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TMI Blog2018 (1) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... tituted the basis for ‘reasons to believe’ subject to redaction in the manner explained hereinbefore, for reasons to be recorded in writing. (vi) If there is a violation of the legal requirements outlined hereinbefore, the order of the provisional attachment would be rendered illegal. (vii) There can be single-member benches of the AA and the AT under the PMLA. Such single-member benches need not mandatorily have to be JMs and can be AMs as well. As already pointed out, the challenge to the maintainability of the writ petitions on other grounds, and to the ECIR and to the OCs, the SCNs, the provisional attachment orders and to all further proceedings arising therefrom which have been challenged in the individual writ petitions, shall be decided by the learned Single Judge of this High Court. It will be open to the Respondents to raise all pleas, including that of maintainability, before the learned Single Judge. No opinion is expressed with regard thereto. - W.P. (C) 5320/2017, 5323/2017,5326/2017,6920/2017,7015/2017,8100/2017,8112 to 8118/2017, 8521/2017,8726/2017,9808/2017 & 39897/2017,3008/2016, 9808/2017 & CM APPL.39897/2017, 3008/2016, 4228/2016 & CM APPL.45944/2016, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged in the writ petitions. The scope of the present proceedings before the Division Bench is, therefore, confined to examining: a. The maintainability of the writ petitions (which has been raised as a preliminary objection by Union of India in some of the matters); b. The constitutional validity of the second proviso to Section 5 (1) PMLA c. Whether a Single Member of the AA can exercise powers and conduct proceedings under Section 8 PMLA? d. If the answer to (c) is in the affirmative, does such Single Member necessarily have to be a Judicial Member? 6. This Court has heard the submissions of Mr. Vikram Chaudhary, Mr. Ajit Kumar Sinha, Mr. Dayan Krishnan, Senior counsel and Mr. Nikhil Jain, Ms. Priyanka Sinha, Mr. Mayank Jain and Ms. Madhu Jain, learned counsel appearing for the Petitioners. On behalf of the Union of India, the submissions of Mr. Amit Mahajan, Mr. Sanjeev Narula, Mr. Ajay Digpaul, all Central Government Standing Counsel, have been heard. Background to the PMLA 7. Before proceeding to note the submissions of counsel for the parties, it is necessary to understand the background to the enactment of the PMLA. The Statement of Ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons read as under: 3. Offence of money-laundering.- Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering. 4. Punishment for money-laundering.- Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five lakh rupees: Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Scheduled, the provisions of this section shall have effect as if for the words which may extend to seven years , the words which may extend to ten years had been substituted. 12. The expression proceeds of crime forms the heart of the offence of money-laundering under Section 3 of the Act. Any person who is involved in any process or activity connected with proceeds of crime , including its concealment, poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd as many as 19 more such enactments with some of the specific provisions of such enactments being expressly specified in the Schedule. Part B specifies the offence under Section 132 of the Customs Act 1962, i.e. making a false declaration or using false documents etc., where the total value involved in the offences is ₹ 1 crore or above. Part C lists out offences having cross border implications and is specified in Part A, in offences against property under Chapter XVII IPC, or the offence of wilful attempt to evade any tax, penalty or interest under Section 51 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015. 18. The punishment for the offence of money-laundering is rigorous imprisonment (RI) for a minimum period of three years which may extend to seven years plus fine. However, where the offence is that specified in Para 2, Part A of the Schedule, i.e. an offence under the NDPS Act, the outer period of RI could extend to 10 years. Provisions regarding departmental proceedings 19. While the trial for the offence under Sections 3 and 4 PMLA would be conducted before the concerned criminal court, the enactment also prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PMLA. 23. The second proviso to Section 5 (1) PMLA was inserted by the FA 2015. It must be noted at this stage that prior to its substitution by Act 2 of 2013 with effect from 15th February 2013, Section 5(1) had been amended by Act 21 of 2009 with effect from 1st June 2009 and that provision read as under: (1) Where the Director, or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that- (a) any person is in possession of any proceeds of crime; (b) such person has been charged for having committed a scheduled offence; and (c) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding (one hundred and fifty days) from the date of the order, in such manner provided in the Second Scheduled to the Income Tax Act, 1961 (43 of 1961) and the Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a reason to believe that if the property involved in money-laundering is not attached immediately, such non-attachment is likely to frustrate proceedings under the PMLA. In other words, even pending the filing of the charge-sheet/challan under Section 173 Cr PC before the criminal court, a provisional attachment can be ordered under the second proviso to Section 5 (1) PMLA subject to the fulfilment of the conditions precedent. It is this second proviso that faces the challenge as to its constitutionality in all these petitions. Judicial Review of the provisional attachment order 26. To complete the scheme of the PMLA, after the provisional attachment order is passed under Section 5(1) PMLA, the officer making such order will immediately forward a copy thereof to the AA in a sealed envelope, as stipulated under Section 5(2) PMLA. 27. Section 5 (3) PMLA states that the provisional attachment order shall cease to have effect on the expiry of the period specified in Section 5 (1) or on the date when the AA makes an order under Section 8 (2) PMLA, whichever is earlier. As already noted, under Section 5(5) PMLA, the officer making such order must file a complaint before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to receive it. 33. The order of the AA is subject to appeal before the Appellate Tribunal (AT) constituted under Section 25 of the PMLA. Thus, the AA is not the final authority under the PMLA as far as the attachment of proceeds of crime is concerned. Appeals can be filed to the AT both by the Director and by the person aggrieved by the order of the AA. The limitation for filing such an appeal under Section 26(3) PMLA is 45 days from the date on which a copy of the order of the AA is received. Section 26(4) envisages the AT giving a hearing to the parties and passing orders either confirming, modifying or setting aside the order of the AA. 34. Against the order of the AT, there is yet another appeal provided for which is to be made before the High Court under Section 42 PMLA. This appeal would be on any question of law or fact arising out of the order of the AT. 35. Chapter VII separately deals with the Special Courts constituted to try the offences under the PMLA. The order of the Special Court is subject to appeal and revision by the High Court under Section 47 of the PMLA read with the corresponding provisions of Chapters 29 and 30 of the CrPC, as the case may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that no part of the cause of action has arisen within the jurisdiction of this Court. Therefore, the Court disagrees with the Union of India as regards the above submission. Moreover, as far as the scope of the present proceedings is concerned, since it involves pure questions of law that arise in all of these petitions, in some of which the Union of India has not raised any preliminary objection as to maintainability, this Court is of the view that the preliminary objection should not come in the way of the Court deciding those questions of law. 42. This conclusion however, is not to be construed as an expression of opinion on the maintainability of some of these writ petitions on other grounds, particularly on the existence of an alternative efficacious remedy of appeal before the High Court under Section 42 PMLA. That, however, will be decided by the learned Single Judge in accordance with law, independent of this decision. Submissions of the Petitioners on constitutional validity of second proviso to Section 5(1) PMLA 43. The submissions on behalf of the Petitioners as regards the challenge to the constitutional validity of the second proviso to Section 5(1) P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property. Reliance is placed on the decision of the Supreme Court in Nikesh Tarachand Shah v. Union of India 2017 (13) SCALE 609 . If the second proviso is not read down in the above manner, it will be an instrument of oppression, misuse and arbitrariness clothing officers with uncanalised, draconian and arbitrary powers thereby rendering the second proviso itself violative of Article 14 of the Constitution. (vii) It cannot be the ipse dixit of the officer to decide when to invoke the first proviso and when to invoke the second. Unless sufficient safeguards are read into the second proviso as regards the exercise of the powers contained therein, the entire provision will be rendered arbitrary and violative of the Article 14 of the Constitution. Reliance is placed on the decision in Union of India v. Dilip Kumar (2015) 4 SCC 421. (viii) The second proviso to Section 5(1) PMLA, as it presently stands, is manifestly arbitrary as explained by the Supreme Court in State of Bombay v F.N. Balsara (1951) 2 SCR 682 and later expostulated in Shreya Singhal v. Union of India (2015) 5 SCC 1 and Shayara Bano v. Union of India (2017) 9 SCC 1. Reliance is also placed on the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the enforcement agencies is that the proceeds of such crime are susceptible to stealth and clandestine movement which, if not seized immediately upon detection, can vanish forever. It is added that in the world of internet and wire transfers, it is very difficult to have a trail of the money or property constituting the proceeds of crime or value of such property. It is submitted that the very definition of proceeds of crime under Section 2(1)(u) PMLA, which incidentally has not been challenged by the Petitioners, permits any property involved in money-laundering to be attached and not necessarily the proceeds of crime of the persons facing trial under Section 3 PMLA. (iv) Recourse to the second proviso to Section 5(1) is for a limited period of 180 days. The entire proceedings are taken over by the AA after 30 days of the provisional attachment order. There is a second tier of safeguard since the AA will again have to apply its mind before issuing an SCN regarding such continued provisional attachment. The confirmation of the provisional attachment is preceded by a hearing and the application of mind by the AA to all the facts and circumstances. (v) A third level ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible including title to or interest in such a property and their assets, wherever located. The Explanation to Section 2(1)(b) defines property to mean property of any kind used in the commission of an offence under the PMLA itself or of any scheduled offence. Therefore, the expression value of any such property would be a value equivalent to the value of a property derived or obtained directly or indirectly by any person as a result of criminal activity. The property itself may no longer be available but the equivalent value of such a property, whether held in cash, etc., would be available for attachment. 49. The wide definition of the phrase proceeds of crime has to be borne in mind while examining the scope of the power of attachment of such proceeds of crime. 50. What attracts Section 5(1) PMLA is the person being in possession of any proceeds of crime. That person who is in possession of proceeds of crime need not be the person who is being tried for the scheduled offences or even PMLA offences. Or he may be a person accused of a PMLA offence as described under Section 3 PMLA. That is because, under Section 3 PMLA, any person who attempts to indulge or knowingly ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is explains why the second proviso has been expressly made a non-obstante clause. This is to draw a clear distinction between persons facing trial for a scheduled offence in respect of whom the investigation is complete and where a report is to be filed on the one hand and the other persons on the other hand. 55. The second proviso to Section 5(1) PMLA would also cover a situation where, although a person has been suspected of committing the offence under Section 3 PMLA, the investigation is still in progress and the investigating agency has not reached a stage where it can file a report/charge-sheet under Section 173 CrPC. Such a person would also be covered by the second proviso to Section 5(1) of the PMLA. 56. There is a good reason for the introduction of the second proviso to Section 5(1) PMLA. The main portion of Section 5(1) itself does not restrict its applicability to only such persons who are involved in the commission of a scheduled offence. It covers any person in possession of any proceeds of crime . Consequently, the Court is unable to agree with the submissions of learned counsel for the Petitioners that the second proviso to Section 5(1) PMLA completely oblit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector or equivalent has to be authorized by the Director to exercise the powers. (ii) The officer has to record the reasons to believe that the property is (a) involved in money-laundering; (ii) if not attached immediately, the proceedings of confiscation under the PMLA will be frustrated; and (iii) such belief as in (ii) above has to be formed on the basis of the material in his possession . 59. The fact that the Director will, therefore, have to first apply his mind to the materials on record before recording in writing his reasons to believe is certainly a sufficient safeguard to the impulsive invocation of the powers under the second proviso to Section 5(1) PMLA. 60. The word immediately also imports a sense of urgency into the situation that warrants exercise of the powers. The reasons to believe, as recorded by the officer must reflect this sense of immediacy which impels the officer to invoke the power. The Court is in agreement that the second proviso to Section 5(1) has to be certainly read with the main provision itself. As pointed out by learned counsel for the Petitioners, a proviso cannot be interpreted in a manner to render redundant the main pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not supposed to mechanically issue an SCN. The AA has to apply its mind and again record the its reasons to believe that any person has committed an offence under Section 3 PMLA or is in possession of proceeds of crime. Here again, two kinds of persons are envisaged: (i) a person who has committed an offence under Section 3 PMLA; and (ii) A person who happens to be in possession of proceeds of crime. 63. The proceedings before the AA commence within 30 days from the date on which the AA receives the complaint under Section 5(5) PMLA, Section 17(4) PMLA or Section 18(10) PMLA. It is implicit in Section 5(10) PMLA that if, within 30 days, the Director does not file a complaint before the AA, then the provisional attachment would come to an end. 64. This has to also be read in the context of Section 5(3) PMLA read with Section 8(2) PMLA. Under Section 8(2) PMLA, the AA has to: (i) consider the reply to the SCN; (ii) hear the aggrieved person as well as the Director/ Deputy Director/ Authorized Officer; and (iii) take into account all the relevant materials placed on record. This is, therefore, an adjudicatory exercise which is the additional safeguar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause to believe that thing but not otherwise . In Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC) , the Supreme Court in the context of the Income Tax Act, 1961 explained the expression as under: Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. 71. In Income Tax Officer v. Lakhmani Mewaldas 1976 (3) SCR 956 , the Supreme Court held that there should be a live link or close nexus between the material before the ITO and the formation of his belief that income had escaped assessment. More recently, in Aslam Mohd Merchant v. Compet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons that can enable the reviewing authority to discern how the officer formed his reasons to believe. As explained in Oriental Insurance Company v. Commissioner of Income Tax [2015] 378 ITR 421 (Delhi), the prima facie formation of belief should be rational, coherent and not ex facie incorrect and contrary to what is on record . A rubberstamp reason can never take the character of reasons to believe , as explained by the Supreme Court in Union of India v. Mohan Lal Kapoor (1973) 2 SCC 836. In Dilip N Shroff v. CIT (2007) 6 SCC 329, the Supreme Court decried the practice of issuing notices in a standard pro forma manner without material particulars and without deleting inappropriate words or paragraphs . 73. In Kranti Associates v. Masood Ahmed Khan (2010) 9 SCC 496 , the legal position was summarized as under: 51. Summarizing the above discussion, this Court holds: a. In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. b. A quasi-judicial authority must record reasons in support of its conclusions. c. Insistence on recording of reasons is meant to serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562 para 29 and Anya vs. University of Oxford, 2001 EWCA Civ 405, wherein the Court referred to Article 6 of European Convention of Human Rights which requires, adequate and intelligent reasons must be given for judicial decisions . o. In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of Due Process . 74. The Court, therefore, holds as under as regards the submissions of the learned counsel for the Petitioners with regard to the constitutionality of the second proviso to Section 5 (1) PMLA: (i) Although the second proviso to Section 5(1) states that the property has to be involved in money-laundering and Section 5(1) states that mere possession of proceeds of crime is sufficient, the Court does not see any conflict in these expressions. When the definition in Section 3 PMLA is read with Section 2(1)(v) and the Explanation thereto, it becomes clear that the property which constitutes proceeds of crime is the property involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticee of the materials on record. If there is any sensitive material, it can probably be redacted before issuing copies thereof, after noting the reasons for such redaction in writing in the file. But even such redacted material will have to be nevertheless shown to the noticee. 78. Whether, in an individual case, the reasons to believe, as recorded by the authorities, satisfies the above requirement of law will now be examined by the learned Single Judge before whom these writ petitions will be placed for further consideration. It is, therefore, not necessary for this Division Bench to examine the individual orders of either the Director/Deputy Director under Section 5(1) PMLA or the AA under Section 8 PMLA. Composition of the AA and AT 79. The Court next takes up the question of the composition of the AA on which extensive arguments were advanced by the learned counsel for the Petitioners. In this context, it must be noticed that under Section 6 PMLA, the AA is supposed to consist of the Chairperson and two other members one of whom shall be a person having experience in the field of law. Section 6(3) further sets out what the qualifications for appointment as a me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Union of India (decision dated 1st April 2016 of the Gujarat High Court SCA No.10076/2015) that even that Single Member has to necessarily be a Judicial Member (JM) and not an Administrative Member (AM). 83. The reliance on L. Chandrakumar v. Union of India (supra) is misplaced. There the question was whether the ousting the jurisdiction of the High Court and vesting the powers of the High Court in a Tribunal is constitutionally valid. That is not what is sought to be done under Section 8 PMLA. It is only to provide an internal judicial review of the orders passed by the authorities under Section 5(1) PMLA. The AA under Section 8 PMLA cannot, therefore, be equated with an Administrative Tribunal under the Administrative Tribunals Act 1985 (ATA). The Central Administrative Tribunal under the ATA was vested with the powers originally with a High Court under Article 226 of the Constitution. Those were Tribunals under Article 323-B of the Constitution of India. The AA is not that kind of a Tribunal at all. The Court is, therefore, unable to agree with judgments of the learned Single Judges of the Sikkim and Gujarat High Courts in this context. 84. There are other reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 8(1) PMLA. (v) The noticee under Section 8(1) PMLA is entitled access to the materials on record that constituted the basis for reasons to believe subject to redaction in the manner explained hereinbefore, for reasons to be recorded in writing. (vi) If there is a violation of the legal requirements outlined hereinbefore, the order of the provisional attachment would be rendered illegal. (vii) There can be single-member benches of the AA and the AT under the PMLA. Such single-member benches need not mandatorily have to be JMs and can be AMs as well. 88. As already pointed out, the challenge to the maintainability of the writ petitions on other grounds, and to the ECIR and to the OCs, the SCNs, the provisional attachment orders and to all further proceedings arising therefrom which have been challenged in the individual writ petitions, shall be decided by the learned Single Judge of this High Court. It will be open to the Respondents to raise all pleas, including that of maintainability, before the learned Single Judge. No opinion is expressed with regard thereto. 89. These writ petitions will now be placed before the learned Single Judge for directions o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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