of the Act must be read as a whole/in its entirety and every provision should be read in such a manner that it makes other provisions and ....
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....with commission of scheduled offence as well property derived from said offence but had dealt with any other property of a person, who had committed scheduled offence, would fall within the ambit of Section 3 of the PMLA, which cannot be countenanced in law. There would be total chaos and uncertainty. The authorities would get unguided and unbridled powers and may implicate any person even though he has no direct or indirect connection with scheduled offence and property derived from thereon but has dealt with any other property (not involved in scheduled offence) of the person who has derived or obtained property from scheduled offence. It would amount to violation of Article 20 and 21 of Constitution of India. 35. In our considered opinion, to understand true meaning of second limb of definition of 'proceeds of crime', it must be read in conjunction with Section 3 and 8 of the PMLA. If all these sections are read together, phrase 'value of such property' does not mean and include any property which has no link direct or indirect with the property derived or obtained from commission of scheduled offence i.e. the alleged criminal activity. 'Value of such property' means pr....
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....cause every scheduled offence is not committed for the sake of property e.g. offence relating to wild animals, waging war against Government of India, murder, attempt to murder, offences under Arms Act. There is a long list of offences under different enactments where property is normally not involved still these are scheduled offences and punishable under Section 3 & 4 of PMLA. 38. Accordingly, we find and hold that phrase 'value of such property' does not mean and include any property which has no link direct or indirect with the property derived or obtained from commission of scheduled offence i.e. the alleged criminal activity. xxx 51. In view of above discussion, we summarise our findings as below: i) In case investigation is pending, filing of complaint against others is not sufficient to deprive any person from benefit of time cap of 365 days, ii) Property acquired prior to commission of scheduled offence i.e. criminal activity or introduction of PMLA cannot be attached unless property obtained or acquired from scheduled offence is held or taken outside the country. iii) Director or any other officer authorised by him is ....
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....The phrase "equivalent in value" was placed in the provision to be read in conjunction with property taken or held outside the country. The phrase "equivalent in value" cannot be understood or interpreted to control the first or the second limb of Section 2(1)(u). The expression "value of any such property" always stood hinged to the first limb of the definition of proceeds of crime. It would therefore be incorrect to assume that the expression "value of any such property" was either surplusage or of no import at all. 79. Regard must also be had to the fact that the legislation itself is dealing with contingencies where proceeds of crime are layered and their origins camouflaged and masked enabling the accused to project or claim it to be untainted property. The Act clearly as does Axis Bank take into consideration a situation where a person who has obtained proceeds of crime by commission of a scheduled offence has managed to ensure that a property directly or indirectly connected to criminal activity is rendered untraceable. It is to confer authority upon the Directorate to proceed further in such a situation that Section 2(1)(u) uses the expression "or the value of any such p....
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....k. The Court thus reiterates the interpretation accorded to Section 2(1)(u) by this Court in the aforesaid decision. Consequently, and for all the aforesaid reasons this Court finds itself unable to agree with the principles as laid down in Seema Garg as well as the subsequent decisions rendered by the Andhra Pradesh High Court in Kumar Pappu Singh Vs. Union of India 2021 SCC OnLine AP 983 and the Patna High Court in HDFC Bank Limited Vs Government of India, Ministry of Finance 2021 SCC OnLine Pat 4222. In Kumar Pappu Singh, the High Court held thus: - "24. The Division Bench held that the property derived from the offence would be proceeds of the crime and as such any property purchased or acquired before the commission of the offence would not fall within the first limb of the definition of "proceeds of crime". It also held that if such property is moved abroad, any property of the accused available within India, irrespective of the date of acquisition, can be attached as proceeds of crime, as the same would fall within the third limb of the definition. However, the Division Bench held, on the ambit of "value of such property", that this term is not the same as the term ....
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....legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which the former Act had given rise, and to the later Act which provided the remedy. These three being compared I cannot doubt the conclusion." It appears to us that this rule is equally applicable to the construction of Article 286 of our Constitution. In order to properly interpret the provisions of that article it is, therefore, necessary to consider how the matter stood immediately before the Constitution came into force, what the mischief was for which the old law did not provide and the remedy which has been provided by the Constitution to cure that mischief. 30. In that view of the matter, the properties purchased before the commission of the offence, cannot fall within the definition of "proceeds of crime" and cannot be attached or confiscated under the Act. Consequently, the attachment and subsequent proceedings before the Adjudicating authority for confiscation of the properties in Table-I of the impugned order would be without jurisdiction and would have to be struck down." In HDFC Bank, the Patna High Court observed as follows:- "18. Since no prope....
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....equivalent to property held outside India, is irrelevant. Any property irrespective of date of purchase may be attached if property derived or obtained from scheduled offence is held or taken outside India. 32. The moot question arises that whether property of equivalent value may be attached where property derived or obtained from scheduled offence is not held or taken outside India. If any property is permitted or held liable to be attached irrespective of its date of purchase, it would amount to declaring second and third limb of definition of 'proceeds of crime' one and same. As pointed out by counsel for Appellants, the third limb of definition clause was inserted by Act 20 of 2015. The aforesaid 3rd limb has been further amended w.e.f. 19.04.2018 enlarging the scope. The question arises that if phrases 'value of such property' and 'property equivalent in value held within the country or abroad' are of same connotation and carry same meaning, there was no need to insert third limb in the definition of 'proceeds of crime'. The amendment made by legislature cannot be meaningless or without reasons. Use of different words and insertion of third limb in the definition can....
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.... money laundering, it shall release such property. If contention of Respondent is upheld, there would be no need of recording findings by Special Court with respect to property attached being proceeds of crime, no sooner it is held that offence of money laundering has been committed, then the Special Court would be bound to confiscate every attached property because every property in the hand of a person, who had obtained or derived property from scheduled offence, would be proceeds of crime. 34. We deem it appropriate to examine contention of Respondents from another angle i.e. offence of money laundering as defined under Section 3 of the PMLA. As per Section 3 of the PMLA, any person who has directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is involved in concealment, possession, acquisition or use or projecting as untainted property or claiming as untainted property shall be guilty of an offence. If property purchased prior to commission of alleged offence or property not derived or obtained from commission of scheduled offence is declared as proceeds of crime, every person who is concerned with sale, purchase, possession or us....
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.... derived from commission of scheduled offence." 21. I adopt the view of the Division Bench of Punjab and Haryana High Court in preference to the single Judge judgment of Delhi High Court in Deputy Director of Enforcement v. Axis Bank relied upon by learned counsel for respondent Nos. 1 to 4 for the simple reason that the issue directly involved herein was there before the Punjab and Haryana High Court and not before the Delhi High Court. Finally, this Court finds that the phrase "value of such property" does not mean and include any property which have no link direct or indirect with the property derived or obtained from commission of scheduled offence i.e., the alleged criminal activity." 81. The Court also takes note of the position that although SLP (Crl) No. 28906/2019 is pending before the Supreme Court against the decision rendered in Axis Bank, the judgement of this Court has not been stayed or placed in abeyance. The interim order of 30 August 2019 passed in the aforesaid Special Leave Petition only requires parties to maintain status quo. Insofar as the judgement of the Punjab and Haryana High Court in Seema Garg is concerned, although SLP (C) No.14713-14715/20....
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....at the petitioners submitted false and forged documents in support of their application for allocation of the coal block, misrepresented facts pertaining to proceedings pending before the BIFR and thus fraudulently and dishonestly obtained the coal allocation. As noted hereinbefore, the aforesaid chargesheet and the proceedings relating to the same form subject matter of challenge in Special Leave to Appeal (Crl.) Nos. 656-657/2022 in which by an order of 06 May 2022, further proceedings before the Trial Court have been stayed. The impugned proceedings emanate from the second chargesheet and relate to the provisional attachment of properties held by sister concerns and entities of PIL. It becomes pertinent to highlight here that while the second chargesheet restricts itself to events which occurred upto 04 September 2003 when the coal block was allocated to PIL, the impugned show cause notices and the provisional attachment orders cover properties acquired prior to as well as post that date. 84. A reading of the second chargesheet establishes that the principal allegations levelled against the petitioners is of having submitted false and forged documents in support of their appl....
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....es rights to the allottees for obtaining the coal mines leases for their end-use plants. The banks, financial institutions, land acquisition authorities, revenue authorities and various other entities and so also the State Governments, who ultimately grant prospecting licence or mining lease, as the case may be, act on the basis of the letter of allocation issued by the Central Government. As noticed earlier, the allocation of coal block by the Central Government results in the selection of beneficiary which entitles the beneficiary to get the prospecting licence and/or mining lease from the State Government. Obviously, allocation of a coal block amounts to grant of largesse. 76. The learned Attorney General accepted the position that in the absence of allocation letter, even the eligible person under Section 3(3) of the CMN Act cannot apply to the State Government for grant of prospecting licence or mining lease. The right to obtain prospecting licence or mining lease of the coal mine admittedly is dependent upon the allocation letter. The allocation letter, therefore, confers a valuable right in favour of the allottee. Obviously, therefore, such allocation has to meet th....
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....oney laundering is concerned with the concealment of moneys obtained as a result of criminal activity, the act of cleansing criminal proceeds of their origin and its conversion into what may then be projected as untainted assets or properties. The world over the fight against crime has realigned its focus upon ensuring that the profits generated from criminal activity are forfeited and confiscated. It is this aim and intent that the Act purports to subserve. The offense of money laundering was explained by the Court of Appeals in JSC BTA Bank Vs. Ablyazov (2010) 1 WLR 976 as a "parasitic" offense predicated on the commission of another offense which yielded proceeds which then become the subject of laundering. It is essentially concerned with the concealment of the source of funds through various processes and arrangements aimed at ultimately imbuing them with legitimacy. The Convention on Laundering, Search, Seizure, Confiscation of the Proceeds of Crime framed by the European Council while defining laundering offenses, describes the activity of money laundering as follows: - "Article 6 - Laundering offences 1. Each Party shall adopt such legislative and other me....
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....that the Act essentially seeks to confiscate properties and assets that may be obtained from criminal activity and which may then be concealed and legitimised through processes which are described as placement, layering and integration. The Act is motivated by the aim to confiscate the monetary advantage that may be obtained or derived from criminal activity. When viewed in that light, it is evident that the allocation per se cannot possibly be viewed or understood as representing proceeds of crime in itself. It is the illegal gains obtained and derived by the utilisation of that allocation and the concealment or conversion of those gains into assets or properties which could possibly be understood as amounting to an act of money laundering. J. IMPACT OF ALLOCATION NOT BEING PROCEEDS OF CRIME 89. The quintessential element of money laundering is the washing of criminal proceeds and its conversion into property as defined in Section 2(1)(v). For reasons set out hereinabove, the Court has come to the definite conclusion that the allocation would not constitute proceeds of crime. If therefore the scope of enquiry were to be restricted up to this point of the sequence of events a....
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....terms of its judgment dated 05 September 2014. Admittedly the first chargesheet and all proceedings relating thereto came to be quashed by the Court in terms of its judgment rendered on 05 September 2014. While that judgment does form subject matter of challenge in a pending special leave petition, no effective orders have either been passed on that petition nor has the judgment of this Court been placed in abeyance. According to Mr. Raju, as long as that special leave petition remains pending, it cannot be said that finality stands attached to the decision of this Court quashing the aforesaid chargesheet. The Court may only observe that the mere pendency of that petition before the Supreme Court cannot legally be construed as amounting to a revival or continuance of the criminal proceedings which were initiated in terms of the aforenoted chargesheet and ultimately came to be quashed by this Court. As long as the judgment quashing the first chargesheet remains intact and untouched, this Court would have to proceed on the premise that no predicate offense was evidently committed. The submission of Mr. Raju that the proceedings are thus yet to attain finality is consequentially negat....
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....erson or entity stands annulled by virtue of a judicial declaration with the Court specifically holding that an offense could not be said to have been committed, it would be wholly impermissible to allege that the person or entity indulged in money laundering. The Court bears in mind the fact that the expression proceeds of crime has been defined under the Act itself as the acquisition of property and assets by any person as a result of "criminal activity" relating to a scheduled offense. The initiation of proceedings under the Act are predicated on the commission of an offense finding mention in the Schedule. The Court is thus of the firm view that it would be wholly illogical and irrational to hold that an allegation of money laundering would survive in the absence of an allegation that a person committed an offense mentioned in the schedule to the Act. 96. If the charge of criminal activity ceases to exist in law, a charge of money laundering would neither sustain nor survive. This was the view which was expressed by a learned Judge of this Court in Rajiv Chanana and Gagandeep Singh. The Court has already dealt with the impact of the acquittal and discharge of an accused and ....
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.... scope of Section 3. That activity or process as has been found above, does not form subject matter of the present chargesheet and in any case those allegations insofar as they stood comprised in the first chargesheet already stand quashed by this Court. The allocation of the coal block in any case on its own cannot be held to amount to money laundering. 99. Before concluding the discussion on this issue, it would be pertinent to note that there is no allegation that proceeds of crime had been generated as on 04 September 2003. The respondents have not founded the impugned proceedings on any monetary gains or benefits that may have allegedly accrued to the petitioners as on 04 September 2003. In the absence of any allegation that such gains had been derived or obtained as on that date, the Court finds itself unable to appreciate how proceedings under the Act could have been validly initiated. M. WHETHER ARTICLE 20(1) VIOLATED 100. This Court has already held that the date of inclusion of the predicate offense in the Schedule to the Act would not be determinative of the question whether proceedings under the Act have been validly initiated. The submission proceeding along t....
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....in the Schedule has no correlation to the invocation of the penal provisions of the Act. It has also held that the Act cannot be said to operate retroactively merely because the proceedings are based on the commission of a predicate offense which had occurred prior to its enforcement. The Court has also duly noted the judgments rendered by various other High Courts on the question and thus does not propose to reiterate the same in this part of the judgment. The Court exposits and reiterates the legal position to be that it is the date of the commission of the offense of money laundering and not the date of commission of a scheduled offense which is relevant and determinative. 103. Insofar as the additional submissions of Mr. Sibal addressed in this regard are concerned, the Court finds that there exists no necessity to rule on the same in light of the conclusions recorded by the Court under headings I and J. Since the Court has already found that the allocation would not fall within the ambit of Section 2(1)(u) or 3 coupled with the impact of the quashing of the first chargesheet discussed above, the arguments flowing from Article 20(1) as canvassed by Mr. Sibal need not be gone....
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....ies noted above on the ground that their attachment is being resorted to out of compulsion and necessity and since the tainted properties could not be discovered or traced. This the Court observes notwithstanding it having already found that the allocation did not constitute proceeds of crime, that the second chargesheet stood restricted upto 04 September 2003 and the quashing of the first chargesheet brought all allegations of criminal activity allegedly indulged in post that date to an end. In fact and to the contrary, the provisional order of attachment proceeds on the basis that the promoter/Directors of Prakash Industries indirectly exercised majority control over the entities in whose names properties were purchased. This included Hi Tech Mercantile one of the petitioners in the second writ petition. The provisional attachment order further records that by virtue of the majority shares held by the Promoter/Directors of Prakash Industries in their sister concerns, they would be deemed to be the owners of the assets detailed in Paragraph 7.1 "through themselves or through the said promoter companies/LLPs". Thus, the properties provisionally attached and mentioned in Paragraph 7....
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....sputedly, the offense of money laundering rests on the commission of a predicate offense which in turn may have resulted in a pecuniary benefit being obtained and derived. It fundamentally aims at confiscation of benefits that may be derived as a result of criminal activity and the commission of a scheduled offense. It is aimed at countering and penalising the malaise of wealth and assets acquired as a result of criminal activity B. It is evident from a reading of the Act that while the commission of a predicate offense is the precipitate step for initiation of proceedings under the Act, the offense of money laundering must be tried and established separately. It is also pertinent to observe that the predicate offense constitutes the very foundation of a charge of money laundering. The entire edifice of a charge of money laundering is raised on an allegation of a predicate offense having been committed, proceeds of crime generated from such activity and a projection of the tainted property as having been legitimately acquired. C. However, once it is found on merits that the accused had not indulged in any criminal activity, the property cannot legally be treated a....
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....ly it must be held that once it is found by a competent court, authority or tribunal that a predicate offence is either not evidenced or on facts it is held that no offence at all was committed, proceedings under the Act would necessarily have to fall or be brought to a close. H. Turning then to Section 3 of the Act, the Court finds that the said provision would come into play only if proceeds of crime are found to have been generated. As this Court reads Section 3 it finds that the offence of money laundering has an enduring and ineffaceable link to proceeds of crime. Absent the commission of a criminal offence, the foundation of proceedings initiated under the Act would undoubtedly fall and self-destruct. I. The Court further notes that not every criminal activity falls within the ambit of Section 3. While criminal activity may represent or evidence the commission of a predicate offence under the Penal Code, it is only activity relating to the laundering of proceeds of crime which can form the subject matter of proceedings under the Act. Absent the existence of criminal activity which may have resulted in proceeds of crime having been gained or obtained, a charg....
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....ceedings initiated under the Act. N. The Court thus concludes that an offense of money laundering that may be committed post 01 July 2005 would still be subject to the rigours of the Act notwithstanding the predicate offense having been committed prior to that date. As noted hereinabove, Section 3 creates an offense for money laundering. Neither that provision nor the Act is concerned with the trial of the predicate offense. Thus, any activity or process that may be undertaken by a person post 01 July 2005 in terms of which proceeds of crime are acquired, possessed or used and/or projected as untainted property would still be subject to the provisions of the Act. O. The Court exposits and reiterates the legal position to be that it is the date of the commission of the offense of money laundering and not the date of commission of a scheduled offense which is relevant and determinative. The date of inclusion of a crime as a scheduled offense would also not be determinative and the issue would have to be decided bearing in mind whether an allegation of money laundering stood committed after the Act had come into force. P. The conflict between Axis Bank and S....
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....onfer protection on a bona fide third-party interest that may come to exist in property acquired upon payment of due consideration. It also recognized the right of such a person to establish before the Adjudicating Authority that the acquisition of the interest was not intended to defeat the objectives of the Act and was a transfer validly made upon payment of due consideration. U. Axis Bank further held that in order to uphold action that the Directorate may take against alternative attachable property was one which established a nexus or link between such properties on the one hand and the person accused of money laundering. It further propounded the test that in such a case it would have to be found that the person accused of money laundering had an interest in such property at least till the time of engagement in the proscribed criminal activity from which a pecuniary interest had been derived or obtained. It also held that the date or period of commission of criminal activity would be liable to be treated and recognized as the cut off. V. These tests as spelt out in Axis Bank adequately safeguard third party interests. Seema Garg while proceeding to hold to t....
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....mber 2003. This coupled with the fact that the allocation itself would not represent proceeds of crime leads the Court to the unescapable conclusion that the impugned proceedings are rendered patently illegal. AA. The Court has additionally taken into consideration the fact that the first chargesheet and which dealt with allegations of the allocation having been utilized for the purposes of extracting coal, the diversion of the mined mineral for unlawful gain, the acquisition of properties from the profits so earned and other related allegations already stands quashed. As long as that judicial declaration holds the field, the Court would have to necessarily acknowledge that no criminal activity was indulged in. BB. The show cause notice and the provisional orders of attachment proceed on the basis that the profits derived from criminal activities post 04 September 2003 and the properties acquired directly as a result thereof are liable to be attached under the Act. However, and as this Court has found activities post 04 September 2003, cannot form the foundation for the initiation of proceedings under the Act since the chargesheet itself stands restricted to event....