Vijay Pal Dalmia, Advocate

Supreme Court of India & Delhi High Court

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The Common factor among writ petitions, before the High Court of Delhi, (titled Aprajita Kumari and Ors. vs. Joint Director, Enforcement Directorate and Ors. Reported at / MANU/DE/0106/2018), under Article 226 of the Constitution of India (Costitution), filed by petitioners was the prayer for declaring second proviso of section 5(1) of Prevention of Money Laundering Act,2002 ultra vires of Article 14.

Thus, these Writ Petitions were consolidated before the Division Bench of the High Court of Delhi (Court).

Consequently, this Division Bench had clarified that the scope of the proceedings would be confined to examination of the following:

a. The maintainability of the writ petitions (which has been raised as a preliminary objection by Union of India in some of the matters);

b. The constitutional validity of the second proviso to Section 5 (1) PMLA

c. Whether a Single Member of the Adjudicating Authority can exercise powers and conduct proceedings under Section 8 PMLA?

d. If the answer to (c) is in the affirmative, does such Single Member necessarily have to be a Judicial Member?

Maintainability of writ petitions

For the issue of maintainability of writ petitions the Court held that with the Adjudicating Authority being located in New Delhi, it cannot be said that no part of the cause of action has arisen within the jurisdiction of this Court. Moreover, as far as the scope of the present proceedings is concerned, since it involves pure questions of law that arise in all of these petitions, the preliminary objections should not prevent the court from deciding those questions of law.

For the question of constitutional validity of second proviso to Section 5(1) PMLA

Section 5(1) second proviso – "Provided further that, notwithstanding anything contained in Clause (b) any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act"

The second proviso begins with a non-obstante clause and in effect makes it a proviso to the first proviso. The second proviso is intended to override the first proviso, subject to the conditions set out therein. The authorised officer must reach a satisfaction, to be recorded in writing, that there is a reason to believe that if the property involved in money-laundering is not attached immediately, such non-attachment is likely to frustrate proceedings under the PMLA. In other words, even pending the filing of the charge-sheet/challan under Section 173 Cr PC before the criminal court, a provisional attachment can be ordered under the second proviso to Section 5 (1) PMLA subject to the fulfilment of the conditions precedent. It is this second proviso that faces the challenge as to its constitutionality in all these petitions.

The petitioners argued that the second proviso to Section 5(1) PMLA cannot be interpreted in the manner that negates the safeguard contemplated under the first proviso to Section 5(1) PMLA otherwise it will be an instrument of oppression, misuse and arbitrariness clothing officers with draconian and arbitrary powers thereby rendering the second proviso itself violative of Article 14 of the Constitution.

The Court held that the second proviso deals with "any property of any person". This "any person" could be a person in possession of proceeds of crime, which is likely to be "concealed, transferred or dealt with" in a manner that would frustrate the proceedings relating to confiscation. The second proviso, therefore, is consistent with Section 5(1) PMLA insofar as the person in possession of the proceeds of crime may not be a person who is facing trial for a scheduled offence.

Furthermore, the Court had said that mere possibility that a provision may be abused is not a ground to strike it down under Article 14 of the Constitution.

The Court for refuting the ground of possible abuse of the powers thereunder, had to be satisfied that there were sufficient safeguards in the provisions. In that regard, it was pointed out that the conditions on the Director, to first apply his mind to the materials on record before recording in writing his reasons to believe, were considered as a sufficient safeguard to the impulsive invocation of the powers. The reasons to believe, as recorded by the officer should reflect a sense of immediacy which impels the officer to invoke the power.

The Court agreed that the second proviso to Section 5(1) has to be certainly read with the main provision itself and that the proviso should not travel beyond the provision to which it is a proviso. Therefore, there has to be a satisfaction that the 'proceeds of crime' are likely to be concealed, transferred or dealt with in a manner that might frustrate the confiscation proceedings under the PMLA.

The Court pointed out other safeguards like the order of attachment by the Director or the Deputy Director is only for a period of 180 days to begin with. Further, within a period of 30 days after the passing of such order, the AA takes over under Section 8(1) PMLA. Even under Section 8(1) PMLA, the Adjudicating Authority is not supposed to mechanically issue a show cause notice. The Adjudicating Authority has to apply its mind and again record the reasons to believe that any person has committed an offence under Section 3 PMLA or is in possession of proceeds of crime.

Court was not satisfied that the second proviso to Section 5(1) PMLA was soexcessive and disproportionate so as to render it arbitrary.

For question regarding the composition of the Adjudicating Authority

The Court took up the question of the composition of the Adjudicating Authority (AA). In this context, it was noticed that under Section 6 PMLA, the AA is supposed to consist of the Chairperson and two other members, one of whom shall be a person having experience in the field of law. Section 6(3) further sets out what the qualifications for appointment as a member of an AA should be. One of those qualifications is that the person has to be qualified for appointment as a District Judge or a person in the field of law or a member of an Indian Legal Service. The other qualification is possession of a qualification in the field of finance, accountancy or administration as may be prescribed. It is, therefore, not the case that all the members of the AA should be judicial members.

Under Section 5 PMLA, the jurisdiction of the AA "may be exercised by the Benches thereof". Under Section 6(5)(b) PMLA, a Bench could be constituted by the Chairperson of the AA "with one or two members" as the Chairperson may deem fit. Therefore, it is possible to have single-member benches.

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