2017 (4) TMI 415 - HC - Money Laundering

Money laundering - offence - order of attachment of the bank accounts in exercise of powers under section 102 of the Cr.P.C. read with section 65 of the PMLA - Held that - A bare reading of section 5 would show that for the authorised officer (not below the rank of Dy. Director) to exercise power of provisional attachment, it is no longer necessary, that the person, who is in possession of any proceeds of crime should have also have been charged for the commission of a scheduled offence. The Act 2 of 2013 has deleted Clause (b) of Sub-Section (1) of Section 5, as it stood prior to the amendment. Clause (c) of Sub-Section (1) of Section 5, as it stood prior to the 2013 amendment, is now shown as Clause (b) in the amended statute. Consequently, the designated officer can provisionally attach a property which, does not concern a person charged with a scheduled offence as long as the following ingredient is found he has reason to believe, based on the material in his possession, that a person is in possession of proceeds of crime and, such proceeds, are likely to be concealed, transferred or dealt with in any manner which may result in frustrating the proceedings relating to confiscation of proceeds of crime. Therefore, the contention advanced on behalf of the writ applicants that no order of attachment could have been passed unless in relation to the scheduled offence, a report was forwarded to the Magistrate under Section 173 of the Cr.PC is, according to me completely untenable. The first proviso applies if at all to the persons who are charged with the scheduled offence. It has no applicability to the persons other than those charged with the scheduled offence. The first proviso, however, has another exception carved out in the form of the second proviso to Section 5(1) of the PMLA. Thus, in effect, even vis-a-vis persons against whom proceedings are taken out qua scheduled offence, the power of provisional attachment can be exercised provided the conditions stipulated in the second proviso are fulfilled. The words used in the opening part of the second proviso make it clear that it takes into account any property of any person who is in possession of the proceeds of crime. The limitation of attaching properties of persons who are charged with the scheduled offence or the limitation on attachment of properties, only when persons accused of having committed scheduled offences are charged, has been done away with. Whether the concerned officer could have taken recourse to the second proviso to Sub-Section (1) of Section 5 in the instant case?- Held that - In order to trigger the second proviso, the authorised officer (not below the rank of Dy. Director) should have reasons to believe on the basis of material in his possession that if, the property in issue, which is involved in money-laundering is not attached, the non- attachment of the said property is likely to frustrate any proceeding under the Act. While the words reasons to believe are wide in their import, it cannot include a mere suspicion or ipse dixit of the authorised officer. The belief of the authorised officer should lead him to form an honest and reasonable opinion based on reasonable grounds. See ITO Vs. Lakhmani (1976 (3) TMI 1 - SUPREME Court) and Naveen Chandra Vs. WTO (1980 (1) TMI 60 - GUJARAT High Court ) The reasonability of the grounds which lead to the formation of belief warranting provisional attachment is tested from the point of view of whether or not they are germane to the formation of belief that if, provisional attachment is not ordered, it could lead to frustration of proceedings under the Act. Therefore, if the grounds are relevant and have nexus to the formation of belief then, of course the designated / authorised officer would have the necessary jurisdiction to take action under the Act. What is required to be examined is not the adequacy or sufficiency of the grounds but the existence of belief. In coming to this conclusion, in my view, all that one is to examine, is that, whether there was some material which, gave rise to a prima facie view that if provisional attachment was not ordered, it would frustrate proceedings under the Act. Once the adjudicating authority comes to the conclusion that the property in issue is involved in money-laundering, he is required to confirm under Sub-Section (3) of Section 8, the attachment made Sub-Section (1) of Section 5, by an order, in writing. Upon such finding being recorded, the attachment of the property in issue, will continue, during the pendency of proceedings relating to offence under the PMLA or, under corresponding law of any other country before a competent court of criminal jurisdiction outside India. In case in the trial of the offence under PMLA, the special court, records a finding that the offence of money-laundering, has been committed, it shall order that such property involved in money-laundering, which has been used in the offence of money-laundering, shall stand confiscated. If a converse finding is reached then, the property in issue, will stand released. Provisions to this effect are contained in Sub- Sections (5) and (6) of the Act. Therefore, the manner in which the attachment proceedings are legislatively structured, indicate, that when, the designated/authorised officer orders provisional attachment, based on the material available with him, it is a tentative view, taken, keeping in mind that, if provisional attachment is not ordered, it could lead to frustration of proceedings under the PMLA. It is not unknown that trial of offences both under the PMLA Act as also of scheduled offences, often takes considerable time and if, power of provisional attachment is not exercised where, circumstances demand and jurisdictional facts exist, it could result in defeating the very purpose for which, PMLA has been enacted. If properties, which reflect the proceeds of crime change hands, it could lead to creation of bonafide third party interest which may, make it difficult, if not impossible, for the concerned authorities, to retrieve the proceeds of crime. For the foregoing reasons, this application fails and is hereby rejected. Notice is discharged. However, let me remind the authority concerned that the order of attachment of the bank accounts in exercise of powers under section 102 of the Cr.P.C. read with section 65 of the PMLA should not continue for an indefinite period of time.

Summary

Issues Involved:
1. Legality of freezing bank accounts under the Prevention of Money Laundering Act (PMLA), 2002.
2. Compliance with procedural requirements under PMLA.
3. Impact of freezing bank accounts on business operations.
4. Jurisdiction and powers of the Enforcement Directorate (ED) under PMLA.
5. Applicability of Section 102 of the Code of Criminal Procedure (CrPC) in conjunction with PMLA.
6. Duration and validity of freezing orders.

Detailed Analysis:

1. Legality of Freezing Bank Accounts Under PMLA:
The writ applicants challenged the legality of the Enforcement Directorate's (ED) action to freeze their bank accounts, arguing it was contrary to the provisions of the PMLA, 2002. They contended that they held valid licenses for their liquor business and that all transactions were audited and conducted through cheques. The applicants emphasized that no complaint had been lodged under PMLA, questioning the basis for freezing their accounts. The ED, however, justified the freezing, citing an ongoing investigation into money laundering activities linked to smuggling liquor into Gujarat, where prohibition laws apply.

2. Compliance with Procedural Requirements Under PMLA:
The applicants argued that the ED's actions were premature and lacked procedural compliance, particularly the absence of a complaint under PMLA. They stressed that, without such a complaint, instructing banks to freeze accounts was unjustified. The ED countered by detailing the investigation's findings, including significant cash deposits suspected to be proceeds of crime, and argued that freezing the accounts was necessary to prevent the concealment or transfer of illicit funds.

3. Impact of Freezing Bank Accounts on Business Operations:
The applicants highlighted the severe impact of the freezing orders on their business operations, including their inability to meet legal liabilities such as taxes and duties. They proposed that they be allowed to operate the accounts under certain conditions, such as prior intimation to the authorities for transactions. The ED, however, maintained that the freezing was essential for effective investigation and preventing the dissipation of proceeds of crime.

4. Jurisdiction and Powers of the Enforcement Directorate (ED) Under PMLA:
The ED's jurisdiction and powers under PMLA were scrutinized, with the applicants questioning the basis for the freezing orders. The ED cited the ongoing investigation into money laundering activities, involving significant cash deposits and suspected illicit transactions. The court considered whether the ED had sufficient grounds and material to justify the freezing orders under PMLA.

5. Applicability of Section 102 of the Code of Criminal Procedure (CrPC) in Conjunction with PMLA:
The court examined the applicability of Section 102 of CrPC, which allows police officers to seize property suspected to be involved in a crime, in conjunction with PMLA. The court referenced previous judgments, including the Supreme Court's decision in State of Maharashtra v. Tapas D. Neogy, which affirmed that bank accounts could be considered property under Section 102. The court concluded that the ED could invoke Section 102 of CrPC by virtue of Section 65 of PMLA to freeze bank accounts during the investigation.

6. Duration and Validity of Freezing Orders:
The court emphasized that freezing orders under Section 102 of CrPC, read with Section 65 of PMLA, should not remain in effect indefinitely. It highlighted that provisional attachment under Section 5 of PMLA has a maximum duration of 150 days, subject to further orders by the adjudicating authority. The court directed that if the ED did not pass a provisional attachment order under Section 5 within a specified period, the freezing orders would lapse, allowing the applicants to operate their accounts.

Conclusion:
The court upheld the ED's authority to freeze bank accounts under Section 102 of CrPC, read with Section 65 of PMLA, during the investigation into money laundering activities. However, it stressed that such freezing orders should not continue indefinitely and must be followed by a provisional attachment order under Section 5 of PMLA within a reasonable timeframe. The court dismissed the writ application, allowing the applicants to file a representation to the competent authority for operating their accounts under specific conditions.