PMLA

An Overview of Adjudication under PMLA, 2002

Adjudication under PMLA is dealt with by Section- 8 of the Prevention of Money Laundering Act (PMLA). Adjudication plays a vital role in tackling money laundering as it helps to decide the further plan of action post-attachment of property under Section 5 of the said Act. Hence, a proper understanding of the concept of Adjudication under PMLA becomes important, which shall be discussed in the present article.

What is Adjudication under PMLA?

According to Section 8 of PMLA^[1], upon the receipt of a complaint under section 5 (5) or application under section 17(4), Section 18(10), the adjudicating authority may serve a notice of not less than thirty days if it has a reason to believe with regards to the person committing the offence of money laundering under section 3  or him having the possession of proceeds of crime, calling upon him for indicating the sources of his income,  assets, or earnings, which were the means for the acquisition of the property attached under section 5(1) or seized or frozen under section 17 or  18, In cases where a notice under this sub-section specifies that any property is held by a person on behalf of any other person, the other person must also be served a copy of that notice.

If more than one person holds joint ownership of the property, then everyone who holds it will receive the notice.

The Adjudicating Authority shall, after—

1. Due consideration of the reply, if any, to the notice issued under sub-section (1);
2. Hearing the aggrieved individual, Director or any other officer  having authorization  from  him on this behalf; and
3. Due consideration of  all relevant materials  furnished  on record before him, by an order, shall record  the finding  if there has been the involvement of money laundering  with respect to all or any of the properties mentioned in the notice issued under subsection (1)
4. If the property is being claimed by other than a person being issued the notice, such person would also be given an opportunity of being heard for proving the non-involvement of the property in money laundering.

Where the Adjudicating Authority (AA) decides upon the involvement of the property in money laundering, it shall confirm the attachment of property attached under section 5(1) of the said Act or retain property or record seized or frozen under section 17 or section 18   by an order in writing and record the finding with regard to the same,  in the event of such attachment, retention, or freezing of the seized or frozen property or record, the AA shall:

1. Be continued  during investigation for a period not exceeding 2 yrs, i.e. 2 (365 days) or  the pendency of the proceedings  in connection with any offence under this Act, before the competent court of criminal jurisdiction outside India, before a court or under the relevant  law of any other country as the case may be
2. Be finalized subsequent to an order of confiscation is passed under subsection 8 (5) or 8 (7) or section 58B or sub-section (2A) of section 60 by 5 Special Court.

Upon the confirmation of the provisional order of attachment made under 5 (1) made under section 17(1A)), the Director or any other officer having authorization from him on this behalf shall forthwith take possession of the property attached under section 5 or frozen under section 17(1A) in the prescribed manner.

 However, if it is not practicable to take possession of a property frozen under section 17 (1A), the order of confiscation would have the same effect as the property had been taken possession of.

Whereupon the conclusion of a trial of an offence under this Act, the Special Court has found about the commission of the offence of money laundering, it shall order for the confiscation of such property that is involved in the money laundering or that has been used for the commission of the offence of money-laundering to the Central Government.

Where after concluding the trial under this Act, the Special Court finds about the non-commission of the offence of money laundering or the non-involvement of the property in money laundering, it shall order the release of such property to the person entitled to the receipt of the same.

Where the trial under this Act can’t be conducted owing to the death of the accused, the declaration of the accused as a proclaimed offender, or for any other reason or the non-conclusion of the trial despite its commencement, the Special Court shall, on an application filed by the Director or a person claiming  entitlement to possession of a property concerning which  an order has been passed as per Section 8(3), pass appropriate orders with regard to the confiscation or release of the property,  depending upon the case,  involved in the offence of money-laundering, after considering the material before it.

Where a property is confiscated to the Central Govt. under sub-section (5), the Special Court, through the prescribed procedure,  may also direct the Central Government to restore of such confiscated property or a part of such property to a claimant having a legitimate interest in the property,  being suffered a quantifiable loss consequential to the offence of money laundering.

 However, the Special Court won’t consider such a claim until and unless it is satisfied that the claimant acted in good faith and suffered the loss despite taking all reasonable precautions and his non-involvement in the offence of money laundering.

The Special Court may even, if deemed fit, consider the claimant’s claim for the restoration of such properties at the time of the trial of the case in a prescribed manner. 

Landmark Case Law on Adjudication under PMLA

The Supreme Court pronounced a landmark judgement in the case titled Vijay Madanlal Vs UOI, dated 27^th July 2022. The discussions in the judgement with regard to Section 8, i.e. Adjudication under PMLA is discussed herein under –

The issue in the case, among others, was that Section 8(4) of the PMLA provides that where there has been the confirmation of the Provisional attachment order, the Director or the Authorised Officer of ED can forthwith take possession of properties attached under Section 5, and this provision was challenged before the Apex Court in the case wherein the Apex Court adjudicated the above issue in the judgement observing the following –

“The other grievance of the petitioners is in reference to the stipulation in sub-section (4) of Section 8 providing for taking possession of the property. This provision ought to be invoked only in exceptional situation, keeping in mind the peculiar facts of the case. In that, merely because the provisional attachment order passed under Sec –  5(1) is confirmed, it doesnt  follow that the property stands confiscated  and until an order of confiscation is formally passed, there isnt any  reason to hasten the process of taking possession of such property. The principle set out in Sec-  5(4) of the 2002 Act needs to be extended even after confirmation of the provisional attachment order until a formal confiscation order is passed. Section 5(4) clearly states that nothing in Sec- 5 including the order of provisional attachment shall prevent the person interested in the enjoyment of immovable property attached under sub-section (1) from such enjoyment. The  need for taking take possession of the attached property would arise only for giving effect to the order of confiscation. This is also because sub-section (6) of Section 8 postulates that where on conclusion of a trial under the 2002 Act which is obviously in respect of offence of money laundering, the Special Court has found out that  the offence of money laundering hasn’t taken place or the property is not involved in money-laundering, it shall order the release of such property to the person entitled to receive it. Once the possession of the property is taken in terms of sub-section (4) and the finding in favour of the person is rendered by the Special Court thereafter and during the interregnum if the property changes hands and title vest in some third party, it would result in civil consequences even to a third party. That is certainly avoidable unless it is absolutely necessary in the peculiar facts of a particular case so as to invoke the option available under sub-section (4) of Section 8.”

It must be mentioned that it is not mandatory for the Provisional attaching authority to issue a notice to the person being involved in the offence of money laundering / the person in possession of proceeds of crime and extend the opportunity of a personal hearing to them.

However, Section 8 of the PMLA prescribed the issuance of notice and provided the opportunity for a personal hearing by the AA with the owner, beneficial owner, or the person who claims to be the owner of the properties before passing the order.

Thus, the adjudicating authority can be considered the first appellate authority against the Provisional attachment order, which follows the principles of natural justice like the issuance of the notice, extending the opportunity for personal hearing and passing speaking order etc.

Further, the adjudicating authority has the power of granting relief to the accused if evidence has been provided as proof with regard to the acquisition of the attached property through legal means/funds, and these properties aren’t “Proceeds of Crime”.

Conclusion

 The adjudicating authority is the most vital authority in the scheme of the PMLA. Anyone aggrieved by the order that confirms the Provisional attachment order passed by the AA can file an appeal before the Appellate (PMLA) Tribunal under Section 26(1) of the PMLA, and proper clarity regarding adjudication under the PMLA can facilitate the smooth functioning of the adjudication process.

Also Read: Adjudicating Authority under PMLA: An Overview