The Prevention of Money Laundering Act, 2002 was enacted by the Parliament of India to prevent money laundering and to provide for the confiscation of property derived from or involved in money laundering. Due to the special nature of the Act and the object sought to be achieved, the Act envisages circumstances wherein the Enforcement Directorate will proceed without providing reasonable opportunity of hearing to the opposite party. In order to give due regard to the principles of natural justice, which mandates that an opportunity of hearing must be provided before taking of any adverse decision or action, the PMLA under Section 6 provides for the establishment and composition of an Adjudicating Authority with the objective to provide an opportunity of post decisional hearing to the aggrieved persons and to call upon such aggrieved persons to show cause as to why the actions taken by the Enforcement Directorate should not be upheld or confirmed.
However, presently the decisions of the Adjudicating Authority have been challenged before various courts as suffering from the defect of Coram Non Judice, i.e., the composition of the Adjudicating Authority is not in consonance with the provisions of the Act. The Act mandates that the Adjudicating Authority shall necessarily constitute of a Chairperson and two other members and due to the quasi-judicial function being carried out by the Adjudicating Authority it is mandatory that one member must be necessarily from the field of law. In the present article an analysis of the challenge against the decisions of the Adjudicating Authority on the ground of Coram Non Judice and the decisions of the court thereto are delved into.
Ground: Constitution of Adjudicating Authority must necessarily include a Chairperson and two other members
The challenge on the ground that constitution of the Adjudicating Authority must necessarily include a Chairperson and two other members has been decided by the Division Bench of the Delhi High Court in the judgement of J. Sekar v. Union of India on January 11, 2018, wherein the Delhi High Court has rejected the grounds of challenge to the Constitution of the Adjudicating Authority raised by the petitioner. The Court examined provisions of the Act, under which Section 6 provides that the Adjudicating Authority shall constitute a Chairperson and two other members, one of whom must be from the field of law. Furthermore, it was observed that Section 6 (3), the Act also prescribes the qualifications for the appointment of such members both judicial and administrative.
Following this, upon co-joint reading of Section 5 which provides that "the jurisdiction of the Adjudicating Authority may be exercised by benches thereof", read with Section 6 (5) (b) which provides that "the Bench under the Adjudicating Authority may be constituted by the Chairperson of the Adjudicating Authority with one or two members, as the Chairperson may deem fit", it was decided that the word "bench" as used under the Act cannot be ascribed a plural connotation and hence Section 6(6) of the Act which empowers the Chairman to transfer a member from one bench to another bench must be understood in the context of there being single member benches.
Thereafter the Delhi High Court, in the judgement of Gold Croft Properties Private Limited v. Directorate of Enforcement decided on September 19, 2023, affirmed and relied upon the decision of J. Sekar (supra). The division bench of the Delhi High concurring with the decision of J. Sekar (supra) held that Section 6 (7) of the Act provides as follows: "at any stage of the hearing of the case or matter if appears to the Chairperson or a Member that the case or matter is of such a nature that it ought to be heard by a Bench consisting of two Members, the case or matter may be transferred by the Chairperson or, as the case may be, referred to him for transfer, to such Bench as the Chairperson may deem fit."
The Court therefore opined that Section 6 of the Act does not postulate filing any application for reference to a larger bench. When the adjudication under Section 8 of the Act commences, it is the prerogative of the Chairperson to decide if the matter is of such a nature that it should be heard by a bench of two Members, and only then the Chairperson needs to constitute a two member bench.
In view of the aforesaid decisions of the Delhi High Court, it can be clearly concluded that the challenge to the composition of the constitution of the Adjudicating Authority is decided and is no longer res integra.
Ground: Due to the quasi-judicial function being carried out by the Adjudicating Authority it is mandatory that one member must be necessarily from the field of law
The challenge to decisions of the Adjudicating Authority on the ground that the Adjudicating Authority is carrying out a quasi-judicial function and hence must necessarily have at least one member from the field of law has been decided by the Telangana High Court in the case of M/s. Hygro Chemicals Pharmtek Private Limited v. Union Of India & Anr. decided on March 13, 2022.
The Telangana High Court decided the issue under consideration in the affirmative stating that while deciding or passing an order confirming the Original Complaint and/or the Original Application filed by the Directorate of Enforcement, the Adjudicating Authority is obligated to issue a show cause notice to the aggrieved person, consider their reply to the show cause notice, conduct a hearing and thereafter only pass a reasoned order, all of which are steps akin to judicial proceedings. While deciding the said issue, the Telangana High Court placed reliance on the decision of R.K. Jain v. Union of India wherein the Supreme Court held that persons appointed to tribunals exercising quasi-judicial functions shall necessarily have experience in law and such qualification is essential for effective adjudication.
To conclude, it is pertinent to note that while the defect of Coram Non Judice is a technical ground which can be raised by the aggrieved persons, can be cured by the authorities under the Prevention of Money Laundering Act, and hence has a limited scope for seeking grant of relief in relation to the proceedings being conducted by the Enforcement Directorate under the Prevention of Money Laundering Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
