TaxTMI 
TaxTMI 
2022 (9) TMI 1287
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.... hereinafter) in FPA-PMLA747/DLI/2014 to the limited extent of continuation of attachment of the property of the appellant. A consequential prayer has been made by the appellant for a direction to the respondent to release the said property from attachment. Facts: 3. Appellant is a company and is a Special Purpose Vehicle for implementation of the Vodarevu and Nizampatnam Ports and Industrial Corridor Project, also known as VANPIC Project. VANPIC Project is a Government to Government project conceptualised by virtue of an arrangement between Government of Andhra Pradesh and Government of Ras al Khaimah, one of the emirates of United Arab Emirates. For the purpose of VANPIC Project, appellant i.e., VANPIC Projects Private Limited and another Special Purpose Vehicle by the name VANPIC Ports Private Limited had acquired 13,221.69 acres of land in all, including assigned and patta land. 4. A Division Bench of the then Andhra Pradesh High Court passed an order dated 10.08.2011 in W.P.No.794 of 2011 directing investigation by Central Bureau of Investigation (CBI) into allegations of investments, in the nature of bribes, into companies allegedly controlled by Y.S.Jagan Mohan Reddy, S/o....
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.... was registered as FPA-PMLA-747/DLI/2014, M/s. VANPIC Projects Private Limited v. Deputy Director, Enforcement Directorate. 12. While the above appeal was being heard, respondent passed another provisional attachment order No.6 of 2017 dated 28.07.2017 provisionally attaching 11,804.78 acres of assigned lands forming part of the VANPIC Project and in which both the appellant and VANPIC Ports Private Limited have interest. 13. Following the same, respondent filed original complaint No.811 of 2017 dated 14.08.2017 before the adjudicating authority. Again adjudicating authority issued notice to show cause dated 31.08.2017 to the appellant. Responding to the show cause notice, appellant submitted reply dated 16.11.2017. It is alleged that without considering the reply of the appellant, adjudicating authority vide the order dated 15.01.2018 confirmed the provisional attachment order No.6 of 2017 dated 28.07.2017. 14. Aggrieved by the above, appellant along with VANPIC Ports Private Limited preferred an appeal against the order dated 15.01.2018 before the Appellate Tribunal which has been registered as FPA-PMLA-2202/Hyderabad/2018, VANPIC Ports Private Limited and another v. Joint Dir....
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....with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime. In the absence of such reason to believe which must be recorded in writing, there cannot be any attachment of property, provisional or otherwise. In the present case there was no reason to believe by the attaching authority on both counts. 18.1. Learned Senior Counsel has drawn the attention of the Court to the provisional attachment order, more particularly to paragraph 21 thereof, and submits therefrom that the respondent did not record his reasons to believe based on material in his possession that the appellant was in possession of any proceeds of crime and that such proceeds of crime were likely to be concealed etc., thereby frustrating any proceedings for confiscation of such proceeds of crime. Though an attempt was made to cure such jurisdictional defect in the original complaint, even the same failed to satisfy the test of Section 5 of PMLA. Such an omission goes to the root of the matter. He, therefore, submits that there was no rational basis for ordering provisional attachment of property of the appellant and confirming the same. 18.2. Mr. Nanda, learn....
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.... not recorded valid reason to believe as per requirement of Section 5(1) of PMLA. Therefore, adjudicating authority ought not to have issued notice under Section 8(1) of PMLA, leave alone confirm the provisional attachment order. Appellate Tribunal further pointed out non-compliance to the mandatory requirements of PMLA by the respondent; no copy of reason to believe was served upon the appellant and even opportunity of hearing was not given to the appellant despite specific objection. Appellate Tribunal observed that according to the respondent, the properties were not per se involved in money laundering, but have been attached merely to secure the value of the alleged proceeds of crime. 18.4. Drawing the attention of the Court to paragraphs 20 and 21 of the provisional attachment order, learned Senior Counsel submits that respondent had quoted un-amended Section 5(1) though the said provision came to be amended with effect from 15.02.2013. This itself reflects complete non-application of mind by the respondent. 18.5. Proceeding further, learned Senior Counsel submits that Appellate Tribunal pointed out serious lacunae in the provisional attachment order as well as in the confir....
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....in the property. As per the third proviso, the Special Court may consider the claim of the claimant for the purpose of restoration of property during trial. 19.1. In the course of his submissions, learned Additional Solicitor General of India has referred to paragraphs 50, 160 and 171 of the impugned order and submits that Appellate Tribunal had adopted a very balanced and judicious approach. According to him, the appeal is premature and should not be entertained. 20. In response, Mr. Nanda submits that respondent has not preferred any appeal against the impugned order of the Appellate Tribunal vis-à-vis the key findings pertaining to the appellant. If the respondent has accepted such findings, logically the same should lead to de-attachment of the property. 20.1. In so far reliance placed by learned Additional Solicitor General of India on sub-section (8) of section 8 of PMLA, learned Senior Counsel for the appellant submits that sub-section (8) of Section 8 will come into play only after the attached property is confiscated to the Central Government on conclusion of trial. At that stage, Special Court may direct the Central Government to restore the confiscated property....
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....eeds of crime; and (ii) projecting it as untainted property. This is further clarified by the Explanation below Section 3. 22.3. "Proceeds of Crime" is defined under Section 2(1)(u) which reads as under: Section 2(1)(u) 'Proceeds of crime' means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property 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 the removal of doubts, it is hereby clarified that 'proceeds of crime' include 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. 22.4. Thus, proceeds of crime would mean 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 property equivalent in value held within the coun....
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....in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act.] Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted. (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that subsection, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed. (3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under [sub-section (3)] of Section 8, whichever is earlier....
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....hority shall keep such order and material for such period as may be prescribed. 23.3. Sub-section (3) clarifies that every order of attachment made under sub-section (1) shall cease to have effect after expiry of the period specified in that subsection or on the date of an order made under sub-section (3) of Section 8, which we will advert to a little later, whichever is earlier. Again by way of clarification, subsection (4) says that nothing in Section 5 shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment. 23.4. While we are on sub-section (4) of Section 5 of PMLA, we may mention that this provision came up for consideration before the Supreme Court in Vijay Madanlal Choudhary v. Union of India 2022 SCC OnLine SC 929. One of the grievances expressed before the Supreme Court in the aforenoted case, rather challenge made, pertained to the stipulation in sub-section (4) of Section 8 providing for taking over possession of the property. It was in that context, Supreme Court held that the principle set out in Section 5(4) of PMLA needs to be extended even after confirmation of provisional attachment order u....
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....he property is not involved in money-laundering. (3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of section 5 or retention of property or record seized or frozen under section 17 or section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property] or record shall-- (a) continue during investigation for a period not exceeding three hundred and sixty-five days or the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and (b) become final after an order of confiscation is passed under sub-section (5) or subsection (7) of section 8 or section 58B or subsection (2A) of section 60 by the Special Court; Explanation.--For the purposes of computing the period of three hundred and sixty-five days under clause (a), the period during which the investigation is stayed by any court unde....
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....espite having taken all reasonable precautions and is not involved in the offence of money laundering: Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed. 24.1. As per sub-section (1) of Section 8, on receipt of a complaint under sub-section (5) of Section 5 or applications under other provisions, if the adjudicating authority has reason to believe that any person has committed an offence under Section 3 or is in possession of proceeds of crime, it may after notice call upon the person concerned to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of Section 5, the evidence on which he relies etc and show cause why all or any of such properties should not be declared to be properties involved in money laundering and confiscated by the Central Government. 24.2. In terms of sub-section (3), if adjudicating authority decides that any property is involved in money laundering, he shall, by an order in writing, confirm the att....
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.... claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite taking reasonable precautions and is not involved in the offence of money laundering. Second proviso however provides that even during the trial, the Special Court may consider the claim of the claimant for the purpose of restoration of such property, if it thinks fit. 24.4. A bare reading of sub-section (8) of Section 8 would show that it will come into play only after the Special Court has confiscated the attached property to the Central Government after conclusion of trial. Therefore, the second proviso appears to be contrary to the intent of the main provision of sub-section (8) since it deals with restoration of attached property during the trial whereas the main provision deals with a situation on conclusion of trial. However, we need not labour much on this aspect. As already noticed above, sub-sections (5) to (8) of Section 8 deal with the attached property, either to be confiscated or to be released, after conclusion of trial by the Special Court. The said stage is yet to be reached in the present case and in this appeal we are only concerned with the order passed by ....
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..... Therefore, an appeal under Section 42 can be on a question of law (need not be a substantial question of law) or on fact. 26. Though the present appeal has been preferred under Section 42 of PMLA on a number of questions of law, the core issue is whether the Appellate Tribunal had erred by abdicating its adjudicatory functions while relegating the appellant to the Special Court to seek release of the attached property after having found the attachment to be illegal? 27. Before we proceed to deal with the orders of the provisional attachment, the adjudicating authority and that of the Appellate Tribunal to answer the question so framed, it would be apposite to dilate on the expression reason to believe which is the sine qua non for provisional attachment of a property under sub-section (1) of Section 5 or for issuance of notice under sub-section (1) of Section 8 by the adjudicating authority for continuation of attachment under sub-section (3) of Section 8. 28. From a careful analysis of sub-section (1) of Section 5, it is evident that the requirement of law is that the competent attaching authority must have reason to believe, which must be recorded in writing, on the basis of....
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....ving regard to the two aspects mentioned in Section 8(1) of PMLA. 29.2. At this stage, we may refer to the decision of the Delhi High Court in J.Sekhar v. Union of India (1 supra). After analysing the provisions of sub-section (1) of Section 5 and sub-section (1) of Section 8 of PMLA, a Division Bench of Delhi High Court held that the reason to believe at every stage must be noted down by the officer in the file. While the reason to believe recorded at the stage of passing the order of provisional attachment under Section 5(1) of PMLA may not be communicated forthwith to the person adversely affected thereby at that stage, the reasons as recorded in the file have to accompany the complaint filed by such officer within thirty days before the adjudicating authority under Section 5(5) of PMLA. Delhi High Court further held that a copy of such complaint accompanied by the reasons, as found in the file, must be served by the adjudicating authority upon the person affected by such attachment after the adjudicating authority adds its own reasons why he prima facie thinks that the provisional attachment should continue. Thereafter, it has been held as follows: 75. There are two reasons ....
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.... faith: it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the Income Tax Officer: the forum of decision as to the existence of reasons and the belief is not in the mind of the Income Tax Officer. If it be asserted that the Income Tax Officer had reason to believe that income had been underassessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable. The expression therefore predicates that the Income Tax Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief; in other words, the Income Tax Officer must on information at his disposal believe that income has been under-assessed by reason of failure to fully and truly disclose all material facts necessary for assessment. Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information. 32. In S.Narayanappa v. Commissioner of Income Tax,....
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....and are not extraneous or irrelevant. Elaborating further, Supreme Court held that rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of income from assessment in that particular year. Supreme Court sounded a note of caution by observing that though the powers of the Income Tax Officer to re-open assessment are wide, those are not plenary; the words of the statute are 'reason to believe' and not 'reason to suspect'. 35. Tata Chemicals Limited v. Commissioner of Customs (Preventive), Jamnagar (2015) 11 SCC 628 : (2015) 320 ELT 45 was a case where Supreme Court explained the meaning of the expression reason to believe as appearing in section 110 of the Customs Act, 1962. Supreme Court has opined that the said expression does not connote the subjective satisfaction of the officer concerned. For such a power given to the officer concerned is not an arbitrary power and has to be exercised in accordance with the restraints imposed by law, the belief must be that of an honest and reasonable person based upon reasonable grounds. If t....
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....ttachment of the properties as per Annexure A. In so far the appellant i.e., VANPIC Projects Private Limited is concerned, the property attached by the Joint Director is at Sl.No.36 of Annexure A and reads as under: 36 855.7130 acres of land in Prakasham and Guntur districts in Andhra Pradesh as per Annexure - L2 enclosed with the attachment order M/s.Vanpic Projects Pvt. Ltd. Rs.27.72 crore 37.2 From the above it is evident that the Joint Director while exercising power under Section 5(1) failed to record his reason to believe (there is no reference to it in the provisional attachment order) that petitioner is in possession of proceeds of crime in the form of the attached property and that such proceeds of crime are likely to be concealed etc., which may frustrate any proceeding relating to confiscation of such proceeds of crime. 38. The above order of provisional attachment was forwarded by the Joint Director to the adjudicating authority by way of a complaint under sub-section (5) of Section 5 of PMLA which was numbered as O.C.No.276 of 2014. By the order dated 19.08.2014, the provisional attachment order was confirmed. Before the adjudicating authority an argument was ....
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....ts addendum dated 12.10.2011 issued by the Director of Enforcement in exercise of his powers under sub-section (1) of section 5 of 'the PMLA, 2002'(15 of 2003), I hereby order for provisional attachment of the properties as per Annexure - 'A' and further order that the same shall not be transferred, disposed, parted with or otherwise dealt with in any manner, whatsoever, by the holders having ownership and/or possession until and unless specifically permitted to do so by the undersigned."i [Emphasis supplied] The Provisional Attachment Order shows that mere the language of section has been mentioned in the "reason to believe" after recording the facts and statement under section 50 of the Act, though the officer concerned has to be satisfied as per requirements of Sections 5(1)(a) of the PMLA by referring the details of investigation about the attachment of properties and proceed of crime for each head, a merely formality does not amount to valid reason to belief. 41. The Appellate Tribunal examined the order of the adjudicating authority and held that the adjudicating authority overlooked the fact that the provisional attachment order suffered from serious jurisdictional infir....
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....138. A bare perusal of the Show Cause Notice would show that the Learned Registrar has issued the same in a mechanical manner without even affording an opportunity to the Adjudicating Authority to apply its mind. No valid reasons are mentioned on the notice itself or any separate order is passed before issuance of notice which is requirement as per settled law. 43.1. Thus, from the above it is evident that Appellate Tribunal found that the notice under Section 8(1) was not in conformity with the requirement of the statute and that the adjudicating authority did not form any reason to believe that the noticee had committed an offence under Section 3 or is in possession of proceeds of crime. Therefore, the very foundation for issuance of notice under Section 8(1) was absent. Applying the decision of the Delhi High Court in J.Sekhar v. Union of India (1 supra), the above omission strikes at the very root of the matter rendering the adjudication proceedings as well as the provisional attachment order illegal. 44. Various other flaws vitiating the order of the adjudicating authority were pointed out by the Appellate Tribunal observing that the same reflected non-application of mind. A....
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....oviso are reproduced hereunder:- "Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed, may also direct the Central Government to restore such confiscated property or part thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of money laundering: Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money laundering:] [Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed.] 162. In view of peculiar facts and circumstances, the appellants are granted liberty to approach the Special Court on this issue. It is directed that Government of Andhra Pradesh may also appear before the Special Court and raise its specific stand so that the appropriate order be passed by the Speci....
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....that, Appellate Tribunal relegated the appellant to the forum of Special Court to seek de-attachment after itself observing that the trial before the Special Court, if conducted, may take number of years. 47. Supreme Court in Opto Circuit (supra) was dealing with a matter arising out of PMLA, more pertinently the challenge related to freezing of accounts on instruction of the Enforcement Directorate. In that context, Supreme Court observed that the scheme of PMLA is well intended. While it seeks to achieve the object of preventing money laundering and to bring to book the offenders, it also safeguards the rights of the persons who would be proceeded against under PMLA by ensuring fairness in procedure. It was in that context that Supreme Court emphasised the need to follow the laid down procedure under PMLA observing that when a statute provides a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner. 48. In J.Sekar @ Sekar Reddy, Supreme Court adverted to its earlier decision in Radheshyam Kejriwal v. State of West Bengal (2011) 3 SCC 581 and culled out the ratio of the said decision. It has been held amongst others that adju....
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....ly for giving effect to the order of confiscation. This is also because sub-section (6) of Section 8 postulates that where on conclusion of a trial under the 2002 Act which is obviously in respect of offence of money-laundering, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it. Once the possession of the property is taken in terms of sub-section (4) and the finding in favour of the person is rendered by the Special Court thereafter and during the interregnum if the property changes hands and title vest in some third party, it would result in civil consequences even to third party. That is certainly avoidable unless it is absolutely necessary in the peculiar facts of a particular case so as to invoke the option available under sub-section (4) of Section 8. 49.1. After holding so, Supreme Court clarified that taking over of possession of the property in question before a formal order of confiscation is passed merely on the basis of confirmation of provisional attachment order should be an exception and not a rule. It has be....
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....ical possession of the property held by such person. Further, it would serve no purpose by hastening the process of taking possession of the property and then returning the same back to the same person at a later date pursuant to the order passed by the Court of competent jurisdiction. Moreover, for the view taken by us while interpretating Section 3 of the 2002 Act regarding the offence of money-laundering, it can proceed only if it is established that the person has directly or indirectly derived or obtained proceeds of crime as a result of criminal activity relating to or relatable to a scheduled offence or was involved in any process or activity connected with proceeds of crime. 307. It is unfathomable as to how the action of confiscation can be resorted to in respect of property in the event of his acquittal or discharge in connection with the scheduled offence. Resultantly, we would sum up by observing that the provision in the form of Section 8(4) can be resorted to only by way of an exception and not as a rule. The analogy drawn by the Union of India on the basis of decisions of this Court in Divisional Forest Officer v. G.V. Sudhakar Rao (1985) 4 SCC 573, Biswanath Bhatt....