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2022 (9) TMI 1287
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....ew Delhi (briefly, 'the Appellate Tribunal' 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 a....
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....al under Section 26 of PMLA before the Appellate Tribunal which 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/....
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....nd that such proceeds of crime are likely to be concealed/transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime. 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 attachm....
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....f the impugned order and submits that Appellate Tribunal has held that respondent had 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....
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....nment to restore confiscated property or part thereof to the claimant having legitimate interest 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 tr....
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....oney laundering, essential preconditions are - (i) involvement in any process or activity connected with the proceeds 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....
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....other officer nor below the rank of Deputy Director authorized by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act.] 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) Eve....
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....per sub-section (2), the Director or the authorised officer shall immediately after attachment under subsection (1), forward a copy of the order along with the material in his possession to the adjudicating authority in the prescribed manner and the adjudicating authority 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 ....
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....cord a finding whether all or any of the properties referred to in the notice issued under subsection (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering. (3) Where the Adjudicating Authority decides under 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) be....
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....cribed, 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. 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 p....
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....(8) contemplates a situation where the property stands confiscated to the Central Government under sub-section (5). The Special Court may direct the Central Government to restore such confiscated property or a part thereof to a claimant with legitimate interest in the property who may have suffered quantifiable loss as a result of the money laundering. The first proviso says 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 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....
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....rescribed period of sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law or fact arising out of such order. As per the proviso, the High Court may allow an appeal to be filed beyond the initial period of sixty days but not exceeding further period of sixty days, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the initial period of limitation. 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 s....
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....ing authority who must form his own reason to believe independent of the reason to believe formed by the attaching authority while carrying out provisional attachment under sub-section (1) of Section 5. Therefore, the reason to believe must be present at both the stages and that reason to believe at the stage of Section 5(1) would not suffice for invoking jurisdiction under Section 8(1) for which the adjudicating authority must form its own independent reason to believe having 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....
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....lly and fully all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, the Income Tax Officer could initiate the process for re-opening of assessment. In Calcutta Discount Company Limited v. Income Tax Officer (1961) 2 SCR 241 : AIR 1961 SC 372 : (1961) 41 ITR 191, Supreme Court held that: The expression "reason to believe" postulates belief and the existence of reasons for that belief. The belief must be held in good 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 conte....
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....ax Officer to form such belief, that would be sufficient to clothe him with jurisdiction. Sufficiency of the grounds, however, is not justiciable. The expression reason to believe does not mean a purely subjective satisfaction on the part of the Income Tax Officer. The reason must be held in good faith and cannot be a mere pretence. It is open to a Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief 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....
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....hment 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 or unless specially permitted to do so by the undersigned. 37.1. Thus, the Joint Director held that on the basis of material in his possession and exercising powers conferred upon him under Section 5(1) of PMLA and on the basis of the authority vested in him, he ordered provisional attachment 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....
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.... is submitted on behalf of appellant that in the above thereof the Adjudicating Authority ought not to have even issued notice under S. 8(1) of the Act, leave alone confirm the Provisional Attachment Order. The relevant para-21 of Provisional Attachment Order is reproduced hereunder: "21. NOW THEREFORE, on the basis of material in my possession as per Annexure - R and in exercise of the powers conferred upon me under section 5(1) of 'the PMLA, 2002' (15 of 2003), the authority vested in me by the Authorization dated 07.02.2007 and its 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 r....
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..... It has been held as follows: 137. The Notice to Show Cause dated 04.04.2014 under section 8(1) of the Act (hereinafter the "Show Cause Notice") issued by the Registrar of this Adjudicating Authority to the Appellants was contrary to Section 8 (1) of the PMLA, for the reason that a Notice to Show Cause, under Section 8 (1) of the Act, can only be issued (following receipt of a Complaint under Section 5 (5) of the Act) after the Adjudicating Authority forms a "reason to believe that any person has committed an offence under Section 3 or is in possession of proceeds of crime". 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 belie....
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.... is of the opinion that no purpose would be served to continue the attachment as the said project was originally meant for public welfare of Hyderabad. The said project has already been delayed for more than ten years. The trial, if conducted if charges are framed, may take number of years. Therefore, the State Government has to take the stand about the said project. If necessary, the State Government may obtain the advice from Central Government, but the Chief Minister should not involve himself in said process directly or indirectly. 161. The amended provision of Section 8(8) of PMLA along with two proviso 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 ....
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....ceeds of crime. The adjudicating authority did not record any reason that the provisional attachment should continue. These are jurisdictional errors which have been clearly pointed out by the Appellate Tribunal. The above requirements being the foundation for attachment - either provisional or confirmation or continuation, in the absence thereof the provisional attachment order as well as the confirmation order of the adjudicating authority would be illegal, null and void, being without jurisdiction. Consequently, the natural corollary flowing from the findings would be that such property should be released from attachment. Instead of doing 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 laun....
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.... it does not follow that the property stands confiscated; and until an order of confiscation is formally passed, there is no reason to hasten the process of taking possession of such property. The principle set out in Section 5(4) of the 2002 Act needs to be extended even after confirmation of provisional attachment order until a formal confiscation order is passed. Section 5(4) clearly states that nothing in Section 5 including the order of provisional attachment shall prevent the person interested in the enjoyment of immovable property attached under sub-section (1) from such enjoyment. The need to take possession of the attached property would arise only 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 favo....
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.... warrant an extreme and drastic action of physical dispossession of the person from the property in every case - which can be industrial/ commercial/ business and also residential property, until a formal order of confiscation is passed under Section 8(5) or 8(7) of the 2002 Act. As demonstrated earlier, it is possible that the Special Court in the trial concerning money-laundering offence may eventually decide the issue in favour of the person in possession of the property as not being proceeds of crime or for any other valid ground. Before such order is passed by the Special Court, it would be a case of serious miscarriage of justice, if not abuse of process to take physical 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 pro....