India: Use Of Property In Commsission Of A Crime Cannot Be Constured As Proceeds Of A Crime Under Section 2(1)(u) Of PMLA

Last Updated: 10 October 2019
Article by Vijay Pal Dalmia, Partner

Article by Vijay Pal Dalmia, Advocate, Supreme Court of India and Delhi High Court, Partner & Head of Intellectual Property Laws Division, Vaish Associates Advocates, India

The petitioner, M/S Himachal Emta Power Limited, (in the case titled Himachal Emta Power Limited vs. Union of India and Ors. Reported at http://lobis.nic.in/ddir/dhc/VIB/judgement/05-09-2018/VIB23082018CW55372018.pdf / MANU/DE/3183/2018) had filed the present petition under Article 226 & 227 of the Constitution of India, inter alia, impugning the provisional attachment order (impugned order) issued by the Deputy Director, Enforcement Directorate (ED) under Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA).

The ED had provisionally attached investment made by HEPL in M/s. Gaurangdih Coal Ltd. (GCL) a joint venture company formed by HEPL and M/s. JSW Steel Ltd. for carrying out mining activities including excavation work in the coal block allocated to HEPL. The impugned order was premised on the basis that the said amounts had been used in commission of a scheduled offence and are proceeds of crime in terms of Section 2(u) and (v) of the PMLA.

It was alleged that the petitioner had cheated the Government of India by securing allocation of Gaurangdih ABC Coal Block in favour of HEPL and 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.

According to Section 5 (1) of PMLA-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-

(a) any person is in possession of any proceeds of crime; and

(b) 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.

And

Section 2 (u) defines "proceeds of crime". It 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 counsel on behalf of the Petitioner had contended, firstly, that the ED had no reason to believe that the properties attached are proceeds of crime and that they had not communicated such reasons to believe. He relied on the decision of the Division Bench of this Court in J. Sekar v. Union of India & Ors. (2018 III AD ( Delhi ) 638) [http://lobis.nic.in/ddir/dhc/SMD/judgement/11-01-2018/SMD11012018CW53202017.pdf]. Secondly, it was submitted that there was no basis to assume that HEPL had derived any benefit from the allocation of the coal block.

It was also submitted that there was no dispute that mining activity was not carried out prior to cancellation of the allocation and thus, even if the assumption that HEPL had committed the offence under Section 420 IPC was accepted, HEPL had derived no benefit which could be construed as proceeds of crime.

The Court examined whether any interference with the impugned order was warranted at that stage and on the plain reading of the impugned order indicated that the impugned order was fundamentally flawed and was without authority of law. The Court observed that it was obvious that merely because a property used in commission of crime, the same cannot be construed as proceeds of that crime.

Court had said that it was 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.

Moreover, the court confuted that there was no material whatsoever on the basis of which the ED could have possibly ascertained that the investments made by HEPL were 'derived or obtained' as a result of any criminal activity relating to a scheduled offence. It also refuted 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 PMLA.

© 2019, 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.

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