Summary
There has been a long and unsettling dispute on the question as to (1) Whether Proceeds of Crime includes Clean and Untainted Property also ? and (2) What are rights of 3rd party claiming legitimate & bonafide interest and possession in such Clean and Untainted Property, being attached by the Enforcement Authorities under PMLA. Recently, the Hon’ble Delhi High Court in the case of Deputy Director vs Axis Bank dated 02.04.2019, has dealt with this issue in a detailed manner among others.
The whole discussion resolves around the meaning of “the value of any such property” in Section 2(1)(u)- “Proceeds of Crime”. The Delhi High court in its judgment, recognized the rights of the 3rd party-Banks, however held that such right is not absolute or mandatorily available in all cases and rather depends upon the type of property in question, whether being 1. “Tainted Property”, which is liable to be attached in all circumstances or 2. “Deemed Tainted Property”, which is liable to attached only in those cases where the tainted properties of the accused are not traceable, or cannot be reached, or those found are not sufficient to fully account for the pecuniary advantage thereby gained by the person accused.
The Author not being fully satisfied with the relevant judgment of Hon’ble High court, takes a totally different view stating that the word used is ‘value’ simply meaning monetary value. Thus, value of any such property means, and is limited to, the monetary value/ the Fair Market Value. The Author thereafter relying upon the judgment of Hon’ble Punjab and Harayana High Court and another judgment of Hon’ble Delhi High Court itself, concluded this research paper taking a view that we cannot interpreted the meaning of the word “value” to mean that the authorities can attach any property of the equivalent value, by any stretch of imagination whatsoever.
1. Introduction
1.1 The Prevention of Money Laundering Act, 2002 (“PMLA”) was enacted with the object to prevent and criminalise the offence of ‘money laundering’ in India along with confiscation of the ‘proceeds of crime’. The offence of ‘money laundering’ has been defined in Section 3, and is reproduced hereunder for the readers convenience:
“Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.”
1.2 On reading the above definition, the primary thought is that – To fully understand the meaning of the offence of money laundering, we have to first understand what proceed of crime is ?. Section 2(1)(u) defines “Proceed of Crime”, which is reproduced below :
“Section 2(1)(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 or abroad.
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;”
1.3 Constituents of ‘Proceeds of Crime’ :
1.3.1 As per the above definition of ‘Proceeds of Crime’ can essentially be bifurcated into 3 types of properties:
a) property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence; or
b) value of any such property; or
c) property equivalent in value held within the country, where such property is taken or held outside the country.
1.4 However, there has been a long and unsettling dispute on the question as to (1) Whether Proceeds of Crime includes Clean and Untainted Property also ? and (2) What are rights of 3rd party claiming legitimate & bonafide interest and possession in such Clean and Untainted Property, being attached by the enforcement authorities under PMLA. Recently, the Hon’ble Delhi High Court in its judgment dated 02.04.2019 in the case of Deputy Director vs Axis Bank (hereinafter referred as the “relevant judgment”), has dealt with this issue in a detailed manner among others.
The Author in this paper has limited his discussion to above Question (1) & (2) only. Further, the other issues (a) Whether confiscation of property is civil proceeding or Penalty (b) Prevalence of Other Act over PMLA, has simply being summarized (from the relevant Axis Bank judgment for the convenience and ready reference of the readers.
2. Brief General Facts :
2.1 The Hon’ble Delhi High Court in its relevant judgment dated 02.04.2019, has passed an common order against five appeals presented u/s 42 of PMLA.
2.2 The impugned orders of the Appellate Tribunal (hereinafter referred as the “Tribunal”) are more or less on the same facts that the Person (the accused) has interest/ rights in the subjected property, and he has mortgaged/hypothecated the said property with Banks (i.e 3rd Party). Thereafter, such accused is allegedly involved in a Schedule offence. Hence, the Enforcement Directorate, issued an order of provisionally attaching the subjected property, which stands confirmed by the Adjudicating Authority. The 3rd parties have filed the appeal before the HC re-claiming the possession over the said subjected property.
The Delhi HC has explained it in simple words, “the conflict meriting resolve here concerns the sovereign authority of the State to take away and confiscate the property which has been acquired by a person through criminal activity as against the lawful claim of a third party to reach out to such property to recover, in accordance with law, what is due by attachment and sale of same very property.”
3. Specific Case-wise Facts : (in summarized form)
3.1 Case 1 : The “Audi Car” case (Crl. Appeal no. 143/2018)
3.1.1 After demonetization on 08.11.2016, on 29.11.2016, a car was intercepted wherein old currency notes of Rs. 3.70 Crores was found and thus, FIR was registered. The investigation uncurtained the involvement of one Shri Rajeev Singh Kushwaha (the accused) in the crime of conversion of old currency notes through fictitious shell companies. The accused has an Audi car (subjected property) purchased and registered in his name, against which loan facility was availed. Since the loan had remained unpaid to the tune of Rs. 12,08,949/-, the bank had taken steps to take over the possession of the said asset and recover its dues by its sale. Consequently, information was conveyed to ED.
3.2 Case 2 : The “Hospital Equipment” Case (Crl. Appeal no. 210/2018)
3.2.1 M/s Raghubir Hospital Pvt. Ltd. (RHPL), through his Director Dr. Kewal Krishan Sood (the accused), took loan from SBI, aggregating Rs. 5.63 crores, for purchase of certain diagnostic machinery by mortgaging certain properties (subjected property). Later, when the loan was not repaid and the account was classified as “non-performing asset” (NPA) w.e.f. 30.04.2009. The inquiries revealed that supporting documents for purchase of diagnostic machinery were fabricated documents, and found that no such machinery was actually purchased. The SBI, in turn took over the hypothecated property/mortgaged property. The bank also lodged an FIR with CBI, wherein the investigation unveiled that the accused had siphoned off the money received somewhere else. Consequently, information was conveyed to ED.
3.3 Case 3 : The “Mortgaged Shops” (Crl.Appeal no. 623/2018)
3.3.1 Shri Arun Suri (the accused) had taken cash credit facility of Rs. 750 lakhs from IDBI by mortgaging six properties (subjected property). Later on, since the accused was unable to pay, he was declared NPA. The Bank initiated action for taking the mortgaged properties in possession. The Bank, meanwhile, found certain serious irregularities involving foreign exchange transactions in the bank accounts of the accused, with the internal audit report showing illicit transactions of around Rs. 3600 crores. Hence, FIR before CBI was filed. Consequently, information was conveyed to ED.
3.4 Case 4 : The “Defence Supply Orders” Case (Crl.Appeal no. 764/2018)
3.4.1 The accused, Shri Shambhu Prasad Singh, got credit facilities to the tune of Rs. 2010.50 lakhs sanctioned in the favour of his company M/s Dynamic Shells (India) Pvt. Ltd. (“DSIPL”) by stating to have received defense order of Rs. 2170.90 lakhs from armed forces, thereby mortgaging certain properties (subjected property). Subsequently, the inquiries by the Bank exposed that the defense force orders were based on forged and fabricated documents, and that the accused had siphoned off the loan amounts received to his shell companies.
3.4.2 Hence, the PNB initiated action to take possession of the mortgaged properties. Further, CBI also, after investigation, confirmed the above allegations. Consequently, information was conveyed to ED.
3.5 Case 5 : The “Consortium Of Banks” case (Crl.Appeal no. 1076/2018)
3.5.1 M/s Surya Vinayak Industries Ltd. (SVIL), through its directors Sanjay Jain and Rajiv Jain (the accused), took credit facilities, from consortium of almost 20 banks, by mortgaging various property viz. Factory Land & Building, Residential House, etc. (the subjected property). Afterward, all such loans accounts became NPA. Thus, the bank carried out a forensic audit which unveiled various financial irregularities, for instance the receivables and Debtors were inflated etc.. Thus, FIR was registered with CBI. Subsequently, information was conveyed to ED.
4. Subsequent Common Facts :
4.1 After the information was passed on to ED, the authorities provisionally attached the subjected properties. Further, the Adj. Authorities also confirmed the said attachments.
4.2 The subjected properties were acquired by the accused much prior to the criminal activity having taken place.
4.3 The Banks, to realise their debts in due course, had already taken steps to gain custody over the said mortgaged assets.
4.4 The employees or the management of the Banks were not involved in the money laundering case & no illegality or unlawfulness being there on the part of the Banks.
4.5 The subjected properties were not derived or acquired or related to the/ or result of criminal activities; rather all such properties are untainted property of the accused(s). The said properties were attached reasoning that (1) They were unable to find properties actually derived or obtained from the money earned through criminal activity; and (2) The value of such subjected properties was equal or around the tainted assets of such accused person.
4.6 Against the order of the Adj. Authority, the 3rd Party-Banks preferred an appealed before of the Appellate Tribunal, for claiming possession over such mortgaged assets from the PMLA authorities, stating that they had lawful interest and right over such subjection properties and as they would, in turn, to realise the corresponding debts by selling such properties.
5. Appellate Tribunal
5.1 The Tribunal, vide its order dated 25.10.2017, set aside the order of the Adj. Authority, holding that the 3rd party Banks have superior claim over the assets than the authorities in view of the statutory provisions of other debt recovery acts viz RDBA or SARFAESI and directing the assets be returned to the bank, expressing the following reasoning:
1) The Lender (the bank) having first priority/chargeover the hypothecated property.
2) The property not being acquired/relating to criminal activity was not part of proceeds of crime.
3) Their acquisition being prior to the commission of offence of money-laundering
6. The Hon’ble Delhi High Court :
The Hon’ble Delhi HC has taken a completely different view from what was taken by the Appellate Tribunal dated 25.10.2017, and thus, the order of the Tribunal was set aside. The relevant para from the order of the Hon’ble Delhi High Court is summarized and discussed in the following paragraphs :
6.1 The general rule under Act is where a property confiscated by the authorities u/s 8, then all the rights and title shall vest with the Central Government (in short “CG”) and it shall be free from all encumbrances [as per S. 9(1)]. However, the Proviso to S.9(1) gives right to the 3rd Party to claim the legitimate possession and right of the confiscated property, however upon fulfilment of certain conditions.
6.2 The basic tests prescribed by the law while dealing with the claim of a third party for “release” of the property are:
a) Whether the 3rdParty has “legitimate interest” in the property.
b) Whether the 3rdparty “acted in good faith” having taken “all reasonable precautions“
c) Whether the 3rdParty was himself “not involved in the offence of money-laundering“.
(hereinafter referred as the “basic conditions”)
6.3 The Delhi High court, recognizing the rights of the 3rd party-Banks and held that the right of possession over confiscated property subsist in the favour of 3rd party but before claiming such right the such 3rd party has to mandatory fulfil the basic conditions mentioned above.
6.4 The Court further states that the right of the 3rd Party – Banks is not absolute and mandatory available in all cases, rather only upon fulfilling the above-mentioned basic conditions. It puts an additional embargo by holding that the right of 3rd party claimant depends upon the type of property in question. For this, the Judgment divides the property into 2 classes :
1. Property acquired or derived (directly linked to) through criminal activity.– referred as “Tainted Property”[(Section 2(u) – Proceed of Crime – First Part)]
2. Property not acquired or derived (not directly linked to) through criminal activity – referred as “Deemed Tainted Property”or the “Alternative Attachable Property” [(Section 2(u) – Proceed of Crime – Second & Third Part)]
6.5. Tainted Property : 1st Type of Property
Right of 3rd Party limited to sue for damages
6.5.1 This includes those properties wherein there are evidence to prima facie to show that the source of (or consideration for) its acquisition is the product of specified crime. To illustrate, any property acquired, using bribe received in form of money (cash), or obtained by a public servant will be tainted property since it was acquired “directly” consequent to a scheduled offence.
6.5.2 The Court stated that where the property is a product of specified crime, then such property is bound to be confiscated in all conditions. The plea of 3rd Party claiming to have acted in ‘bonafide manner’ and/or is at no fault etc, is duely respected but cannot be given any notice.
6.5.3 In case of such Tainted Property, the right of the 3rd party, as envisaged in Proviso to S. 9, will be limited to sue the wrong-doer for damages. Further, all the legitimate right of such property shall vest absolutely in the Central Government free from all encumbrances
6.6. Deemed Tainted Property : 2nd and 3rd Type of Property
Right of 3rd Party to claiming legitimate interest and possession.
6.6.1 This includes those properties which are not related to or in connection with any criminal activity but falls under the net of Act since the accused has legitimate interest in such properties.
6.6.2 The said properties are liable to attached only in those cases where the tainted properties of the accused are not traceable, or cannot be reached, or those found are not sufficient to fully account for the pecuniary advantage thereby gained.
6.6.3 The said properties comes under the ambit of the PMLA Act due to the wordings “Value of such property” in the meaning of proceeds of crime. Such words means that, where the tainted properties of the accused are not traceable or cannot be reached, to confiscate all the properties or equivalent value of the properties upto the pecuniary advantage thereby gained by the accused using criminal activities.
6.6.4 Further, where the authority seeks to attach the Deemed Tainted properties, because the full value of illicit gains from the crime is not recovered from the Tainted Property (i.e the 1st Type of property) and because they are equivalent or nearly of same “value” as to the proceeds of crime which cannot be traced, the legitimate right of the 3rd party as regards such deemed tainted properties will prevail over that of the enforcement authority. Thus, they may approach the adjudicating authority to seek its release by showing that the fulfillment of all the basic conditions, mentioned above in Para 6.2. Moreover, in such cases where the charge or encumbrance of such third party subsists, still the provisional attachment would remain valid and operative, would be restricted to such part of the value of the property as exceeds the claim of the third party.
6.6.5 Adding to the above discussion, the Court opined that the Date of commission of crime is also important while dealing with 3rd Party claimants and to decide the bonafide of such 3rd Party. It was held that :
a. if the legitimate interest in the subjected property was acquired before the commission of the criminal act, then the acquisition of such interest by such third party cannot conceivably be on account of intent to defeat or frustrate this law.
b. However, if the legitimate interest in the subjected property was acquired after the commission of the criminal act, then the 3rd will have to carry out an additional duty to prove that it had exercised due diligence having “taken all reasonable precautions” at the time of acquisition of such interest or creation of such charge
6.6 Situation – 1 :
Further, the Court, in continuation to the findings in above paragraph, and w.r.t the Deemed Tainted property only, has envisaged a situation wherein on one hand the bank has initiated action and proceedings to enforce his legitimate right and on the other hand, the PMLA authorities has also taken action to attach the same. In such situations, the Court opined that a harmonious consideration should be given to both action and both the actions will be considered valid & in accordance with law. Further, since this situation is w.r.t the Deemed Tainted Property, the legitimate right of the 3rd party will prevail over that of the enforcement authority and thus, the authorities will only be able to enforce claim over the remaining value, as explained in the immediate previous para
6.7 Situation – 2 :
The Court, w.r.t the Deemed Tainted property only, has envisaged another situation wherein “What would happen if the Sec. 26-B of the SARFESI Act comes into force ?”. Before, coming to the said situation, the author would first explain S. 26-B of the SARFESI Act.
Section 26-B of the SARFESI Act provides that a creditor shall file particulars of creation, modification or satisfaction of any security interest over any property of the borrower for the purpose of securing due repayment of any financial assistance granted by such creditor to the borrower. Thus, the creditor is required to file details and register for every secured interest to secure his repayment. However, the said section has not yet been notified by the Central Government.
Now, with reference to the above question, the Court held that after the said Section 26-B comes to force, it would be mandatory for the 3rd party claimants (Banks) to file for all security interest created/modified. In case, such particulars are not filed, then such 3rd party would not be eligible to claim interest and relief before the PMLA authorities nor will they get an upper hand over the rights of enforcement.
7. Conclusion on the Question“Whether Proceeds of Crime includes Clean and Untainted Property also”
7.1 The Hon’ble Delhi HC as regards the meaning of “the value of any such property” has observed as follows :
“109..…. Since the second of the above species of “proceeds of crime” uses the expression “such property”, the qualifying word being “such”, it is vivid that the “property” referred to here is equivalent to the one indicated by the first kind. The only difference is that it is not the same property as of the first kind, it having been picked up from among other properties of the accused, the intent of the legislature being that it must be of the same “value” as the former. The third kind does use the qualifying words “equivalent in value”. Though these words are not used in the second category, it is clear that the said kind also has to be understood in the same sense.
110. Thus, it must be observed that, in the opinion of this court, if the enforcement authority under PMLA has not been able to trace the “tainted property” which was acquired or obtained by criminal activity relating to the scheduled offence for money-laundering, it can legitimately proceed to attach some other property of the accused, by tapping the second (or third) above-mentioned kind provided that it is of value near or equivalent to the proceeds of crime…… ”
8. The author here is not satisfied with the judgement of the Hon’ble High Court. However, before, discussing his opinion, the author requests all its readers to once again read Section 2(1)(u)– Proceed of Crimebut this time very slowly and carefully. The same is reproduced for ready reference:
“Section 2(1)(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 or abroad.”
8.1 A careful reading of the said definition, it states that the second kind of property shall be the “value of any such property”. The use of the word “such” means that it is referring to the first kind of property, and to this extent I agree with the judgement of Hon’ble Delhi High Court. Further, it may be noted that the first word used is ‘value’. The word value here simply means monetary value. Thus, value of any such property means, and is limited to, the monetary value, and rather the Fair Market Value to be specific, of the 1st kind of property.
8.2 At this juncture, it would be important to make reference to the definition of ‘Value’ placed at Section 2(1)(zb), which is as follows :
“ Section 2(1)(zb) – “Value” means the fair market value of any property on the date of its acquisition by any person, or if such date cannot be determined, the date on which such property is possessed by such person.”
8.3.1 Thus, if the 1st kind of property is untraceable, or cannot be reached etc., the authorities can only count the Fair market value of the said property and add it to the proceed of crime. To illustrate this with an example, if a public servant takes bribe and invests the same in purchasing a flat and later on, during investigation such flat is not traceable, then the authority may take the Fair market value of such flat as proceed of crime. The authorities thereafter can recover such proceed of crime, being the fair market value of such property, by recovering the same from the bank account of such person or raising a penalty or demand in this regard.
8.3.2 However, it cannot, by any stretch of imagination whatsoever, be interpreted to mean that the authorities can attach any property of the equivalent value. If it is construed this way, then the authority will attach any and every property, without giving a thought as to whether there is any link between such property and the offence of money laundering. In this regards, the Delhi HC in Para 160 was also on the same track as they opined “160. But, in cases where the enforcement authority seeks to attach other properties, suspecting them to be “proceeds of crime”, not on the basis of fact that they are actually “derived or obtained” from criminal activity but because they are of equivalent “value” as to the proceeds of crime which cannot be traced, it is essential that there be some nexus or link between such property on one hand and the person accused of or charged with the offence of money-laundering on the other.” However, the Hon’ble Court moving forward with its judgment in the subsequent para, itself lost insight of its own obiter dicta.
8.3.3 Furthering with my discussing regarding meaning of “Value of any such property”, if the intent of legislature would have been to attach even untainted property of the accused, then they would have worded it somewhat as or property of equivalent value, it would have culminated the phrases ‘value of such property’ and ‘Property of equivalent value’ with same connotation and same meaning. The Legislative would not have divided the said definition into 3 parts, and rather used the word equivalent value of both the parts. Also, if the property of equivalent value was to be ‘proceeds of crime’ in any or every case, then there was no need to carry out amendment to insert the same in 2015. There was no need to insert even first limb and as the authority would simply declare any property held or possessed as ‘proceeds of crime’. There was no need to trace out ‘source of property’ and for Adjudicating Authority to call upon persons to explain source of property. A reference, in this regards, can be made to the recent judgment of Hon’ble Punjab and Harayana High Court in Seema Garg vs Deputy Drector, wherein it was held as under :
“The moot question arises that whether property of equivalent value may be attached where property derived or obtained from scheduled offence is not held or taken outside India. If any property is permitted or held liable to be attached irrespective of its date of purchase, it would amount to declaring second and third limb of definition of ‘proceeds of crime’ one and same. As pointed out by counsel for Appellants, the third limb of definition clause was inserted by Act 20 of 2015. The aforesaid 3rd limb has been further amended w.e.f. 19.04.2018 enlarging the scope. The question arises that if phrases ‘value of such property’ and ‘property equivalent in value held within the country or abroad’ are of same connotation and carry same meaning, there was no need to insert third limb in the definition of ‘proceeds of crime’. The amendment made by legislature cannot be meaningless or without reasons. Use of different words and insertion of third limb in the definition cannot be ignored or interpreted casually. Every word chosen by legislature deserves to be given full meaning and effect. Accordingly, words ‘value of such property’ and ‘property equivalent in value held within the country or abroad’ cannot be given same meaning and effect. Had there been intention of legislature to include any property in the hands of any person within the ambit of proceeds of crime, there was no need to make three limbs of definition of proceeds of crime. It was very easy and convenient to declare that any property in the hands of a person who has directly or indirectly at any point of time had obtained or derived property from scheduled offence. There was even no need to declare property derived or obtained from scheduled offence as proceeds of crime.”
8.3.4 The Hon’ble Delhi High Court before the Axis Bank Judgment has of the similar opinion as of the author. The Court in K. Rethinam v. Union of India (in W.P.(C) 8115/2017 vide order dated 11.01.2018) had held that,
“48.….The expression value of any such property’ would be a value equivalent to the value of a property derived or obtained directly or indirectly by any person as a result of criminal activity. The property itself may no longer be available but the equivalent value of such a property, whether held in cash, etc., would be available for attachment.”
9. Conclusion on the Question “What are rights of 3rdparty claiming legitimate & bonafide interest and possession in such Clean and Untainted Property, being attached by the enforcement authorities under PMLA ? “
9.1 The Hon’ble High Court in its detailed judgment held that right of 3rd party over the enforcement authorities, depends upon whether such property was acquired or obtained in relation to criminal activity or not. Thus, in reference to the same, the subjected properties can be classified into 2 parts :
9.2 Tainted Property : (Right of 3rd Party limited to sue for damages)
9.2.1 This includes those properties wherein there are evidence to prima facie to show that the source of (or consideration for) its acquisition is the product of specified crime. In case of such properties, even if the legitimate interest are acquired, under bonafide, whereby the 3rd party having no fault and after taking all reasonable precautions, it cannot result in release of the said subjected property and all the legitimate right of such property shall vest absolutely in the Central Government free from all encumbrances. The right of the 3rd party will be restricted to sue the wrong-doer for damages.
9.2.2 The reasoning behind, restricting the legitimate and genuine right of the 3rd Party, is that :
a) A person indulging in money-laundering cannot be permitted to avail of the proceeds of crime to get a discharge for his civil liability towards his creditors for the simple reason such assets are not lawfully his to claim. In other words, the said Tainted asset/property has been acquired by the wrong doer through or in relation to criminal activities. Thus, such a wrong doer cannot be permitted to use such properties or assets acquired through illicit crime to settle his other liabilities. It is for the simple reason that such property is not his, as he has no right or ownership over it and hence, he cannot repay other liabilities by selling off the same. This is also the reason why the all the legitimate right of such property vests absolutely in the Central Government free from all encumbrances
b) Secondly, the proposition that the jurisdiction conferred on the State by PMLA to confiscate the “proceeds of crime” concerns a property the value whereof is “debt” due or payable to the Government (Central or State) or local authority. The Government, when it exercises its power under PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, the person alleged to be complicit in the offence of money-laundering similarly not acquire the status of a debtor. The State is not claiming the prerogative to deprive such offender of ill-gotten assets so as to be perceived to be sharing the loot, not the least so as to levy tax thereupon such as to give it a colour of legitimacy or lawful earning, the idea being to take away what has been illegitimately secured by proscribed criminal activity.
c) Lastly, if this is allowed, this will become an Escape Route for many criminals or wrong doers and it would defeat the purpose of PMLA.
9.3 Deemed Tainted Property / Alternatively Attachable Property (Right of 3rd Party will prevail over the authorities under PMLA)
9.3.1 This includes those properties which are not related to or in connection with any criminal activity but falls under the net of Act since the accused has legitimate interest in such properties. The said properties are liable to attached only in those cases where the tainted property of the accused are not traceable, or cannot be reached, or those found are not sufficient to fully account for the pecuniary advantage thereby gained.
9.3.2 The authors opinion, matches with that of the Hon’ble Delhi HC, that the legitimate right of the 3rd party as regards such deemed tainted properties will prevail over that of the enforcement authority. However, the reasoning behind the same is completely different.
9.3.2.1 Now, as regards the 2nd kind of Property – Value of any such property : The authors opinion, matches with that of the Hon’ble Delhi HC, that the legitimate right of the 3rd party as regards such deemed tainted properties will prevail over that of the enforcement authority. However, the reasoning behind the same is completely different.
The author has already discussed that the in Para 8 to 8.3.4 that the authorities cannot by any stretch of imagination whatsoever, be interpreted to mean that the authorities can attach any property of the equivalent value. Thus, when the subjected property itself cannot be attached by the authorities itself and hence, the question of 3rd Party claiming its legitimate right over the enforcement authorities does not arise.
9.3.2.2 However, as regards, the 3rd kind of Property – Property held outside the country :
The authors opinion, matches with that of the Hon’ble Delhi HC along with its reasoning, that the legitimate right of the 3rd party as regards such deemed tainted properties will prevail over that of the enforcement authority. Thus, they may approach the adjudicating authority to seek its release by showing that the fulfillment of all the basic conditions, mentioned above in Para 6.2. Moreover, in such cases where the charge or encumbrance of such 3rd party subsists, the provisional attachment would still remain valid and operative, however would be restricted to such part of the value of the property as exceeds the claim of the third party.
The thought behind bring such properties under the web for confiscation is to bring the offender to square one, completely removing the monetary advantages from his possession as properties which are outside the country cannot be confiscated easily. However, the wrong doer still must be brought to the same position, at least financially, where he was before carrying out such illicit crimes.
10. Summary of Other Point of judgment :
Although, as already mentioned, the author has not discussed the underneath issues in the said paper, however for the sake of convenience of the reader, the summary & important pointers are as follows :
11. Confiscation of Property : Civil Proceeding or Penalty ?
11.1 The Axis Bank judgment discusses similar confiscation procedure in other laws like the IPC, CRPC, Prevention of Corruption Act, SAFEMA.
11.2 By the end of it, it enunciates that the intent in all these laws, by confiscating their property, is not to punish the accused, rather it is majorly with an intent to deprive such person of their illegally acquired properties.
11.3 In support of its verdict, reliance is placed on the judgment of State Of West Bengal vs S. K. Ghosh (1963) AIR 255, wherein it had been observed thus :—
“15. The argument for the respondent is apparently based on the use of the word “forfeited” in Section 13(3) and also on the use of the word “forfeiture” in Section 53 of the Indian Penal Code. There is no doubt that forfeiture in Section 53 of the Indian Penal code is a penalty but when Section 13(3) speaks of forfeiting … the amount of money or value of the other property procured by the accused by means of the offence, it in effect provides for recovery by the Government of the property belonging to it, which the accused might have procured by embezzlement etc. The mere use of the word “forfeited” would not necessarily make it a penalty. The word “forfeiture” has been used in other laws without importing the idea of penalty or punishment within the meaning of Article 20(1). Reference in this connection may be made to Section 111(g) of the Transfer of Property Act (4 of 1882) which talks of determination of a lease by forfeiture. We are therefore of opinion that forfeiture provided in Section 13(3) in case of offences which involve the embezzlement etc. of money or property as compared to a suit which it is not disputed the Government could bring for realizing the money or property and is not punishment or penalty within the meaning of Article 20(1). Such a suit could ordinarily be brought without in any way affecting the right to realise the fine that may have been imposed by a criminal court in connection with the offence.”
11.4 Thus, confiscation of property is definitely not envisaged as a criminal sanction, this for the reason that the objective of the legislature clearly is to deprive the offender (of money-laundering) the enjoyment of “illegally acquired” fruits of crime by taking away his right over property thereby acquired, it affecting his civil rights.
12. Whether other acts was Prevalence over PMLA in claiming interest in subjected property ?
12.1 The Judgement, as regards the above question, starts is discussion by analysing the amendment, objects and provision of the Recovery of Debts and Bankruptcy Act, 1993 (in short “RDBA”), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short “SARFAESI”) and Insolvency and Bankruptcy Code, 2016 (in short “IBC”)
12.2 By the end of the discussion, the Court held as under :
“141. This court finds it difficult to accept the proposition that the jurisdiction conferred on the State by PMLA to confiscate the “proceeds of crime” concerns a property the value whereof is “debt” due or payable to the Government (Central or State) or local authority. The Government, when it exercises its power under PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, the person alleged to be complicit in the offence of money-laundering similarly not acquiring the status of a debtor. The State is not claiming the prerogative to deprive such offender of ill-gotten assets so as to be perceived to be sharing the loot, not the least so as to levy tax thereupon such as to give it a colour of legitimacy or lawful earning, the idea being to take away what has been illegitimately secured by proscribed criminal activity.
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147. To sum up on the issue, the objective of the legislation in PMLA being distinct from the purposes of the three other enactments viz. RDBA, SARFAESI Act and Insolvency Code, the latter cannot prevail over the former. There is no inconsistency. The purpose, the text and context are different. This court thus rejects the argument of prevalence of the said laws over PMLA.”
(Adv. Hemang Gargieya)
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