TaxTMI 
TaxTMI 
2024 (10) TMI 1743
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....21 Stay, FPA-PMLA-4074/BNG/2021 Justice Munishwar Nath Bhandari : Chairman For the Appellants : Mr. Kirit S. Javali, Advocate For the Respondents : Ms. Anubha Bhardwaj, Advocate By this appeal under Section 26 of the Prevention of Money Laundering Act, 2002 (in short `the Act of 2002'), a challenge has been made to the order dated 19.03.2021 passed by the Adjudicating Authority confirming the Provisional Attachment Order dated 24.09.2020. 2. It is a case where a complaint was received vide letters dated 20.02.2020 and 26.06.2020 from the office of the Registrar of Co-operative Society, Bangaluru along with its enclosures. It was alleged that on inspection of M/s Sree Kanva Souharda Co-operative Credit Limited (hereinafter referred to as Co-operative Society'), major lapse and serious irregularities were found in their working. The inspection was conducted on the public complaint. It was found that the Co-operative Society had collected deposits of Rs. 650 Crores from the members and public, assuring its return on very high rate of interest. The collection of money was through commission agents. The public invested the money under the assurance of return of mo....
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....d while in custody thus could not have been relied by the respondents to prove the allegation of money laundering under Section 3 of the Act of 2002 and accordingly, there was no reason to attach the property. 6. It was further submitted that many of the properties attached by the respondents were acquired by the appellant prior to the commission of the offence. In view of the above, those properties purchased prior to the commission of crime could not have been attached in the absence of any nexus of those properties with the crime. The respondents ignored the aforesaid aspects while attaching the properties of the appellant, treating it to be the `proceeds of crime' though many of the properties were purchased much prior to the commission of crime. Thereby, on the aforesaid ground itself, the impugned order deserves to be set aside. 7. The learned counsel for the appellant submitted that the definition of `proceeds of crime' given under Section 2(1)(u) of the Act of 2002 permits attachment of the properties which are obtained or derived directly or indirectly by any person as a result of criminal activity relating to a scheduled offence. In the instant case, many of....
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....de after recording of the ECIR, incriminating documents of the group entities, bank accounts and documents relating to immovable properties were seized and thereupon the appellant N. Nanjundaiah was arrested on 25.08.2020. During investigation, certified copies of sale deeds and encumbrance certificate of the immovable properties held in the name of the appellant and his family members, and the Group companies of Kanva and its entities, were collected/recovered from the office of the Sub-Registrar, Bangaluru. 11. 150 bank accounts were discovered during the investigation with a money trail and intertwined transactions found in the name of the Co- operative Society and its entities apart from the appellant and his family members. Approximately, 85 bank accounts listed in the name of Co- operative Society were used to collect the investment made by the investors. Analysis of the bank accounts of various group entities revealed that crores of rupees were diverted from the bank account of the Co-operative Society without any financial transaction. It was done solely for a purpose of laundering money. The total `proceeds of crime' determined was toa sum of Rs. 255,17,07,304/-. ....
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....gument raised by the counsel for the appellant for challenge to the impugned order is that out of many properties attached, few were purchased prior to the commission of crime thus they would not fall under the definition of `proceeds of crime'. The perusal of the record does not show the source to acquire the properties by the appellant and the properties acquired prior to the commission of crime is taken from the date of registration of the FIR whereas the commission of crime was started much prior to the registration of FIR. It was started from the date of collection of the amount from the investors and members of the Society which was of Rs. 650 Crores. The date of registration of FIR cannot be considered to be the date of commission of offence, rather it has committed prior to the commission of offence. The appellant has failed to give details of the properties alleged to have been purchased prior to the commission of crime and in any case even if any property was acquired prior to the commission of crime, then in absence of availability of the proceeds in the hands of the appellant, any other property of equivalent value can be attached to secure the proceeds. The definit....
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.... 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;" 13. The perusal of the definition aforesaid shows three limbs. In between every limb word "or" has been used to divide the definition into three parts. The first part refers to the property acquired or derived directly or indirectly out of the criminal activities relating to the scheduled offence. In the first part, all those properties which are acquired directly or indirectly out of criminal activities would be termed to be the proceeds of crime. The properties can be acquired directly or indirectly with the use of proceeds of crime. The use of proceeds directly or indirectly would be relevant part to fall in first part of the definition of proceeds of crime'. To clarify the definition, it may be ....
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....would be siphoned off or vanished so that it may not remain available for attachment. In fact, the word "the value of any such property" was inserted by the legislature to attach the property of equivalent value, if the proceeds out of commission of crime is not available or vanished. If the second limb of the definition is made dependent on the first limb, it would be literally re-writing the provision or making it redundant to a great extent and for this, jurisdiction does not lie with any court of law which includes even the Constitutional Court. They can declare any provision to be unconstitutional but till then there remains presumption of constitutional validity. 16. At this stage, we may refer to Para 68 of the judgment in the case of Vijay Madanlal Choudhary (supra) which is quoted hereunder. "68. It was also urged before us that the attachment of property must be equivalent in value of the proceeds of crime only if the proceeds of crime are situated outside India. This argument, in our opinion, is tenuous. For, the definition of "proceeds of crime" is wide enough to not only refer to the property derived or obtained as a result of criminal activity relati....
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.... 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 case. The confiscation to be eventually ordered, however, must be restricted to the value of illicit gains from the crime. For the sake of convenience, the properties covered by the second and third categories may be referred to as "the alternative attachable property" or "deemed tainted property". 17. The judgment of the Delhi High Court makes it clear that the definition of "proceeds of crime" has three limbs and in the second limb the properties of equivalent value to the proceeds obtained out of crime can be attached which may have been acquired prior to the ....
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.... by the Delhi High Court in the case of Prakash Industries Ltd. v. Directorate of Enforcement reported in 2022 SCC OnLine Del 2087.The relevant paras are quoted hereunder: "76. Seema Garg principally holds that the phrase value of any such property and property equivalent in value held within the country or abroad cannot be ascribed the same meaning and effect. The learned Judges comprising the Division Bench then proceeded to hold that even if the intent of the legislature was to include any property in the hands of a person within the ambit of the expression proceeds of crimell, there would be no need to create three limbs of definition of proceeds of crime. xxxx 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 re....
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....property. Those caveats duly secure and protect bona fide third- party interests created for valid consideration. This Court, thus, reaffirms those defences as were culled out in Axis Bank. 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 and the Patna High Court in HDFC Bank Limited Vs Government of India, Ministry of Finance. 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.14713-14715/2020 preferred against the same came to be dismissed, wh....
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....y Madanlal Choudhary (supra) was not cited and thus counsel for the respondent submitted that the judgment in the case of Pavana Dibur (supra) does not propound ratio on definition of "proceeds of crime" and, therefore, direction for the property acquired prior to commission crime is to be taken on facts of that case. 22. It has already been clarified by us that if the definition of "proceeds of crime" is given interpretation by dividing it into two parts or by taking only two limbs, then it would be easy for the accused to siphon off or vanish the proceeds immediately after the commission of scheduled offence and in that case none of his properties could be attached to secure the interest of the victim till conclusion of the trial. This would not only frustrate the object of the Act of 2002, but would advance the cause of the accused to promote the crime of money laundering. The Judgment in the case of Vijay Madanlal Chaudhary(supra)is of three judges bench while the judgment in the case of Pavana Dibur (supra) is of two judges bench. The issue has otherwise been dealt with by this Tribunal in the case of FPA-PMLA-2909/CHD/2019 M/s. Besco International FZE vs. The Deputy ....
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....ty." 23. At this stage, it is reiterated that any other interpretation other than the one taken by Delhi High Court in the cases of Axis Bank (supra) and Prakash Industries(supra) for the definition of "proceeds of crime" would defeat the object of the Act of 2002. It is more especially when the arguments raised by the appellant that the property acquired prior to the commission of crime would not fall in the definition of "proceeds of crime". In that case, the task of the accused would become very easy to first commit the scheduled offence and after obtaining or deriving the property out of the criminal activities, immediately siphon off or vanish so that it may not remain available for attachment and otherwise the contingency aforesaid would satisfy only the first limb of definition of "proceeds of crime" leaving the second. We are thus unable to accept the argument raised by the appellant so as to make the middle part of the definition of "proceeds of crime" to be redundant". 16. In the light of the aforesaid and in the absence of any material to show the source for acquisition of properties, the only argument raised by the appellant cannot be accepted. 17. The ap....