India: Proceeds Of Crime And Money Laundering Under PMLA

Last Updated: 29 March 2019
Article by Vijay Pal Dalmia, Partner

By Vijay Pal Dalmia, Advocate
Supreme Court of India & High court of Delhi
Mobile: +91 9810081079 Email: vpdalmia@vaishlaw.com

In the case before the High Court of Delhi, titled Himachal Emta Power Limited Vs. Union of India and Ors. (W.P. (C) 5537/2018, CM Nos. 21583/2018 and 33487/2018) ( Judgment can be downloaded from http://lobis.nic.in/ddir/dhc/VIB/judgement/05-09-2018/VIB23082018CW55372018.pdf ), the primary issue before the court was "What is Proceeds of Crime?". Another issue also related to the rule of forum non conveniens.

In this case the impugned order founded on the basis of an FIR registered by Central Bureau of Investigation (CBI) on 07.08.2014 alleging offences under Section 120-B read with Section 420 IPC against HEPL, its promoters/directors, members of the 35th Screening Committee and other unknown persons. It was alleged that the said persons have cheated the Government of India by securing allocation of Gaurangdih ABC Coal Block in favour of HEPL. It was alleged that HEPL had misrepresented the status of land in question and the investment made by it in the project and had secured the allocation of the coal block based on such misrepresentations.

In this case the impugned order of provisional attachment was founded on the allegation that the property sought to be attached has been used in commission of a scheduled offence and, therefore, is liable to be attached as proceeds of crime. However, the Court observed that merely because a property used in commission of crime, the same cannot be construed as proceeds of that crime.

At this stage, it would be relevant to refer to Section 5(1) of the PML Act, the relevant extract of which is set out below:

"Section 5 (1)-Where the Director or any other officer not below the rank of Deputy Director authorized by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that-

  1. any person is in possession of any proceeds of crime; and
  2. such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed."

A plain reading of Section 5(1) of the PML Act indicates that an order of provisional attachment can be passed only where the concerned officer has reasons to believe on the basis of material in his possession that: (a) any person is in possession of proceeds of crime; and (b) such proceeds are likely to be concealed, transferred, or dealt with any manner which would result in frustrating any proceedings relating to confiscation of such proceeds of crime. The expression "proceeds of crime" is defined under clause (u) of Section 2 (1) of the PML Act as under:

"Section 2 (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)."

The Court held that it is clear from the language of Section 2(u) of the PML Act that the expression "proceeds of crime" refers to a property, which is "derived or obtained" by any person as a result of criminal activity. Therefore, in order to pass an order of provisional attachment, it was necessary for the ED to have reasons to believe that the property sought to be attached was "derived or obtained" from any scheduled crime.

The Court further held that the assumption that any amount used in commission of a scheduled offence would fall within the expression "proceeds of crime" as defined under Section 2(1) (u) of the PML Act is fundamentally flawed.

On the question of jurisdiction and the rule of forum non conveniens, the Court held that the rule of forum non conveniens does not denude the court of its jurisdiction; it only entails that a court will decline to exercise its jurisdiction if it is more convenient that the petition be considered by another court. It is a rule founded on convenience and self restraint by courts and not on lack of jurisdiction.

© 2018, 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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