2023 (3) TMI 1367 - HC - Money Laundering

Money Laundering - proceeds of crime - scheduled offences - SCN issued to indicate the source of income out of which the provisionally attached properties were procured - provisional attachement of such properties - provisional attachment challenged on the ground that the same was passed without jurisdiction and in breach of Section 6 of the PMLA - it is contended that order confirming the provisional attachment was passed beyond the prescribed period of 180 days which is in breach of Section 5 of the PMLA. Whether the scheme under the PMLA permits an Adjudicating Authority consisting of a single member? - HELD THAT - It is trite law that a provision has to be interpreted in light of the entire scheme of the statute. The Court cannot read a provision in part or in isolation. Where the statute expressly provides jurisdiction to a quasi-judicial body consisting of one member to decide the issue, the Court cannot reach a conclusion or interpretation that such constitution with a single member having the requisite competence/eligibility is bad in law A full bench of the Apex Court in Newtech Promoters Developers (P) Ltd. v. State of U.P. 2021 (12) TMI 892 - SUPREME COURT dealt with a similar issue as to whether the adjudicating authority therein under Section 81 of the Real Estate (Regulation and Development) Act, 2016 could have delegated its powers to a single member of such authority. The Petitioners therein contended that the Real Estate (Regulation and Development) Act, 2016 does not contemplate delegation of powers to hear complaints to a single member which ought to be heard by the authority consisting of two members - Similar to the present case, the Petitioners therein contended that such delegation of power to a single member is illegal and orders passed by such single member are without jurisdiction. The Apex Court negatived the contention of the Petitioners therein and held that where statutory mandate permits delegation of powers by a competent authority to a single member, such single member can exercise such delegated powers. In the present case, a plain reading of Section 6 of the PMLA negates the contention of the Petitioners that Adjudicating Authority shall consist of a Chairperson and two members. The word shall used in Section 6(2) is not mandatory. This Court agrees with the view expressed in the above decisions that constitution of Adjudicating Authority with one member is permissible under PMLA. Therefore, the issue is answered accordingly. Whether a single member alone who has experience in the field of administration, finance or accountancy and no experience in the field of law can issue a show cause notice under Section 8(1) of the PMLA and pass orders confirming provisional attachment of properties under Section 8(3) of the PMLA? - HELD THAT - The Apex Court in Shivji Nathubha v. Union of India 1960 (1) TMI 31 - SUPREME COURT relying on a decision of a Constitution Bench consisting of six judges in Province of Bombay v. Khushaldas S. Advani 1950 (9) TMI 15 - SUPREME COURT explained the distinction between an administrative act and a quasi-judicial act. The Court therein held that the act will be treated as quasi-judicial act if the body exercising power had legal authority, by exercising such power it should decide a lis between the parties and while exercising such power it should act judicially. The Court relied on Khushaldas S. Advani to hold that unless the statute provides otherwise, a body is under a duty to act judicially. Further, the Apex Court in Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala 1961 (4) TMI 23 - SUPREME COURT discussed in detail the question as to what constitutes a quasi-judicial action. The Court therein held that actions of authorities will be treated as judicial functions if such an authority conducts proceedings by hearing parties and passes orders thereon and where a right to appeal is available against such orders. Further, the Court noted that where actions of quasi-judicial authorities have trappings of judicial functions, such actions will be treated as quasi-judicial actions. Section 8 of the PMLA deals with adjudication by the Adjudicating Authority. Under Section 8 (1) of the PMLA, once a complaint is filed under Section 5(5) of the PMLA detailing the nature of offence and the properties involved, the Adjudicating Authority after satisfying itself that reasons to believe exist that a person has committed the offence of money laundering or he/she is in possession of proceeds of crime has to issue a show-cause notice to such person calling upon him to give details of such properties including sources of income involved in purchasing such properties and to show cause why such attachment of properties should not be confirmed - Section 8(2) of the PMLA provides that the Adjudicating Authority shall consider if any reply to such show cause notice is filed and hear the aggrieved person whose property is sought to be attached. Further, the Adjudicating Authority shall also consider all the relevant material placed on record. Upon such consideration of reply to the show cause notice, hearing the parties and other material placed on record, the Adjudicating Authority in its order shall record a finding whether the properties provisionally attached are involved in money laundering. If the Adjudicating Authority reaches a conclusion that the provisionally attached properties were involved in money laundering, it shall pass an order confirming such provisional attachment under Section 8(3) of the PMLA. Whether the action of issuing a show cause notice under Section 8(1) of the PMLA by the Adjudicating Authority is quasi-judicial in nature? - HELD THAT - The action of issuing show cause notice under Section 8(1) of the PMLA is quasi-judicial in nature. The Adjudicating Authority before issuing a show cause has to apply its mind to the material placed before it along with the complaint filed under Section 5(1) of the PMLA. It is only after such application of mind that the Adjudicating Authority can reach a conclusion that reasons to believe exist regarding the commission of money laundering. The application of mind here involves a quasi-judicial function as the Adjudicating Authority has to come to conclusion and record its reasons that an offence of money laundering as defined under Section 3 of the PMLA was committed - An authority recording its subjective satisfaction after due application of mind performs a quasi-judicial function. An action involving interpretation of a statute and recording of reasons has trappings of judicial functions. Such actions are quasi-judicial and cannot be termed as administrative, more particularly when the requirement of issuing a show cause notice based on reasons to believe was incorporated as a procedural safeguard. Whether the action of passing an order confirming provisional attachment under Section 8(3) of the PMLA is quasi-judicial in nature? - HELD THAT - Section 8 of the PMLA is titled Adjudication which makes it evident that the actions of Adjudicating Authority under the said provision are adjudicatory in nature and the same are quasi-judicial functions - according to this Court, the action of issuing a show cause notice under Section 8(1) of the PMLA and passing an order confirming provisional attachment under Section 8(3) of the PMLA are quasi-judicial in nature as they have trappings of judicial functions. Whether quasijudicial functions like issuance of show cause notice under Section 8(1) of the PMLA and passing an order confirming provisional attachment under Section 8(3) of the PMLA can be passed by an Adjudicating Authority consisting of a member having no experience in the field of law? - HELD THAT - In L. Chandra Kumar 1997 (3) TMI 90 - SUPREME COURT , the Apex Court held that constitution of tribunals with members having no experience in law is permissible provided such members are experts in other fields and are paired with members having experience in law. In other words, tribunals shall comprise of members having technical expertise in the area which is sought to be regulated by law and members having experience in the field of law. A tribunal or a quasi-judicial body like the Adjudicating Authority under PMLA performs adjudicatory functions. Therefore, such bodies shall be manned by members having necessary experience in the field of law. Such members shall be capable of interpreting law and applying it to various sets of facts that may arise before them. The said view that adjudicatory functions of tribunals can only be performed by members having experience in law is further fortified by the decisions discussed below. In the present case, as the show cause notices and the orders confirming provisional attachment were passed by a member having no experience in the field of law, such show cause notices and orders are non-est and void in the eyes of law - a member having no experience in the field of law is ineligible to pass judicial orders. This Court holds that issuance of show cause notice under Section 8(1) of the PMLA and passing an order under Section 8(3) of the PMLA confirming the provisional attachment of properties are quasi-judicial functions. Therefore, an Adjudicating Authority consisting of a single member cannot pass quasi-judicial orders, unless such single member has experience in the field of law. Any quasi-judicial function performed by a single member having experience in the field of finance, accountancy or administration is non-est and would be hit by coram non judice - In the present case, the show cause notice under Section 8(1) of the PMLA were issued and confirmation orders under Section 8(3) of the PMLA were passed by a single member having no experience in law. Therefore, the said show cause notices and confirmation orders are non-est and are liable to be set aside. Whether the period from 15.03.2020 to 28.02.2022 which was excluded by the Apex Court in computation of limitation vide In re Limitation 2022 (1) TMI 385 - SC ORDER is applicable to orders confirming provisional attachment within 180 days? - HELD THAT - Section 29A of the Arbitration Conciliation Act, 1996 provides a time limit of 12 months within which an award has to be passed. By virtue of In re Limitation, 2022 (supra), the period from 15.03.2020 to 28.02.2022 shall be excluded to compute the period of 12 months under Section 29A of the Arbitration Conciliation Act, 1996. Similarly, Section 12A(3) of the Commercial Courts Act, 2015 provides an outer time period of three months within which pre-institution mediation shall be completed - In re Limitation, 2022 2022 (1) TMI 385 - SC ORDER states that wherever a statute prescribes a maximum period within which proceedings have to be completed, the period from 15.03.2020 to 28.02.2022 shall be excluded to compute such maximum period. It is true that the period of 180 days within which the provisional attachment order under Section 5(1) of the PMLA has to be confirmed is mandatory. However, in appropriate cases the High Court can exclude certain period while computing the period of 180 days - this Court in Karvy Realty (India) Ltd. v. The Adjudicating Authority 2022 (12) TMI 1198 - TELANGANA HIGH noting that the Petitioner therein did not have sufficient time to effectively reply to the show cause notice under Section 8(1) of the PMLA granted extra time of two months reply to the show cause notice. The Court therein directed that such extra time of two months shall be excluded to compute the period of 180 days. The Calcutta High Court in Hiren Panchal 2022 (7) TMI 720 - CALCUTTA HIGH COURT held that vide orders in In re Limitation 2022 (1) TMI 385 - SC ORDER , the Apex Court extended the period of limitation to safeguard the right of litigants to institute proceedings. The Court held that computation of 180 days to confirm provisional attachment of properties under Section 8(3) of the PMLA cannot be equated to initiation/institution of proceedings. The Court also held that prescription of 180 days is in the form of a protection against deprivation of right to property. It is true that provisional attachment of property has an effect of potentially depriving a person of his property. However, right to personal liberty and right to property stand on a different footing and cannot be equated. This is evident from the fact that the urgency in concluding proceedings dealing with a person in jail is much higher than a person whose property is provisionally attached. Further, under Section 5(4) of the PMLA, the person whose property is provisionally attached can still enjoy such property till the same is confiscated. Even in cases of confirmation of provisional attachment, a person can still enjoy such property till the same is confiscated. In Vijay Madanlal Choudhary 2022 (7) TMI 1316 - SUPREME COURT , the Apex Court held that provisionally attached properties which are confirmed can still be enjoyed by a party till a confiscation order is passed. In the present case, Section 5(3) of the PMLA states that provisional attachment of properties will cease to have effect after a lapse of 180 days from the date of provisional attachment. That would mean that attachment proceedings shall terminate if the same are not confirmed within a period of 180 days. Therefore, while calculating/computing the 180 day period, the period from15 .03.2022 to 28.02.2022 shall be excluded - this Court holds that the decision in In re Limitation 2022 (1) TMI 385 - SC ORDER and subsequent extensions vide In re Limitation 2022 2022 (1) TMI 385 - SC ORDER are applicable to PMLA proceedings to compute the period of 180 days. While computing such period, the period from15.03.2020 to 28.02.2022 shall be excluded. Whether the Adjudicating Authority becomes functus officio after a lapse of 180 days from the date of passing of the provisional attachment order, if such provisional attachment is not confirmed under Section 8(3) of the PMLA? - HELD THAT - The Calcutta High Court in Fairdeal Supplies 2021 (4) TMI 1221 - CALCUTTA HIGH COURT held that Section 8 of the PMLA contemplates two stages. Section 8(2) of the PMLA involves adjudication by the Adjudicating Authority as to the question of whether the provisionally attached properties were involved in money laundering or not. Section 8(3) of the PMLA is a subsequent stage which comes into picture only if the Adjudicating Authority reaches a conclusion under Section 8(2) of the PMLA that the properties were involved in money laundering - The Calcutta High Court held that a conjoint reading of Section 5(3) of the PMLA and Section 8(3) of the PMLA indicates that the time limit of 180 days is only applicable to the stage of Section 8(3) of the PMLA and is not applicable to the stage of 8(2) of the PMLA. Once the period of 180-day lapses, the provisional attachment of properties ceases to have effect. In such cases, the ED has to re-initiate the process of attachment under Section 5(1) of the PMLA by passing a fresh provisional attachment order by recording their reasons to believe. While issuing the said fresh attachment order, the ED shall again strictly follow the entire procedure as prescribed under Sections 5 8 of the PMLA and the relevant Rules thereunder - ED should record the reasons to believe before issuing the fresh provisional attachment order, forward such fresh provisional attachment order to the Adjudicating Authority and the Adjudicating Authority shall again satisfy itself that the properties were involved in money laundering and shall issue a fresh show-cause notice in relation to the fresh provisional attachment order, the parties shall again be given a right of hearing before passing orders under Sections 8(2) and 8(3) of the PMLA. Needless to say that after issuance of the fresh provisional attachment order, the confirmation shall be completed within a period of 180 days - thus, the Adjudicating Authority will become functus officio after a lapse of 180 days, if the provisional attachment of properties is not completed. Petition allowed.

Summary

Issues Involved:
1. Constitution of Adjudicating Authority under PMLA.
2. Jurisdiction of a single member Adjudicating Authority with no legal experience.
3. Applicability of the Supreme Court's extension of limitation period due to COVID-19.
4. Whether the Adjudicating Authority becomes functus officio after 180 days if provisional attachment is not confirmed.

Issue No. 1: Constitution of Adjudicating Authority under PMLA
The Court held that the scheme under PMLA permits an Adjudicating Authority consisting of a single member. Section 6(5)(b) of the PMLA provides that the Chairperson can constitute Benches with one or two members. Therefore, the word 'shall' in Section 6(2) is not mandatory.

Issue No. 2: Jurisdiction of a single member Adjudicating Authority with no legal experience
The Court held that quasi-judicial functions like issuing a show cause notice under Section 8(1) and passing an order confirming provisional attachment under Section 8(3) of the PMLA can only be performed by a member having experience in the field of law. The actions of the Adjudicating Authority are quasi-judicial in nature and require legal expertise. Orders passed by a single member with no legal experience are void and non-est.

Issue No. 3: Applicability of the Supreme Court's extension of limitation period due to COVID-19
The Court held that the decision in In re: Limitation (2020) and subsequent extensions are applicable to PMLA proceedings. The period from 15.03.2020 to 28.02.2022 shall be excluded while computing the 180-day period for confirming provisional attachment under Section 5(3) of the PMLA. The Court disagreed with the decisions that held otherwise, emphasizing that the exclusion applies to all judicial or quasi-judicial proceedings.

Issue No. 4: Whether the Adjudicating Authority becomes functus officio after 180 days if provisional attachment is not confirmed
The Court held that the Adjudicating Authority becomes functus officio after a lapse of 180 days if the provisional attachment is not confirmed. This renders all proceedings emanating from such provisional attachment order void. The Enforcement Directorate (ED) can re-initiate the process by issuing a fresh provisional attachment order and following the prescribed procedure.

Conclusion of Findings:
1. The scheme under PMLA permits the constitution of an Adjudicating Authority consisting of a single member.
2. A single member Adjudicating Authority with no legal experience cannot perform quasi-judicial functions.
3. The period from 15.03.2020 to 28.02.2022 shall be excluded in computing the 180-day period for confirming provisional attachment.
4. The Adjudicating Authority becomes functus officio after 180 days if the provisional attachment is not confirmed, and the ED can re-initiate the attachment process.

Result in the Respective Writ Petitions:
1. W.P. No. 34238 of 2022: Order confirming provisional attachment set aside; Adjudicating Authority to re-issue show cause notice after due constitution.
2. I.A. No. 1 of 2022 in W.P. No. 41133 of 2022: Show cause notice stayed; proceedings to continue after due constitution of Adjudicating Authority.
3. I.A. No. 1 of 2022 in W.P. No. 44343 of 2022: Order confirming provisional attachment stayed; proceedings to continue after due constitution of Adjudicating Authority.
4. W.P. No. 34627 of 2022: Entire proceedings set aside; ED/authorized officer can re-initiate the attachment process.