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2022 (10) TMI 737 - HC - Money LaunderingMoney Laundering - Provisional attachment order - third party property, having nexus with the proceeds of crime or not - Section 5 (1) of the Prevention of Money Laundering Act, 2002 as well as proceedings initiated under Section 8 (1) of the PMLA - effect of quashing of an order under Section 5 (1) - Whether the present challenge is maintainable/ entertainable under Article 226 of the Constitution of India? - Whether a third party property, having no nexus with the proceeds of crime, can be provisionally attached under Section 5 (1) of the PMLA? - HELD THAT - In the present case, a portion of the property of the petitioner no.1-company and shares in the names of Mahesh and Alka in the company have been attached. The respondents allege that such fraction corresponds with the shareholding ratio of the accused Mahesh, Alka and their family in the petitioner no. 1-company - It is nobody s case that any of the accused persons are directors of the petitioner no. 1-company. The respondents best case is that they are shareholders in the company. Hence, there is no scope of lifting the legal fiction of corporate veil in the present case, since, in their capacity as mere shareholders of the petitioner no. 1-company, the accused persons have no right, title and/or interest whatsoever in the assets of the company. It seems a mere childish whim and paranoid fancy of the respondent no. 2 agency and its officials to apprehend a ghost where there is none to attach a fraction of the assets of the company in proportion with the shares held by the accused person in the company, without considering the rudiments of Company Jurisprudence - Even if only the shares in the name of the accused persons in the company (although acquired much prior to the alleged crime) were sought to be attached provisionally under Section 5 of the PMLA, some reason could be laboriously attributed to the same. Here, the respondent no. 2 goes one step further and calculates the share of the company s assets in ratio with the number of shares held in the company by the accused and attaches the said share in the property provisionally. This would tantamount not to law enforcement but unwarranted muscle-flexing by the respondent no. 2-agency. In the present case, the immovable property attached provisionally is owned by the petitioner no. 1-company and was purchased by the company much prior to the chain of events leading to the alleged money laundering. The petitioners are not even suspects , although some of them were summoned under Section 50 of the PMLA merely as persons who may be possessing relevant records or having knowledge of the circumstances of the commission of crime by the accused persons. Such circumstances, by themselves, are not sufficient to justify even provisional attachment of a portion of the petitioner no. 1-company s assets - In the absence of such correlation between the company s assets and the alleged scheduled offence in any manner whatsoever, the respondent no. 2 acted in gross abuse of the process of law in passing the provisional attachment order in respect of the company s property. What is the effect of quashing of an order under Section 5 (1) on a connected adjudication under Section 8 of the PMLA? - HELD THAT - The effect of a quashing on technical ground and consequential remand, and that of prospective setting aside of the provisional order of attachment under Section 5 (1) on merits (hence, no question of remand arises), with regard to the provisional attachment of immovable property, as in the present case, on a proceeding or adjudication under Section 8 of the PMLA stand on entirely different footings. Thus, an ultimate quashing of a portion of the provisional attachment order under Section 5 (1) itself, with regard to a portion of the immovable property, would nullify the very premise of any resultant proceeding or adjudication under Section 8. The petitioners have made out a strong prima facie triable case to go for final hearing in the writ petition, at least as far as the immovable properties of the petitioner no.1 is concerned. Petition disposed off.
Issues Involved:
1. Maintainability of the writ petition under Article 226 of the Constitution of India. 2. Provisional attachment of third-party property under Section 5 (1) of the PMLA. 3. Effect of quashing an order under Section 5 (1) on connected adjudication under Section 8 of the PMLA. Issue-wise Detailed Analysis: 1. Maintainability of the writ petition under Article 226 of the Constitution of India: The court examined whether the writ petition is maintainable despite the availability of an alternative statutory remedy. It was argued by the petitioners that a patent jurisdictional error can be interfered with by the court even if an alternative remedy is available. The court referenced the Whirlpool case, which outlines limited windows for such interference, and Chhabil Das's case, which allows for exceptions to the alternative remedy bar when a statutory authority fails to act in accordance with the statute or acts without jurisdiction. The court concluded that the distinction between an "alternative" and a "statutory" remedy is artificial and not supported by cited judgments, thus determining that the writ petition is maintainable if a patent jurisdictional contravention is established. 2. Provisional attachment of third-party property under Section 5 (1) of the PMLA: The court delved into whether a third-party property, having no nexus with the proceeds of crime, can be provisionally attached under Section 5 (1) of the PMLA. The definition of "proceeds of crime" under Section 2 (1) (u) of the PMLA was discussed, which includes any property derived or obtained directly or indirectly from criminal activity relating to a scheduled offense. The court noted that the attached property and shares were acquired much prior to the alleged crime and that the petitioners are not involved in the crime. The court referenced several judgments, including Bacha Guzdar, which established that shareholders have no rights in the assets of the company, and concluded that the provisional attachment of the company's assets was without jurisdiction as there was no nexus between the property and the alleged crime. The court found that the respondents acted in gross abuse of the process of law by attaching the company's property. 3. Effect of quashing an order under Section 5 (1) on connected adjudication under Section 8 of the PMLA: The court examined the argument that the proceeding under Section 8 of the PMLA is independent of the provisional attachment order under Section 5 (1). The court referenced the Supreme Court judgment in M/s Kaushalya Infrastructure, which held that quashing a Section 5 order on technical grounds does not per se invalidate the Section 8 adjudication. However, the court distinguished the present case, noting that the provisional attachment order was held to be patently de hors jurisdiction, thus nullifying the premise of any resultant proceeding or adjudication under Section 8. The court concluded that the provisional attachment order and the connected adjudication under Section 8 stand vitiated and are required to be quashed. Interim Order: The court granted partial interim relief, restraining the respondents from taking any coercive action regarding the immovable properties of the petitioner no. 1-company until the disposal of the writ petition. However, the respondents were allowed to proceed with actions concerning the shares and office room mentioned in the impugned order. The court also ordered the petitioners to maintain the status quo regarding the land until the writ petition is disposed of. Conclusion: The court found a strong prima facie case in favor of the petitioners regarding the immovable properties and granted interim relief accordingly. The respondents were directed to file their affidavits, and the matter was scheduled for final hearing.
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