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TMI Blog2021 (11) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the petitioner submits that the facts giving rise to this writ petition are that the CBI, ACB Ranchi had registered FIR No. RC-19(A)/09-R dated 22.10.2009 for the offence allegedly committed under Section 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 against three accused persons, in which, the petitioner-company has also been arrayed as accused no.3. In the FIR, it has been alleged that one Baleshwar Baitha and Heeraman Mahto both Executive Engineers, Road Construction Department, Daltonganj, during period 2004-06 entered criminal conspiracy amongst themselves and with the petitioner-company. In pursuance of the said conspiracy, the petitioner-company submitted false/bogus invoices showing a procurement of bitumen for the execution of contractual works awarded to them, which caused wrongful gain to the contractor and official concerned and corresponding huge wrongful loss to the Government of Jharkhand. The CBI submitted Chargesheet No.2 dated 31.01.2011 under Sections 120 (B) read with Sections 420, 468 and 471 of IPC and Section 13(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o know where there is a direct appeal to his senses and a person is presumed to have a reason to believe if he has sufficient cause to believe the same. Section 26 IPC explains the meaning of the words reason to believe thus: 26. Reason to believe .- A person is said to have reason to believe a thing, if he has sufficient cause to believe that thing but not otherwise. In substance what it means is that a person must have reason to believe if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned. Such circumstances need not necessarily be capable of absolute conviction or inference; but it is sufficient if the circumstances are such creating a cause to believe by chain of probable reasoning leading to the conclusion or inference about the nature of the thing. These two requirements i.e. knowledge and reason to believe have to be deduced from various circumstances in the case. In the context of the circumstances obtaining in the instant case namely that the appellant admittedly was a licenced stamp vendor and he was found in possession of counterfeit stamps, the explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalisation of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement. While dealing with a similar provision contained in Section 45 of the Gujarat Value Added Tax Act, 2003, one of us (Hon ble M.R. Shah, J.) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v. State of Gujarat observed : (Vishwanath Realtor case26, SCC OnLine Guj para 26) 26. Section 45 of the VAT Act confers powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever for the reasons that we have indicated earlier we are clearly of the view that the formation of the opinion must be based on tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue. 56. A significant aspect of Rule 159(5) is that upon the levy of a provisional attachment, the person whose property is attached is empowered to file an objection within seven days on the ground that the property was or is not liable to attachment. In using the expression was or is no longer liable for attachment , the delegate of the legislature has comprehended two alternative situations. The first, evidenced by the use of the words was indicates that the property was on the date of the attachment in the past not liable to be attached. That is the reason for the use of the past tense was . The expression is not liable to attachment indicates a situation in praesenti. Even if the property, arguably, was validly attached in the past, the person whose property has been attached may demonstrate to the Commissioner that it is not liable to be attached in the present. 70. Ex facie, the above orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uoted herein below: 12. In my view, the property derived from legitimate source cannot be attached on the ground that property derived from scheduled offence is not available for attachment. Limb Patna High Court CR. WJC No.2398 of 2017 dt.28-06-2021 No.II above is confined to value of property derived or obtained from criminal activity and not any property of the person alleged to be involved in money laundering. Otherwise the legislature would not have defined the proceeds of crime , which was attachable under Section 5 of the PMLA. Indisputably, the property-in-question were acquired by respondent No.5 not from the alleged tainted money; rather it was acquired when there was no allegation of any act of money laundering committed by respondent No.5. Therefore, the properties-in-question do not fall within the mischief of second limb as value of property derived or obtained from criminal activity . 16. I adopt the view of the Division Bench of Punjab and Haryana High Court in preference to the single Judge judgment of Delhi High Court in Deputy Director of Enforcement V. Axis Bank and others relied upon by learned counsel for respondent Nos.1 to 4 for the simple re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be seized under Section 17 or be frozen under Section 17(1A) of the PMLA. However, any such order can be passed only if the necessary checks and balances are complied with; namely, that the seizure or attachment is preceded by the concerned authority having reason to believe that such properties are proceeds of crime or are otherwise related to crime. Further, such reasons to believe must be formed on the basis of material in possession of the concerned officer and must be recorded in writing. In addition, such orders cannot be extended beyond the period of one hundred and eighty days, within which the Adjudicating Authority has to examine the matter and pass an order after issuing notice to the concerned persons and after affording the concerned person full opportunity to be heard. Any person aggrieved by any such order of the Adjudicating Authority is entitled to prefer an appeal to the appellate tribunal constituted under Section 25 of the Act. 107. A plain reading of the aforesaid definition indicates that the definition / expression of proceeds of crime is in two parts. The first part relates to proceeds of crime derived or obtained by crime and the second relates to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without authority of law. The impugned order of provisional attachment is founded on the allegation that the property sought to be attached has been used in commission of a scheduled offence and, therefore, is liable to be attached as proceeds of crime. However, it is obvious that merely because a property used in commission of crime, the same cannot be construed as proceeds of that crime. 15. At this stage, it would be relevant to refer to Section 5(1) of the PML Act, the relevant extract of which is set out below: Section 5 (1) - Where the Director or any other officer not below the rank of Deputy Director authorized by the Director 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; and (b) 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 hu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a scheduled offence. This is apparent from paragraphs 7 and 16 of the impugned order which are set out below: 7. AND WHEREAS, the investment of ₹ 7.91,00,000/- was made after filing for allocation of Coal Block, and the same has been used in commission of scheduled offence. i.e. the allocation of coal block by fraudulent means and to further obtain mining lease on the basis of said allocation. Further, there is a balance of ₹ 1,33,700/- lying in the bank accounts as mentioned at Para 5(xiv) and the fixed deposit No. 015340100288/8 dated 4.7.2017 amounting to ₹ 11,86,710/-. * * * 16. AND WHEREAS, the following amounts have been used in the commission of scheduled offence and are proceeds crime in terms of Section 2 (u) and 2 (v) of PMLA, 2002:- S.No. Amount in Rs. Remarks 1. 2,45,00,000 Investment in M/s GCL By M/s HEPL and lying in Corporation Bank, Bhowanipur Branch, Kolkata A/cNo.510101003473693 of M/s GCL. 2. 11,86,710 Lying as fixed deposits No.015340100288/8 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons to believe. Section 5 stipulates that if the authority concerned has reason to believe, to be recorded in writing, on the basis of material in his possession, that a crime as contemplated therein may have been committed, he may, by an order in writing, provisionally attach the property in question. 45. As such, it is evident that the noticee has no remedy against the illegality of a notice under Section 5(1) or Section 8(1) of the PMLA and/or even on the outcome of the ensuing hearing, if it goes against the noticee. Hence, the line of distinction in Biswanath Bhattacharya (supra), with Ajantha Industries (supra) does not exist in the present case, since there is no provision for a challenge to the legality of the notice or the outcome of the hearing, which is more akin to Ajantha Industries (supra) than Biswanath Bhattacharya (supra). 18. By way of referring this judgment, he submits that the case of the petitioner is identical in nature. He further submits that the landed property, in question was purchased by the petitioner on 06.11.1999. According to him, this was purchased prior to the alleged commission of offence and this cannot be the subject matter of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is latter and proceeds of crime investment cannot be overlooked. He further submits that in the account, the amount has been interlinked and it is very difficult for respondent no.2 to bifurcate the amount, in question. He also submits that the order is effective for 180 days only and after 180 days, this order will lose its force. The petitioner has already been noticed under Section 8(1) of the Act and the onus lies on the part of the petitioner to disclose before the concerned authority how the property in question was not involved. He refers to paragraph 8 of the impugned order and submits that the finding of 26 numbers of forged invoices is there, which comes to ₹ 1,08,95,583/-. By way of referring page 102 paragraph (x) of the impugned order, he submits that the amount of ₹ 1,08,95,583/- was found to have been credited in the bank account in the name of contractor-company, but the same got intermingled with business venture of the said company therefore proceeds of crime could not be traced. According to him, the order of provisional attachment is well founded. To buttress this argument, he relied upon the judgment rendered by the Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value . Though these words are not used in the second category, it is clear that the said kind also has to be understood in the same sense. 111. If such other property as above (the alternative attachable property or deemed tainted property) is owned by, or held in the name of, the accused, objections to attachment (or confiscation) would generally concern the material on which reasons to believe about money-laundering and acquisition of proceeds of crime are founded or the value of the property which has been attached. Again, the possibility of conflict involving interest of a third party comes in for which the bonafides of the acts through which such third party may have acquired interest in the targeted property, as indeed of the lawfulness and adequacy of consideration for such acquisition, would need scrutiny. 122. As in the case of RDBA, the above clause of SARFAESI Act would not render PMLA subservient to it because of the different objects and reasons of both enactments. Thus, the PMLA, enacted in 2002 (but enforced in 2005), continued to prevail, particularly in the matter of attachment and confiscation, by virtue of Section 71 which reads thus :- 71. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duled offence - but also any other asset or property of equivalent value of the offender of moneylaundering, the latter not bearing any taint but being alternative attachable property (or deemed tainted property) on account of its link or nexus with the offence (or offender) of money-laundering. (iv). If the tainted property respecting which there is evidence available to show the same to have been derived or obtained as a result of criminal activity relating to a scheduled offence is not traceable, or the same for some reason cannot be reached, or to the extent found is deficient, the empowered enforcement officer may attach any other asset ( the alternative attachable property or deemed tainted property ) of the person accused of (or charged with) offence of money-laundering provided it is near or equivalent in value to the former, the order of confiscation being restricted to take over by the government of illicit gains of crime. (v). If the person accused of (or charged with) the offence of money-laundering objects to the attachment, his claim being that the property attached was not acquired or obtained (directly or indirectly) from criminal activity, the burden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides. (xiii). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property), claiming that it had acquired the same at a time around or after the commission of the proscribed criminal activity, in order to establish a legitimate claim for its release from attachment it must additionally prove that it had taken due diligence (e.g. taking reasonable precautions and after due inquiry) to ensure that it was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest. (xiv). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property) claiming that it had acquired t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, he submits that these judgments are not applicable in the facts and circumstances of the present case. 23. In light of the above submissions of the learned counsel appearing for the parties, the Court has gone through the materials on the record. Proceeds of crime has been defined under Section 2(1)(u) of the Prevention of Money Laundering Act, which is quoted herein below: 2.(1)(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 [or where such property is taken or held outside the country, then the property equivalent in value held within the country [or abroad]]; Explanation.-For the removal of doubts, it is hereby 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;] 24. On perusal of this Section, it is crystal clear that any property derived or obtained, directly or indirectly by any person as a result of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion. Although at paragraph (xi) at page 103 of the impugned order, it has been stated by the concerned authority that if the properties are left unattached, they are likely to be concealed, transferred or dealt with by the accused person, but there is no material and reason assigned for coming to that finding. The property in question is mortgaged with the financial institution. In Radha Krishan Industries (supra), the Hon'ble Supreme Court has considered similar provision and held that there will be reason and material to come to that finding. 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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