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TMI Blog2017 (7) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... and collected about Rs. 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 Rs. 1,07,00,000/-; and both the vehicles, Rs. 1,20,000/-. 3. Kavitha allegedly committed crimes--inducing and deceiving gullible people with false, deliberate, deceitful promises and mulcting money from them--between May 2013 and August 2013. As the record reflects, 17 crimes have been registered against her in various police stations for the alleged offences under Sections 120(B), 406, 419, 420 r/w Section 34 IPC, 1860. Among these, offences under Sections 120(B), 419 and 420 IPC are "Scheduled Offences" as per Section 2(1)(y)(i) of the Prevention of Money Laundering Act, 2002 ("the Act"). 4. Based on the reports of the police stations where crimes have been registered, on 07.02.2014 the Enforcement Directorate registered a crime, ECIR/1/KCZO/2014, agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 trial. 10. The learned Senior Counsel has taken us through Sections 5 and 8 of the Act. According to him, the authorities, at both the stages, recorded cogent reasons why Kavitha's property should be, first, provisionally attached and, later, confiscated. Any grounds of whatever justification, asserts Sri Ramesh Chander, are blissfully absent. He has also submitted that the cryptic, non-speaking order under Section 5 of the Act provisionally attaching the property is vitiated. And the Adjudicating Authority's later order is a mere affirmation; it cannot independently survive. 11. Sri Ramesh Chander has further drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 perusing the record. Issues: I. Is the Rule 5 of the Rules ultra vires Section 26 of the Act? II. Did 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? III. Does the order under Section 8(3) merely affirm the provisional attachment under Section 5(1) of the Act? IV. Does the legality of the Adjudicating Authority's order under Section 8 depend on the validity of the provisional attachment under Section 5 of the Act? V. Does the Act cast reverse onus (Sec. 24) and compel the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 unavoidable. 24. Second, the doctrine of constitutional avoidance takes many shapes in an adjudication. Judicial Minimalism: the Court will not "formulate a rule of constitutional law broader than is required by the precise facts to which it is to be applied." The Last Resort Rule: the Court will not pass upon a constitutional question although properly presented by the record if there is also present some other ground upon which the case may be disposed of. Standing or Mootness: the Court will not pass upon the validity of a statute upon complaint of one who fails to show that he is injured by its operation. Constitutional Avoidance: when the validity of an act of the Congress is drawn in question, and even if a serious doubt of constitutionality is raised, it is a cardinal principle that this Court will first as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved 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 Department of Revenue, Ministry of Finance, is the central national agency. The Act intends to strike at the organized crimes and the legitimation of the ill-gotten money through those "predicate" crimes. Illustratively we can mention illegal arms sales, smuggling, and other organized crime, including drug trafficking and prostitution rings, which can generate massive amounts of money. Embezzlement, insider trading, bribery, and computer fraud schemes are other instances. 31. The offences listed in the Schedule to the Act are also termed the scheduled offences in terms of Section 2(1)(y) of the Act. The scheduled offences are divided into two parts - Part A & Part C. In part A, offences to the Schedule have been listed in 28 paragraphs; they comprise offences under Indian Penal Code, Narcotic Drugs and Psychotropic Substances, Explosive Substances Act, Unlawful Activities (Prevention) Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceeds of crime, including its concealment, possession, acquisition, or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering. The Preliminary or the Provisional Measures: 36. As we shall see, Chapter IV of the Act deals with attachment, adjudication, and confiscation. The pivotal provision is Section 5 of the Act dealing with "attachment of property involved in money-laundering. It reads: 5. Attachment of property involved in money-laundering.--(1) Where the Director or any other officer not below the rank of Deputy Director authorised 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 frustr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property. (5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority. (emphasis added) 37. Indeed, Section 5 of Act reflects the fluidity of any nascent enactment, undergoing frequent amendments and presenting apparent ambiguity and, so, calling on the judiciary to interpret and the legislature to correct it, if necessary. Section 5 is the curtain raiser: the action begins with that provision. The purpose of the provision, unmistakably, is provisional: to preserve the matter--for example, an asset--till the law-enforcing agency takes further concrete steps. Adjudication: 38. Section 8 of the Act, which deals with adjudication, reads: 8. Adjudication.--(1) On receipt of a complaint under sub-section (5) of Section 5, or applications made under sub-section (4) of Section 17 or under sub-section (10) of Section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under Section 3 or is in possession of proceeds of crime, it may serve a notice of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of confiscation shall have the same effect as if the property had been taken possession of. (5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government. (6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it. (7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed under sub-section (3) of Section 8, pass appropriate orders regarding confiscation or release of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal, in appeal, may confirm, modify, or set aside the order appealed against. Under sub-section (5) of Section 26, the Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the Adjudicating Authority or the Director concerned, as the case may be. It is felicitous for the Tribunal to dispose of the appeal in six months. 44. As a matter of legislative development, though not affecting this case, we may notice that the Finance Act 2016 abolished the Appellate Tribunal: The Appellate Tribunal constituted under sub-section (1) of section 12 of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 shall be the Appellate Tribunal for hearing appeals against the orders of the Adjudicating Authority and the other authorities under this Act." As a result, Sections 27, 28, 30, 31, 32, 33 and 34 also have been omitted. 45. Section 41 bars the civil court's jurisdiction. Section 42 confers appellate power on the High Court. Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court "within sixty days from the date of communication of the decision or order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nisa Ghori v. The Chairperson, Prevention of Money Laundering, after analyzing various provisions of the Act, has held that "while the First Proviso deals with an order of attachment in respect of a property which is in possession of a person charged of having committed a scheduled offence, the Second Proviso relates to the property of any other person who may not even be charged of committing a scheduled offence." With due deference to the interpretative efforts of the High Court of Madras, we may, still, observe that the very provision--Section 5(1)(a)--has employed a sweeping expression "any person is in possession of any proceeds of crime." 49. The first proviso to Section 5 refers to "no such order of attachment," such referring to the "any proceeds of crime in the hands of any person." The second proviso, too, refers to "any property of any person," without the exclusionary "other" before "person." But this semantic confusion, if any, need not bog us down, for this case does not compel us to rule on the supposed distinction between the person charged with the crime and the person dealing with the proceeds alone. 50. Under sub-section (2) of Section 5, the authorized officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atements, and investigation reports. This answers the first requirement that a person is in possession of proceeds of crime. But can we say with the same certainty that the information has led the officer to believe on the second count, too? There are analogous provisions, for example, in the Income Tax Act (Section 147) and the Narcotic Drugs and Psychotropic Substances Act (Section 41), besides the Indian Penal Code (Section 26), employing the expression "reason to believe." Even this Act has the same expression employed in Sections 8, 16, 17, 18, 19, 20, and 21. 55. In Income Tax Officer v. Lakhmani Mewal Das AIR 1976 SC 1753 the Supreme Court has, while examining Section 147 of the Income Tax Act, has held that the expression "reason to believe" does not mean a purely subjective satisfaction by the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief, not being extraneous or irrelevant. A mere mechanical recording, we must acknowledge, that the property is likely to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the rule of law becomes his bulwark. The judicial wisdom dictates that the fundamental rights of an individual cannot be put on the altar of societal expediency. A nation is, after all, a sum of its individuals--an aggregate at best. The Court's primary duty is to balance the rights of an individual with his obligations to the society. If a right of an individual, ever, becomes incompatible or irreconcilable with that of a society, then the individual right yields subject to the constitutional constraints under Part III--and perhaps the interplay of Part III and Part IV--of the Constitution. 60. Another adjudicatory safeguard commanding attention is that any ambiguity in the penal provisions should be resolved in favour of the accused, for his life, liberty, and reputation are at stake. And the penal provisions must be construed strictly, too. The question here is whether the attachment and the forfeiture under Sections 5 and 8 are civil or criminal proceedings. As we shall see, they are civil: the Adjudicatory Authority's conclusions do not prove the guilt of an accused, nor are they a step-in-aid to the accused's conviction. The conviction depends on the prosecut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiscated to the Central Government. If the finding is negative, the Court will release the property. Section 58A, too, elaborates on the Special Court's power to release the property. Under contingencies contemplated by sub-rule (7), the Special Court will pass orders. 65. Sections 9 and 10 of the Act describe how the vested property should be dealt with. Retention of property or records elaborated on in Section 20 and 21 needs no further comment, as the case on hand does not concern it. Adjudicating Authority's Order: 66. First, the Joint Director's complaint runs into many pages--25 pages, to be precise. It mostly reproduces the complaints and the statements of the de facto complainants verbatim. The Adjudicating Authority, on his part, reproduces them, too. Eventually he holds under "discussion" that Kavitha has admitted having received Rs. 3.67 crores in "the admission scam"; she has also admitted having purchased immovable property for Rs. 1.07 crore, despite declaring in the deed that the consideration was Rs. 40 lakhs. The Adjudicating Authority spells out Kavitha's other "admissions" as well. 67. The Adjudicating Authority finally declares on a thorough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " as very designation of the authority suggests. His role is adversarial, and his adjudication is judicial--at least, quasi-judicial. Section 8 - Stages: 71. Base: S. 5(1): Provisional attachment ≫ S. 8(1): Adjudicating Authority (AA) receives the application ≫ S. 8(2): considers it and hears all parties concerned ≫ S. 8(3): may confirm the provisional attachment ≫ S. 8(3)(a): this attachment continues during the pendency of proceedings relating to any offence under this Act ≫ S. 8(4): with the confirmation the authorities can take over possession ≫ S. 8(5): trial concluding, the offence getting established, forfeiture takes place ≫ S. 8(3)(b): the order then becomes final. S. 8(6): Prosecution's failing to bring home the guilt, the property should be released ≫ S. 8(8): remedially the victim of the crime may be compensated. Answer to Issues III & IV: 72. The adjudicating proceedings under Section 8 are independent proceedings, not appellate proceedings. By the same token, we must also hold, and we do, that the orders under Section 5(1) and Section 8(3) are not interconnected but independent. Issue No. V Does the Act cast re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicate offenses to drug trafficking offenses. As a consequence, crimes unrelated to drug trafficking, such as fraud, kidnapping, and theft, do not constitute money laundering offenses under the Vienna Convention. Over the years, however, the international community has developed the view that predicate offenses for money laundering should go well beyond drug trafficking. Thus, FATF and other international instruments have expanded the Vienna Convention's definition of predicate offenses to include other serious crimes. For example, the Palermo Convention requires all participant countries to apply that convention's money laundering offenses to "the widest range of predicate offenses." In its 40 recommendations for fighting money laundering (The Forty Recommendations), FATF specifically incorporates the technical and legal definitions of money laundering set out in the Vienna and Palermo Conventions and lists 20 designated categories of offences that must be included as predicate offences for money laundering.7 Scope of the Predicate Offense a. Widest Possible Range of Offenses to be Included as Predicate Offenses 77. A predicate offense for money laundering is the underl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Black's Law Dictionary, in turn, defines the 'lesser included offence' to mean a crime that is composed of some, but not all, of the elements of a more serious crime and that is necessarily committed in carrying out the greater crime. For example, battery is a lesser included offense of murder. For double-jeopardy purposes, a lesser included offense is considered the "same offense" as the greater offense, so that acquittal or conviction of either offense precludes a separate trial for the other. 'Lesser included offence' is also termed 'included offense', 'necessarily included offense', 'predicate act,' or, with minimal variation, a 'cognate offence', too. 81. Here cheating is the predicate offence and money laundering is the surface or the larger offence. The Burden of Proof & the Presumption of Innocence: 82. Section 24 of the Act defines burden of proof: In any proceeding relating to proceeds of crime under this Act: (a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments, observed that Art. 6(2) is wholly consistent with the common law, for it has always been open to Parliament, by way of a statutory exception, to transfer the burden of proof on a particular issue from the prosecution to the defendant. The ease of proof and the accused's peculiar knowledge can also be considered. 88. But the first major decision on reverse burden in criminal cases was R. v. Lambert, [2001] 3 All ER 577 a decision of the House of Lords. Lambert had been arrested for possessing a bag containing cocaine. He relied on a defence provided by Section 28 of the Misuse of the Drugs Act: the accused should prove on a balance of probabilities that he did not know that a package proved to be in his possession contained controlled drugs. The majority, relying on Section 3(1) of the Human Rights Act 1998, held that it was possible to read section 28(2) as imposing only an evidential burden, and that it should be read in this way because to read it as imposing a legal burden would be to violate the presumption of innocence contained in Art. 6(2) of the Convention. Lord Slynn has maintained metaphorically that 'long or well entrenched ideas may have to be put a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the UK and Australia and goaded the Parliament to follow the US and Canadian models. It has pointed out that the principal procedural code for penal offences--Cr.P.C.--is replete with provisions that comply with the constitutional mandate: Sections 161(2), 313(3), and 315(1). It has felt that diluting the presumption of innocence is repugnant to ordinary notions of fairness. 94. True, when the English and the Australian statutes have diluted the-presumption-of-innocence cannon, the American and Canadian legislations, as noted by the Law Commission of India in its 178th Report, have stood steadfast; they put the principle on a secure pedestal. 95. To paraphrase T.S. Eliot, we note that the present may be controlled by the past, but the past needs to be seen in the light shed by the present. The vintage common law of 17th and 18th century hardly ever thought it possible that one blows oneself up to kill another. O tempora, o mores! So started the courts world over, Indian including, making exceptions: that neither the presumption of innocence nor the right against testimonial compulsion is a cul-de-sac; it has a way out. 96. To appreciate it better, we may well bear in mind th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against testimonial compulsion. 101. Cases like State of Bombay v. Kathi Kalu Oghad AIR 1954 SC 300, Selvi v. State of Karnataka AIR 1961 SC 1808, and State of Gujarat v. Shyamlal Mohanlal Choksi AIR 1965 SC 1251 have taken a tough stand against what was thought to be diluting the constitutional mandate under Article 20. Nandini Satpati v. P.L. Dani, 1978 (2) SCC 424 also, has asserted the accused's right to silence. 102. In Veera Ibrahim v. The State of Maharashtra AIR 1976 SC 1167 the Supreme Court has held that a person ought to have been an "accused" to claim immunity from testimonial compulsion. To the same effect is the holding in Poolpandi v. Superintendent, Central Excise (1976) 2 SCC 302. In Ramanlal Bhogilal Shah v. D.K. Guha (1992) 3 SCC 259 the Supreme Court has held that Article 20(3) insulates no accused from giving information regarding matters which do not incriminate him, as is the legislative mandate under Section 177 of IPC read with Section 27 of the Indian Evidence Act. How do Sections 24 and 50 affect the proceedings? 103. In the Act, Section 24, as we have already noticed, casts the reverse burden, and Section 50 compels the property holder to speak. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d further, the Act also reveals that the predicate offences, as well as the offences of money laundering, are triable by Special Courts. Section 44 of the Act mandates that the Special Court may, upon perusal of a police report or "upon a complaint made by an authority" under this Act, take cognizance of offence under section 3 of the Act. So the proceedings under Section 8 have nothing to do with the trying of offences under Section 44 of the Act. 107. Section 50, in fact, is analogous to Section 108 of the Customs Act and Section 171-A of the Sea Customs Act. In 1968, the Supreme Court, considering the latter Act, in Haroon Haji Abdulla v. State of Maharashtra [1968] 2 SCR 641 observed that the statements are not confessions recorded by a Magistrate under Section 164 of the Cr.P.C. but are the statements made in answer to a notice under Section 171-A of the Sea Customs Act. As they are not made subject to the safeguards under which confessions are recorded by Magistrates, they must be specially scrutinised to find out if they were made under a threat or promise from someone in authority. After such such scrutiny, if they are found to be voluntary, they may be relied on. 108. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences. 113. Further, the source of property and the manner of its acquisition are within the property holder's knowledge. In other words, the burden under Section 24 of the Act cast on Kavitha is mere evidential burden--shifting at times depending on the quality of evidence adduced on either side. 114. To our knowledge, Section 24 does not affect the predicate offences. It applies to "any proceeding relating to proceeds of crime" under this Act. Then comes the legislative mandate that "in the case of a person "charged with the offence of money-laundering" under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering." First, even without a formal charge, which only follows the proceedings under Sections 5 and 8 of the Act, Section 24 operates. Second, the reverse onus which this Section casts on any person relates only to the "proceeds of crime." The further presumption is that the proceeds of crime--if exist, we emphasize--are "involved in money laundering." But pertinently there is no presumption--rebuttable as it is--that the very proceeds are ill-gotten. The proceeds relate to the predica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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