2012 (5) TMI 240 - HC - Money Laundering

Money laundering - attachment of property - Constitutional validity - expressions - person ; proceeds of crime ; property and transfer - property owned by or in possession of a person, other than a person charged of having committed a scheduled offence - held that - the provisions of the Act which clearly and unambiguously enable initiation of proceedings for attachment and eventual confiscation of property in possession of a person not accused of having committed an offence under section 3 as well, do not violate the provisions of the Constitution including articles 14, 21 and 300A and are operative proprio vigore. The object of the Act is to prevent money-laundering and connected activities and confiscation of proceeds of crime and preventing legitimising of the money earned through illegal and criminal activities by investments in movable and immovable properties often involving layering of the money generated through illegal activities, i.e., by inducting and integrating the money with legitimate money and its species like movable and immovable property. Therefore, it is that the Act defines the expression proceeds of crime expansively to sub-serve the broad objectives of the Act. We thus do not find any infirmity in the provisions of the Act. The huge quanta of illegally acquired wealth ; acquired from crime and economic and corporate malfeasance corrodes the vitals of rule of law ; the fragile patina of integrity of some of our public officials and State actors ; and consequently threatens the sovereignty and integrity of the Nation. Parliament has the authority to legislate and provide for forfeiture of proceeds of crime which is a produce of specified criminality acquired prior to the enactment of the Act as well. It has also the authority to recognise the degrees of harm an identified pejorative conduct has on the fabric of our society and to determine the appropriate remedy for the pathology. The vagueness challenge - held that - In view of the clear and unambiguous provisions of section 8 (analysed above), considered in the context of the other provisions of the Act, we discern no vagueness in the trajectory of the provisions of section 8. It is clear that the stage of confirmation of an order of provisional attachment or retention of the property or record seized is an intermediary stage, anterior to confiscation. Challenge Incoherence as to the onus and standards of proof - held that - it is clear that the Legislature considered it appropriate to inhere different shades of presumptions and thus corollary burdens, on persons in the ownership, control or possession of property believed to be proceeds of crime, depending on whether the person is accused of a scheduled offence or not, necessitating such person to dislodge the presumption by probative evidence or material. The inherence of such presumptions is a matter of legal policy and no case is made out to hold, nor is it contended that the inherence of the burden by the enactment of presumptions is ultra vires the legislative power for being in transgression of any limitations on such legislative power in the Constitution of India. Dispossession from immovable property is prescribed under section 8(4) to prevent wastage or spoilage of the property and thus dissipation of its value so as to preserve the integrity and value of the property till the stage of confiscation. Thus construed the provisions of section 8(4) are neither arbitrary nor disproportionate to the object sought to be achieved by the provisions of the Act. The provisions of section 8(4) are reasonable and unimpeachable. The challenge to section 8 of the Act must therefore fail. Since section 23 enjoins a rule of evidence and a rebuttable presumption considered essential and integral to effectuation of the purposes of the Act in the legislative wisdom ; a rebuttable and not an irrebuttable presumption, we are not persuaded to conclude that the provision is unduly harsh, oppressive or arbitrary. After all a legislative remedy must correspond to the social pathology it professes to regulate. A person other than one accused of having committed the offence under section 3 is not imposed the burden of proof enjoined by section 24. On a person accused of an offence under section 3 however, the burden applies, also for attachment and confiscation proceedings.

Summary

Issues Involved:
1. Challenge to the vires of certain provisions of the Prevention of Money-Laundering Act, 2002.
2. Validity of provisional attachment orders and adjudicating authority's orders.
3. Applicability of the second proviso to section 5(1) on property acquired before its enactment.
4. Vagueness and ambiguity in the provisions of section 8.
5. Validity of section 8(4) regarding deprivation of possession before conviction.
6. Presumption in interconnected transactions under section 23.
7. Burden of proof under section 24.

Detailed Analysis:

Issue A: Challenge to the Vires of Certain Provisions
The petitioners contended that property owned or in possession of a person not charged with a scheduled offense should not be liable to attachment and confiscation. The court held that the expansive definition of "proceeds of crime" under section 2(1)(u) includes property derived from criminal activity, even if possessed by someone not charged with the offense. The second proviso to section 5(1) clarifies that any property of any person may be attached if involved in money-laundering, thus rejecting the contention that the Act only targets those charged with a scheduled offense. The court found no violation of articles 14, 21, or 300A of the Constitution in these provisions.

Issue B: Applicability of the Second Proviso to Section 5(1)
The court concluded that the second proviso to section 5(1) applies to property acquired before its enactment and is not invalid for retrospective penalization. The Act's provisions for attachment and confiscation of proceeds of crime, even if acquired before the enactment, do not violate constitutional prohibitions against ex post facto laws.

Issue C & D: Vagueness and Ambiguity in Section 8
The court found no vagueness in section 8. The procedural safeguards, including the requirement for a notice and an opportunity to respond, ensure that the process is fair. The burden of proof and the presumption in interconnected transactions are clearly defined, and the criteria for determining the nexus between the property and the offense of money-laundering are unambiguous. The court also upheld section 8(4), which allows for the deprivation of possession of immovable property before conviction, as it is designed to prevent wastage or spoilage of the property.

Issue E: Presumption in Interconnected Transactions
The presumption under section 23 that interconnected transactions are part of money-laundering unless proven otherwise is valid. The court held that this presumption is necessary to address the complex nature of money-laundering operations, which often involve multiple transactions to disguise the proceeds of crime.

Issue F: Burden of Proof Under Section 24
The burden of proof under section 24 applies to both the trial of an offense under section 3 and proceedings for attachment and confiscation under Chapter III. However, this burden is only on a person accused of having committed an offense under section 3. For others, the presumption under section 23 applies in interconnected transactions.

Conclusion:
The court dismissed the writ petitions, upholding the validity of the challenged provisions of the Prevention of Money-Laundering Act, 2002. The petitioners were advised to pursue available statutory appellate remedies regarding the merits of the orders of the adjudicating authority.