2012 (7) TMI 1096 - HC - Money Laundering

Prevention of Money Laundering Act 2002 (PMLA) - proceedings of Director of Enforcement - proceeds of crime - entitlement to take possession of the properties - provisional orders of attachment - offences u/s 420 read with Section 511 IPC and Sections 4 and 5 of Prize Chits and Money Circulation Scheme (Banning) Act 1978 - HELD THAT - all the contentions of the writ petitioners are bound to fail except the contention relating to the entitlement of the respondents to take possession of the properties immediately after the orders of the Adjudicating Authority. While the orders of attachment passed by the Deputy Director and the orders of confirmation passed by the Adjudicating Authority are liable to be upheld the direction issued by the Adjudicating Authority to the Director to take possession of the properties alone is liable to be set aside. the writ petitions are allowed to a limited extent confirming all other portions of the impugned orders of the Deputy Director and the Adjudicating Authority except the portion relating to actual physical possession. The respondents are directed to put the petitioners back into possession of the properties. However the legal and constructive possession of the properties shall be deemed to remain with the Deputy Director/Director and the petitioners cannot alienate encumber or part with possession of the properties until the conclusion of the criminal proceedings against the accused and until the conclusion of the confiscation proceedings that may be taken up after the decision of the Criminal Courts. There will be no order as to costs. Consequently connected miscellaneous petitions are closed.

Issues Involved:
1. Violation of the principles of natural justice.
2. Attachment of properties owned by family members of the accused without determining independent ownership.
3. Legality of dispossession from properties before conviction.

Detailed Analysis:

Issue 1: Violation of the principles of natural justice

First Two Writ Petitions:
The petitioners argued that no notice was served before the provisional attachment order under Section 5(1) of the Prevention of Money Laundering Act, 2002. However, the court rejected this contention, stating that Section 5(1) only requires a provisional order of attachment subject to pre-conditions and does not necessitate a prior hearing. The Director must have reason to believe that the person possesses proceeds of crime, has committed a scheduled offence, and that the proceeds are likely to be concealed or transferred. The petitioners also claimed inadequate opportunity of hearing before the Adjudicating Authority. The court found that the petitioners' counsel had sought adjournments but failed to appear subsequently, leading to an ex parte order. The court concluded that proper service of notice was effected through substituted service and affixure, and the petitioners had ample opportunity to participate in the proceedings but did not avail themselves of it.

Third and Fourth Writ Petitions:
The petitioner claimed lack of adequate opportunity of being heard. The court noted that the petitioner had sought an adjournment by post, which was denied, and subsequently failed to appear for the hearing. The court held that the petitioner had notice of the hearing and should have verified the adjournment status. Thus, the contention of inadequate hearing was dismissed.

Issue 2: Attachment of properties owned by family members of the accused without determining independent ownership

First Two Writ Petitions:
The petitioners contended that the properties owned by family members were attached without determining independent ownership. The court rejected this argument, citing the second proviso to Section 5(1), which allows attachment of properties believed to be involved in money laundering, regardless of independent ownership claims. The petitioners failed to participate in the adjudication proceedings to prove lawful acquisition of the properties.

Third and Fourth Writ Petitions:
The petitioner argued that her property could not be attached as she was not accused in the criminal case. The court clarified that after the amendment on 1.6.2009, the second proviso to Section 5(1) allows attachment of properties of any person if involved in money laundering, even if they are not charged with an offence. Hence, this contention was also dismissed.

Issue 3: Legality of dispossession from properties before conviction

The petitioners argued that dispossession from properties before conviction was illegal and unjustified. The court examined the scheme of the Prevention of Money Laundering Act, 2002, and noted that the Act allows dispossession even before conviction to prevent wastage or spoilage of property and dissipation of its value. However, the court expressed difficulty in accepting the Andhra Pradesh High Court's reasoning that Section 8(4) allows actual physical possession before conviction. The court highlighted potential constitutional and human rights violations, especially for family members and tenants not involved in the crime.

The court interpreted "possession" in Section 8(4) to mean constructive or symbolic possession, not actual physical possession, to align with constitutional guarantees and human rights. The court emphasized that retaining symbolic possession ensures proceedings for confiscation are not frustrated without depriving individuals of their physical possession prematurely.

Conclusion:
The court upheld the orders of attachment and confirmation but set aside the direction for taking actual physical possession. The respondents were directed to restore possession to the petitioners, while retaining legal and constructive possession with the authorities. The petitioners were prohibited from alienating or encumbering the properties until the conclusion of criminal and confiscation proceedings.

Final Orders:
- The writ petitions were allowed to the extent of setting aside the direction for actual physical possession.
- The respondents were directed to restore possession to the petitioners.
- Legal and constructive possession remained with the authorities.
- The petitioners were prohibited from alienating or encumbering the properties until the conclusion of proceedings.
- No order as to costs; connected miscellaneous petitions were closed.

← Previous Next →