In a case regarding the attachment of property under the Prevention of Money Laundering Act (PMLA), 2002, the High Court of Punjab & Haryana held that property acquired prior to the commission of criminal activity or the introduction of PMLA cannot be attached unless property obtained or acquired from scheduled offence is held or taken outside the country.
The division bench of Justice Jaswant Singh and Justice Sant Prakash said if a property so is attached,
" The Director or any other officer authorised by him is bound to record reasons which must be specific and mere reproduction of wording of Section 5 of PMLA is not sufficient."
The appeals were filed under Section 42 of the Prevention of Money Laundering Act (PMLA), 2002 to quash the order passed by the Appellate Tribunals wherein the appeals of the Appellants assailing confirmation of provisional attachment order was dismissed.
In the present case, an FIR was registered under Section 177, 420, 465, 467, 468, 471 of IPC against M/s Jaldhara Exports alleging fraudulent refund of VAT during February-March 2013. The respondent, Enforcement Directorate registered an Enforcement Case Information Report (ECIR).
Thereafter the respondent provisionally attached a plot (property involved in Appeal No.1) and a flat (property involved in Appeal No.2) under Empire Residential Project belonging to the appellants.
The Adjudicating Authority confirmed the attachment for a period of 90 days during the pendency of investigation or pendency of the proceeding before the court under the Prevention of Money Laundering Act (PMLA), 2002.
The appellant, in this case, raised three questions:
(i) whether the investigation was pending at the time of expiry of 90 days from the date of the confirmation order?
(ii) whether the property in question was purchased much prior to not the only commission of alleged offence but also the introduction of PMLA?
(iii) whether there is non-complaince of the requirement of recording of reasons prior to provisional attachment of property?
It was contended that the property involved in Appeal no. 1 was purchased in 1991 and property involved in the Appeal no.2 was purchased in 2012 whereas the alleged scheduled offence was committed in February-March 2013. Thus, the property in question cannot be treated or declared as proceeds of crime.
As per the definition of "Proceeds of Crime' under Section 2(1)(u) of the PMLA especially in view of explanation inserted by Section 192 of Finance Act, 2019 says,
"proceeds of crime must be directly or indirectly obtained or derived from the scheduled offence unless property derived or obtained from scheduled offence unless property derived or obtained from scheduled offence is held or taken outside the country, in which case property equivalent in value held in India may be attached."
Section 5 of PMLA says,
" Property may be attached if it's likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to the confiscation of such proceeds of crime."
The court noted the three limbs of Section 2(1)(u) of the PMLA which says,
" (i) Any property derived or obtained directly or indirectly as a result of criminal activity relating to the scheduled offence;
(ii) Value of property derived or obtained from criminal activity;
(iii) Property equivalent in value held in India or outside where property obtained or derived from criminal activity is taken or held outside the country."
Further, the court examined Sections 5 and 8 of PMLA and said,
"As per Section 5 of the PMLA, any property of any person involved in money laundering may be provisionally attached. The attachment may be made after the filing of police report or complaint with respect to the scheduled offence, however where the attachment is immediately required, it may subject to compliance of inbuilt safeguards, be made even prior to the filing of the police report or complaint qua scheduled offence."
"As per Section 8 of the PMLA, the Adjudicating Authority shall serve notice upon the person whose property has been attached calling upon him to the indicated source of his income, earnings or assets out of which or by means of which he has acquired attached property. The Adjudicating Authority after considering representation shall record a finding whether properties are involved in money laundering or not. The attachment shall continue during the investigation for a period not exceeding 90 days (amended
to 365 days by Act 7 of 2019) or pendency of criminal proceedings relating to offence under PMLA before Competent Court. The provisional attachment shall become final on the conclusion of the trial and confiscation of attached property by Special Court. If on the conclusion of the trial, Court finds
that offence of money laundering has not taken place or property is not
involved in money laundering, it shall release the property."
Thereupon the court noted that as per the scheme of the PMLA, after the recording of ECIR two sets of proceedings are initiated in case of commission of the offence of money laundering, namely provisional attachment of property at the end of Enforcement Department and criminal trial before Special Court.
"In the first set of proceedings, initiated by Enforcement Department, property i.e., proceeds of crime are provisionally attachment and in the second set of proceedings criminal complaint is filed before Special Court which has the power to convict the accused and confiscate attached properties."
The court said that as per Section 24 of the PMLA, the burden to prove that property is not involved in money laundering is upon the person whose property is attached.
" There is no sense on the part of any person to discharge burden qua source of the property if any property may be attached, irrespective of its source."
"As per Section 8(6) of the PMLA, where the Special Court finds that offence of money laundering has not taken place or property is not involved in money laundering, it shall release such property."
The court said that the authorities would get unguided and unbridled powers and may implicate any person even though he has no direct or indirect connection with scheduled offence and property derived from thereon but has dealt with any other property (not involved in scheduled offence) of the person who has derived or obtained property from the scheduled offence.
"It would amount to a violation of Article 20 and 21 of the Consitution of India."
Further, the court also noted that as per Section 5 of the PMLA, the Director or other Officer authorized by him is duty-bound to record reasons on the basis of material in his possession that proceeds of crime are likely to be concealed or transferred or in any other way dealt with which may frustrate any proceedings relating to confusion.
"There was nothing on record to show that if the property is not attached, the proceedings of confiscation would be frustrated. The authorities are bound to be specific and cannot simply reiterate words and phrases used in the Section which is source of power. The Respondent in the present case, while passing provisional attachment order has simply held that properties are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to the confiscation of such proceeds of crime and matter, is under investigation." added the court.
The court opined that the authorities under the Act are bound to be specific while exercising power conferred under Section 5 of the PMLA.
"Words used in the order cannot be the verbatim replica of words used in Section 5 of the PMLA. The respondent while passing attachment order has reproduced the contents of Section 5 of the PMLA, whereas the respondent was bound to point out the possibility of concealment or transfer or manner in which property is likely to be dealt with."
The court noted that in the present case it was admitted that the property was purchased in 1991 and mortgaged with bank in 2009. It said that the alleged offence was committed in 2013 whereas attachment order was passed in December 2017.
"There is nothing on record to show that Appellants after 2009 or 2013 attempted to dispose of the property in question which prompted the Respondent to pass attachment order...The respondent was bound to record the reasons on the basis of material in his possession that property is likely to be concealed or transferred or dealt with any manner."
Accordingly, the court held that the respondent passed the order without recording the reasons on the basis of material in his possession that property in question was likely to be concealed, transferred or dealt with in any manner which would frustrate confiscation proceedings.
While answering the three main question raised by the appellant, the court said,
"(i) In case of investigation is pending, filing of complaint against others is not sufficient to deprive any person from the benefit of time cap of 365 days,
(ii) Property acquired prior to the commission of scheduled offence i.e., criminal activity or the introduction of PMLA cannot be attached unless property obtained or acquired from scheduled offence is held or taken outside the country,
(iii) Director or any other officer authorised by him is bound to record reasons which must be specific and mere reproduction of wordings of Section 5 is not sufficient."
The court while allowing the appeals set aside the impugned order passed by the Tribunal.
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