In India, the PML Act is the legislation which seeks to curb instances of money laundering. Under section 5 of the Act, the investigating agency, the Enforcement Directorate, has the power to provisionally attach property. This aspect has been subject to criticism due to its arbitrary use. However, the Hon’ble Supreme Court has upheld the provisions of this Act, including the power of ED to arrest, search, seizure and attach properties. This piece of writing aims to evaluate the concept of attachment of property under PMLA with the latest Judgment of the SC.
Understanding Money Laundering and Proceeds of Crime
Section 3 of the PML Act defines the term Money Laundering. It provides that whosoever directly or indirectly attempts to indulge or assists, knowingly or knowingly, the party or gets involved in a process or activity connected with the proceeds of crime, concealing, possessing, or using and projecting or claiming it to be an untainted property, is guilty of the offence of money laundering.
To understand the meaning of money laundering, we need to peruse the definition of proceeds of crime as provided under the PML Act. It is suitable to mention here that the definition of proceeds of crime has been amended twice. After the amendment, the definition was modified to this- “Any property derived or obtained, either directly or indirectly, by a person as a result of criminal activity pertaining to a scheduled offence or value of any such propertyor where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad.”.
The definition of Proceeds of crimes was first amended by the Finance Act of 2015, which expanded its ambit to cases where the property, which is Proceeds of Crime, is held outside India, then the property equivalent in value held within the country or abroad.
In 2019, an explanation was added to the definition of proceeds of crime whereby it was clarified that “proceeds of crime” shall include property which is not only derived or obtained from the scheduled offence but also the property which is directly or indirectly derived or obtained from criminal activity relatable to scheduled offence.
Provisional Attachment of Property under PMLA
If an order in the nature of Attachment of Property is issued, it prohibits the transfer, conversion,disposition or movement of such property.
Under PML Act, a property involved in money laundering can be provisionally attached by the appointed authority under the said Act. Such property can be attached for a period of up to 180 days if the authority has solid reason to believe that the person is in possession of proceeds of crime and that the proceeds of crime might be concealed or transferred or dealt with in a manner thereby frustrating the confiscation proceedings of such proceeds of crime. As per law, such reasons to believe must be recorded in writing.
It may be noted that the order regarding provisional attachment of property under PMLA is made after a report is forwarded to the magistrate under Section 173 of the CrPc for taking cognizance. However, suppose there is an urgency or suspicion that the property will likely disappear. In that case, the order of provisional attachment can be made even before the report is filed with the magistrate.
Process of Attachment of Property under PMLA
If the director or any other authorized officer has a reason to believe, based on the material under his possession, that proceeds of crime or property involved in money laundering needs to be attached provisionally, then a provisional attachment order is issued.
- The authorized officer endorses a copy of such order to all the concerned persons, including the person who is in possession of the property and the adjudicating authority.
- The authorized officer, who is not below the rank of deputy director, shall forward a copy of the attachment order along with the material in his possession to the adjudicating authority in a sealed envelope.
- The adjudicating authority then keeps the order and the material for a specific period as prescribed.
- The authorized officer who provisionally attaches the property must file a complaint stating the facts of the attachment before the adjudicating authority within 30 days from the attachment.
Process of Adjudication
- When the adjudicating authority receives a complaint pertaining to money laundering and if the authority has reasons to believe that the person has committed the said offence or is in possession of proceeds of crime, then the authority serves notice to such person.
- The person will be required to indicate the sources of their income, earnings or assets from which the person has acquired the property which has been attached/seized under PMLA. Such a person would be further required to furnish the evidence on which they may rely and other relevant information and particulars. The concerned person must show cause as to why such property should not be declared to be the property involved in the money laundering offence.
- It is worth mentioning here that if several persons jointly hold such property, the notice shall be served to all those holding such property.
- Next, the adjudicating authority shall consider the reply to the notice and hear the aggrieved person and the director or other authorized officer. The adjudicating authority shall also consider the relevant materials placed on record before him. After taking into consideration all these, the adjudicating authority will record the finding of whether all or any of the properties are involved in the offence of money laundering.
- If the adjudicating authority finds that any property is involved in the said offence, then he shall confirm the attachment of the property by an order. When the attachment order is confirmed, the authorized officer shall take possession of the property attached or frozen.
Process related to Possession
- Suppose the adjudicating authority confirms the provisional order of attachment of property under PMLA. In that case, the Director or the officer authorized by him in this matter shall take possession of the property.
- If such property is moveable, then the authorized officer shall take physical possession of the attached property. Such property shall be deposited in a warehouse or a storage place. If the attached property is likely to get decayed, then the such property can be sold off by the authorized officer with the permission of the concerned Special Court or the Adjudicating Authority. The sale proceeds are then deposited in the nearest government treasury.
- Suppose the attached property consists of cash, government securities or such other securities or bullion or jewellery or other valuables. In that case, the authorized officer can cause it to be deposited into a locker in the name of the investigating agency, i.e. Enforcement Directorate.
- If the property is in the form of shares, debentures, mutual funds, or instruments, then such shares etc. shall be transferred in favour of the ED, and if the property is in the form of money in the bank account, then the money shall be transferred to the account of the ED.
Confiscation of the property
The Special Court shall undertake the trial of the offence. If the Court, at the end of the trial, finds that the offence of money laundering has been committed, then it shall order confiscation of the property. However, in case the Court finds that the offence of money laundering has not taken place or if the Court finds that the property attached is not involved in the offence, then the Court shall order the release of such property to the person who is entitled to receive it.
If the Trial under PMLA could not be conducted due to the death of the accused person or for any other reason, then the Court shall pass appropriate orders on confiscation of the property, or the Court shall release the property.
Attachment of Property under PMLA- Provisions of Appeal
- A person aggrieved by an order of Adjudicating authority can prefer an appeal to the appellate tribunal. The law states that such an appeal should be filed within 45 days from the date of receiving the notice from the adjudicating authority.
- It is worth mentioning here that the Appellate Tribunal can entertain an appeal even after the expiry of such period if it is satisfied that there were enough reasons behind not filing the appeal within the specified period.
- After giving the opportunity to both parties, the appellate tribunal will pass orders confirming, modifying or setting aside the order which has been challenged before it. The Act states that the appeal before the appellate tribunal should be dealt with as expeditiously as possible, preferably within 6 months from the date of filing the appeal.
Supreme Court’s Ruling on Attachment of Property under PMLA
The apex court has recently upheld the constitutional validity of the PML Act in the case- Vijay Madanlal Choudhary vs Union of India. Various provisions of the Act were challenged before the Supreme Court. However, the Court clarified that when a provisional attachment order is confirmed, it does not mean that the property is also confiscated. It will be confiscated only when a formal order is passed.
- The Court further held that during the period between confirmation of the attachment order and passing of confiscation order, the person interested in such property could not be refrained from enjoying the such attached property.
- The Court also stated that taking possession of the property merely on the provisional attachment order should only be done in exceptional cases.
- The Court made these observations after contentions were raised against the PML Act, which permits ED to take possession of the attached property when the provisional attachment order is confirmed.
- The Court stated that the attachment of property under PMLA is constitutionally valid as it provides for a balancing arrangement to protect the interests of the person and ensures that the proceeds of crime are available to be dealt with them.
- The Court was of the view that many inbuilt safeguards were provided by the parliament while enacting the PML Act. The Court observed that sub-section (1) of Section 5 delineated sufficient safeguards to be followed by the authorized officer before passing provisional attachment orders. The Court noted that the order of provisional attachment is the result of satisfaction already recorded by the authorized officer.
- Another point made by the Apex Court was that the duration of 180 days for provisional order of attachment was a safeguard provisioned in the PML Act. The Court observed that the Act has ensured that authorized officers cannot pass provisional attachment orders mechanically. The Court opined it to be another safeguard provisioned in the Act.
- The Court was of the view that the provisions relating to the attachment of property under PMLA will strengthen the mechanism of prevention of money laundering offences. The Court also held that such provision would strengthen regulation of process or activity resulting in the money laundering offence.
- The Court has held that the Act ensures that proceeds of crime are properly dealt.
- The Court stated that by perusing the entire scheme of the PML Act, it was clear that enough safeguards have been provided as preconditions for invoking the powers of provisional attachment.
- The Court clarified that the attachment of the property should only be in respect of such property, which are proceeds of crime. The Court held that the attachment should not be in respect of all properties belonging to the concerned person.
- The Court agreed with the stand taken by the Central Government, stating that the objective of enacting the PML Act was to attach and confiscate proceeds of crime, which is the quintessence of fighting money laundering.
- The Court determined that the procedural protections provided regarding provisional attachment of property under PMLA were effective measures to safeguard the interest of the person against whom the action is being taken under the PML Act 2002. Therefore, the Court opined that the provision of Section 5 of the PML Act contains reasonable nexus with the objects sought to be achieved by the PML Act of 2002 in effectively preventing and regulating the evil of money laundering.
- Commenting on the adjudication process provisioned in the PML Act, the Supreme Court observed that this provision was a wholesome provision which not only protects the interest of the person concerned but also affords the person a fair opportunity during the adjudication process.
The evil tactics of money laundering have plagued many countries over the years. This has forced legislators around the world to devise stringent measures to tackle these cases. India is no different as it enacted the prevention of money laundering act to curb the increasing menace of money laundering. With measures like provisional attachment of property under PMLA, the aim is to prevent and regulate money laundering. However, the investigating agency has been accused of using powers arbitrarily, and therefore, the provisions of the PML Act were challenged in Supreme Court. With the SC upholding the constitutional validity of the Act, the Act will continue to be implemented. However, a review petition has been filed against this decision of the Court. It will be interesting to see how things pan out in the near future.
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