2024 (4) TMI 374 - HC - Money Laundering

Maintainability of writ petition - Money Laundering - proceeds of crime - Provisional Attachment Order - reasons to believe - impugned order is issued in consonance with the provisions of Section 5(1) of the Act of 2002 and more particularly the second proviso to Section 5(1) of the Act of 2002 or not - property acquired by the Petitioner No.1 vide the Deed of Sale dated 06.03.1997 could have been provisionally attached by the impugned order taking into account that the said property was acquired when the Act of 2002 had not come into force and more particularly when the provisions of the Act of 1988 was brought within the fold of the Act of 2002 only on 01.06.2009 or not. Whether the instant writ petition is maintainable and if so whether this Court should entertain the writ petition in the present facts? - HELD THAT - The Act of 2002 was enacted to address the urgent need to have a comprehensive legislation inter alia for preventing money-laundering, attachment of proceeds of crime, adjudication and confiscation thereof including vesting of it in the Central Government, setting up of agencies and mechanisms for coordinating measures for combating money-laundering and also to prosecute the persons indulging in the process or activity connected with the proceeds of crime. This need was felt throughout the world, owing to the serious threat to the financial systems of the countries, including their integrity and sovereignty because of money-laundering. Notably, before coming into force of the Act of 2002, various other legislations including the Act of 1988 were already invoked to deal with attachment and confiscation/forfeiture of the proceeds of crime linked to concerned offences. The inclusion of various offences in Part-A, Part-B, Part-C of the Schedule to the Act of 2002 brings any criminal activity in relation to the Scheduled Offence or relatable to the Scheduled Offence within the fold of the Act of 2002. At the cost of repetition, it reiterated that the process or activity as clarified in the Explanation to Section 3 of the Act of 2002 includes concealment or possession or acquisition or use or projecting as untainted property or claiming as untainted property. Further to that, this process or activity would be a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by any of the activities aforementioned. Therefore, the involvement in any one of such process or activity connected with the proceeds of crime would constitute the offence of money-laundering. The offence of money-laundering in the opinion of this Court has nothing to do with the criminal activity relating to the Schedule Offence except the proceeds of crime derived or obtained as result of that crime. The properties mentioned in the Schedule to the impugned order including the property acquired vide the Deed of Sale dated 06.03.1997 would come within the fold of proceeds of crime provided the property/properties are derived or obtained directly or indirectly by the Petitioners as a result of a criminal activity relating to or relatable to a Scheduled Offence. It is also observed that in the circumstances, the Authorized Officer treats the property/properties as proceeds of crime, the Petitioners would be at liberty before the Authorities under the Act of 2002 to establish that the crime property have been rightly owned and possessed by them and such property by no stage of imagination can be termed as crime property and ex-consequential proceeds of crime within the meaning of Section 2(1)(u) of the Act of 2002. Whether the impugned order is issued in consonance with the provisions of Section 5(1) of the Act of 2002 and more particularly the second proviso to Section 5(1) of the Act of 2002? - HELD THAT - This Court finds it very pertinent to observe that Section 5(1) of the Act of 2002 envisages an action of provisional attachment can be initiated only on the basis of materials in possession of the Authorized Officer indicative of any person being in possession of proceeds of crime. The precondition of being proceeds of crime is that the property has been derived or obtained, directly or indirectly by any person as a result of criminal activity relating to a Scheduled Offence. The sweep of Section 5(1) of the Act of 2002 is not limited to the accused named in the criminal activity relating to a Scheduled Offence but would also apply to any person if he is involved in any process or activity connected with proceeds of crime - the reasons to believe in the instant case having referred to the provisional attachment order makes it clear that the said reasons to believe which were recorded in writing was done subsequent to the impugned provisional attachment order. Under such circumstances, it was a clear infraction to the provision of Section 5(1) of the Act of 2002 as well as the second proviso to Section 5(1) of the Act of 2002. The reasons to believe so recorded by the Respondent No.2 mentioned that if the properties were left unattached, they are likely to be transferred, disposed of, parted with or otherwise dealt with in any manner prejudicial to the purpose of investigation carried out under the provisions of the Act of 2002. As already stated, there was no mention of the materials in possession on the basis of which the said belief was formed. It is apposite to observe that merely reiterating the language of the statute sans without recording the basis on what materials, the belief was formed in writing, would not be in consonance with the provisions of Section 5(1) as well as the second proviso to Section 5(1) of the Act of 2002. Under such circumstances, in the opinion of this Court, the condition precedent being not satisfied, the Respondent No.2 could not have issued the impugned order under the second proviso to Section 5(1) of the Act of 2002 or even under the less stringent Section 5(1) of the Act of 2002. Consequently, the impugned order is contrary to Section 5(1) as well as also to the second proviso to Section 5(1) of the Act of 2002 for which the said impugned order is required to be interfered with. As this Court is of the opinion that the impugned order is required to be interfered with, the consequential effect thereof would be that the adjudication proceedings so initiated on the basis of the complaint filed under Section 5(5) of the Act of 2002 has also to fail inasmuch as without there being a valid provisional attachment order, the adjudicating authority does not get jurisdiction to exercise its powers in terms with Section 8 of the Act of 2002. Petition disposed off.

Summary

Issues Involved:
1. Maintainability of the writ petition.
2. Legality and validity of the Provisional Attachment Order u/s 5(1) of the Prevention of Money Laundering Act, 2002.
3. Whether property acquired before the enactment of the Act of 2002 can be considered "proceeds of crime."

Summary:

1. Maintainability of the Writ Petition:
The Court held that the writ petition is maintainable as it raises pure questions of law regarding the jurisdiction and interpretation of the term "proceeds of crime" u/s 2(1)(u) of the Act of 2002. The Supreme Court's judgment in Godrej Sara Lee Ltd. vs. Excise and Taxation Officer cum Assessing Authority was cited, which states that High Courts should entertain writ petitions involving pure questions of law even if an alternative remedy is available.

2. Legality and Validity of the Provisional Attachment Order:
The Court found that the conditions precedent for issuing the Provisional Attachment Order were not satisfied. The Respondent No.2 failed to record reasons to believe that an offence of money-laundering had been committed and that the properties, if not attached immediately, would frustrate the proceedings u/s 5(1) and its second proviso. The reasons recorded were found to be subsequent to the issuance of the Provisional Attachment Order, which is contrary to the statutory requirements.

3. Property Acquired Before the Enactment of the Act of 2002:
The Court held that the term "proceeds of crime" includes properties derived or obtained, directly or indirectly, as a result of criminal activity relating to or relatable to a Scheduled Offence, irrespective of when the property was acquired. Therefore, the property acquired vide Deed of Sale dated 06.03.1997 could be considered "proceeds of crime" if derived from criminal activity related to a Scheduled Offence.

Conclusion:
The Court set aside and quashed the Provisional Attachment Order dated 24.06.2020 and the subsequent adjudication proceedings initiated on the basis of the Show Cause notice dated 07.08.2020. The decision does not bar the Respondents from exercising jurisdiction u/s 5 of the Act of 2002 by following the mandate of law. The writ petition was disposed of with no order as to costs.