2018 (1) TMI 535 - HC - Money Laundering

Declaration to the second proviso to Section 5 (1) of PMLA as ultra vires Article 14 of the Constitution of India - Held that - (i) The second proviso to Section 5(1) PMLA is not violative of Article 14 of the Constitution of India; the challenge in that regard in these petitions is hereby negatived. (ii) The expression reasons to believe has to meet the safeguards inbuilt in the second proviso to Section 5(1) PMLA read with Section 5(1) PMLA. (iii) The expression reasons to believe in Section 8(1) PMLA again has to satisfy the requirement of law as explained in this decision. (iv) There has to be a communication of the reasons to believe at every stage to the noticee under Section 8(1) PMLA. (v) The noticee under Section 8(1) PMLA is entitled access to the materials on record that constituted the basis for reasons to believe subject to redaction in the manner explained hereinbefore, for reasons to be recorded in writing. (vi) If there is a violation of the legal requirements outlined hereinbefore, the order of the provisional attachment would be rendered illegal. (vii) There can be single-member benches of the AA and the AT under the PMLA. Such single-member benches need not mandatorily have to be JMs and can be AMs as well. As already pointed out, the challenge to the maintainability of the writ petitions on other grounds, and to the ECIR and to the OCs, the SCNs, the provisional attachment orders and to all further proceedings arising therefrom which have been challenged in the individual writ petitions, shall be decided by the learned Single Judge of this High Court. It will be open to the Respondents to raise all pleas, including that of maintainability, before the learned Single Judge. No opinion is expressed with regard thereto.

Issues Involved:
1. Maintainability of the writ petitions.
2. Constitutional validity of the second proviso to Section 5(1) of the Prevention of Money-laundering Act, 2002 (PMLA).
3. Whether a Single Member of the Adjudicating Authority (AA) can exercise powers and conduct proceedings under Section 8 PMLA.
4. If the answer to the above is affirmative, whether such Single Member necessarily has to be a Judicial Member.

Detailed Analysis:

1. Maintainability of the Writ Petitions:
The Union of India raised a preliminary objection regarding the maintainability of the writ petitions, arguing that no cause of action arose within the jurisdiction of the Delhi High Court. The Court disagreed, citing the judgment in *Sterling Agro Industries v. Union of India* (2011) and *New India Assurance Company Limited v. Union of India* (2010), which held that the presence of the appellate authority in New Delhi provided jurisdiction. The Court concluded that with the AA located in New Delhi, part of the cause of action arose within its jurisdiction, making the writ petitions maintainable.

2. Constitutional Validity of the Second Proviso to Section 5(1) PMLA:
The Petitioners challenged the second proviso to Section 5(1) PMLA on the grounds that it was ultra vires Article 14 of the Constitution, arguing that it allowed for arbitrary and uncanalised power. The Court examined the legislative intent and the safeguards built into the proviso, concluding that:
- The second proviso is consistent with Section 5(1) PMLA and does not obliterate the safeguards in the first proviso.
- The power under the second proviso is subject to several conditionalities, including the requirement for the officer to record reasons to believe in writing, based on material in his possession.
- The second proviso is not manifestly arbitrary and does not violate Article 14, as it includes sufficient safeguards against misuse.
The Court upheld the constitutional validity of the second proviso to Section 5(1) PMLA.

3. Single Member of the AA Exercising Powers under Section 8 PMLA:
The Court examined whether a Single Member of the AA could exercise powers under Section 8 PMLA. It noted that:
- Section 6 PMLA allows the AA to consist of a Chairperson and two members, with the possibility of single-member benches.
- The jurisdiction of the AA can be exercised by benches, including single-member benches.
- The Court rejected the contention that the AA must always consist of multiple members or that every matter must be heard by a bench comprising the Chairperson and members.
The Court concluded that single-member benches of the AA are permissible under the PMLA.

4. Necessity of Judicial Members in Single-Member Benches:
The Petitioners argued that single-member benches must necessarily be Judicial Members. The Court disagreed, noting that:
- The AA and AT under the PMLA are not equivalent to High Courts or Administrative Tribunals under Article 323-B of the Constitution.
- The PMLA provides for an internal judicial review mechanism, with further appeals to the High Court.
- The Court found no requirement for single-member benches to mandatorily consist of Judicial Members.
The Court held that single-member benches of the AA and AT need not mandatorily be Judicial Members and can include Administrative Members.

Summary of Conclusions:
1. The second proviso to Section 5(1) PMLA is not violative of Article 14 of the Constitution.
2. The expression "reasons to believe" must meet the safeguards inbuilt in the second proviso to Section 5(1) PMLA.
3. The reasons to believe in Section 8(1) PMLA must satisfy the legal requirements.
4. There must be communication of the "reasons to believe" at every stage to the noticee under Section 8(1) PMLA.
5. The noticee under Section 8(1) PMLA is entitled to access the materials on record that constituted the basis for "reasons to believe."
6. Violation of the legal requirements would render the order of provisional attachment illegal.
7. Single-member benches of the AA and AT under the PMLA are permissible and need not mandatorily be Judicial Members.

The writ petitions were directed to be placed before the learned Single Judge for further consideration and directions.

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