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M/s Mahanivesh Oils & Foods Pvt. Ltd. Versus Directorate Of Enforcement

Provisional attachment order challenged - entire basement and ground floor of the property situated at E-14/3, Vasant Vihar, New Delhi belonging to Smt. Alka Rajvansh has been attached considering it as proceeds of crime - Held that:- Deputy Director, Directorate of Enforcement – the concerned officer who passed the impugned order – would require to have sufficient cause to believe that the property sought to be attached would be transferred or dealt with in a manner which would frustrate procee .....

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concerned officer has reason to believe that the property in question is likely to be concealed, transferred or dealt with in a manner, which may result in frustrating the proceedings relating to confiscation of the said proceeds of crime, there is no reference to any fact or material in the impugned order which could lead to this inference. A mere mechanical recording that the property is likely to be concealed, transferred or dealt with would not meet the requirements of Section 5(1) of the A .....

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JUDGMENT VIBHU BAKHRU, J 1. The petitioner has filed the present writ petition seeking quashing of the provisional attachment order dated 24.01.2014 (hereafter impugned order ) passed by the Deputy Director, Directorate of Enforcement under section 5 (1) of Prevention of Money Laundering Act, 2002 (hereafter the Act ) whereby the entire basement and ground floor of the property situated at E-14/3, Vasant Vihar, New Delhi belonging to Smt. Alka Rajvansh has been .....

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with the directors of M/s M.K. Agri International Ltd. (hereafter MKAIL ), for making wrongful gains by executing Memoranda of Understandings (MOUs) with MKAIL on behalf of NAFED for import of raw sugar and selling the same by entering into three High Seas Sale (HSS) Agreements with M/s M.K. International Ltd. (hereafter MIL ), a sister concern of MKAIL, without charging/recovering any cost for the commodity. 2.2 On 16.10.2003, NAFED through Mr Homi Rajvansh entered into an MOU with .....

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two separate Letters Of Credit (LCs) covering the said import orders was also acceded to by NAFED. 2.3 On 30.11.2004, NAFED through Mr Homi Rajvansh entered into a MOU with MKAIL for import of various products. MKAIL is the sister concern of EEL. On the request of MKAIL, NAFED through Mr Homi Rajvansh sold the entire cargo of raw sugar under two LCs to MIL - which is also a sister concern of MKAIL - under the three separate HSS Agreements entered into by NAFED with MIL. MIL, subseque .....

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es Ltd. and M/s Sri Radhey Trading Pvt. Ltd. Subsequently, both the said companies issued two cheques each amounting to ₹ 75 lacs in favour of M/s Mahanivesh Oils & Foods Pvt. Ltd., the petitioner company, where Smt. Alka Rajvansh - wife of Mr Homi Rajvansh was a Director. 2.5 On 16.02.2005 and 17.02.2005, M/s Mahanivesh Oils and Foods Pvt. Ltd., issued two cheques of ₹ 1,32,00,00/- and ₹ 10,81,000/- respectively in favour of M/s Uppal Agencies Pvt. Ltd. for purc .....

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t has provisionally attached the said property under Section 5(1) of the Act considering it as the proceeds of crime . A charge sheet dated 30.07.2010 was filed in the court of Chief Metropolitan Magistrate, Delhi wherein Smt. Alka Rajvansh was charged under Sections 120B, 403, 409 and 420 of IPC. 3. The learned counsel for the petitioner contended as under:- 3.1 That Section 5 of the Act requires that a person must have been charged of having committed a scheduled offence .....

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2009. 3.2 That the amendment made in 2009 is substantive and is prospective in nature and, therefore, the impugned order is bad in law as provisions of the Act have been applied retrospectively and in violation of the mandate of Article 20(1) of the Constitution of India. Reference was made to Rao Shiv Bahadur Singh and Anr. v. The State of Vindhya Pradesh: AIR 1953 SC 394 and Soni Devrajbhai Babubhai v. State of Gujarat: (1991) 4 SCC 298. 3.3 That there cannot be any quest .....

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for any scheduled offence and an order of attachment of property becomes final only after the court comes to the conclusion that the offence of money laundering has been committed. 3.4 That Section 5(1) of the Act, as in force at the material time, provides that the concerned officer must record his reason to believe that the accused is likely to conceal, transfer or deal with the proceeds of crime in a manner which may result in frustrating any proceedings relating to the confiscatio .....

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4.2 That the proceedings of attachment of property are independent of the proceedings for the offence of money-laundering or the scheduled offence. 4.3 That any property, if involved in the money laundering offences, would be liable to attachment and confiscation irrespective of whether it remains in the name of the accused persons or other persons. Section 3 of the Act covers all purchases of moveable and immovable property inducting or integrating proceeds of crime.

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Court in Alive Hospitality and Food Private Limited v. Union of India: Special Civil Application No.4171/2012, decided on 31.07.2013. 4.6 That the impugned order was passed after considering all the material on record and recording the reasons to believe that the said property is the proceeds of crime. 4.7 That the impugned provisional order was confirmed by the Adjudicating Authority by an order dated 21.07.2014. (This was not mentioned during oral submissions but was inc .....

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efore the Appellate Tribunal impugning the order of the Adjudicating Authority. However, both the parties requested that the contentions raised be decided on merit. Conclusion and Reasons 6. It is not disputed that the property sought to be attached under Section 5 of the Act - E-14/3, Vasant Vihar, New Delhi - was purchased on 18.03.2005 i.e. prior to 01.07.2005, that is, prior to the Act coming into force. In the circumstances, the principal controversy to be addressed is .....

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ng the following: The United National Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances called for the confiscation of proceeds of crime related to drugs and further measures for preventing money laundering; in 1989, the Basel Statement of Principles provided the framework of policies and procedures to be adhered to by banks for dealing with the issue of money laundering; at a Summit of seven nations held in Paris in July 1989; Financial Action Task Force (FATF) wa .....

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ne 1998, a declaration was made with respect to combating and prevention of money laundering. 8. India is also a signatory to some of the aforesaid initiatives. In conformity with the international opinion to take measures for combating money laundering, the Prevention of Money Laundering Bill, 1999 was introduced. This Bill was met with a number of objections at various stages but was subsequently passed leading to the enactment of the Act in 2003. Pursuant to a notification issued b .....

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t to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto . 9. Chapter II of the Act contains provisions relating to the offence of money-laundering. Section 2(p) of the Act defines money-laundering to have the meaning assigned to it in Section 3 of the Act. Section 3 of the Act enacts money-laundering to be an offence. It is relevant to note that Section 3 of the A .....

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- 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 proceeds of crime including concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering It is seen from the above that the scope of the offence of money-laundering has been widened by virtue of the Prevention of Money-Laundering (Ame .....

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specified offences, the term can extend upto 10 years. 11. Chapter III of the Act is captioned Attachment, Adjudication and Confiscation . Section 5 of the Act provides for the attachment of property involved in money-laundering and as originally enacted and brought in force with effect from the 01.07.2005 reads as under:- Attachment of Property involved in Money-laundering- (1) Where the Director or any other officer not below the rank of Deputy Director authorized by the .....

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f 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 eighty days from the date of the order, in such manner as may be prescribed: Provided that no such order of attachment shall be made unless, in relation to an offence under: (i) Paragraph 1 of Part A and Part B of the Schedule, a report has been forwarded to a Magistrate under section 173 of the Code Of Criminal Procedure, 1 .....

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possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed. (3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (2) of section 8, whichever is earlier. (4) .....

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such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority. By virtue of Section 3(b) of the Act 21 of 2009, the provisos to sub-section 1 of Section 5 were substituted to read as under:- Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been fi .....

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ector authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in moneylaundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act. Section 5(1) of the Act was further amended by Prevention of Money-Laundering (Amendment) Act, 2012. With effect from 03. .....

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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 eighty days from the date of the order, in such manner as may be prescribed: PROVIDED that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Cod .....

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or 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 reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the nonattachment of the property is likely to frustrate any proceeding under this Act. 12. Section 17 of the Act empowers a Director or an Officer not b .....

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owers an authority so authorized on behalf of the Central Government to search any person who is believed to have secreted about his person or has under his possession, ownership or control, any record or proceeds of crime. 13. By virtue of Section 5(5) of the Act, the concerned officer who provisionally attaches any property under Section 5(1) is required to file a complaint stating the facts of such attachment before the Adjudicating Authority. Similarly, Section 17(4) of the Act an .....

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lieve that any person has committed an offence under Section 3 of the Act or is in possession of proceeds of crime, he may serve a notice to such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which such person has acquired the property which has been attached under Section 5(1) or seized under Section 17 or Section 18 of the Act. Section 8(2) of the Act provides that the Adjudicating Authority shall after considering the reply, if a .....

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ved in money-laundering. Such attachment shall continue during the proceedings relating to the offence under the Act before any Court or any other corresponding law or before the competent court outside India. The order of the Adjudicating Authority shall become final after the order of confiscation is passed by the Special Court either under Section 8(5) of the Act where the trial has been concluded or under Section 8(7) of the Act where the trial cannot be conducted. In cases where the propert .....

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> 17. It is clear from the above scheme that any provisional attachment under Section 5(1); seizure under Section 17 or 18 of the Act; or the order of attachment by the adjudicating authority under Section 8(2) is founded on the fundamental premise that the properties attached/seized are involved in money-laundering . 18. In the present case, the impugned order has been made under Section 5(1) of the Act. A plain reading of Section 5(1) of the Act indicates that where the office .....

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d in the preceding portion of Section 5(1) of the Act, that is, proceeds of crime. 19. Section 2(u) of the Act defines proceeds of crime and reads as under:- 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; 20. Thus, a conjoint reading of Section 5(1) read with Section 2(u) of the Act clearly indicates that the power .....

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as without a scheduled offence being committed, the question of proceeds of crime coming into existence does not arise. 22. In view of the above, the contention that the Act is completely independent of the principal crime (scheduled offence) giving rise to proceeds of crime is unmerited. It is necessary to bear in mind that the substratal subject of the Act is to prevent money-laundering and confiscate the proceeds of crime. In that perspective, there is an inextricable link betwee .....

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scheduled crime. The First Proviso to Section 5 also indicates that no order of attachment shall be made unless in relation to a schedule offence a report has been forwarded to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973 or a complaint has been filed by a person authorised to investigate the scheduled offence before a Magistrate or Court for taking cognizance of the scheduled offence. Thus, in cases where the scheduled offence is itself negated, the fundamen .....

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ctive of whether the person accused of the scheduled crime has been acquitted. In my view, this contention is also not acceptable. If the crime, which has allegedly resulted in the proceeds attached under the Act, is not established, the basis of the attachment would cease to exist and the question of proceeding further under the Act would not arise. The trial for an offence of money-laundering is also predicated on commission of a scheduled crime and would have to be terminated. It is only in c .....

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r the Act would have to be terminated. 24. The next issue to be examined is whether the order of provisional attachment can be issued only in respect of property that is in possession of a person accused of a scheduled offence. In view of the statutory amendment to Section 5 of the Act carried out by virtue of Prevention of Money-Laundering (Amendment) Act, 2012, this controversy does not survive. Prior to the said amendment, the concerned officer could provisionally attach proceeds o .....

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y that the person who is in possession of the property alleged to be proceeds of crime must also be charged with a scheduled offence. In the circumstances, the order of provisional attachment could be issued against any property in possession or any person even if the said person is not alleged to have committed the scheduled offence. 25. However, such powers are not unbridled and there are several conditions that must be met before any property can be attached or confiscated. First a .....

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ommitted and the same bears a live link with the property sought to be provisionally attached. Section 5 of the Act does not stand independent of Section 3 of the Act and unless it is believed that an offence of moneylaundering has been committed the question of attaching any property provisionally under Section 5 would not arise. 26. Mr Bhardwaj had referred to the decision of the Gujarat High Court in Alive Hositality and Foods Private Limited (supra) wherein the court had observed .....

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at view principally for the reason that Section 5 is not a standalone provision; it is in aid of adjudication under Section 8 of the Act and final vesting of the attached property with the Central Government under Section 9 of the Act. The Adjudicating Authority is required to return a finding under Section 8(2) of the Act whether the property attached/seized/frozen is involved in money-laundering. And, by virtue of Section 8(3) of the Act, if the Adjudicating Authority decides that the property .....

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h offence were prior to the Act being brought in force, it would be impermissible for the authorities concerned to attach the property representing the proceeds of crime. 27. The central issue in the present case is not on whether the scheduled offence was committed, but whether the attachment under Section 5 of the Act can be sustained where the principal offence as well as the offence of using its proceeds is alleged to have been committed prior to the Act coming into force.

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raws one to the central controversy in this petition, that is, whether any property of any person could be attached as allegedly involved in money laundering prior to the enactment of the Act or acquired as a result of a crime, committed prior to the Act coming into effect. 29. The Act is a penal statute and, therefore, can have no retrospective or retroactive operation. Article 20(1) of the Constitution of India expressly forbids that no person can be convicted of any offence except .....

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money-laundering. Strictly speaking, it cannot be contended that the Act has a retrospective operation because it now enacts that laundering of proceeds of crime committed earlier as an offence. In The Queen v. The Inhabitants of St. Mary, Whitechapel (1848) 12 QB 120, the Court pointed out that The Statute which in its direct operation of prospective cannot be properly be called a retrospective statute because a part of the requisites for that action is drawn from the time antecedent to its pa .....

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nly the offence of money-laundering committed after the enforcement of the Act can be proceeded against under the Act. 30. The respondent s contention that the relevant date would be the date of offence of money-laundering and not that of the commission of the scheduled offence is merited and the impugned order cannot be set aside only on the ground that it has been issued in respect of proceeds of a scheduled crime which was allegedly committed prior to 1st July, 2005. 31. .....

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titioner. It is suggested that these amounts were proceeds of crime received by the petitioner as a result of a criminal activity and bulk of these funds were utilized by the petitioner for paying the consideration for acquiring the property in question. It was argued that all actions of integrating the money by purchase of immovable property would fall within the definition of money-laundering . In this respect it is relevant to note that the sale deed in respect of the property was executed on .....

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ds of crime and were properties involved in money-laundering, such funds had come into possession of the petitioner prior to the Act coming into force. Thus, funds were already projected as untainted funds unconnected with the crime for which Mr Homi Rajvansh and other persons are accused. The funds had, thus, been laundered at a time when money-laundering was not an offence and proceedings under the Act cannot be initiated. 32. Although, the Respondent has not contended .....

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eafter, projected it as untainted money, prior to the Act coming into force, would nonetheless be guilty of the offence of money-laundering only for the reason that he is in possession of some property. This is so because the definition of proceeds of crime also includes the value of any property derived or obtained as a result of criminal activity relating to a scheduled crime. Further any such property - even in the hands of a person not accused of the scheduled crime or offense of .....

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rly offend Article 20(1) of the Constitution of India as an offender of a scheduled crime would now be visited with a greater punitive measure than as could be inflicted at the time when the scheduled offence was committed. Given the wide definition of proceeds of crime it would be contended that irrespective of how far back in the past a scheduled offence was committed, the authorities could nonetheless try persons for an offence of money-laundering as well as confiscate the value of the proper .....

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e or operative with retrospective effect. 33. The Act was enacted as the international community recognised the threat of money-laundering whereby money generated from illegal activities such as trafficking and drugs etc. was finding its way into the economic system of a country and funding further criminal activity. The expression money-laundering would ordinarily imply the conversion and infusion of tainted money into the main stream of economy as legitimate wealth. According to the .....

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criminals as untainted money. There is much merit in this description of money-laundering and this also indicates that, by its nature, the offence of money-laundering has to be constituted by determinate actions and the process or activity of money-laundering is over once the third stage of integration is complete. Thus, unless such acts have been committed after the Act came into force, an offence of money-laundering punishable under Section 4 would not be made out. The 2013 Amendment to Secti .....

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ndered and integrated into the economy. Thus, a person concealing or coming into possession or bringing proceeds of crime to use would have committed the offence of money-laundering when he came into possession or concealed or used the proceeds of crime. For any offence of money-laundering to be alleged, such acts must have been done after the Act was brought in force. The proceeds of crime which had come into possession and projected and claimed as untainted prior to the Act coming i .....

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tended that Article 20 of the Constitution of India prohibited conviction or sentence under an ex-post facto law but not the trial thereof. He relied on the decision of the Andhra Pradesh High Court in V. Suryanarayhana Prabhakara Gupta and Anr. v. Union of India (UOI): W.P. No. 27898 of 2010, decided on 25.08.2011 (MANU/AP/0518/2011) in support of the aforesaid contention and drew attention of this Court to the following passage. From the abovementioned Judgment, the principle that c .....

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, whereas, the trial in respect of an offence of money-laundering may be continued and the proceeds of crime sought to be believed to be laundered may also be attached but a conviction for an offence of money-laundering committed prior to the enforcement of the Act may not follow. 36. In my view, the aforesaid contention is also without any merit. There is no question of any trial being conducted for an offence for which a conviction cannot, in law, follow. A law which seeks to impos .....

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the American Constitution which prohibited passing of ex-post facto law and Article 20 of the Indian Constitution. The Court held that the language of Article 20 was much wider and the prohibition under the Article was not confined to passing of validity of the law but extended to conviction or the sentence. The relevant passage from the said decision is extracted below:- 8. ……..On a careful consideration of the respective articles, one is struck by the marked .....

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r the validity of the law, but extends to the conviction or the sentence and is based on its character as an ex post facto law. The fullest effect must therefore be given to the actual words used in the article. Nor does such a construction of Article 20 result in giving retrospective operation to the fundamental right thereby recognised. 37. In that case the, the first and the second appellants before the Supreme Court were Minister of Industries and the Secretary to the Government, .....

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fore the Supreme Court were charged with criminal conspiracy for taking illegal gratification by a public servant for doing an official act and also commission of forgery in connection therewith. They were charged under Sections 120-B, 161, 465 and 466 of the Indian Penal Code, as adapted by the Vindhya Pradesh Ordinance 48 of 1948. The appellants were tried by a Special Judge under the Vindhya Pradesh Criminal Law Amendment (Special Court) Ordinance 5 1949 and were acquitted. The State filed an .....

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for offences under various Sections of the Indian Penal Code as adapted in the United States of Vindhya Pradesh by Ordinance 48 of 1949 which was passed on 11th September, 1949. The said Ordinance was passed on 11th September, 1949 while the offences were found to have been committed in the month of February, March and April, 1949 - prior to the Ordinance. It is in this context that it was urged that the convictions which were made after the constitution came into force were in respect of an ex .....

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of the trial itself having been conducted under a procedure which was different from the procedure as was prevalent at the time of commission of the alleged offences, the Supreme Court observed that: what is prohibited under Article 20 is only conviction or sentence under an ex post facto law and not the trial thereof. Such trial under a procedure different from what obtained at the time of the commission of the offence or by a court different from that which had competence at the tim .....

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trospective from 09th August, 1948, the offences for which the appellants were charged were offences under the said ordinance. Thus, the convictions could not be stated to be in respect of a law not in force at the time when the offences were committed. This contention was rejected by the Supreme Court in the following words:- This, however, would be to import a somewhat technical meaning into the phrase law in force as used in Article 20. Law in force referred to therein must be take .....

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ed that by such retrospective operation it becomes the law in force at the time of the commencement of the Act. It is obvious that such a construction which nullifies Article 20 cannot possibly be adopted. It cannot therefore be doubted that the phrase law in force as used in Article 20 must be understood in its natural sense as being the law in fact in existence and in operation at the time of the commission of the offence as distinct from the law deemed to have become operative by virtue of th .....

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40. In view of the above, the ratio of the aforesaid decision cannot be read to support the view of the Andhra Pradesh High Court in the passage quoted above. 41. The next aspect that is to be examined is whether the necessary conditions for passing the impugned order under Section 5(1) had been met. As discussed hereinbefore, a concerned officer (a Director or any other officer not below the rank of Deputy Director, so authorised by the Director) may order for provisional attachment .....

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ned officer records the reasons in writing. 42. In the present case, the respondent could not point out any material to counter the petitioner s contention that there was no material on record, which could possibly lead to a belief that the petitioner is likely to transfer or conceal the property in any manner. As indicated earlier, the concerned officer must have a reason to believe on the basis of material in his possession that the property sought to be attached is likely to be con .....

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or, Directorate of Enforcement - the concerned officer who passed the impugned order - would require to have sufficient cause to believe that the property sought to be attached would be transferred or dealt with in a manner which would frustrate proceedings relating to confiscation of such property. Further, the officer was also required to record the reasons for such belief. However, there is nothing in the impugned order, which indicates that the concerned officer had any cause to so believe.< .....

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of the Income Tax Act, 1961 where a similar expression has been used to clothe an Assessing Officer with the power to reopen income tax assessments. In Phool Chand Bajrang Lal v. ITO: (1993) 203 ITR 456 (SC), the Supreme Court held as under: Since the belief is that of the Income- tax Officer, the sufficiency of reasons for forming this 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 al .....

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Das: 1976 SCR (3) 956, the Supreme Court explained that powers of Income Tax Officer to reopen an assessment, though wide, are not plenary as the words used are reason to believe and not reason to suspect . The Court held that there should be a live link or close nexus between the material before the Income Tax Officer and the formation of his belief that the income had escaped assessment. 46. In the present case, there is no material that could suggest that the property sought to be .....

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