India: Attachment Of Property Acquired By The Person From Unscheduled Offence Under Prevention Of Money Laundering, Act 2002 (PMLA)

Last Updated: 9 May 2017
Article by Vijay Pal Dalmia, Partner and Rajat Jain

*Vijay Pal Dalmia, Advocate & Partner Vaish Associates
Email: vpdalmia@vaishlaw.com Mobile: 09810081079
&
Rajat Jain, Advocate, Email: rajatjain@vaishlaw.com Mobile: 09953887311

The issue, i.e. whether property acquired by the person from the proceeds derived from an offence before the inclusion of such offence in the schedule of scheduled offence under Prevention of Money Laundering Act 2002 (PMLA) (AML in India) can be attached, came before the Single Bench of the Delhi High Court in the case of *Mahanivesh Oils & Foods Pvt. Ltd. vs. Directorate of Enforcement, W.P.(C) 1925/2014 and CM No. 4017/2014 [MANU/DE/0166/2016].  The said Writ Petition was filed by the Petitioner against the order of the Adjudicating Authority, wherein the Adjudicating Authority had confirmed an order of provisional attachment of the property which was acquired prior to the coming of the PMLA in force and inclusion of the said offence, for which petitioner was charged, in the schedule of scheduled offence under PMLA.

* The findings recorded by the learned Single Judge of the Delhi High Court in the said judgment has been stayed by the Division Bench of the Delhi High Court in the interim order dated 30th November 2016, passed in LPA 144/2016 filed by Directorate Of Enforcement against the order of the Single Judge.

Some of the contentions raised by the Petitioner in the writ, which are important for reaching to the answer of the above query, are as under:

  • That the provisions of the PMLA have been applied retrospectively by the Respondent as Section 420 and 120B of the Indian Penal Code, 1860 for which the petitioner has been charged with, were not a part of scheduled offences at the time of commission of the offence in the year 2005 and said provisions were added in Part A of the Schedule by the Prevention of Money- Laundering (Amendment) Act, 2009 which came into effect from 01.06.2009.
  • That the amendment made in 2009 in the PMLA is substantive and 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.

    • In support of the contention reference was made to the case titled Rao Shiv Bahadur Singh and Anr. v. The State of Vindhya Pradesh [MANU/SC/0081/1953: AIR 1953 SC 394] and Soni Devrajbhai Babubhai v. State of Gujarat [MANU/SC/0477/1991: (1991) 4 SCC 298].
  • That there cannot be any question of attachment of the property under Section 8(5) of the PMLA as the petitioner cannot be prosecuted under the provisions of the PMLA for the offence of money laundering since the date of commission of the offence is prior to the date when the PMLA came into force, i.e., 01.07.2005.

On the other hand, to counter the contentions of the Petitioner, the Respondent made submissions as under:

  • That the proceedings of attachment of property are independent of the proceedings for the offense of money-laundering or the scheduled offense.
  • That the date of commission of the scheduled offense is not relevant; what is relevant is the date of the offense of money laundering.

    • In support of this contention, the reliance was placed on the decision of Andhra Pradesh High Court in B. Ramaraju & Ors. v. Union of India [MANU/AP/0125/2011 : (2011) 164 Comp Cas 149 (AP)].
  • That the scheduled offenses incorporated by the Prevention of Money-Laundering (Amendment) Act, 2009, with effect from 01.06.2009, have a retrospective effect.

For the proposition reliance was placed on the decision of Gujarat High Court in Alive Hospitality and Food Private Limited v. Union of India [Special Civil Application No. 4171/2012].

The Hon'ble Delhi High Court while deciding the present Writ, observed that a conjoint reading of Section 5(1) read with Section 2(u) of the PMLA clearly indicates that the power to attach is only with respect to the 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 such property. So, the occurrence of a scheduled offense is the substratal condition for giving rise to any proceeds of crime and consequently, the application of Section 5(1) of the PMLA. A commission of a scheduled offense is the fundamental pre-condition for any proceeding under the Act as without a scheduled offense being committed, the question of proceeds of crime coming into existence does not arise.

The contention that the PMLA is completely independent of the principal crime (scheduled offense) giving rise to proceeds of crime is unmerited. It is necessary to bear in mind that the substratal subject of the PMLA is to prevent money-laundering and confiscate the proceeds of crime. In that perspective, there is an inextricable link between the PMLA and the occurrence of a crime. It cannot be disputed that the offense of money-laundering is a separate offense under Section 3 of the PMLA, which is punishable under Section 4 of the PMLA. However as stated earlier, the offense of money-laundering relates to the proceeds of crime, the genesis of which is a scheduled offense.

Thus, in cases where the scheduled offense is itself negated, the fundamental premise of continuing any proceedings under the PMLA also vanishes. Such cases where it is conclusively held that a commission of a scheduled offense is not established and such decision has attained finality pose no difficulty; in such cases, the proceedings under the PMLA would fail.

The Hon'ble Delhi High Court while dissenting with the decision of the Gujarat High Court in the case of Alive Hospitality and Foods Private Limited (supra), held that there cannot be any question of attachment of the property under Section 8(5) of the PMLA, if the petitioner cannot be prosecuted under the provisions of the PMLA for the offence of money laundering.

Further, in a given case where the offense of money-laundering cannot be made out, as the acts constituting such offense were before the Act being brought into force, it would be impermissible for the authorities concerned to attach the property representing the proceeds of crime.

The Hon'ble Court also rejected the contention of the Respondent that Article 20 of the Constitution of India prohibited conviction or sentence under an ex-post facto law but not the trial thereof and dissented with 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] [ MANU/AP/0518/2011], and stated as under:

"There is no question of any trial being conducted for an offense for which a conviction cannot, in law, follow. A law which seeks to impose penalty for any act constituting an offense which when done or committed was not an offense would itself fall foul of Article 20(1) of the Constitution of India. In Rao Shiv Bahadur Singh & Another v. State of Vindhya Pradesh (supra) the Supreme Court had unequivocally held that Article 20 of the Constitution of India was not confined to the validity of the law but extended to conviction or the sentence."

The Hon'ble Court while observing that PMLA cannot be read as to empower the authorities established under the Act, to initiate proceedings in respect of money-laundering offences done prior to 01.07.2005 or prior to the related crime being included as a scheduled offense under the Act, stated as under:

"The Act was enacted as the international community recognized 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 the economy as legitimate wealth. According to the respondent, there are three stages to a transaction of money-laundering: The first stage is Placement, where the criminals place the proceeds of the crime into normal financial system. The second stage is Layering, where money introduced into the normal financial system is layered or spread into various transactions within the financial system so that any link with the origin of the wealth is lost. And, the third stage is Integration, where the benefit or proceeds of crime are available with the criminals as untainted money. There is much merit in this description of money-laundering and this also indicates that, by its nature, the offense 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 offense of money-laundering punishable under Section 4 would not be made out. The 2013 Amendment to Section 3 of the Act by virtue of which the words "process or activity connected with proceeds of crime and projecting it as untainted property" were substituted by the words "any process or activity connected with proceeds of crime including concealment, possession, acquisition or use and projecting or claiming it as untainted property". The words "concealment, possession, acquisition or use" must be read in the context of the process or activity of money-laundering and this is over once the money is laundered and integrated into the economy. Thus, a person concealing or coming into possession or bringing proceeds of crime to use would have committed the offense of money laundering when he came into possession or concealed or used the proceeds of crime.

It was further observed by the Hon'ble Court that for any offense of money-laundering to be alleged, such acts must have been done after the PMLA was brought in force. The proceeds of crime which had come into possession and projected and claimed as untainted prior to the Act coming into force, would be outside the sweep of the Act. However, the contention of the Respondent that relevant date would be the date of offense of money laundering and not that of the commission of the scheduled offense was considered to be merited by the Court.

While holding that the attachment under Section 5 of the PMLA Act cannot 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, the Hon'ble Court observed that the PMLA is a penal statute and, therefore, can have no retrospective or retroactive operation, as Article 20(1) of the Constitution of India expressly forbids that no person can be convicted of any offence except for the violation of a law in force at the time of the commission of the act charged as an offence. Further, no person can be inflicted a penalty greater than what could have been inflicted under the law at the time when the offense was committed. Clearly, no proceedings under the Act can be initiated or sustained in respect of an offense, which has been committed prior to the Act coming into force. However, the subject matter of the Act is not a scheduled offense but the offense of 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 offense.

In view of the above, it is apparent that the property acquired by the person from the proceeds derived from the offense, before the inclusion of such offense in the schedule of scheduled offense under Prevention of Money Laundering, Act 2002, cannot be attached. The findings recorded by the learned Single Judge of the Delhi High Court in the said judgment has been stayed by the Division Bench of the Delhi High Court in the interim order dated 30th November 2016, passed in LPA 144/2016 filed by Directorate Of Enforcement against the order of the Single Judge. However, in our view, the decision of the Single Judge is fairly rational and just in holding that there can be no attachment of property under Section 5 of the PMLA Act if 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.

© 2016, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Vijay Pal Dalmia, Partner
Rajat Jain
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.