2021 (4) TMI 869 - HC - Money Laundering

Provisional attachment of property - allegation of diverting huge amounts of money given to the loanees and used the diverted funds for purchase of some of the properties - proceeds of crime - scheduled offences - HELD THAT - At the inception, the legislative intent was to bring within the fold of the definition, such property, whose source of acquisition can be traced, directly or indirectly, to the benefits obtained from the commission of the scheduled offences. At that stage, the question of the proceeds of the crime not being available for being attached/confiscated, either on account of their dissipation in the hands of the person holding the property or on account of the property being moved out of India and the reach of the authority under the Act, does not appear to have been contemplated. This issue was addressed by Act 20/2015, whereby the words or where such property is taken or held outside the country, then the property equivalent in value held within the country were added - This amendment contemplates only one situation, namely the proceeds of the crime being moved out of India. In such a situation, the amended definition permitted the attachment of property, in India, equivalent to the value of the proceeds of thecrime, which were moved out of India. Later, by Act 13 of 2018 the words or abroad were added. By virtue of this amendment the property, which was moved abroad, could also be attached and confiscated. This amendment did not envisage a situation of dissipation of the property in the hands of the person holding the property. The amendments would be unnecessary if the term or the value of such property was understood to authorize the attachment of any property, when the actual proceeds of the crime are not available - The explanation to this provision which was brought in by Act No.2 of 2019 also speaks only of properties derived or obtained from the proceeds of a crime and expands the scope of the definition to include properties obtained not only from the scheduled offences but also criminal activity relatable to the scheduled offence. The explanation did not expand the definition to include any other property of equivalent value where the proceeds of the crime are lost even by the offender. Thus, the properties purchased before the commission of the offence, cannot fall within the definition of proceeds of crime and cannot be attached or confiscated under the Act. The impugned order of provisional attachment set aside - petition allowed.

Issues Involved:
1. Provisional attachment of properties under the Prevention of Money Laundering Act, 2002 (PMLA).
2. Maintainability of writ petitions in the presence of an alternative remedy.
3. Jurisdiction of the 2nd respondent to attach properties acquired before the commission of the alleged crime.
4. Definition and scope of "proceeds of crime" under Section 2(1)(u) of the PMLA.

Issue-wise Detailed Analysis:

1. Provisional Attachment of Properties:
The petitioners challenged the provisional attachment order No.2/2019 dated 31.12.2019, issued by the 2nd respondent under Section 5 of the PMLA. The attachment was based on allegations that significant amounts of money, obtained fraudulently through Kisan Credit Card (KCC) loans from IDBI Bank, were diverted and misappropriated by one of the petitioners. The properties attached were categorized into two tables: Table-I (properties acquired before September 2010) and Table-II (properties acquired after September 2010 using proceeds of the crime).

2. Maintainability of Writ Petitions:
The 2nd respondent argued that the writ petitions were not maintainable due to the availability of an alternative remedy before the Adjudicating Authority, New Delhi. The petitioners had already responded to the notice from the adjudicating authority. The 2nd respondent relied on several judgments, including Raj Kumar Shivhare v. Assistant Director, Director of Enforcements, P. Trivikram Prasad v. Enforcement Directorate, and Nivedita Sharma v. Cellular Operators Association of India, to support the contention that the High Court should not entertain writ petitions when an effective alternative remedy is available.

3. Jurisdiction of the 2nd Respondent:
The petitioners contended that the properties listed in Table-I, acquired before the commission of the alleged crime, could not be considered "proceeds of crime" and thus could not be attached. The court examined the provisions of Section 5 and Section 8 of the PMLA, which outline the process for attachment and adjudication of properties involved in money laundering. The court also analyzed the definition of "proceeds of crime" under Section 2(1)(u) of the PMLA.

4. Definition and Scope of "Proceeds of Crime":
The court referred to the interpretation of "proceeds of crime" by various courts. The Delhi High Court in Deputy Director, Directorate of Enforcement Delhi v. Axis Bank & Ors. held that the definition includes property derived directly or indirectly from criminal activity, the value of such property, and equivalent property held in India or abroad if the original property is moved abroad. The Punjab and Haryana High Court in Seema Garg v. The Deputy Director, Directorate of Enforcement ruled that properties acquired before the commission of the crime do not fall within the definition of "proceeds of crime."

Conclusion:
The court concluded that properties acquired before the commission of the crime (Table-I) could not be attached under the PMLA as they do not fall within the definition of "proceeds of crime." Consequently, the attachment and subsequent proceedings for confiscation of these properties were without jurisdiction and were struck down. However, the attachment of properties listed in Table-II, acquired after the commission of the crime, was within the jurisdiction of the 2nd respondent and required adjudication before the Adjudicating Authority under Section 8 of the PMLA.

Order:
The court set aside the provisional attachment order dated 31.12.2019 and all consequential proceedings to the extent of the properties attached under Table-I. The respondents were allowed to continue proceedings against the petitioners concerning the properties listed in Table-II. The writ petitions were disposed of accordingly, with no order as to costs. Pending miscellaneous petitions, if any, were also closed.

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