TMI Blog2020 (3) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... convict the accused and confiscate attached properties. The conceded facts emerging from record are that two Appellants had purchased their property in 1991 and one Appellant in 2011. The alleged offence of fraudulent availment of VAT refund was committed in February-March 2013 and PMLA came into force w.e.f. 1.7.2005. As per FIR of scheduled offence, ECIR and different orders passed by Respondents, M/s Jaldhara Exports, a proprietorship concern of Raman Garg fraudulently obtained VAT refund from VAT authorities without actual export of goods. The properties in question are lying mortgaged with bank since 2009. As per impugned order, the Respondent is empowered to attach any property, thus property even though purchased in 1991 could be attached. Concededly, the Appellants are neither arrayed as accused in scheduled offence nor criminal complaint filed before Special Court under PMLA. The Respondent has already filed criminal complaint under PMLA against Raman Garg and others before Special Court, however admittedly investigation is still pending. The Respondent has not filed any criminal complaint under Section 3 of PMLA against Appellants and a period of even 365 days from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offence, would fall within the ambit of Section 3 of the PMLA, which cannot be countenanced in law. There would be total chaos and uncertainty. The authorities would get unguided and unbridled powers and may implicate any person even though he has no direct or indirect connection with scheduled offence and property derived from thereon but has dealt with any other property (not involved in scheduled offence) of the person who has derived or obtained property from scheduled offence. It would amount to violation of Article 20 and 21 of Constitution of India. There may be a case where a person accused of commission of scheduled offence, on account of destruction or disposal of property, is having no property. Non-availability of property derived from scheduled offence does not immune an accused from offence of money laundering committed under Section 3 of the PMLA. As per scheme of the Act, there is criminal liability of an accused apart from civil liability of attachment of property, thus object of the Act is not defeated merely on the ground that property derived from crime is not available for attachment. The property derived from legitimate source cannot be attached on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that if property is not attached, it may result in frustrating any proceedings of confiscation - the Respondent has passed attachment order without recording the reasons on the basis of material in his possession that property in question was likely to be concealed, transferred or dealt with in any manner which would frustrate confiscation proceedings. Appeal allowed. - PMLA No. 1 of 2019(O&M) PMLA No.2 of 2019(O&M) PMLA No.3 of 2019(O&M) - - - Dated:- 6-3-2020 - HON'BLE MR. JUSTICE JASWANT SINGH And HON'BLE MR. JUSTICE SANT PARKASH Mr. Jagmohan Bansal, Advocate for the Appellant Mr. Satya Pal Jain, Senior Advocate, Additional Solicitor General of India assisted by Mr. Arvind Moudgil, Senior Counsel, Govt. of India, Mr. Dheeraj Jain, Senior Counsel, Govt. of India Mr. Lokesh Narang, Retainer Counsel, E.D. For the respondent (s)-Directorate of Enforcement ORDER Jaswant Singh, J. 1. By this common order, three PMLA Appeals No. 1-3 of 2019, involving common questions and filed against common impugned order dated 09.08.2019 (Annexure A-7) are disposed of. All the three Appellants under Section 42 of Prevention of Money Laundering Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attachment order stands ceased to exist. Criminal Complaint against Raman Garg and others has been filed for criminal trial but no criminal complaint under PMLA has been filed against Appellants. The property involved in Appeal No. 1 3 of 2019 was purchased in 1991 and property involved in Appeal No. 2 of 2019 was purchased in 2012, whereas alleged scheduled offence was committed in February-March 2013, thus property in question cannot be treated or declared as proceeds of crime. As per definition of Proceeds of Crime under Section 2(1)(u) of the PMLA especially in view of explanation inserted by Section 192 of Finance Act, 2019, property to be called as proceeds of crime must be directly or indirectly obtained or derived from the scheduled offence unless property derived or obtained from scheduled offence is held or taken outside the country, in which case property equivalent in value held in India may be attached. The Phrase value of such property cannot be read as 'property of equivalent value' and if findings of Tribunal and argument of Respondent is accepted, it would culminate into phrase value of such property and Property of equivalent value with same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his contention, counsel for the Appellant cited judgment of Delhi High Court in the case of Sanjay Agarwal Vs. Union of India and others 2018 (5) RCR (Criminal) 507. 5. On behalf of Respondent initially matter was argued by Mr. Chetan Mittal, Sr. Advocate and thereafter it was argued by Mr. Satya Pal Jain, Additional Solicitor General assisted by Mr. Arvind Moudgil and Mr. Lokesh Narang. 6. Mr. Mittal countering argument of Appellant contended that there are three limbs of Section 2(1)(u) and all the three limbs are independent. Properties in question do not fall in first and third limb but second limb squarely covers all the properties in question irrespective of their date of purchase. The explanation inserted by amending Act of 2019 does not advance cause of the Appellant as it only clarifies scope of first limb and second limb is intact. As per second proviso to Section 5(1) of the PMLA, any property of any person may be attached under Section 5 of the PMLA which shows that it is irrelevant that property is directly or indirectly connected with scheduled offence or not. The property even though is not connected with scheduled offence still may be attached as value of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(u) 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 or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. Explanation- For the removal of doubts, it is hereby clarified that proceeds of crime include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. There are three limbs of Section 2(1)(u) of the PMLA namely: i)Any property derived or obtained directly or indirectly as a result of criminal activity relating to scheduled offence; ii)Value of property derived or obtained from criminal activity; iii)Property equivalent in value held in India or outside where property obtained or derived from criminal activity is taken or held outside the country. The first limb deals with property directly or indirectly obtained from criminal activity. The third limb is applicable where pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country : Provided further that, notwithstanding anything contained in first proviso, any property of any person may be attached under this section if the Director 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 non-attachment of the property is likely to frustrate any proceeding under this Act: Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property. (2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under sub-section (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and (c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under subsection (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice has been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering. (3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under subsection (1) of section 5 or retention of property or record seized or frozen und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 property, as the case may be, involved in the offence of moneylaundering after having regard to the material before it. (8) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed, may also direct the Central Government to restore such confiscated property or part thereof a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of money laundering: Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money laundering: Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trail of the case in such manner as may be prescribed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Department and criminal trial before Special Court. Section 3 defines offence of money laundering and Section 4 prescribes punishment for money laundering. Section 3 and 4 of PMLA are extracted below: Section 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. Explanation For the removal of doubts, it is hereby clarified that, - (i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:- (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever; (ii) the process or acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... committed to it for trial: Provided that after conclusion of investigation, if no offence of money laundering is made out requiring filing of such complaint, the said authority shall submit a closure report before the Special Court; or (c) if the court which has taken cognizance of the scheduled offence is other than the Special Court which has taken cognizance of the complaint of the offence of money-laundering under sub-clause (b), it shall, on an application by the authority authorised to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it is committed; (d) a Special Court while trying the scheduled offence or the offence of money-laundering shall hold trial in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), as it applies to a trial before a Court of Session. Explanation- For the removal of doubts, it is clarified that, - (i) the jurisdiction of the Special Court while dealing with the offence under this Act, during investigation, enquiry or trial under this Act, shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout actual export of goods. The properties in question are lying mortgaged with bank since 2009. As per impugned order, the Respondent is empowered to attach any property, thus property even though purchased in 1991 could be attached. Concededly, the Appellants are neither arrayed as accused in scheduled offence nor criminal complaint filed before Special Court under PMLA. The Respondent has already filed criminal complaint under PMLA against Raman Garg and others before Special Court, however admittedly investigation is still pending. The Respondent has not filed any criminal complaint under Section 3 of PMLA against Appellants and a period of even 365 days from the date of confirmation order passed by Ld. Adjudicating Authority has already expired. 14. From the conceded position and arguments of both sides, we find that following questions arise for our adjudication: i) Whether provisional attachment of property is sustainable after the expiry of 90 or 365 days from the date of order passed by adjudicating authority? ii) Whether property acquired prior to enactment of PMLA i.e. prior to 1.7.2005 can be provisionally attached under Section 5 of the PMLA? iii) Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been enlarged to 365 days w.e.f. 01.08.2019. In the present case even 365 days period has expired but investigation is still pending, thus Appellants are entitled to benefit of 90/365 days cap and provisional attachment order stands ceased to exist by operation of law. 16. Q.(ii) (ii) are inter-liked, thus considered and adjudicated together. As discussed here above, there are three limbs of Section 2(1)(u) of the Act of 2002 namely: i) Any property derived or obtained directly or indirectly as a result of criminal activity relating to scheduled offence; ii) Value of property derived or obtained from criminal activity; iii) Property equivalent in value held in India or outside where property obtained or derived from criminal activity is taken or held outside the country. Property purchased prior to commission of scheduled offence leaving aside date of enactment of PMLA, does not fall within ambit of first limb of definition of proceeds of crime , however it certainly falls within purview and ambit of third limb of the definition. Counsel for both sides have cited judgment of Delhi High Court in the case of Abdullah Ali Balsharaf Another Vs Directorate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was even no need to declare property derived or obtained from scheduled offence as proceeds of crime. The legislature w.e.f. 01.08.2019 has inserted explanation in Section 2(1)(u) of the PMLA. As per Mr. Mittal, counsel for the Respondents, the said explanation enlarges scope of first limb of definition proceeds of crime and does not affect second limb of definition. We find some substance in the contention of Respondents, however it is trite law that entire scheme of the Act must be read as a whole/ in its entirety and every provision should be read in such a manner that it makes other provisions and scheme of Act coherent and meaningful. A provision cannot be read in isolation. The definition part does not create rights and liabilities, thus it should be examined in the light of other sections which create rights and liabilities. As per Section 8(1) of the PMLA, the Adjudicating Authority has to serve notice calling upon the person to indicate the source of his income, earning or assets out of which or by means of which he has acquired the property attached under Section 5 of the PMLA. Seeking explanation about source of property and furnishing explanation is meaningless if pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained property from scheduled offence. It would amount to violation of Article 20 and 21 of Constitution of India. In our considered opinion, to understand true meaning of second limb of definition of proceeds of crime , it must be read in conjunction with Section 3 and 8 of the PMLA. If all these sections are read together, phrase value of such property does not mean and include any property which has no link direct or indirect with the property derived or obtained from commission of scheduled offence i.e. the alleged criminal activity. Value of such property means property which has been converted into another property or has been obtained on the basis of property derived from commission of scheduled offence e.g. cash is received as bribe and invested in purchase of some house. House is value of property derived from scheduled offence. Cash in the hands of an accused of offence under Prevention of Corruption Act, 1988 is property directly derived from scheduled offence, however if some movable or immovable property is purchased against said cash, the movable or immovable property would be value of property derived from commission of scheduled offence. If a person gets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity. 17. Q. Whether officer attaching property is required to record reason that property is likely to be concealed, transferred or dealt with in any manner which may frustrate proceedings relating to confiscation? Section 5(1) specifically requires that Director or any other officer authorized by him shall record reasons in writing on the basis of material in his possession that he has reason to believe that proceeds of crime are likely to be concealed, transferred or dealt with. Like PMLA, there are a number of enactments viz Income Tax Act, 1961, Customs Act, 1962, Central Goods and Services Tax Act, 2017 where there is requirement of recording of reasons prior to taking particular action like arrest, search, seizure of goods/records, attachment of bank accounts etc. 17.1 Before dealing with question involved, it would be appropriate to notice enunciation of law by various courts on the question of recording of reasons. In Barium Chemicals Ltd. vs. Company Law Board AIR 1967 SC 295, the Supreme Court pointed out, on consideration of several English and Indian authorities that the expressions is satisfied , is of the opinion and has reason to believe are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m which the Authority forms an opinion that they are suggestive of the crucial matters set out in the three sub-clauses. It is hard to contemplate that the legislature could have left to the subjective process both the formation of opinion and also the existence of circumstances on which it is to be founded. It is also not reasonable to say that the clause permitted the Authority to say that it has formed the opinion on circumstances which in its opinion exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose. It is equally unreasonable to think that the legislature could have abandoned even the small safeguard of requiring the opinion to be founded on existent circumstances which suggest the things for which an investigation can be ordered and left the opinion and even the existence of circumstances from which it is to be formed to a subjective process. These analysis finds support in Gower's Modern Company Law (2nd Ed.) p. 547 where the learned author, while dealing with S. 165(b) of the English Act observes that the Board of Trade will always exercise its discretionary power in the light of specified grounds for an appointment on thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd substitute its own opinion for that of the I.T.O. on the point as to whether action should be initiated for reopening the assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. [Emphasis supplied] In Bhikhubhai Vithalabhai Patel and others Vs State of Gujarat AIR 2008 SCC 1771, Hon ble Supreme Court construed the expression is of the opinion and observed in Paras 32 and 33 as under: 32. We are of the view that the construction placed on the expression reason to believe will equally be applicable to the expression is of opinion employed in the proviso to Section 17 (1) (a) (ii) of the Act. The expression is of opinion , that substantial modifications in the draft development plan and regulations, are necessary , in our considered opinion, does not confer any unlimited discretion on the Government. The discretion, if any, confe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government and the reasons recorded, if any, in the formation of opinion and whether they have any rational connection with or relevant bearing on the formation of the opinion. The Court is entitled particularly, in the event, when the formation of the opinion is challenged to determine whether the formation of opinion is arbitrary, capricious or whimsical. It is always open to the court to examine the question whether reasons for formation of opinion have rational connection or relevant bearing to the formation of such opinion and are not extraneous to the purposes of the statute. [Emphasis supplied] From the reading of above enunciation of law, it is evident that an authority required to record reasons prior to initiating any action is duty bound to record reasons in writing which cannot be mere formality but should be germane and relevant to the subjective opinion formed by authority. Reasons recorded are subject to judicial review and court may look into material which made basis of reasons recorded. 17.2 As per Section 5 of the PMLA, Director or any other Officer authorized by him is duty bound to record reasons on the basis of material in his possession that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these grounds; and second, there was in fact non-application of mind as simply taking the wording of the Section 3 (1) COFEPOSA and repeating it as part of the grounds would not constitute a finding arrived at after an application of mind. 43. The differences in the wording used between the order of detention and the grounds of detention are too stark to simply be dismissed as typographical errors. The casualness in this kind of an approach has been earlier adversely commented upon by the Supreme Court in Jagannath Misra (supra). In that case too there was confusion as to the use of the conjunctive 'and' and the disjunctive 'or' and the Court, in that regard, observed as under: Where a number of grounds are the basis of a detention order, we would expect the various grounds to be joined by the conjunctive and and the use of the disjunctive or in such a case makes no sense. In the present order however we find that the disjunctive or has been used, showing that the order is more or less a copy of Section 3 (2) (15) without any application of the mind of the authority concerned to the grounds which apply in the present case. [Emphasis supp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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