2013 (8) TMI 474 - HC - Money Laundering

Property Liable to Attachment - proceeds of crime - Prevention of Money Laundering Act, 2002 - Petitioners contended that the property in ownership, control or possession of a person not charged of having committed a scheduled offence would not constitute proceeds of crime - Held that - Property owned or in possession of a person, other than a person charged of having committed a scheduled offence was equally liable to attachment and confiscation proceedings under Chapter III and Section 2(1) (u) which defines the expression Proceeds of Crime , was not invalid. Interpretation of Provisions of Section 5 - The Bombay High Court in the Judgement had interpreted the provisions of Section 5 (1) of the Act even prior to incorporation of the Second proviso by the Second Amendment Act, 2009) as enabling initiation of proceedings for attachment and confiscation of property in possession of a person not accused/charged of an offence u/s 3 as well - The Second Amendment Act in so far as it has incorporated the second proviso to Section 5(1), it was contended on behalf of the respondents was by way of clarification and emphasis as to the true import and trajectory of Section 5(1) Held that - that the provisions of the second proviso to Section 5 were applicable to property acquired even prior to the coming into force of this provision (vide the second amendment Act with effect from 06032009); and even so was not invalid for retrospective penalization. Validity of Section 23 - Held that - The presumption enjoined in cases of interconnected transactions enjoined by Section 23 was valid - The challenge to Section 23 was projected on the ground that the presumption enjoined by this provision in respect of interconnected transactions was unduly restrictive of the right to property; was a disproportionate burden, not commensurate with legitimate Governmental interests in targeting proceeds of crime involved in money laundering, for eventual confiscation. Validity of Section 8 Held that - Provisions of Section 8 were not invalid for vagueness, incoherence as to the onus and standard of proof, ambiguity as regards criteria for determination of the nexus between a property targeted for attachment/confirmation and the offence of money laundering or for exclusion of mens rea/knowledge of criminality in the acquisition of such property, Section 8(4), which enjoins deprivation of possession of immovable property pursuant to an order confirming the provisional attachment and before conviction of the accused for an offence of money laundering was valid. Constitutionality of Section 24 Held that - Section 24 shifts the burden of proving that proceeds of crime are untainted property onto person(s) accused of having committed the offence u/s 3 - This provision was challenged as arbitrary; was contended to be applicable only to the trial of an offence u/s 3 and not the proceedings for attachment and confiscation of property under Chapter III and alternatively as not applicable to proceedings for attachment and confiscation of property of a person not accused of an offence u/s 3. Burden to Prove - Held that - On its textual and grammatical construction, the provision shifts the burden of proving that proceeds of crime were untainted property on person(s) accused of having committed the offence u/s 3 The burden of proving that proceeds of crime were untainted property was applicable not only to prosecution and trial of a person charged of committing an offence u/s 3 but to proceedings for attachment and confiscation in Chapter III of the Act as well; but only to a person accused of having committed an offence u/s 3 - The burden enjoined by Section 24 does not inhere on a person not accused of an offence u/S 3 - The presumption under Section 23 however applies in interconnected transactions, both to a person accused of an offence under Section 3 and a person not so accused.

Issues Involved:
1. Legality of Provisional Attachment Orders under the Prevention of Money Laundering Act, 2002 (PML Act).
2. Jurisdiction and powers of competent and adjudicating authorities under Sections 5 and 8 of the PML Act.
3. Retrospective application of penal statutes.
4. Rights of bona fide purchasers under the PML Act.
5. Validity of directions issued by authorities to prevent the registration of properties under investigation.

Detailed Analysis:

1. Legality of Provisional Attachment Orders:
The petitioners challenged the provisional attachment orders dated 15.03.2012 and the subsequent confirmation orders dated 10.07.2012 under Sections 5 and 8 of the PML Act. They argued that the properties in question were not "proceeds of crime" as defined under the Act. The court analyzed the definition of "proceeds of crime" and concluded that the properties could be attached if they were derived from criminal activities related to scheduled offenses, even if the current owners were not directly involved in the crime. The court upheld the provisional attachment orders, stating that the authorities had sufficient material to believe that the properties were involved in money laundering.

2. Jurisdiction and Powers of Authorities:
The petitioners contended that the competent and adjudicating authorities under the PML Act lacked jurisdiction to attach properties acquired before the Act was amended in 2009. The court referred to the Andhra Pradesh High Court's decision in B. Rama Raju's case, which clarified that the PML Act's provisions apply to properties acquired before the amendment. The court held that the authorities had the jurisdiction to attach properties if they were derived from proceeds of crime, regardless of when they were acquired.

3. Retrospective Application of Penal Statutes:
The petitioners argued that the penal provisions of the PML Act could not be applied retrospectively. The court rejected this argument, citing the second proviso to Section 5(1) of the PML Act, which allows for the attachment of properties if the authorities believe that the properties are likely to be concealed or transferred to frustrate confiscation proceedings. The court held that the PML Act's provisions could be applied to properties acquired before the 2009 amendment, as the Act's primary objective is to prevent money laundering and confiscate proceeds of crime.

4. Rights of Bona Fide Purchasers:
The petitioners claimed to be bona fide purchasers of the attached properties and argued that they should not be penalized for transactions they were unaware of. The court held that the PML Act's provisions apply to all properties derived from proceeds of crime, regardless of the current owner's knowledge or involvement in the original crime. The court emphasized that the Act aims to target proceeds of crime, and bona fide purchasers must demonstrate that they acquired the properties through legitimate means to avoid attachment and confiscation.

5. Validity of Directions to Prevent Property Registration:
The petitioners challenged the directions issued by the Directorate of Enforcement to the Sub-Registrar of Registration, State of Gujarat, not to register the properties under investigation. The court upheld these directions, stating that they were necessary to prevent the properties from being transferred or concealed, which could frustrate the confiscation proceedings. The court found that the directions were within the powers conferred by the PML Act and were consistent with the Act's objectives.

Conclusion:
The court dismissed the petitions, upholding the provisional attachment orders and the subsequent confirmation orders under the PML Act. The court found that the authorities had acted within their jurisdiction and powers, and the provisions of the PML Act could be applied retrospectively to properties acquired before the 2009 amendment. The court also upheld the directions issued to prevent the registration of properties under investigation, emphasizing the Act's objective to prevent money laundering and confiscate proceeds of crime.

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