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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions