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Tuesday, May 11, 2021

Property with no link to crime can’t be attached: HC on ED powers under PMLA

The bench was hearing a case from Ludhiana, in which the accused are facing allegations of fraudulently availing VAT refund in February-March 2013 without actual export of goods

Written by Sofi Ahsan | Chandigarh |
Updated: March 12, 2020 12:24:44 am
Enforcement Directorate, ED, money laundering, Prevention of Money Laundering Act, PMLA, Punjab and haryana high court, chandigarh news, india news, indian express The question of law before the division bench was regarding the interpretation of “proceeds of crime” as defined under Section 2(1)(u) of PMLA. (File)

IN A ruling regarding the Enforcement Directorate’s powers to attach properties under the Prevention of Money Laundering Act (PMLA), the Punjab and Haryana High Court has held that property with no direct or indirect link with the alleged criminal activity cannot be attached. It also said that property obtained through a legitimate source cannot be attached on the ground that property obtained through criminal activity is not available.

“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 division bench of Justices Jaswant Singh and Sant Prakash said further in the March 6 judgment.

The bench was hearing a case from Ludhiana, in which the accused are facing allegations of fraudulently availing VAT refund in February-March 2013 without actual export of goods. The properties held by the accused in Ludhiana and Mohali were attached by the ED in 2017 and confirmed by the Adjudicating Authority in 2019 despite the fact that they were purchased in 1991 and 2012, respectively. Setting aside the Tribunal order by which the confirmation of provisional attachment was upheld, the court also said that the ED is bound to record reasons for attaching a property.

The question of law before the division bench was regarding interpretation of “proceeds of crime” as defined under Section 2(1)(u) of PMLA. The Centre had argued that any property can be attached as per a proviso to the PMLA’s Section 5(1) — which deals with the powers of ED to attach a property — and it is irrelevant whether the property in question is connected with the alleged offence or not.

Under Section 2(1)(u), “proceeds of crime” means — 1) any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence 2) or the value of any such property and 3) or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. The division bench in the verdict said that 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 the definition of ‘proceeds of crime’ one and same.

“The question arises that if phrases ‘value of such property’ and ‘property equivalent in value held within the country or abroad’ carry the same meaning, there was no need to insert a third limb in the definition of ‘proceeds of crime’,” reads the ruling, adding that then, there was also no need to declare ‘property derived or obtained’ from scheduled offence as proceeds of crime.

As per Section 8(1) of the PMLA, the Adjudicating Authority under the Act has to serve notice calling upon the person, whose property has been attached by the ED, to indicate the source of income by means of which he/she has acquired the property.

Observing that the entire scheme of the Act must be read as whole and a provision cannot be read in isolation, the court with regard to Section 8(1) said, “Seeking explanation about source of property and furnishing explanation is meaningless if property inspite of genuine and explained source may be attached. As per Section 24 of the PMLA, burden to prove that property is not involved in money laundering is upon the person whose property is attached. There is no sense on the part of any person to discharge burden qua source of property if any property may be attached, irrespective of its source.”

The court in the ruling also said that if property purchased prior to the commission of alleged offence or property not obtained from alleged crime is declared as proceeds of crime, every person who is concerned with the sale, purchase, possession or use of said property would be guilty of the offence of money laundering as they would fall within the ambit of Section 3 of the PMLA.

“…which cannot be countenanced in law. There would be total chaos and uncertainty. The authorities would get unguided and unbridled powers and may implicate any person even though he/she has no direct or indirect connection with scheduled offence and property derived from thereon but has dealt with any other property (not involved in scheduled offence) of the person who has derived or obtained property from scheduled offence. It would amount to violation of Article 20 and 21 of the Constitution,” the ruling reads.

Observing that non-availability of property derived from a scheduled offence does not make immune an accused from offence of money laundering as the criminal liability is separate from civil liability of attachment of property, the court said property derived from a legitimate source cannot be attached on the ground that property derived from a scheduled offence under the Act is not available. It has also said there may be a case where an accused on account of destruction or disposal of property may have no property.

“We find and hold that the phrase ‘value of such property’ 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,” reads the judgment, adding that ‘value of property’ means property which has been converted into another property or has been obtained on the basis of property obtained through the alleged crime.

 

 

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