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TMI Blog2014 (11) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... ong with any other person against whom no complaint is lodged, but who is covered by the second proviso to Section 5(1) of the Act. Though the second proviso to Section 5(1) enables the Competent Authority to attach "any property of any person", the word "property" should be understood only in the context of the definition under Section 2(1)(v). Consequently, such property should also satisfy the following criteria, namely, (a) that it was derived or obtained directly or indirectly, (b) by any person, and (c) as a result of criminal activity relating to a scheduled offence. Fortunately, the Adjudicating Authority is obliged under the proviso to Sub-section (2) of Section 8 to issue a notice to every person, who claims the property to be his own and to provide an opportunity of being heard even to such a person. Therefore, the Adjudicating Authority is obliged to issue a notice to LIC Housing Finance Limited. They have already issued show cause notices to the writ petitioners, though the petitioner in the second writ petition is not alleged of obtaining the property as a result of any criminal activity, to come within the definition of the expression "proceeds of crime". The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Senior Counsel appearing for the petitioner in the second writ petition and Mr.M.Dhandapani, learned Standing Counsel appearing for the Directorate of Enforcement and Mr.P.Sanjay Gandhi, learned Additional Government Pleader appearing for the State Police, which is the second Respondent in the first writ petition. 4. A criminal case in Crime No. 29/2013 was registered by the District Crime Branch, Dharmapuri District, against four persons including the petitioner in the first writ petition. The petitioner in the first writ petition is a Nephrologist. The offences alleged against those four persons are under Sections 294(b), 406, 420, 465, 468, 471, 197, 419, 506(ii) of Indian Penal Code, 1860 read with Section 19 of Transplantation of Human Organs Act, 1994. Simultaneously, two more complaints were also registered in Crime Nos. 28 and 31 of 2013. 5. Out of the offences for which the aforesaid criminal complaints had been registered, some of them such as Sections 420, 471 and 419 of the Indian Penal Code and Section 19 of the Transplantation of Human Organs Act, 1994 are Scheduled Offences in terms of Section 2(1)(y) of the Prevention of Money Laundering Act, 2002. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicating Authority, the discussion has to be necessarily split into two portions, the first dealing with the validity of the order of Provisional Attachment and the second dealing with the validity of the show cause notice. CHALLENGE TO THE PROVISIONAL ORDER OF ATTACHMENT: 10. The challenge to the Provisional Order of Attachment is primarily on two grounds. They are:- (i) that by virtue of the first proviso to Section 5(1) of the Prevention of Money-Laundering Act, 2002, the Provisional Order of Attachment cannot be passed unless a Final Report had been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973, in cases where the foundation for the initiation of proceedings is the registration of a criminal complaint for the Scheduled Offences under the Act; and (ii) that when even as per Provisional Order of Attachment, the properties in entirety do not represent the proceeds of crime, the attachment was illegal. GROUND No. (i): 11. The first ground of challenge to the Provisional Order of Attachment is that since it is passed on the basis of a criminal complaint registered with the police, the order of attachment should not have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encies stipulated in the first proviso after the amendment. 16. As seen from the first proviso, no order of attachment can be made, unless (i) in relation to a Scheduled Offence a report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure; or (ii) unless a complaint has been filed by a person authorised to investigate the offence mentioned in the Schedule before the Magistrate or a Court taking cognizance of the Scheduled Offence. 17. In the cases on hand, no report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure in relation to Crime No. 29 of 2013, in which the petitioner in the first writ petition is one of the accused. It is not the case of the Respondents that the case of Dr.V.M.Ganesan can be brought within the second contingency, namely that of filing of a complaint by a person authorised to investigate the offence mentioned in the Schedule. As a matter of fact, further proceedings pursuant to Crime No. 29 of 2013 has been stayed by another learned Judge of this Court in Crl.O.P.No. 17336 of 2013, by order dated 28.8.2014. 18. Therefore, if we go by the plain reading of the first proviso, it wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is covered by the first proviso. Both these persons represent individuals standing at two extremes of a spectrum. An interpretation to Section 5(1) of the Act that would make persons standing at two extremes of the spectrum liable to suffer an order of attachment, but would leave out persons standing in between, as not liable to suffer an order of attachment, would tantamount to reading the two provisos under Section 5(1) of the Act in complete disregard to the object sought to be achieved. 23. In my considered view, if a complaint has been registered against an individual and the complaint is under investigation, his case would at least be covered by second proviso. To say that a person accused of committing an offence will not even come within the meaning of the expression any person under the second proviso, would tantamount to placing him in a much better position than a third party who do not commit any offence, but merely came into possession of the property that represents the proceeds of the crime. Therefore, on the first contention raised by the petitioner, I hold that if a complaint has been registered against a person and a final report is already filed, his case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hment is that the property to be attached should constitute the proceeds of crime. Therefore, unless the property comes within the definition of the expression proceeds of crime under Section 2(1)(u) of the Act, it cannot be attached under Section 5(1)(a) of the Act. The expression proceeds of crime is defined in Section 2(1)(u) of the Act as follows:- (u) proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property. 29. A careful look at the definition of the expression proceeds of crime would show that to come within the definition of the said expression, the following pre-requisites are to be satisfied:- (i) that the same should be any property or the value of any such property; (ii) that it should have been derived or obtained directly or indirectly; (iii) that it should have been obtained or derived by any person as a result of criminal activity relating to a Scheduled Offence. 30. Keeping the above in mind, let me now take up the cases of the petitioners in both the writ petitions separately. 31. In so far as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime. 35. Though the second proviso to Section 5(1) enables the Competent Authority to attach any property of any person , the word property should be understood only in the context of the definition under Section 2(1)(v). Consequently, such property should also satisfy the following criteria, namely, (a) that it was derived or obtained directly or indirectly, (b) by any person, and (c) as a result of criminal activity relating to a scheduled offence. 36. Keeping the above in mind, if we have a look at the facts out of which the present writ petitions arise, two things are very clear. They are;- (a) that the petitioner in the second writ petition has not derived or obtained the property as a result of any criminal activity relating to a scheduled offence done by him, though his liability to suffer the order of attachment may arise under the second proviso to Section 5(1), and (b) that the LIC Housing Finance Limited cannot also be termed as a person who derived or obtained a right over the property as a result of any criminal activity relating to a scheduled offence. Take for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity shall, after - (a) considering the reply, if any, to the notice issued under sub-section (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and (c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering. (3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of section 5 or retention of property or record seized or frozen under section 17 or section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property or record shall - (a) continue during the pendency of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved person and after taking note of relevant materials, the Adjudicating Authority may pass an order recording a finding whether all or any of the properties referred to in the show cause notice are involved in money laundering; and (v) If the decision of the Adjudicating Authority under Sub-section (2) is to the effect that the property is involved in money laundering, the Adjudicating Authority may confirm the attachment. 45. Therefore, it is clear that in the first instance, the Adjudicating Authority can issue a show cause notice under Section 8(1) only if he has reason to believe that the noticee has committed an offence of money laundering or is in possession of the proceeds of crime . The phrase reason to believe appearing in many of the taxation statutes has been interpreted by the Apex Court to indicate a considered opinion. Therefore, an Adjudicating Authority is not contemplated under Section 8(1) to be a mere rubber stamp. Upon receipt of a complaint under Section 5(5), the Adjudicating Authority is not obliged automatically to issue a show cause notice under Section 8(1), unless he has reason to believe about the existence of two things. If he does not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Adjudicating Authority doing anything further. 47. For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first writ petition and which consequently has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced. I do not think that the Directorate of Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution made by the borrowers towards their share of the sale consideration was lawfully earned or represent the proceeds of crime. Today, if the Adjudicating Authority confirms the provisional order of attachment and the property vests with the Central Government, LIC Housing Finance Limited will also have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in. This cannot be purport of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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