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: Mobile: 09810081079
Rajat Jain, Advocate, Email: 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,
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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.

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Vijay Pal Dalmia, Partner
Rajat Jain
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