2024 (6) TMI 1392 - HC - Money Laundering

Money laundering - proceeds of crime - Challenge to provisional order of attachment issued under section 5 of PMLA - HELD THAT - The properties that can be proceeded against, exercising the powers of attachment must be those that have been acquired utilising the proceeds of crime. The contention of the learned counsel for the respondents that the term proceeds of crime will also include the value of the property which had been acquired even earlier is, according to me, too far-fetched and will not be justifiable in the light of the constitutional provisions of fairness and reasonableness. It is also necessary to observe at this juncture that the purpose of the PMLA is to remove tainted money and also to initiate proceedings against the proceeds of crime which have been transformed or converted into other property or intermingled with legitimate sources and then the value of the intermingled gain will assume the colour of proceeds of crime. Such a provision cannot be used to enable the authorities to proceed against properties that are unconnected with any of the criminal activity in question. As the provisionally attached immovable property was purchased in 2004 - more than a decade and a half before the predicate offence was allegedly committed, the order attaching the immovable property is ex-facie, ultra vires the powers of the statute and totally illegal and arbitrary to the extent of the said attachment. Since ex facie illegal acts can be interfered with under Article 226 of the Constitution of India, notwithstanding the existence of an alternative remedy, this Court is of the view that the provisional attachment of the immovable property as seen from schedule A to Exhibit P11 order dated 22.05.2024 is liable to be set aside. The provisional attachment order dated 22.05.2024 produced as Exhibit P11, in so far as it relates to Schedule A is hereby set aside. The provisional attachment in relation to the movable properties shown in Schedule B to Exhibit P11 is not interfered with and the petitioner is relegated to pursue his alternative remedies - Petition allowed in part.

Summary

Issues Involved:
1. Freezing of bank accounts under PMLA.
2. Provisional attachment of immovable and movable properties under Section 5 of PMLA.
3. Maintainability of the writ petition in light of alternative remedies under PMLA.

Detailed Analysis:

1. Freezing of Bank Accounts under PMLA:
The petitioner, a businessman with an electronic shop in Sholapur, Maharashtra, had his bank accounts frozen by an order dated 05.09.2023 under the Prevention of Money Laundering Act, 2002 (PMLA). The petitioner claimed no connection with the business of M/s. Masters Finserv or its proprietor. The freezing of the bank accounts was challenged as being in violation of Section 17(1) of the PMLA. However, the court deemed the challenge to the freezing of bank accounts academic in nature due to the subsequent provisional attachment order dated 22.05.2024.

2. Provisional Attachment of Immovable and Movable Properties under Section 5 of PMLA:
The provisional attachment order dated 22.05.2024 attached the same bank accounts and an immovable property of the petitioner. The respondents argued that the writ petition was not maintainable due to the availability of an alternative remedy before the adjudicating authority under Section 8 of the PMLA. The predicate offence involved multiple FIRs, alleging that M/s. Masters Finserv and its proprietor embezzled over 73 crores from various complainants. The petitioner was alleged to have arranged mule accounts and received funds from the accused, which were used in online casinos.

3. Maintainability of the Writ Petition in Light of Alternative Remedies under PMLA:
The court acknowledged that PMLA provides a comprehensive mechanism for addressing grievances related to provisional attachment orders, including an appeal to the Adjudicating Authority under Section 6, an appeal to the Appellate Tribunal under Section 26, and a further appeal to the High Court under Section 42. The court referenced the judgment in Santiago Martin and Another v. Union of India and Others, which emphasized the rule of exhaustion of alternative remedies. However, the court also recognized that this rule is one of discretion and not compulsion, citing the Supreme Court's stance in PHR Invent Educational Society v. UCO Bank and Others.

Provisional Attachment Analysis:
The court examined the provisional attachment order, which included both immovable and movable properties. The immovable property was purchased by the petitioner in 2004, well before the alleged predicate offences occurred between 27-01-2021 and 14-11-2022. The court observed that under Section 5 of PMLA, only properties derived or obtained from criminal activities related to a scheduled offence could be attached. The court referenced decisions from the Punjab and Haryana High Court and the Andhra Pradesh High Court, which held that properties purchased before the commission of a scheduled offence do not fall within the ambit of proceeds of crime.

The court disagreed with the Delhi High Court's interpretation in The Deputy Director, Directorate of Enforcement, Delhi v. Axis Bank and Others, which allowed for the attachment of properties of equivalent value. The court emphasized that PMLA's purpose is to target tainted money and properties directly or indirectly derived from criminal activities, not properties unconnected with the criminal activity.

Conclusion:
The court concluded that the provisional attachment of the immovable property, purchased in 2004, was ultra vires the powers of the statute and illegal. Therefore, the order attaching the immovable property was set aside. However, the provisional attachment of the movable properties (bank accounts) was not interfered with, and the petitioner was directed to pursue alternative remedies provided by the statute.

Judgment:
The writ petition was allowed in part, setting aside the provisional attachment of the immovable property while maintaining the attachment of the movable properties.