2019 (4) TMI 391 - HC - Money Laundering

Offence under PMLA - attachment orders - assets acquired prior to enactment of PMLA - HELD THAT - There is a requirement that an action may be taken by an officer only when there is reason to believe especially in the context of a statute where stringent procedures are laid down the requirement of having reason to believe must be strictly complied with. PMLA is exactly such a statute where stringent procedures have been laid down. No reason why the essence of the definition contained in section 26 of the IPC should not inform the interpretation of the same phrase in section 17 of the PMLA. It is noteworthy that the phrase reason to believe has a specific connotation in criminal jurisprudence and is not merely an ordinary and colloquial phrase. We must never forget the venerated principle of law laid down by the Privy Council in the case of Nazir Ahmad vs. Emperor reported as AIR 1936 PC 253 that where a power is given to do a certain thing in a certain way the thing must be done in that way or not at all; and other methods of performance are necessarily forbidden. In our view this principle must a fortiori apply to a special statute such as PMLA. No infirmity in the impugned judgment on the issue. We hold that ingredients of section 17 of PMLA must be scrupulously complied with and it is impermissible for seizure to be made by relying instead upon the provisions of section 102 of the CrPC. Wherever there is/are any provision/s covering any aspect of proceedings under PMLA such provisions would prevail and must be adhered to regardless of any cognate provision contained in the CrPC. Provisions of the CrPC may however be relied upon as residuary provisions for proceedings under PMLA on aspects and matters for which no specific provision is contained in PMLA. In case of any conflict or contradiction as between provisions of PMLA and CrPC those contained in PMLA would prevail and those of the CrPC must yield. Insofar as the question of whether assets acquired prior to enactment of PMLA come within the definition of proceeds of crime the view taken by the single Judge namely that it is irrational to hold that such assets could never fall within the definition contained in section 2(1)(u) of the PMLA has not been challenged or argued before us. The appellant has also not pressed any challenge to the observation of the single Judge that the private parties shall be entitled to seek consequential relief in any other court or forum.

Summary

Issues Involved:
1. Whether the Directorate of Enforcement (DoE) has the authority to freeze Demat accounts under section 102 of the Code of Criminal Procedure (CrPC).
2. Whether assets acquired prior to the enactment of the Prevention of Money Laundering Act, 2002 (PMLA) can be considered 'proceeds of crime' under the PMLA.

Issue-Wise Detailed Analysis:

1. Authority to Freeze Demat Accounts under Section 102 CrPC:

The primary issue in this case is whether the DoE can freeze Demat accounts by invoking section 102 of the CrPC. The single Judge ruled that the DoE does not have such powers, stating that the stringent requirements of section 17 of the PMLA must be followed for seizure actions. Section 17 mandates that the officer must have "reason to believe" based on information in possession, with the reason recorded in writing. The judgment emphasized that section 65 of the PMLA makes CrPC provisions applicable only if they are not inconsistent with the PMLA. The court concluded that section 102 CrPC, which allows seizure based on mere suspicion, cannot override the specific conditions laid down in section 17 of the PMLA. This interpretation is supported by the Supreme Court's ruling in Gautam Kundu vs. DoE, which held that the specific provisions of PMLA prevail over the general provisions of CrPC.

2. Definition of 'Proceeds of Crime' under PMLA:

The second issue is whether assets acquired before the enactment of the PMLA can be classified as 'proceeds of crime'. The single Judge rejected the contention that such assets could never fall within the definition of 'proceeds of crime' under section 2(1)(u) of the PMLA. This view was not challenged in the appeal, implying acceptance of the ruling that assets acquired prior to the PMLA's enactment can indeed be considered 'proceeds of crime' if they meet the statutory definition.

Judgment Analysis:

The court held that the DoE's actions of freezing Demat accounts under section 102 CrPC were without authority of law. The court emphasized that section 17 of the PMLA requires specific conditions to be met, including the necessity to record reasons to believe that an offence has been committed. The court also highlighted that section 65 of the PMLA makes CrPC provisions applicable only to the extent they are not inconsistent with the PMLA. Consequently, the stringent requirements of section 17 of the PMLA must be adhered to, and reliance on section 102 CrPC is impermissible.

The court further noted that the PMLA is a special statute with an overriding effect as per section 71, meaning its provisions prevail over any inconsistent provisions in other laws, including the CrPC. The judgment cited the Supreme Court's interpretation in Gautam Kundu, reinforcing that specific conditions under the PMLA must be strictly complied with.

In conclusion, the court dismissed the appeal, upholding the single Judge's ruling that the DoE could not freeze Demat accounts under section 102 CrPC and confirming that assets acquired before the PMLA's enactment can be considered 'proceeds of crime'.

Final Judgment:

The appeal was dismissed, affirming that the DoE must comply with section 17 of the PMLA for seizure actions and cannot rely on section 102 CrPC. The court also upheld the view that assets acquired prior to the PMLA's enactment could fall within the definition of 'proceeds of crime'.