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2023 (9) TMI 185 - HC - Money LaunderingMoney Laundering - scheduled offence - proceeds of crime - Freezing of Bank Accounts of petitioner - Constitutional Validity of Section 6(5)(b) and Section 6(7) Prevention of Money Laundering Act, 2002 - constitution of Bench of the Adjudicating Authority by the Chairperson with two or more Members including one Judicial Member - transfer of the case by a chairperson - HELD THAT - The Prevention of Money Laundering Act, 2002 (PMLA) is an Act to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto - a person would be guilty of committing an offence of money laundering under Section 3 of PMLA if he directly or indirectly or knowingly attempts to indulge or assist or is a party or is involved in any process or activity connected with such proceeds of crime including its concealment etc., and projecting it as untainted money. There is a distinct difference in the reason to believe appearing in Section 17 and the reason to believe in respect of Section 5. While the reason to believe is for the purpose of attachment under Section 5(1), the reason to believe is for the purpose of search and seizure under sub- section (1) of Section 17. The reason to believe in Section 5(1) is that a person must be in possession of any proceeds of crime and such proceeds of crime are likely to be concealed etc., thereby frustrating any proceeding for confiscation then the Director or the authorised officer may provisionally attach such property - the requirement or the standard of reason to believe in Section 17(1) is on a higher plane than in Section 5(1) inasmuch as the Director or the authorised officer must have reason to believe that the person concerned has committed the offence of money laundering or is in possession of any proceeds of crime involved in money laundering etc., instead of being in possession of any proceeds of crime etc. The proceeds of crime has been defined to mean any property derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence - the definition of proceeds of crime is intrinsically related to property derived or obtained directly or indirectly as a result of any criminal activity relatable to the scheduled offence. In Ramesh Chandra Mehta 1968 (10) TMI 50 - SUPREME COURT a Constitution Bench of the Supreme Court opined that the customs officer under the Customs Act is not a police officer within the meaning of Section 25 of the Indian Evidence Act, 1872 (Evidence Act) and that the statements made before him by a person who is arrested or against whom an enquiry is made are not covered by Section 25 of the Evidence Act. There are no hesitation in holding that impugned order dated 25.07.2022 is wholly without jurisdiction. It is trite law that if an order is without jurisdiction, the aggrieved party can approach the High Court under Article 226 of the Constitution of India notwithstanding availability of alternative remedy. This settled proposition needs no elaboration - the impugned order is without jurisdiction there being no scheduled offence against the petitioners, it is not necessary to delve into the question as to what would be the impact of not passing an order under sub- section (2) of Section 20 of PMLA on the PMLA proceedings. Petition allowed.
Issues involved:
1. Legality of the Adjudicating Authority's order dated 25.07.2022. 2. Constitutionality of Sections 6(5)(b) and 6(7) of PMLA. 3. Validity of proceedings under PMLA without a scheduled offence. Summary: 1. Legality of the Adjudicating Authority's order dated 25.07.2022: The petitioners filed a writ petition under Article 226 of the Constitution seeking to quash the order dated 25.07.2022 passed by the Adjudicating Authority under the Prevention of Money Laundering Act, 2002 (PMLA) and to direct the defreezing of their bank accounts and return of documents/records. The petitioners contended that the retention and freezing of property under Section 20(2) of PMLA could not be permitted beyond 180 days. The seizure under Section 17 of PMLA was made on 07.10.2021, and the freezing order was passed on 11.10.2021. The statutory limitation for retention expired on 07.04.2022, and for freezing, it expired on 11.04.2022. The impugned adjudication order was passed on 25.07.2022, well beyond the statutory period. Additionally, the petitioners argued that the order was passed by a single Finance Member, violating Sections 6(2) and 6(5) of PMLA, and questioned the vires of Sections 6(5)(b) and 6(7) of PMLA. 2. Constitutionality of Sections 6(5)(b) and 6(7) of PMLA: The petitioners challenged the constitutionality of Sections 6(5)(b) and 6(7) of PMLA, arguing that they were arbitrary and violative of Article 14 of the Constitution of India. They contended that these provisions allowed the Adjudicating Authority to function with only a single member, which was contrary to the requirement of a quorum and judicial member presence for adjudicating intricate questions of law. 3. Validity of proceedings under PMLA without a scheduled offence: The petitioners argued that there was no scheduled offence against them, particularly no proceedings under Section 135 of the Customs Act. They contended that in the absence of a scheduled offence, proceedings under PMLA could not continue as a standalone offence. The court examined the factual background, including the search and seizure conducted by the Directorate of Revenue Intelligence (DRI) and the subsequent actions by the Enforcement Directorate. It was found that the Enforcement Directorate proceeded on an erroneous assumption that there was a scheduled offence against the petitioners. The court held that mere arrest by a customs officer for alleged contravention of the Customs Act did not make the arrested person an accused. No complaint had been filed against the petitioners under Section 200 Cr.P.C read with Section 135 of the Customs Act. Therefore, it could not be said that there was any predicate offence against the petitioners. Conclusion: The court concluded that the impugned order dated 25.07.2022 was without jurisdiction as there was no scheduled offence against the petitioners. Consequently, the order was set aside and quashed. The court did not delve into the question of the impact of not passing an order under sub-section (2) of Section 20 of PMLA on the PMLA proceedings. The writ petition was allowed, and the miscellaneous applications pending were closed.
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