TMI Blog2017 (7) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... id the Authority under Section 5(1) of the Act have reason to believe that Kavitha possessed any proceeds of crime and that she is likely to conceal, transfer, or deal with the property to frustrate any proceedings concerning the confiscation of the crime proceeds? - HELD THAT:- The reasonable belief is a plausible belief. If we think of the synonyms to reasonable , we find these: acceptable, moderate, tolerable, equitable, fair, feasible, honest, impartial, judicious, justifiable, modest, plausible, proper, prudent, rational, sensible, understandable, conservative, just. It is, we may note, farfetched to insist that the officer should have had a third-party information about the person's efforts, for example, to secret away the property. Hot on the heels of crime, with investigation in full vigour, the authority must take sensible steps to ensure that the property is preserved provisionally for a very limited period before a proper hearing takes place on whether the properties can be attached--for a longer period--until the trial of the underlying crime - Once Section 8 adjudication takes place, the provisional attachment loses its identity; even otherwise, beyond 180 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e funds she used to buy the property are not proceeds of crime. The burden is on her. Her failing to explain, she faces money laundering charges. How to prove the source of funds and how to discharge the burden are the questions we face in this case. The Controversy: 2. Appellant Kavitha G. Pillai runs a proprietary concern, K.G.K. Group Software Training and Career Guidance Centre, at Ernakulam. She faces these allegations: She promised to several students admission into MBBS/MD courses in various medical colleges in Kerala and collected about ₹ 3.67 crores from their gullible parents. She along with certain other persons cheated those persons and used the proceeds of crime to buy vehicles and properties. To be explicit, the properties included two motor vehicles (two-wheelers) and a house of 2,100 sq. ft., on 1.89 acres of land in Edapally North Village, Kanayanoor Taluka, Ernakulam District. The immovable property is said to have cost Kavitha ₹ 1,07,00,000/-; and both the vehicles, ₹ 1,20,000/-. 3. Kavitha allegedly committed crimes--inducing and deceiving gullible people with false, deliberate, deceitful promises and mulcting money f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tha amended her pleadings and introduced a challenge to Rule 5 of the Prevention of Money Laundering (Appeal) Rules, 2005 ( the Appeal Rules ). Contentions: Appellant's: 8. Sri Ramesh Chander, the learned Senior Counsel appearing for appellant Kavitha, has contended that though the Directorate maintains that the Adjudicating Authority has relied on the witnesses' statements, despite repeated requests, Kavitha never had an opportunity to cross-examine those witnesses. According to him, there was no evidence on record to show that Kavitha purchased the property without proper financial sources. 9. Elaborating further on the veracity of the witnesses' statements, the learned Senior Counsel has further contended that the Adjudicating Authority's relying on those statements without subjecting them to cross examination falls foul of the legislative mandate under Section 145 of the Evidence Act. He has further contended that pending the trial of the predicate offences before the courts, the Adjudicating Authority's relying on the untested, self-serving evidence of certain interested-witnesses prejudices Kavitha's rights in the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order. 15. The learned Standing Counsel has made Section 24 of the Act the sheet anchor of her submissions. According to her, the Special Act casts the evidentiary burden on the suspect, and Kavitha has miserably failed to discharge that burden by leading any positive evidence. She has also contended that given her admissions under Section 50 of the Act, the question of Kavitha's cross-examining any witnesses does not arise; her insistence on cross-examining is mere dilatory tactics. 16. On the invalidity of Rule 5 of the Appellate Rules, Smt. Preetha has contended that besides a bald assertion that the Rule falls foul of the principal legislation, Kavitha has not elaborated, as a matter of legal principle, how the Rule does not pass constitutional muster. In this regard, Smt. Preetha asserts that even delegated legislation deserves due deference and cannot be trifled with for mere asking. 17. Summing up her submissions, the learned Standing Counsel has urged this Court to dismiss the appeal. 18. Heard Sri Ramesh Chander, the learned Senior Counsel for the appellant, and Smt. Preetha, the learned Standing Counsel for the respondent, besides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the parties to the appeal and to the concerned Adjudicating Authority or the Director, as the case may be. 22. Kavitha contends that the Tribunal had sent it to her counsel in Delhi and that counsel did not, in turn, communicate it to her. Later, after receiving the eviction notice, she applied and secured a copy of the order, and it delayed her approaching this Court. But the fact remains that this Court, through an elaborate order, condoned the delay. Kavitha's grievance thus stands redressed. Declaring any piece of legislation--including the delegation one--cannot be for the mere asking. True. 23. Many years ago, to support what can be termed the doctrine of constitutional avoidance , Justice Felix Frankfurter cautioned: [i]f there is one doctrine more deeply rooted than any other in the process of constitutional adjudication, it is that we ought not to pass on questions of constitutionality ... unless such adjudication is unavoidable. 1 First, the subordinate legislation does not stand on the same footing as the principal legislation does. But it deserves deference unless it comes in the way of substantial justice, and its adjudication is unavoida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds.4 29. As to a country's profile in an international perspective, Brian Cox observes that as a leader among the emerging economies in Asia with a strongly growing economy and demography, India faces a range of money-laundering and terrorist-financing risks. The main sources of money laundering in India result from a web of illegal activities committed within and outside the country, mainly drug trafficking, fraud, including counterfeiting of Indian currency, transnational organised crime, human trafficking, and corruption. . . The Anti-Money Laundering or Countering the Financing of Terrorism (AML/CFT) regime in India is relatively young. The Prevention of Money Laundering Act 2002 (the Act), the core of the legal framework, came into force in 2005 and was amended in 2009 and 2013.5 30. The Prevention of Money Laundering Act aims to confiscate the property derived from, or involved in, money-laundering and to punish those who commit the offence of money laundering. The Directorate of Enforcement in the Department of Revenue, Ministry of Finance, ( the Directorate ) is the investigating agency; the Financial Intelligence Unit - India (FIU-IND), under the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s specified under Part C of the Schedule. And finally, for our purpose, transfer , under clause (za), includes sale, purchase, mortgage, pledge, gift, loan, or any other form of transfer of right, title, possession or lien. 34. That apart, the lexical provision defines expressions such as beneficial owner in Section 2(1)(fa); client (ha); dealer (ib); intermediary (n); and person (s), too. Besides the generic expression person, the Act has chosen to define the roles an individual can play; it is aimed at, we reckon, spreading the definitional dragnet for, for example, the economic offences present a complex web of activities--the guile of the offender and the gullibility of the victim always going in tandem. The Offence: 35. Section 3 in Chapter II of the Act defines the offence of money laundering ; and Section 4 prescribes the punishment for that offence. As much depends on the definition of the offence, it pays to extract Section 3: 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his 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) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment. Explanation.--For the purposes of this sub-section, person interested , in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. (5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etention of property or record seized or frozen under Section 17 or Section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property or record shall-- (a) continue during the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and (b) become final alter an order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8 or Section 58B or sub-section (2-A) of Section 60 by the Adjudicating Authority.] (4) Where the provisional order of attachment made under sub-section (1) of Section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the property attached under Section 5 or frozen under sub-section (1-A) of Section 17, in such manner as may be prescribed: Provided that if it is not practicable to take possession of a property frozen under sub-section (1-A) of Section 17, the order of confiscation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. He may act under three circumstances--on a complaint under sub-section (5) of Section 5, on an application made under sub-section (4) of Section 17 (property seized or frozen), or under sub-section (10) of Section 18 (property, including records, secreted about the suspect's person or in anything under his possession, ownership or control). Other Features of the Act: 42. As the Act deals with socio-economic offences, it deviates from the beaten-track of the common law on the burden of proof. In fact, Section 24 of the Act casts a reverse burden on the suspect. In any proceedings relating to the proceeds of crime under this Act, the Authority or court shall presume that such proceeds of crime are involved in money-laundering unless the person charged with the offence of money-laundering under Section 3 proves to the contrary. With any other person the Authority or court may presume so. 43. Aggrieved by an order made by the Adjudicating Authority under this Act, any person, including the Director, may prefer, under Section 26 of the Act, an appeal to the Appellate Tribunal within forty-five days from the date on which a copy of the order is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elieve that a person--any person--possesses the proceeds of a crime. His belief, subjective though, should be verifiable and, hence, recorded. Further, that person might conceal, transfer, or deal with those proceeds of crime to frustrate the authorities' efforts to confiscate them. To prevent that, the officer may provisionally attach such property for a period not exceeding one hundred and eighty days. But the officer's effort to provisionally attach, say, the property, as seen from the first proviso, has strings attached to it: he should ensure that he has (a) recorded the grounds of his belief; (b) sent a report to a Magistrate under Section 173 of the Code of Criminal Procedure, 1973; or (c) filed a complaint before a Magistrate or court for taking cognizance of the scheduled offence. 48. The second proviso, however, carves out an exception. Beginning with a non obstante clause eclipsing the mandate in clause (b), it provides that any property of any person may be attached under this section if the authorized officer has material to believe that the property involved in money-laundering must be immediately attached, lest the proceedings under this Act shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directorate--he has entertained a belief about the property. Finally, the Joint Director has recorded that the properties mentioned in the order are believed to be the proceeds of crime. He has also recorded that those properties are likely to be concealed, transferred, or dealt with in a manner that may result in frustrating further proceedings relating to confiscation of such proceeds of crime under Chapter III of the PMLA. 52. Indeed, the reason to believe stands on a firmer footing than the reason to suspect. Belief is a matter of faith or opinion--even in the secular sense. But reason to believe needs more than a nagging suspicion or personal conviction. At the same time, it is less emphatic than reason to act. It stands in an intermediary position. So we may say that the information must be credible, and the conclusions from that information probable. In other words, a surmise or a conjecture should not be the foundation for the belief. 53. Under Section 5 of the Act, reason to believe serves two purposes: 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 dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper, prudent, rational, sensible, understandable, conservative, just. It is, we may note, farfetched to insist that the officer should have had a third-party information about the person's efforts, for example, to secret away the property. Hot on the heels of crime, with investigation in full vigour, the authority must take sensible steps to ensure that the property is preserved provisionally for a very limited period before a proper hearing takes place on whether the properties can be attached--for a longer period--until the trial of the underlying crime. 58. Even otherwise, as has been rightly contended by the learned Standing Counsel for the Directorate, the proceedings under Section 5(1) are ex parte and expedient. Once Section 8 adjudication takes place, the provisional attachment loses its identity; even otherwise, beyond 180 days it becomes a spent-force. What is the nature of proceedings under Section 5(1) or Section 8(3) of the Act? 59. The court is counter majoritarian. Its loyalty to legislation--short of judicial review--cannot be more loyal than the king. Its sympathies to the citizen, equally, cannot be misplaced: it can neither hu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of power exercised by the Adjudicating Authority and the procedural parameters. Sub-section (2) describes the adjudication per se. If the result of hearing is positive, it leads to the Adjudicating Authority's acting further under Sub-section (3): to confirm the attachment under Section 5(1) or to order retention of property under Section 17(4) or Section 18(10). 63. Once the order of attachment or retention is confirmed, it will (a) continue during the pendency of the proceedings relating to any offence under this Act before a court, and (b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8 or Section 58-B or sub-section (2-A) of Section 60 by the Adjudicating Authority. Because of the seal of approval by the Adjudicating Authority to the attachment or retention, the authorized officer, under sub-section (4), will 'forthwith' take the possession of the property after following the due procedure. All these steps, no doubt, aim at preserving the properties or records of whatever nature until the trial concludes. 64. Sub-section (5) speaks of what happens once the trial concludes. If t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal acknowledged that a duly authorised officer of the Directorate passed provisional attachment order on 31st March, 2014 under sub-section (5) of the Act and that he recorded his reasons of belief for effecting the provisional attachment. It has held that the appellant's (Kavitha's) contrary allegations are untenable as the respondent (Directorate) has refuted those allegations with proof. But this assertion or conclusion has not been elaborated upon. 69. The Tribunal has eventually held that Kavitha failed to refute the allegation made by several persons that she accepted money to medical colleges from various persons. She could not state even the dates when she was in Delhi. The Tribunal has also observed that Kavitha in her own statement under section 50 of the Act has admitted collecting money from the complainants on a false promise. The Tribunal further found that Kavitha has advanced no credible evidence that she had income to acquire the property; instead, she wanted to take advantage of minor issues. 70. From the scheme of Section 8, we can safely conclude that the Adjudicating Authority acts on the complaint he receives, not the order passed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ienna Convention) and the United Nations Convention Against Transnational Organized Crime (2000) (Palermo Convention): The conversion or transfer of property, knowing that such property is derived from any [drug trafficking] offense or offenses or from an act of participation in such offense or offenses, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offense or offenses to evade the legal consequences of his actions; The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from an offense or offenses or from an act of participation in such an offense or offenses, and; The acquisition, possession or use of property, knowing at the time of receipt that such property was derived from an offense or offenses or from an act of participation in such offense...or offenses. 75. The Financial Action Task Force on Money Laundering (FATF), which is recognized as the international standard setter for anti-money laundering (AML) efforts, de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of children; illicit trafficking in narcotic drugs and psychotropic substances; illicit arms trafficking; illicit trafficking in stolen and other goods; corruption and bribery; fraud; counterfeiting currency; counterfeiting and piracy of products; environmental crime; murder, grievous bodily injury; kidnapping, illegal restraint and hostage taking; robbery or theft; smuggling; extortion; forgery; piracy; and insider trading and market manipulation.8 The list may, in course of time, further increase. With the monetary cap removed, in India offences, such as cheating, have become a predicate offence. 79. Countries are provided with discretion on how to define the offenses in the above list and the nature of any particular elements of those offenses that make them money laundering predicate offenses. The essential requirement is to criminalize the proceeds from the type of conduct described in the above list. Furthermore, it is unnecessary to have an offense in the penal code described in exactly the terms used in the above list. For example, some countries [as with India] have no specific offense designated as fraud, but criminalize fraudulent behavior under some other off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... golden thread of common law. Under criminal jurisprudence, as Viscount Sankey11 put it, it is the duty of the prosecution to prove the prisoner's guilt. The Constitutional Constraints: 84. Every person is presumed innocent until proven guilty according to the law: the maxim cannot be found in Magna Carta, the English Bill of Rights of 1689, in the works of the great English jurists, Bracton, Coke, or Blackstone, or any English case law before c.1800, argues Warwickblogs, a legal blogger.12 It crept into the common law almost by accident in the mid-seventeenth century. Not every legal principle should be as old as the Thames, though. 85. Courts have been compelled to balance between the individual rights and the societal safety or welfare. Wedged between the two competing ideologies, the Courts have chosen the pragmatic path forward: that presumption of innocence is not inviolable, though valuable. The courts have felt that evidential burden can always be shifted as a matter of special knowledge or means, but the legal or persuasive burden always remains with the prosecution. In the UK: 86. First, in the continental jurisprudence, the cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable balance has to be held between the public interest and the interests of the individual. (3) Derogation from the presumption of innocence requires justification. (4) There must be a 'compelling reason' that makes its existence fair and reasonable. (5) The more serious the crime and so the greater the public interest in securing convictions, the more important the constitutional protection of the accused becomes. (6) Parliament, not the court, must decide, as a matter of policy, what should be the constituent elements of the criminal offence. The role of the court is one of review only. (7) Relevant to any judgment about reasonableness or proportionality will be the opportunity given to the accused to rebut the presumption, maintenance of the rights of the defence, flexibility in application of the presumption, retention by the court of a power to assess the evidence, the importance of what is at stake, and the difficulty that a prosecutor may face absent a presumption. 91. The above decisions in England, it strikes us, suffer no constitutional constraints; the House of Lords, functioning under the accepted pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reverse onus on him but has the right to remain silent, his silence leads to his acquiescence--a constructive confession of his guilt. On the other hand, if a person has no reverse onus on him but is compelled to speak, his speaking incriminates him, despite the presumption of innocence. 98. The 'right to silence,' as observed by the Law Commission of India13, is a common-law cannon, and it means that normally courts or tribunals of fact should not be invited or encouraged to conclude, by parties or prosecutors, that a suspect or an accused is guilty merely because he has refused to respond to questions put to him by the police or by the Court. Does this cardinal common law principle admit of exceptions? 99. India's Constitution, a distillate of the received wisdom of many other constitutional democracies, negates self-incrimination. It abhors testimonial compulsion. Article 20(3) of the Constitution mandates that no person accused of any offence shall be compelled to be a witness against himself. The Parliament-dominated monarch of England has no such constitutional constraint, besides its malleable conventions. Of late, it has to contend itself w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, namely:-- (a) discovery and inspection; . . . (2) . . . (3) All the persons so summoned shall be bound to attend in person or through authorised agents, as such officer may direct, and shall be bound to state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required. (4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860). (emphasis added) 104. Are the proceedings under Section 8 of the Act judicial proceedings? First, we must acknowledge that the line between the judicial and quasi-judicial proceedings, if ever exists, is the thinnest. Almost invisible. Second, here whatever the label we give, the consequences will not vary. An Adjudicating Authority puts the affected on notice, holds a hearing, examines and sifts through evidence, and passes orders affecting--albeit as an interim measure--the property, or civil rights of a person. The order is appealable. So the proceedings are judicial. Then, are they criminal proceedings? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt made by a person accused of an offence, and the person who gives the statement does not stand in the character of an accused person. 109. In Percy Rustomji Basta v. The State of Maharashtra 1971 Cri LJ 933, one of the questions was whether Section 24 of the Evidence Act was a bar to the admissibility of a statement given by a person accused of having committed the offences under the Customs Act. The Supreme Court repelled the contention. So asserts Harbans Singh Sardar Lenasingh v. The State of Maharashtra 1972 Cri LJ 759, too. 110. The Assistant Collector of Central Excise, Rajamundry v. Duncan Agro Industries Ltd., AIR 2000 SC 2901 considered all the above decisions and held that a statement recorded by customs officers under Section 108 of the Customs Act is admissible in evidence. The court must test whether the inculpating portions were made voluntarily or whether they were vitiated on the grounds envisaged in Section 24 of the Evidence Act. 111. Here, too, the principle of law cannot vary. The statements under Section 50 of the Act are not extra-judicial confessions; nor are they self-incriminating. They are used for the limited purpose of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
