As per Section 2(u) of the Prevention of Money Laundering Act, 2002 ("PMLA Act"), proceeds of crime means as under:
"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 [or abroad]];
That by virtue of the Finance Act, 2019, an explanation has been added to the definition of "proceeds of crime" under Section 2(u) of the PMLA Act.
[Explanation.-- For the removal of doubts, it is hereby clarified that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence;]
By virtue of this Explanation, it has been made clear that the proceeds of crime shall also include properties which have been directly or indirectly derived or obtained as a result of any criminal activity relatable to the scheduled offence, will form part of the proceeds of crime.
However, the issue arises due to the words the value of any such property appearing in the definition of proceeds of crime which cast a doubt over the attachment of other properties of the accused under the PMLA Act.
The Enforcement Directorate relying upon the words the value of any such property appearing in the definition of proceeds of crime has been attaching the other properties of the accused derived from legitimate source under the PMLA Act when the property derived from scheduled offence is not available for attachment. However, such attachment of the property by the Enforcement Directorate has been subjected to judicial scrutiny.
In the case of Seema Garg and Ors. vs. The Deputy Director, Directorate of Enforcement (06.03.2020 - PHHC), MANU/PH/0204/2020, the Hon'ble Punjab and Haryana High Court has categorically held the 'value of such property' appearing in the definition of proceeds of crime does not mean and include any property which has no link direct or indirect with the property derived or obtained from commission of scheduled offence, i.e,. the alleged criminal activity and further held property acquired prior to commission of scheduled offence i.e. criminal activity or introduction of PMLA cannot be attached unless property obtained or acquired from scheduled offence is held or taken outside the country.
The Hon'ble Patna High Court in the case of HDFC Bank Limited vs. Government of India and Ors., Criminal Writ Jurisdiction Case No.2398 of 2017, 2021(226)AIC 780, observed that there are three limbs of Section 2(1)(u) of the PMLA Act:
- Any property derived or obtained, directly or indirectly, as a result of criminal activity relating to the scheduled offence; or
- Value of property derived or obtained from criminal activity; or
- Property equivalent in value held in India or outside, where property obtained or derived from criminal activity is taken or held outside the country.
And thereafter, held the property derived from legitimate source cannot be attached on the ground that property derived from scheduled offence is not available for attachment. Limb No. II above is confined to value of property derived or obtained from criminal activity and not any property of the person alleged to be involved in money laundering. Otherwise the legislature would not have defined the "proceeds of crime", which was attachable under Section 5 of the PMLA.
Further, the Hon'ble Supreme Court in the landmark case of Vijay Madanlal Choudhary and Ors. Vs. Union of India (UOI) and Ors., Special Leave Petition (Criminal) No. 4634 OF 2014, also held that the property alleged to be 'proceeds of crime' must have nexus, be it direct or indirect, with the predicate (schedule ) offence.
In view of the above, the property which does not have direct or indirect relation with the schedule offence cannot be attached as proceeds of crime unless the property obtained or derived from criminal activity is taken or held outside India.
Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
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Rajat Jain, Advocate
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