Case Explained: Property Bought From ‘Proceeds Of Crime’ Before PMLA Can Still Be Attached By ED If Possession Continues: Delhi High Court – Legal Perspective

The Delhi High Court has held that property purchased from the proceeds of crime prior to the coming into force of the Prevention of Money Laundering Act, 2002 (PMLA) can still be attached under the Act if the accused continues to remain in possession of the property after the law came into effect.

A division bench of Justices C. Hari Shankar and Om Prakash Shukla observed,

“If the person continues to remain in possession of, or continues to use, the proceeds of crime, which would include properties directly or indirectly obtained received from proceeds of crime, he would certainly be guilty of the offence of money laundering immediately on the PMLA coming into force. This is in tune with the intent and purpose of the PMLA as a statute which is intended at curbing serious economic offences, which tarnish the fiscal fabric of the country.”

It thus allowed an appeal filed by the Directorate of Enforcement (ED) and set aside a single judge’s decision which had quashed the provisional attachment of a residential property in the city’s Vasant Vihar area.

The case arose from allegations of financial irregularities in connection with the import and sale of raw sugar by the National Agricultural Cooperative Marketing Federation of India (NAFED).

According to the investigation by the Central Bureau of Investigation (CBI), certain officials of NAFED, in conspiracy with private entities, caused wrongful loss to the organisation through transactions involving high seas sale agreements.

During the course of investigation, it was alleged that a sum of ₹1.5 crore was routed through intermediary companies and ultimately transferred to the Petitioner-company. The funds were allegedly used to purchase a residential property in Vasant Vihar in March 2005.

In January 2014, the Enforcement Directorate provisionally attached the property under Section 5(1) of the PMLA on the ground that it constituted “proceeds of crime”.

The company challenged the attachment and a single judge allowed the writ petition holding that the alleged laundering activity had concluded before the PMLA came into force, as the property had been purchased in 2005 and the funds had already been integrated into the economy by that time.

The ED then preferred this appeal.

The division bench held that the definition of “proceeds of crime” under Section 2(1)(u) of the PMLA includes not only the money derived from criminal activity but also property purchased directly or indirectly from such proceeds. It observed,

“…continuing to possess proceeds of crime or retaining possession of proceeds of crime or using of proceeds of crime until they are fully exhausted, amounts to money laundering…Inasmuch as usage and possession of the proceeds of crime is also covered under the definition of “money laundering”, the fact that the subject property was in the possession of and continued to be used by, the respondent on and after the date when the PMLA came into force, ipso facto makes the PMLA applicable.”

It also disagreed with single judge’s view that accepting ED’s interpretation would result in Section 3(1) being given a retrospective operation and would thereby offend Article 20(1) of the Constitution “as an offender of a scheduled crime would now be visited with a greater punitive measure than as could be inflicted at the time when the scheduled offence was committed.”

It observed,

“The PMLA does not intend to punish for the commission of scheduled offence. It punishes for commission of the offence of money laundering. Infliction, for committing the offence of money laundering, of a punishment which may be greater than the punishment which attaches the commission of the scheduled offence does not, therefore, in any manner violate Article 20(1) of the Constitution of India.”

The Court added that the scheduled offence and the offence of money laundering are distinct and different.

“There can be no comparison, therefore, of the punishments, which may visit the commission of these two offences. Nor can Article 20(1) be said to be infracted if the punishment visiting the commission of offence of money laundering is greater than the punishment visiting the commission of scheduled offence,” it said.

The Court added, “the offence of money laundering does not stand committed and concluded on the date when the subject property was purchased by the respondent. Inasmuch as the respondent continued to remain in possession of, and continued to use, the subject property even after the PMLA came into force, the offence of money laundering also continued.”

The Court further clarified that ​​even if the property, which is included within the definition of proceeds of crime undergoes “significant changes” or “is integrated in legitimate economic activity” or “is in the hands of persons unconnected with the scheduled offence”, that would not militate against the applicability of Section 3 of the PMLA. All that has to be shown is that the alleged offender is in possession of, or is using, the property.

As such, the Court allowed the Enforcement Directorate’s appeal and restored the provisional attachment.

Appearance: Mr. Zoheb Hossain and Mr. Anupam Sharma, Special Counsel with Mr. Vivek Gurnani, Panel Counsel, Mr. Satyam, Ms. Riya Sachdev and Mr. Pranjal Tripathi, Advs. for ED; Mr. Parag Tripathi, Sr. Adv. with Mr. D.S. Kohli, Ms. Rini Mehra, Mr. Yash Kadyan and Ms. Mannat Kohli, Advs. for Respondent

Case title: ED v. M/S Mahanivesh Oils & Foods Pvt Ltd

Case no.: LPA 144/2016

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