2021 (11) TMI 178 - HC - Money Laundering

Money Laundering - proceeds of crime - conspiracy - provisional attachment of assets/properties of the petitioner - offence u/s 120 (B) read with Sections 420, 467, 468 and 471 of the Indian Penal Code, 1860 and under Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 - HELD THAT - On perusal of Section 2(1)(u) of the Prevention of Money Laundering Act, it is crystal clear that any property derived or obtained, directly or indirectly by any person as a result of criminal activity will come within the proceeds of crime. In the explanation it is clarified that proceeds of crime include property not only derived or obtained from the scheduled offence, but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. It is crystal clear that any property derived or obtained, directly or indirectly by any person as a result of criminal activity will come within the proceeds of crime. In the explanation it is clarified that proceeds of crime include property not only derived or obtained from the scheduled offence, but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the Government revenue. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. It is an admitted fact that the landed property was purchased by the petitioner prior to institution of the criminal case. The amount in question shown to the tune of ₹ 89,63,511/- to be invested in construction of hotel in question. The authority has come to the conclusion that the proceeds of crime of ₹ 1,08,95,583/- has been invested, which is the subject matter of 26 forged invoices. Thus, it is an admitted fact that there is no finding and it has not been identified that movable or immovable property linked directly with proceeds of crime but the same could not be done by the authority concerned. The material and reason has also not been disclosed so far as alienation of the property in question is concerned. There is no doubt that the authority is having the power to attach the property, but that power is required to be exercised in terms of the statute, which is lacking in the case in hand. The provisional attachment order contained in Annexure-2 passed by respondent no.2 is, hereby, quashed. The matter is remanded back to the concerned authority to pass a fresh order - petition allowed by way of remand.

Summary

Issues Involved:
1. Legality of the provisional attachment order under Section 5(1) of the Prevention of Money Laundering Act, 2002.
2. Definition and interpretation of "proceeds of crime" under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002.
3. Compliance with procedural requirements for forming a "reason to believe" for attachment.
4. Applicability of judgments from higher courts on the interpretation of the Prevention of Money Laundering Act, 2002.

Issue-wise Detailed Analysis:

1. Legality of the Provisional Attachment Order:
The petitioner sought quashing of the provisional attachment order dated 30.06.2021, issued under Section 5(1) of the Prevention of Money Laundering Act, 2002. The order attached the petitioner's assets, including land and a hotel, for a period of 180 days. The petitioner argued that there was no concealment or binding by the concerned authority to the amount shown as proceeds of crime. The court noted that the provisional attachment order must satisfy the conditions set out in Section 5(1), including the formation of a "reason to believe" that the property is proceeds of crime and that it is likely to be concealed, transferred, or dealt with in a manner that would frustrate confiscation proceedings.

2. Definition and Interpretation of "Proceeds of Crime":
The petitioner challenged the attachment on the grounds that the property was purchased before the alleged commission of the offense and could not be considered proceeds of crime. The court referred to Section 2(1)(u) of the Act, which defines "proceeds of crime" as any property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offense. The court also cited multiple judgments, including those from the Patna High Court and Delhi High Court, which emphasized that property derived from legitimate sources cannot be attached unless it is established that the property is proceeds of crime.

3. Compliance with Procedural Requirements for Forming a "Reason to Believe":
The petitioner argued that the attachment order lacked a valid "reason to believe," as required by Section 5(1)(b) of the Act. The court referred to the Supreme Court judgment in Radha Krishan Industries v. State of Himachal Pradesh, which emphasized that the formation of the opinion must be based on tangible material and have a live link to the necessity of protecting government revenue. The court found that the authority's order did not disclose material or reasons to justify the belief that the property was likely to be concealed, transferred, or dealt with.

4. Applicability of Judgments from Higher Courts:
The petitioner relied on several judgments, including those from the Supreme Court and High Courts, to argue that the attachment order was not justified. The court referred to the judgment in Joti Parshad v. State of Haryana, which distinguished "reason to believe" from mere suspicion or doubt. The court also cited the judgment in Radha Krishan Industries, which required a proximate and live nexus between the need for attachment and the purpose it seeks to serve. The court found that the authority's order lacked the necessary satisfaction and material to justify the attachment.

Conclusion:
The court concluded that the provisional attachment order did not conform to the statutory requirements and lacked the necessary material and reasons to justify the belief that the property was proceeds of crime and likely to be concealed, transferred, or dealt with. The court quashed the provisional attachment order and remanded the matter back to the concerned authority to pass a fresh order in light of the discussions made in the judgment. The criminal writ petition was allowed and disposed of.