2014 (11) TMI 1134 - HC - Money Laundering

Provisional Order of Attachment - PMLA - issue of notice - Held that - If a complaint has been registered against an individual and the complaint is under investigation, his case would at least be covered by second proviso. To say that a person accused of committing an offence will not even come within the meaning of the expression any person under the second proviso, would tantamount to placing him in a much better position than a third party who do not commit any offence, but merely came into possession of the property that represents the proceeds of the crime. Therefore, on the first contention raised by the petitioner, hold that if a complaint has been registered against a person and a final report is already filed, his case would be covered by the first proviso. But, if a complaint has been registered against a person and a final report has not yet been filed, he would stand along with any other person against whom no complaint is lodged, but who is covered by the second proviso to Section 5(1) of the Act. Though the second proviso to Section 5(1) enables the Competent Authority to attach any property of any person , the word property should be understood only in the context of the definition under Section 2(1)(v). Consequently, such property should also satisfy the following criteria, namely, (a) that it was derived or obtained directly or indirectly, (b) by any person, and (c) as a result of criminal activity relating to a scheduled offence. Fortunately, the Adjudicating Authority is obliged under the proviso to Sub-section (2) of Section 8 to issue a notice to every person, who claims the property to be his own and to provide an opportunity of being heard even to such a person. Therefore, the Adjudicating Authority is obliged to issue a notice to LIC Housing Finance Limited. They have already issued show cause notices to the writ petitioners, though the petitioner in the second writ petition is not alleged of obtaining the property as a result of any criminal activity, to come within the definition of the expression proceeds of crime . The Adjudicating Authority has power, why, even an obligation and a statutory duty under Section 8(2) to look into the evidence produced by the petitioner in the second writ petition and LIC Housing Finance Limited and to come to an independent conclusion as to whether the provisional order of attachment is to be confirmed or not. Therefore, I am of the view that the petitioners should submit themselves to the enquiry under Section 8(1). It appears from the show cause notices issued by the Adjudicating Authority, that the first hearing of the case was slated for 10th November 2014. Since that date has expired, the Adjudicating Authority is directed to serve a fresh notice upon the petitioners as well as LIC Housing Finance Limited and all other interested parties, fixing a fresh date of hearing. On the fresh date of hearing, the petitioners as well as LIC Housing Finance Limited and all other interested parties shall appear before the Adjudicating Authority and submit their reply as well as evidence regarding the factual details. Thereafter, the Adjudicating Authority shall take note of what is stated above and record a finding in terms of Section 8(2). With the above limited directions, the writ petitions are disposed of, rejecting the challenge to the provisional orders of attachment and to the show cause notices.

Summary

Issues Involved:
1. Challenge to the Provisional Order of Attachment.
2. Challenge to the Show Cause Notice.

Detailed Analysis:

1. Challenge to the Provisional Order of Attachment:

Ground (i):
The petitioner argued that the Provisional Order of Attachment under Section 5(1) of the Prevention of Money-Laundering Act, 2002, cannot be passed unless a Final Report had been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973. The court noted that Section 5(1) underwent changes by Amendment Act 2 of 2013, which deleted the original clause (b) and the manner of making attachment. The first proviso to Section 5(1) remained the same, requiring either a report forwarded to a Magistrate under Section 173 or a complaint filed by an authorized person. In this case, no report had been forwarded to a Magistrate, and further proceedings were stayed by another judge. However, the second proviso to Section 5(1) allows attachment if the officer believes the property is involved in Money-Laundering and not attaching it may frustrate proceedings. The court concluded that if a complaint is registered and a final report is not yet filed, the case falls under the second proviso, thus validating the Provisional Order of Attachment.

Ground (ii):
The petitioner contended that the attachment was illegal as the properties did not entirely represent the proceeds of crime. The court examined the definition of "proceeds of crime" under Section 2(1)(u) and noted that the property must be derived from criminal activity related to a scheduled offence. For the first petitioner, the property was partly financed by LIC Housing Finance Limited, which had a stake in the property. The court highlighted that the Prevention of Money Laundering Act, 2002, does not account for the rights of financial institutions that lend money genuinely. The court acknowledged the need for the Adjudicating Authority to consider the stakes of LIC Housing Finance Limited and the second petitioner's claim that the property was conveyed to him due to a loan. The court directed the Adjudicating Authority to issue a notice to LIC Housing Finance Limited and allow them to present their case.

2. Challenge to the Show Cause Notice:

The petitioner argued that the Adjudicating Authority only has the power to confirm the Provisional Order of Attachment under Section 8(2) and (3) of the Act. The court analyzed the scheme of Section 8, noting that the Adjudicating Authority must have "reason to believe" before issuing a show cause notice under Section 8(1). The court emphasized that the Adjudicating Authority is not a mere rubber stamp and must independently assess the evidence. The Adjudicating Authority can record a finding under Section 8(2) that some or all properties are not involved in money laundering, which would terminate the proceedings. The court concluded that the Adjudicating Authority has the power and obligation to independently evaluate the evidence and decide whether to confirm the attachment.

Conclusion:
The court found that the first ground of attack to the Provisional Order of Attachment did not merit acceptance. The second ground of attack involved factual questions that the Adjudicating Authority could conveniently address. The court dismissed both writ petitions but directed the Adjudicating Authority to serve a fresh notice to the petitioners and LIC Housing Finance Limited, allowing them to present their evidence. The Adjudicating Authority must then record a finding in terms of Section 8(2). The writ petitions were disposed of with these directions, and no order as to costs was made.