Telangana High Court
Vanpic Projects Private Limited vs The Deputy Director on 27 September, 2022
Bench: Ujjal Bhuyan, Surepalli Nanda
THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
AND
THE HON'BLE MRS JUSTICE SUREPALLI NANDA
CIVIL MISCELLANEOUS SECOND APPEAL No.8 of 2020
JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)
Heard Mr. Atul Nanda, learned Senior Counsel for
Mr. Tarun G. Reddy, learned counsel for the appellant and
Mr. T. Surya Karan Reddy, learned Additional Solicitor
General of India for Mr. Anil Prasad Tiwari, learned
standing counsel, Enforcement Directorate for the
respondent.
2. This is an appeal under Section 42 of the Prevention
of Money Laundering Act, 2002 assailing the order dated
26.07.2019 passed by the Appellate Tribunal for
Prevention of Money Laundering Act at New Delhi (briefly,
'the Appellate Tribunal' hereinafter) in FPA-PMLA-
747/DLI/2014 to the limited extent of continuation of
attachment of the property of the appellant.
A consequential prayer has been made by the appellant
for a direction to the respondent to release the said
property from attachment.
2
Facts
:
3. Appellant is a company and is a Special Purpose
Vehicle for implementation of the Vodarevu and
Nizampatnam Ports and Industrial Corridor Project, also
known as VANPIC Project. VANPIC Project is a
Government to Government project conceptualised by
virtue of an arrangement between Government of Andhra
Pradesh and Government of Ras al Khaimah, one of the
emirates of United Arab Emirates. For the purpose of
VANPIC Project, appellant i.e., VANPIC Projects Private
Limited and another Special Purpose Vehicle by the name
VANPIC Ports Private Limited had acquired 13,221.69
acres of land in all, including assigned and patta land.
4. A Division Bench of the then Andhra Pradesh High
Court passed an order dated 10.08.2011 in W.P.No.794 of
2011 directing investigation by Central Bureau of
Investigation (CBI) into allegations of investments, in the
nature of bribes, into companies allegedly controlled by
Y.S.Jagan Mohan Reddy, S/o late Dr Y.S.Rajasekhara
Reddy, the then Chief Minister of Andhra Pradesh.
5. Pursuant to the order dated 10.08.2011, CBI
registered Rc.No.19(A)/2011-CBI-Hyderabad under
Sections 120B, 409, 420 and 477A of the Indian Penal
Code, 1860 (IPC) and under Section 13(2) read with
Section 13(1)(c) and (d) of the Prevention of Corruption
Act, 1988.
6. Allegation made by the CBI in the FIR is that
Government of Andhra Pradesh under the leadership of
the then Chief Minister late Dr. Y.S.Rajasekhara Reddy
had granted undue favours/benefits/concessions to
certain individuals and companies as a quid pro quo for
investments made by the said individuals and companies
in the companies promoted by Mr. Y.S.Jagan Mohan
Reddy, S/o late Dr. Y.S.Rajasekhara Reddy.
7. Thereafter, Enforcement Directorate registered
Enforcement Case Investigation Report (ECIR) bearing
No.9/HZO/2011 dated 30.08.2011 for investigation under
the provisions of the Prevention of Money Laundering Act,
2002 (briefly referred to hereinafter as 'PMLA'). CBI has
filed several charge sheets pursuant to the FIR lodged by
it in respect of each instance of an alleged quid pro quo. It
is stated that the present case pertains to the VANPIC
Project in respect of which CBI filed a charge sheet, being
charge sheet No.9 dated 13.08.2012 wherein the appellant
has been arrayed as accused No.10 for alleged
commission of offences under Section 120B read with
Sections 409, 420, 467, 468, 471 and 477A IPC. It is
stated that VANPIC Ports Private Limited, the other
Special Purpose Vehicle, has not been arrayed as accused
in the said charge sheet.
8. On the basis of CBI charge sheet, respondent passed
provisional attachment order No.1 of 2014 dated
04.03.2014, whereby 1416.91 acres of patta land forming
part of the VANPIC Project and in which appellant has an
interest, was provisionally attached by the respondent.
Thereafter, respondent filed original complaint No.276 of
2014 dated 27.03.2014 before the adjudicating authority.
9. Adjudicating authority issued show cause notice
dated 04.04.2014 under Section 8(1) of PMLA to the
appellant, in response to which appellant submitted reply
dated 06.07.2014.
10. Adjudicating authority vide the order dated
19.08.2014 confirmed the provisional attachment order.
11. Aggrieved by the same, appellant preferred an appeal
under Section 26 of PMLA before the Appellate Tribunal
which was registered as FPA-PMLA-747/DLI/2014, M/s.
VANPIC Projects Private Limited v. Deputy Director,
Enforcement Directorate.
12. While the above appeal was being heard, respondent
passed another provisional attachment order No.6 of 2017
dated 28.07.2017 provisionally attaching 11,804.78 acres
of assigned lands forming part of the VANPIC Project and
in which both the appellant and VANPIC Ports Private
Limited have interest.
13. Following the same, respondent filed original
complaint No.811 of 2017 dated 14.08.2017 before the
adjudicating authority. Again adjudicating authority
issued notice to show cause dated 31.08.2017 to the
appellant. Responding to the show cause notice, appellant
submitted reply dated 16.11.2017. It is alleged that
without considering the reply of the appellant,
adjudicating authority vide the order dated 15.01.2018
confirmed the provisional attachment order No.6 of 2017
dated 28.07.2017.
14. Aggrieved by the above, appellant along with VANPIC
Ports Private Limited preferred an appeal against the order
dated 15.01.2018 before the Appellate Tribunal which has
been registered as FPA-PMLA-2202/Hyderabad/2018,
VANPIC Ports Private Limited and another v. Joint
Director, Directorate of Enforcement, Hyderabad. Similar
appeals were filed by other aggrieved parties. All the
appeals were heard together by the Appellate Tribunal and
were disposed of by a common judgment and order dated
26.07.2019.
15. While the Appellate Tribunal had arrived at
favourable conclusions with regard to the appellant on
almost all aspects, such as, prima facie there was no quid
pro quo; provisional attachment and confirmation order
were contrary to the provisions of PMLA; confirmation
order suffered from non-application of mind and violation
of the principles of natural justice; and that no purpose
would be served by continuing the attachment.
Nonetheless Appellate Tribunal directed continuance of
the attachment and relegated the appellant to the forum of
Special Court under PMLA.
16. Appellant has stated that during the pendency of
appeal against the provisional attachment order whereby
1416.91 acres of patta land was attached, respondent
took over physical possession of the entire 13,221.69
acres of land, including 11,804.78 acres under provisional
attachment order No.6 of 2017 dated 28.07.2017.
17. Aggrieved, present appeal has been preferred.
Submissions:
18. Mr. Atul Nanda, learned Senior Counsel for the
appellant, at the outset, has given a broad overview of the
facts of the appeal and summary of the case. He submits
that charge sheet No.9 dated 13.08.2012 filed by the CBI
itself is erroneous and cannot stand judicial scrutiny.
Appellant is not in possession of any proceeds of crime as
defined in Section 2(1)(u) of PMLA. Therefore, the
provisional attachment order as well as the original
complaint cannot be sustained as those seek to justify
attachment by labelling the returns from entirely
legitimate and untainted arms length commercial
transactions as proceeds of crime. He thereafter submits
that no case for attachment of the property was made out
by the Enforcement Directorate. He has referred to Section
5 of PMLA which deals with attachment of property
involved in money laundering. Referring to sub-section (1),
he submits that condition precedent for provisional
attachment of property or confirmation thereof is reason to
believe by the competent officer of the Enforcement
Directorate that the concerned person is in possession of
any proceeds of crime and that such proceeds of crime are
likely to be concealed/transferred or dealt with in any
manner which may result in frustrating any proceedings
relating to confiscation of such proceeds of crime. In the
absence of such reason to believe which must be recorded
in writing, there cannot be any attachment of property,
provisional or otherwise. In the present case there was no
reason to believe by the attaching authority on both
counts.
18.1. Learned Senior Counsel has drawn the attention of
the Court to the provisional attachment order, more
particularly to paragraph 21 thereof, and submits
therefrom that the respondent did not record his reasons
to believe based on material in his possession that the
appellant was in possession of any proceeds of crime and
that such proceeds of crime were likely to be concealed
etc., thereby frustrating any proceedings for confiscation
of such proceeds of crime. Though an attempt was made
to cure such jurisdictional defect in the original complaint,
even the same failed to satisfy the test of Section 5 of
PMLA. Such an omission goes to the root of the matter.
He, therefore, submits that there was no rational basis for
ordering provisional attachment of property of the
appellant and confirming the same.
18.2. Mr. Nanda, learned Senior Counsel for the appellant
has referred to the decision of the Appellate Tribunal in
detail and submits therefrom that Appellate Tribunal had
correctly returned findings favourable to the appellant. A
specific finding was recorded that the Memorandum of
Understanding (MoU) dated 11.03.2008 pertaining to
VANPIC Project was adhered to in letter and spirit. Any
deviation cannot give rise to presumption of illegality in
such a big project, that too, between country to country.
Similar observations have been made in respect of the
draft concession agreement dated 11.07.2008. Neither the
agreement nor the MoU have been cancelled though a
rival political party was in power in the State of Andhra
Pradesh between 2015 - 2019. He submits that in
paragraph 30, Appellate Tribunal rendered a conclusive
finding that allegation that VANPIC Projects Private
Limited is merely a private company exclusively owned by
one Mr. Nimmagadda Prasad is not a valid submission as
the records would reveal otherwise. VANPIC Project was
initiated as a Government to Government project whereby
the Government of Ras al-Khaimah continued to be the
principal stakeholder. VANPIC Project is not solely
controlled by Mr. Nimmagadda Prasad; all lands were
purchased/alienated for the VANPIC Project at the market
rate fixed by the Government; and in most cases appellant
had paid the amount fixed by the Government with
additional amount as goodwill. Government had the right
to resume the land if the land was used for any other
purpose. Therefore, Appellate Tribunal held that it would
be difficult to conclude that there was manipulation on
the basis of materials available on record. Though a few
discrepancies could not be ruled out, it would not mean
that there were no talks and discussions by the
Government of Andhra Pradesh with the parties before
execution of concession agreement. Significantly,
Appellate Tribunal held that investments made by the
appellant in the companies of accused No.1 were genuine
investments and not bribes. Therefore, according to the
Appellate Tribunal, respondent could not have concluded
that such investments are illegal gratification for
purported undue favours from the Government of Andhra
Pradesh.
18.3. Learned Senior Counsel has drawn the attention of
the Court to paragraph 74 of the impugned order and
submits that Appellate Tribunal has held that respondent
had not recorded valid reason to believe as per
requirement of Section 5(1) of PMLA. Therefore,
adjudicating authority ought not to have issued notice
under Section 8(1) of PMLA, leave alone confirm the
provisional attachment order. Appellate Tribunal further
pointed out non-compliance to the mandatory
requirements of PMLA by the respondent; no copy of
reason to believe was served upon the appellant and even
opportunity of hearing was not given to the appellant
despite specific objection. Appellate Tribunal observed
that according to the respondent, the properties were not
per se involved in money laundering, but have been
attached merely to secure the value of the alleged
proceeds of crime.
18.4. Drawing the attention of the Court to paragraphs 20
and 21 of the provisional attachment order, learned Senior
Counsel submits that respondent had quoted un-amended
Section 5(1) though the said provision came to be
amended with effect from 15.02.2013. This itself reflects
complete non-application of mind by the respondent.
18.5. Proceeding further, learned Senior Counsel submits
that Appellate Tribunal pointed out serious lacunae in the
provisional attachment order as well as in the
confirmation order. Therefore, Appellate Tribunal held that
attachment of property and confirmation of attachment is
not justified.
18.6. According to learned Senior Counsel natural
consequence of such findings returned by the Appellate
Tribunal would have been to set aside the attachment
order and return the attached property to the appellant.
But instead of doing so, Appellate Tribunal adopted a
strange procedure by relegating the appellant to the
Special Court to get the property released from
attachment and till such time, directed that attachment
should continue.
18.7. Strongly assailing such conclusions and findings of
the Appellate Tribunal, learned Senior Counsel for the
appellant submits that the final direction is not only
contrary to the materials on record but also contrary to
the reasonings and findings given by the Appellate
Tribunal itself. If the reasonings and findings were
logically followed, Appellate Tribunal could not have given
such direction which is therefore illegal, arbitrary and
reflects non-application of mind.
18.8. Mr. Nanda, learned Senior Counsel has submitted a
compilation of case laws, including the decision of the
Delhi High Court in J.Sekhar v. Union of India1, in support of
his contention that the expression reason to believe
2018 SCC OnLine Del 6523
cannot be a mere rubber stamping of the opinion already
formed by someone else. The reason to believe must be
noted down by the concerned officer in the file at every
stage. Failure to disclose at the inception reason to believe
as recorded in the notice under Section 8(1) of PMLA
would not be a mere irregularity but an illegality which
would vitiate the entire proceedings and cause the order of
provisional attachment to be rendered illegal.
19. Mr. T.Surya Karan Reddy, learned Additional
Solicitor General of India appearing for the respondent, at
the outset, has referred to sub-section (8) of Section 8 of
PMLA, more particularly to the third proviso thereto and
submits that the decision of the Appellate Tribunal is a
correct one and calls for no interference. He submits that
Section 8 of PMLA deals with adjudication on receipt of
complaint by the adjudicating authority after provisional
attachment of the property. Under sub-section (8), the
Special Court may direct the Central Government to
restore confiscated property or part thereof to the claimant
having legitimate interest in the property. As per the third
proviso, the Special Court may consider the claim of the
claimant for the purpose of restoration of property during
trial.
19.1. In the course of his submissions, learned Additional
Solicitor General of India has referred to paragraphs 50,
160 and 171 of the impugned order and submits that
Appellate Tribunal had adopted a very balanced and
judicious approach. According to him, the appeal is
premature and should not be entertained.
20. In response, Mr. Nanda submits that respondent has
not preferred any appeal against the impugned order of
the Appellate Tribunal vis-à-vis the key findings pertaining
to the appellant. If the respondent has accepted such
findings, logically the same should lead to de-attachment
of the property.
20.1. In so far reliance placed by learned Additional
Solicitor General of India on sub-section (8) of section 8 of
PMLA, learned Senior Counsel for the appellant submits
that sub-section (8) of Section 8 will come into play only
after the attached property is confiscated to the Central
Government on conclusion of trial. At that stage, Special
Court may direct the Central Government to restore the
confiscated property or a part thereof to the claimant
having legitimate interest in the property. Therefore, this
provision will come into play only after conclusion of trial,
which is yet to commence. However, in so far the third
proviso is concerned, it is submitted that reliance placed
thereon is totally misplaced in as much as the third
proviso was inserted with effect from 19.04.2018. That
apart the third proviso runs contrary to the main part of
sub-section (8). Even then also, the third proviso would
come into play only during trial before the Special Court,
which is yet to commence. The above provisions are not at
all applicable to the facts of the present case and therefore
submissions made by learned Additional Solicitor General
cannot be sustained.
20.2. Learned Senior Counsel has also relied upon the
decisions of the Supreme Court in Opto Circuit India Limited
v. Axis Bank2 and J.Sekar @ Sekar Reddy v. Directorate of
Enforcement3. After conclusion of the hearing, learned
Senior Counsel for the appellant submitted a memo
containing written submissions which have been duly
considered.
21. Submissions made by learned counsel for the parties
have received the due consideration of the Court. Also
perused the materials on record and the decisions cited at
the bar.
Statutory Framework and Analysis:
22. Prevention of Money Laundering Act, 2002 (already
referred to as 'PMLA') is an Act to prevent money
laundering and to provide for confiscation of properties
derived from or involved in money laundering and for
matters connected therewith or incidental thereto.
22.1. Section 2 of PMLA defines various words and
expressions appearing in PMLA. According to Section
2(1)(p) the expression "money laundering" has the
(2021) 6 SCC 707
(2022) 7 SCC 370 : 2022 SCC OnLine SC 561
meaning assigned to it in Section 3 which deals with the
offence of money laundering. Section 3 says that
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 the offence of money
laundering.
22.2. Thus for commission of the offence of money
laundering, essential preconditions are - (i) involvement in
any process or activity connected with the proceeds of
crime; and (ii) projecting it as untainted property. This is
further clarified by the Explanation below Section 3.
22.3. "Proceeds of Crime" is defined under Section 2(1)(u)
which reads as under:
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.
22.4. Thus, proceeds of crime would mean 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. The Explanation clarifies that proceeds of crime
would 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.
22.5. Section 2(1)(y) defines "scheduled offence" to mean
(i) offences specified under Part A of the Schedule; or
(ii) offences specified under Part B of the Schedule if the
total value involved in such offences is one crore rupees or
more; or (iii) offences specified under Part C of the
Schedule.
23. Section 5 deals with attachment of property involved
in money laundering. Section 5 is as follows:
5. Attachment of property involved in money-
laundering.- (1) Where the Director or any other officer not
below the rank of Deputy Director authorised by the
Director for the purposes of this section, has reason to
believe (the reason for such belief to be recorded in
writing), on the basis of material in his possession, that -
(a) any person is in possession of any proceeds of
crime; and
(b) such proceeds of crime are likely to be concealed,
transferred or dealt with in any manner which may result
in frustrating any proceedings relating to confiscation of
such proceeds of crime under this Chapter,
he may, by order in writing, provisionally attach such
property for a period not exceeding one hundred and
eighty days from the date of the order, in such manner as
may be prescribed;
Provided that no such order of attachment shall be
made unless, in relation to the scheduled offence, a report
has been forwarded to a Magistrate under section 173 of
the Code of Criminal Procedure, 1973 (2 of 1974), or a
complaint has been filed by a person authorized to
investigate the offence mentioned in that Schedule, before
a Magistrate or court for taking cognizance of the
scheduled offence, as the case may be, or a similar report
complaint has been made of filed under the corresponding
law of any other country:
Provided further that, notwithstanding anything
contained in (first proviso), any property of any person
may be attached under this section if the Director or any
other officer nor below the rank of Deputy Director
authorized by him for the purposes of this section has
reason to believe (the reasons for such belief to be
recorded in writing), on the basis of material in his
possession, that if such property involved in money-
laundering is not attached immediately under this
Chapter, the non-attachment of the property is likely to
frustrate any proceeding under this Act.]
Provided also that for the purposes of computing the
period of one hundred and eighty days, the period during
which the proceedings under this section is stayed by the
High court, shall be excluded and a further period not
exceeding thirty days from the date of order of vacation of
such stay order shall be counted.
(2) The Director, or any other officer not below the rank of
Deputy Director, shall, immediately after attachment
under sub-section (1), forward a copy of the order, along
with the material in his possession, referred to in that sub-
section, to the Adjudicating Authority, in a sealed
envelope, in the manner as may be prescribed and such
Adjudicating Authority shall keep such order and material
for such period as may be prescribed.
(3) Every order of attachment made under sub-section (1)
shall cease to have effect after the expiry of the period
specified in that sub-section or on the date of an order
made under [sub-section (3)] of Section 8, whichever is
earlier.
(4) Nothing in this section shall prevent the person
interested in the enjoyment of the immovable property
attached under sub-section (1) from such enjoyment.
Explanation:- For the purposes of this sub-section,
"person interested", in relation to any immovable property,
includes all persons claiming or entitled to claim any
interest in the property.
(5) The Director or any other officer who provisionally
attaches any property under sub-section (1) shall, within a
period of thirty days from such attachment, file a
complaint stating the facts of such attachment before the
Adjudicating Authority.
23.1. Sub-section (1) of Section 5 says that where the
Director or any other officer authorised by the Director not
below the rank of Deputy Director has reason to believe,
the reason for such belief should be recorded in writing,
on the basis of material in his possession that - (a) any
person is in possession of any proceeds of crime; and (b)
such proceeds of crime are likely to be concealed etc.,
which may result in frustrating any proceedings relating
to confiscation of such proceeds of crime under Chapter
III, he may, by order in writing, provisionally attach such
property for a period not exceeding one hundred and
eighty days from the date of the order. It may be
mentioned that Chapter III of PMLA comprising of Sections
5 to 11 deals with attachment, adjudication and
confiscation. As per the first proviso to sub-section (1) of
Section 5, no such order of attachment shall be made in
relation to a scheduled offence unless a report is
forwarded under Section 173 of the Code of Criminal
Procedure, 1973 (CrPC) or a complaint is filed to
investigate the offence mentioned in the Schedule. The
second proviso says that if the officer has reason to believe
which reason must again be recorded in writing on the
basis of material in his possession that if such property
involved in money laundering is not attached immediately,
the non-attachment of the property would likely frustrate
any proceedings under PMLA. The third proviso deals with
computing the period of one hundred and eighty days.
23.2. As per sub-section (2), the Director or the authorised
officer shall immediately after attachment under sub-
section (1), forward a copy of the order along with the
material in his possession to the adjudicating authority in
the prescribed manner and the adjudicating authority
shall keep such order and material for such period as may
be prescribed.
23.3. Sub-section (3) clarifies that every order of
attachment made under sub-section (1) shall cease to
have effect after expiry of the period specified in that sub-
section or on the date of an order made under sub-section
(3) of Section 8, which we will advert to a little later,
whichever is earlier. Again by way of clarification, sub-
section (4) says that nothing in Section 5 shall prevent the
person interested in the enjoyment of the immovable
property attached under sub-section (1) from such
enjoyment.
23.4. While we are on sub-section (4) of Section 5 of PMLA,
we may mention that this provision came up for
consideration before the Supreme Court in Vijay Madanlal
Choudhary v. Union of India4. One of the grievances
expressed before the Supreme Court in the aforenoted
case, rather challenge made, pertained to the stipulation
in sub-section (4) of Section 8 providing for taking over
2022 SCC OnLine SC 929
possession of the property. It was in that context,
Supreme Court held that the principle set out in Section
5(4) of PMLA needs to be extended even after confirmation
of provisional attachment order until a formal confiscation
order is passed. We will deal with this aspect in the later
part of the judgment.
23.5. As per sub-section (5), the Director or the authorised
officer who has provisionally attached the property under
sub-section (1) shall within a period of thirty days from
such attachment, file a complaint stating the facts of such
attachment before the adjudicating authority.
24. This brings us to Section 8 which deals with
adjudication. Section 8 is extracted in its entirety:
8. Adjudication:- (1) On receipt of a complaint under sub-
section (5) of section 5, or applications made under sub-
section (4) of section 17 or under sub-section (10) of section
18, if the Adjudicating Authority has reason to believe that
any person has committed an offence under section 3 or is in
possession of proceeds of crime, it may serve a notice of not
less than thirty days on such person calling upon him to
indicate the sources of his income, earning or assets, out of
which or by means of which he has acquired the property
attached under sub-section (1) of section 5, or, seized 2[or
frozen] under section 17 or section 18, the evidence on which
he relies and other relevant information and particulars, and
to show cause why all or any of such properties should not
be declared to be the properties involved in money-
laundering and confiscated by the Central Government:
Provided that where a notice under this sub-section
specifies any property as being held by a person on behalf of
any other person, a copy of such notice shall also be served
upon such other person:
Provided further that where such property is held
jointly by more than one person, such notice shall be served
to all persons holding such property.
(2) The Adjudicating Authority shall, after--
(a) considering the reply, if any, to the notice issued
under sub-section (1);
(b) hearing the aggrieved person and the Director or
any other officer authorised by him in this behalf;
and
(c) taking into account all relevant materials placed
on record before him,
by an order, record a finding whether all or any of the
properties referred to in the notice issued under sub-
section (1) are involved in money-laundering:
Provided that if the property is claimed by a person,
other than a person to whom the notice had been issued,
such person shall also be given an opportunity of being
heard to prove that the property is not involved in money-
laundering.
(3) Where the Adjudicating Authority decides under
sub-section (2) that any property is involved in money-
laundering, he shall, by an order in writing, confirm the
attachment of the property made under sub-section (1) of
section 5 or retention of property or record seized or frozen
under section 17 or section 18 and record a finding to that
effect, whereupon such attachment or retention or freezing of
the seized or frozen property] or record shall--
(a) continue during investigation for a period not
exceeding three hundred and sixty-five days or
the pendency of the proceedings relating to
any offence under this Act before a court or
under the corresponding law of any other
country, before the competent court of criminal
jurisdiction outside India, as the case may be;
and
(b) become final after an order of confiscation is
passed under sub-section (5) or sub-
section (7) of section 8 or section 58B or sub-
section (2A) of section 60 by the Special Court;
Explanation.--For the purposes of computing the
period of three hundred and sixty-five days under clause (a),
the period during which the investigation is stayed by any
court under any law for the time being in force shall be
excluded.
(4) Where the provisional order of attachment made
under sub-section (1) of section 5 has been confirmed under
sub-section (3), the Director or any other officer authorised
by him in this behalf shall forthwith take the possession of
the property attached under section 5 or frozen under sub-
section (1A) of section 17, in such manner as may be
prescribed:
Provided that if it is not practicable to take
possession of a property frozen under sub-section (1-A) of
section 17, the order of confiscation shall have the same
effect as if the property had been taken possession of.
(5) Where on conclusion of a trial of an offence under
this Act, the Special Court finds that the offence of money-
laundering has been committed, it shall order that such
property involved in the money-laundering or which has
been used for commission of the offence of money-laundering
shall stand confiscated to the Central Government. (6) Where
on conclusion of a trial under this Act, the Special Court
finds that the offence of money-laundering has not taken
place or the property is not involved in money-laundering, it
shall order release of such property to the person entitled to
receive it.
(7) Where the trial under this Act cannot be
conducted by reason of the death of the accused or the
accused being declared a proclaimed offender or for any
other reason or having commenced but could not be
concluded, the Special Court shall, on an application moved
by the Director or a person claiming to be entitled to
possession of a property in respect of which an order has
been passed under sub-section (3) of section 8, pass
appropriate orders regarding confiscation or release of the
property, as the case may be, involved in the offence of
money-laundering after having regard to the material before
it.
(8) Where a property stands confiscated to the Central
Government under sub-section (5), the Special Court, in
such manner as may be prescribed, may also direct the
Central Government to restore such confiscated property or
part thereof of a claimant with a legitimate interest in the
property, who may have suffered a quantifiable loss as a
result of the offence of money laundering:
Provided that the Special Court shall not consider
such claim unless it is satisfied that the claimant has acted
in good faith and has suffered the loss despite having taken
all reasonable precautions and is not involved in the offence
of money laundering:
Provided further that the Special Court may, if it
thinks fit, consider the claim of the claimant for the purposes
of restoration of such properties during the trial of the case
in such manner as may be prescribed.
24.1. As per sub-section (1) of Section 8, on receipt of a
complaint under sub-section (5) of Section 5 or
applications under other provisions, if the adjudicating
authority has reason to believe that any person has
committed an offence under Section 3 or is in possession
of proceeds of crime, it may after notice call upon the
person concerned to indicate the sources of his income,
earning or assets, out of which or by means of which he
has acquired the property attached under sub-section (1)
of Section 5, the evidence on which he relies etc and show
cause why all or any of such properties should not be
declared to be properties involved in money laundering
and confiscated by the Central Government.
24.2. In terms of sub-section (3), if adjudicating authority
decides that any property is involved in money laundering,
he shall, by an order in writing, confirm the attachment of
the property, made under sub-section (1) of Section 5 etc.
Once attachment is confirmed, the attachment shall
continue for various periods as provided thereunder and
shall become final after an order of confiscation is passed
by the Special Court. Sub-section (4) enables the Director
or the authorised officer to take over possession of the
attached properties once provisional attachment is
confirmed. Sub-sections (5) to (8) deal with situations on
conclusion of trial of an offence under PMLA by the
Special Court. This stage is yet to be reached in the
present case.
24.3. However, since learned Additional Solicitor General
had referred to sub-section (8) of Section 8 in support of
his contention that appellant has the remedy of
de-attachment or release of the property under the said
provision, we may briefly refer to the same as well. Sub-
section (8) is culmination of the steps contemplated under
sub-section (5). Sub-section (5) says that on a conclusion
of a trial of an offence under PMLA, if the Special Court
finds that the offence of money laundering has been
committed, it shall order that the property involved in
money laundering be confiscated to the Central
Government. However, under sub-section (6) if the Special
Court finds that the offence of money laundering has not
taken place or the property is not involved in money
laundering, it shall order release of such property to the
person entitled to receive it. Sub-section (7) deals with a
situation where the trial cannot be conducted by reason of
death of the accused or the accused being declared as a
proclaimed offender or for any other reason. In such a
situation, on an application by the Director or by a person
claiming to be entitled to possession of property in respect
of which order has been passed under sub-section (3) of
Section 8 Special Court shall pass appropriate order
regarding confiscation or release of the property. This
leads us to sub-section (8). Sub-section (8) contemplates a
situation where the property stands confiscated to the
Central Government under sub-section (5). The Special
Court may direct the Central Government to restore such
confiscated property or a part thereof to a claimant with
legitimate interest in the property who may have suffered
quantifiable loss as a result of the money laundering. The
first proviso says that the Special Court shall not consider
such claim unless it is satisfied that the claimant has
acted in good faith and has suffered the loss despite
taking reasonable precautions and is not involved in the
offence of money laundering. Second proviso however
provides that even during the trial, the Special Court may
consider the claim of the claimant for the purpose of
restoration of such property, if it thinks fit.
24.4. A bare reading of sub-section (8) of Section 8 would
show that it will come into play only after the Special
Court has confiscated the attached property to the Central
Government after conclusion of trial. Therefore, the
second proviso appears to be contrary to the intent of the
main provision of sub-section (8) since it deals with
restoration of attached property during the trial whereas
the main provision deals with a situation on conclusion of
trial. However, we need not labour much on this aspect.
As already noticed above, sub-sections (5) to (8) of Section
8 deal with the attached property, either to be confiscated
or to be released, after conclusion of trial by the Special
Court. The said stage is yet to be reached in the present
case and in this appeal we are only concerned with the
order passed by the Appellate Tribunal.
25. Chapter VI comprising Sections 25 to 42 deals with
Appellate Tribunal. Section 25 says that the Appellate
Tribunal constituted under sub-section (1) of Section 12 of
the Smugglers and Foreign Exchange Manipulators
(Forfeiture of Property) Act, 1976 shall be the Appellate
Tribunal for hearing appeals against orders of the
adjudicating authority. As per sub-section (1) of Section
26 the Director or any person aggrieved by an order made
by the adjudicating authority under PMLA may prefer an
appeal to the Appellate Tribunal. The procedure to be
followed by the Appellate tribunal is laid down in sub-
section (2) to sub-section (6) of Section 26.
25.1. Section 42 provides for appeal to High Court. Section
42 reads as under:-
42. Appeal to High Court:- Any person aggrieved by
any decision or order of the Appellate Tribunal may file an
appeal to the High Court within sixty days from the date of
communication of the decision or order of the Appellate
Tribunal to him on any question of law or fact arising out of
such order:
Provided that the High Court may, if it is satisfied
that the appellant was prevented by sufficient cause from
filing the appeal within the said period, allow it to be filed
within a further period not exceeding sixty days.
Explanation.--For the purposes of this section, "High
Court" means--
(i) the High Court within the jurisdiction of
which the aggrieved party ordinarily resides or
carries on business or personally works for
gain; and
(ii) where the Central Government is the
aggrieved party, the High Court within the
jurisdiction of which the respondent, or in a
case where there are more than one
respondent, any of the respondents, ordinarily
resides or carries on business or personally
works for gain.
25.2. Thus, as per Section 42, any person aggrieved by a
decision or order of the Appellate Tribunal may file an
appeal to the High Court within the prescribed period of
sixty days from the date of communication of the decision
or order of the Appellate Tribunal to him on any question
of law or fact arising out of such order. As per the proviso,
the High Court may allow an appeal to be filed beyond the
initial period of sixty days but not exceeding further period
of sixty days, if it is satisfied that the appellant was
prevented by sufficient cause from filing the appeal within
the initial period of limitation. Therefore, an appeal under
Section 42 can be on a question of law (need not be a
substantial question of law) or on fact.
26. Though the present appeal has been preferred under
Section 42 of PMLA on a number of questions of law, the
core issue is whether the Appellate Tribunal had erred by
abdicating its adjudicatory functions while relegating the
appellant to the Special Court to seek release of the
attached property after having found the attachment to be
illegal?
27. Before we proceed to deal with the orders of the
provisional attachment, the adjudicating authority and
that of the Appellate Tribunal to answer the question so
framed, it would be apposite to dilate on the expression
reason to believe which is the sine qua non for provisional
attachment of a property under sub-section (1) of Section
5 or for issuance of notice under sub-section (1) of Section
8 by the adjudicating authority for continuation of
attachment under sub-section (3) of Section 8.
28. From a careful analysis of sub-section (1) of Section
5, it is evident that the requirement of law is that the
competent attaching authority must have reason to
believe, which must be recorded in writing, on the basis of
material in his possession that any person is in
possession of any proceeds of crime and that such
proceeds of crime are likely to be concealed etc which may
result in frustrating any proceeding relating to the
confiscation of such proceeds of crime before he
provisionally attaches such property for the limited period
not exceeding one hundred and eighty days. Again before
issuing notice under sub-section (1) of Section 8, the
adjudicating authority must have reason to believe that
the noticee has committed an offence under Section 3 of
PMLA or is in possession of proceeds of crime.
29. Thus the sine qua non for exercising power under
sub-section (1) of Section 5 is that the attaching authority
must have reason to believe, which must be recorded in
writing. Such reason to believe must be formed on the
basis of material(s) in his possession that any person is in
possession of proceeds of crime and that such proceeds of
crime are likely to be concealed etc. Therefore the material
in possession of the attaching authority must pertain to
the above two aspects and on the basis of such materials
he must form the reason to believe. In other words, the
reason to believe must have a direct nexus or live link with
the materials in possession pertaining to the above
aspects.
29.1. Likewise, the sine qua non for exercising jurisdiction
under sub-section (1) of Section 8 is that the adjudicating
authority must have reason to believe that the noticee to
whom the notice is to be issued has committed an offence
under Section 3 (offence of money laundering) or that he is
in possession of proceeds of crime. Unless this condition
precedent is complied with, the adjudicating authority
would have no jurisdiction to issue notice under sub-
section (1) of Section 8 upon receipt of complaint under
sub-section (5) of Section 5. This reason to believe under
sub-section (1) of Section 8 must be that of the
adjudicating authority who must form his own reason to
believe independent of the reason to believe formed by the
attaching authority while carrying out provisional
attachment under sub-section (1) of Section 5. Therefore,
the reason to believe must be present at both the stages
and that reason to believe at the stage of Section 5(1)
would not suffice for invoking jurisdiction under Section
8(1) for which the adjudicating authority must form its
own independent reason to believe having regard to the
two aspects mentioned in Section 8(1) of PMLA.
29.2. At this stage, we may refer to the decision of the
Delhi High Court in J.Sekhar v. Union of India (1 supra).
After analysing the provisions of sub-section (1) of Section
5 and sub-section (1) of Section 8 of PMLA, a Division
Bench of Delhi High Court held that the reason to believe
at every stage must be noted down by the officer in the
file. While the reason to believe recorded at the stage of
passing the order of provisional attachment under Section
5(1) of PMLA may not be communicated forthwith to the
person adversely affected thereby at that stage, the
reasons as recorded in the file have to accompany the
complaint filed by such officer within thirty days before
the adjudicating authority under Section 5(5) of PMLA.
Delhi High Court further held that a copy of such
complaint accompanied by the reasons, as found in the
file, must be served by the adjudicating authority upon
the person affected by such attachment after the
adjudicating authority adds its own reasons why he prima
facie thinks that the provisional attachment should
continue. Thereafter, it has been held as follows:
75. There are two reasons to believe. One recorded
by the officer passing the order under Section 5(1) PMLA
and the other recorded by the adjudicating authority
under Section 8(1) PMLA. Both these reasons to believe
should be made available to the person to whom notice is
issued by the adjudicating authority under Section 8(1)
PMLA. The failure to disclose, right at the beginning, the
aforementioned reasons to believe to the noticee under
Section 8(1) PMLA would not be a mere irregularity but an
illegality. A violation thereof would vitiate the entire
proceedings and cause the order of provisional attachment
to be rendered illegal.
29.3. Thus, what the Delhi High Court has held is that
both the reasons to believe under Section 5(1) and under
Section 8(1) should be made available to the affected
person. Failure to disclose reasons to believe to the noticee
under Section 8(1) of PMLA would not be a mere
irregularity but an illegality, a violation thereof would
vitiate the entire proceedings and cause the order of
provisional attachment to be rendered illegal.
30. The expression reason to believe has been subjected
to numerous judicial pronouncements. It is an expression
of considerable import and finds place in a number of
statutes - fiscal, penal etc. However, the expression
reason to believe is not defined in the PMLA. But this
expression is explained in Section 26 IPC as per which a
person may be said to have reason to believe a thing, if he
has sufficient cause to believe that thing but not
otherwise. In the context of the Customs Act, 1962, it
confers jurisdiction upon the proper officer to seize goods
liable to confiscation under sub-section (1) of Section 110
of the said Act.
31. Under Section 34 of the Indian Income Tax Act,
1922, if the Income Tax Officer had reason to believe that
by reason of the omission or failure on the part of an
assessee to make a return of his income or to disclose
fully and fully all material facts necessary for his
assessment for that year, income chargeable to tax had
escaped assessment for that year, the Income Tax Officer
could initiate the process for re-opening of assessment. In
Calcutta Discount Company Limited v. Income Tax Officer5,
Supreme Court held that:
The expression "reason to believe" postulates belief
and the existence of reasons for that belief. The belief must
be held in good faith: it cannot be merely a pretence. The
expression does not mean a purely subjective satisfaction
of the Income Tax Officer: the forum of decision as to the
existence of reasons and the belief is not in the mind of the
Income Tax Officer. If it be asserted that the Income Tax
Officer had reason to believe that income had been under-
assessed by reason of failure to disclose fully and truly the
facts material for assessment, the existence of the belief
and the reasons for the belief, but not the sufficiency of
the reasons, will be justiciable. The expression therefore
predicates that the Income Tax Officer holds the belief
induced by the existence of reasons for holding such
belief. It contemplates existence of reasons on which the
belief is founded, and not merely a belief in the existence
of reasons inducing the belief; in other words, the Income
Tax Officer must on information at his disposal believe
that income has been under-assessed by reason of failure
to fully and truly disclose all material facts necessary for
(1961) 2 SCR 241 : AIR 1961 SC 372 : (1961) 41 ITR 191
assessment. Such a belief, be it said, may not be based on
mere suspicion: it must be founded upon information.
32. In S.Narayanappa v. Commissioner of Income Tax,
Bangalore6, Supreme Court again had the occasion to
examine this expression in the context of Section 34 of the
Indian Income Tax Act, 1922. Reiterating what was held in
Calcutta Discount Company Limited (supra), it was pointed
out that the expression reason to believe does not mean a
purely subjective satisfaction on the part of the Income
Tax Officer. The belief must be held in good faith: it
cannot be merely a pretence. It is open to the Court to
examine the question as to whether the reasons for the
belief have a rational connection or a relevant bearing to
the formation of the belief. To that extent, action of the
Income Tax Officer in starting proceedings under section
34 is open to challenge in a court of law.
33. Supreme Court in Sheo Nath Singh v. Assistant
Appellate Commissioner of Income Tax, Calcutta7 held that
there can be no manner of doubt that the words reason to
(1967) 1 SCR 90 : AIR 1967 SC 523 : (1967) 63 ITR 219
(1992) Supp 1 SCC 335
believe suggest that the belief must be that of an honest
and reasonable person based upon reasonable grounds
and that the Income Tax Officer may act on direct or
circumstantial evidence but not on mere suspicion, gossip
or rumour. The Income Tax Officer would be acting
without jurisdiction if the reason for his belief that the
conditions are satisfied does not exist or is not material or
relevant to the belief. Court can always examine this
aspect though sufficiency of the reasons for the belief
cannot be investigated by the Court.
34. In Income Tax Officer v. Lakhmani Mewal Das8, Supreme
Court held that the grounds or reasons which lead to the
formation of the belief that income chargeable to tax has
escaped assessment must have a material bearing on the
question of escapement of income from assessment. Once
there exists reasonable grounds for the Income Tax Officer
to form such belief, that would be sufficient to clothe him
with jurisdiction. Sufficiency of the grounds, however, is
not justiciable. The expression reason to believe does not
(1976) 3 SCC 757 : AIR 1976 SC 1753 : (1976) 103 ITR 437
mean a purely subjective satisfaction on the part of the
Income Tax Officer. The reason must be held in good faith
and cannot be a mere pretence. It is open to a Court to
examine whether the reasons for the formation of the
belief have a rational connection with or a relevant bearing
on the formation of the belief and are not extraneous or
irrelevant. Elaborating further, Supreme Court held that
rational connection postulates that there must be a direct
nexus or live link between the material coming to the
notice of the Income Tax Officer and the formation of his
belief that there has been escapement of income from
assessment in that particular year. Supreme Court
sounded a note of caution by observing that though the
powers of the Income Tax Officer to re-open assessment
are wide, those are not plenary; the words of the statute
are 'reason to believe' and not 'reason to suspect'.
35. Tata Chemicals Limited v. Commissioner of Customs
(Preventive), Jamnagar9 was a case where Supreme Court
explained the meaning of the expression reason to believe
(2015) 11 SCC 628 : (2015) 320 ELT 45
as appearing in section 110 of the Customs Act, 1962.
Supreme Court has opined that the said expression does
not connote the subjective satisfaction of the officer
concerned. For such a power given to the officer concerned
is not an arbitrary power and has to be exercised in
accordance with the restraints imposed by law, the belief
must be that of an honest and reasonable person based
upon reasonable grounds. If the authority acts without
jurisdiction or there is no existence of any material or
conditions leading to the belief, it would be open to the
Court to examine the same though sufficiency of the
reasons for the belief cannot be investigated.
36. A Division Bench of the Delhi High Court in J.Sekhar
v. Union of India (1 supra) was examining challenge to the
vires of Section 5(1) of PMLA. In that context Delhi High
Court held that reason to believe cannot be a rubber
stamping of the opinion already formed by someone else.
The officer who is supposed to write down his reason to
believe has to independently apply his mind. It cannot be
a mechanical reproduction of the words in the statute.
When an authority judicially reviewing such a decision
peruses such reason to believe, it must be apparent that
the officer penning the reasons had applied his mind to
the materials available on record and has on that basis
arrived at his reason to believe; the process of thinking of
the officer must be discernible. The reasons have to be
made explicit. It is only the reasons that can enable the
reviewing authority to discern how the officer formed his
reason to believe.
37. Let us now deal with the provisional attachment
order passed under sub-section (1) of Section 5. After
adverting to the factual backdrop and referring to the
provisions of PMLA including Section 5(1), Joint Director,
Enforcement Directorate held as follows:
21. NOW THEREFORE, on the basis of material in my
possession as per Annexure-R and in exercise of the powers
conferred upon me under section 5(1) of 'the PMLA, 2002' (15
of 2003), the authority vested in me by the Authorisation
dated 07.02.2007 and its addendum dated 12.10.2011
issued by the Director of Enforcement in exercise of his
powers under sub-section (1) of section 5 of 'the PMLA, 2002'
(15 of 2003), I hereby order for provisional attachment of the
properties as per Annexure - 'A' and further order that the
same shall not be transferred, disposed, parted with or
otherwise dealt with in any manner, whatsoever, by the
holders having ownership and/or possession until or unless
specially permitted to do so by the undersigned.
37.1. Thus, the Joint Director held that on the basis of
material in his possession and exercising powers
conferred upon him under Section 5(1) of PMLA and on
the basis of the authority vested in him, he ordered
provisional attachment of the properties as per Annexure
A. In so far the appellant i.e., VANPIC Projects Private
Limited is concerned, the property attached by the Joint
Director is at Sl.No.36 of Annexure A and reads as under:
855.7130 acres of land in M/s.Vanpic Rs.27.72
Prakasham and Guntur districts Projects Pvt. crore
in Andhra Pradesh as per Ltd.
Annexure - L2 enclosed with the
attachment order
37.2 From the above it is evident that the Joint Director
while exercising power under Section 5(1) failed to record
his reason to believe (there is no reference to it in the
provisional attachment order) that petitioner is in
possession of proceeds of crime in the form of the attached
property and that such proceeds of crime are likely to be
concealed etc., which may frustrate any proceeding
relating to confiscation of such proceeds of crime.
38. The above order of provisional attachment was
forwarded by the Joint Director to the adjudicating
authority by way of a complaint under sub-section (5) of
Section 5 of PMLA which was numbered as O.C.No.276 of
2014. By the order dated 19.08.2014, the provisional
attachment order was confirmed. Before the adjudicating
authority an argument was advanced on behalf of the
appellant that there were no reason to believe for
provisional attachment under sub-section (1) of Section 5.
In the absence of reason to believe attachment could not
be sustained. To this, adjudicating authority in
paragraphs 4 and 5 of the adjudication order mentioned
that as per the provisions of Section 5 of PMLA reasons
are required to be recorded in writing by the complainant
(attaching authority) but these are not required to be
conveyed to the defendant. Similarly, no reasons are
required to be either recorded in writing or conveyed to the
defendant under Section 8 by the adjudicating authority.
39. The above order of the adjudicating authority
confirming provisional attachment came to be challenged
by the appellant before the Appellate Tribunal. It may not
be necessary to traverse through the long factual narrative
but confine only to those aspects where the Appellate
Tribunal dealt with the legality or otherwise of the
provisional attachment order as confirmed by the
adjudicating authority.
40. In paragraph 74 of the impugned order dated
26.07.2019, Appellate Tribunal noted that the Joint
Director i.e., the attaching authority did not record valid
reason to believe as per requirement of Section 5(1). After
extracting paragraph 21 of the provisional attachment
order, Appellate Tribunal noted that the provisional
attachment order merely paraphrases the language of the
section as a mere formality which does not amount to
valid reason to believe. It was held as follows:
74. From the Provisional Attachment Order in the present
appeals, it is evident that the Respondent No.1, i.e. the Joint
Director, Directorate of Enforcement, has not recorded valid
"reason to believe" as required. The mandatory pre-requisite
for provisional attachment required by Section 5(1) is
missing in the present case. It is submitted on behalf of
appellant that in the above thereof the Adjudicating
Authority ought not to have even issued notice under S. 8(1)
of the Act, leave alone confirm the Provisional Attachment
Order. The relevant para-21 of Provisional Attachment Order
is reproduced hereunder:
"21. NOW THEREFORE, on the basis of material in
my possession as per Annexure - R and in
exercise of the powers conferred upon me under
section 5(1) of 'the PMLA, 2002' (15 of 2003), the
authority vested in me by the Authorization dated
07.02.2007 and its addendum dated 12.10.2011
issued by the Director of Enforcement in exercise
of his powers under sub-section (1) of section 5 of
'the PMLA, 2002'(15 of 2003), I hereby order for
provisional attachment of the properties as per
Annexure - 'A' and further order that the same
shall not be transferred, disposed, parted with or
otherwise dealt with in any manner, whatsoever,
by the holders having ownership and/or
possession until and unless specifically permitted
to do so by the undersigned."i
[Emphasis supplied]
The Provisional Attachment Order shows that mere
the language of section has been mentioned in the "reason to
believe" after recording the facts and statement under
section 50 of the Act, though the officer concerned has to be
satisfied as per requirements of Sections 5(1)(a) of the PMLA
by referring the details of investigation about the attachment
of properties and proceed of crime for each head, a merely
formality does not amount to valid reason to belief.
41. The Appellate Tribunal examined the order of the
adjudicating authority and held that the adjudicating
authority overlooked the fact that the provisional
attachment order suffered from serious jurisdictional
infirmity and held as follows:
84. The Adjudicating Authority did not notice the said
fact or ignored the same to the effect that the Provisional
Attachment Order suffered from serious infirmity including,
inter alia, for failing to comply with the mandatory
preconditions under Section 5 (1) (b) of the PMLA. Under the
circumstances, the following observations in the Impugned
Order are completely shocking:
"But it is seen these case laws do not apply to the
provisions of the PMLA. As per the provisions of
Section 5 of the PMLA reasons are required to be
recorded in writing by the Respondent No.1 but these
are not required to be conveyed as it is to the
defendants. It is further seen that while framing the
PAO and O.C., these have been conveyed in the PAO
and O.C. and that meets the ends of Justice in as
much as defendants know what is case against
them."
[Emphasis supplied]
85. The said observations are contrary to law laid down
by the Hon‟ble Supreme Court of India wherein it was held
that recording of reasons "is a mandatory direction under the
law and non-communication thereof is not saved by showing
that the reasons exist in the file although not communicated."
[Emphasis supplied]
42. Appellate Tribunal also considered the objection of
the appellant regarding the procedure adopted in the
hearing and not allowing the appellant to file rejoinder and
concluded that the order passed by the adjudicating
authority suffers from violation of the principles of natural
justice (para 136).
43. Thereafter, Appellate Tribunal adverted to the show
cause notice issued by the adjudicating authority to the
appellant under Section 8(1) and noted that the show
cause notice was issued in a mechanical manner without
application of mind and no valid reasons were mentioned
in the show cause notice. It has been held as follows:
137. The Notice to Show Cause dated 04.04.2014 under
section 8(1) of the Act (hereinafter the "Show Cause Notice")
issued by the Registrar of this Adjudicating Authority to the
Appellants was contrary to Section 8 (1) of the PMLA, for the
reason that a Notice to Show Cause, under Section 8 (1) of
the Act, can only be issued (following receipt of a Complaint
under Section 5 (5) of the Act) after the Adjudicating
Authority forms a "reason to believe that any person has
committed an offence under Section 3 or is in possession of
proceeds of crime".
138. A bare perusal of the Show Cause Notice would show
that the Learned Registrar has issued the same in a
mechanical manner without even affording an opportunity to
the Adjudicating Authority to apply its mind. No valid
reasons are mentioned on the notice itself or any separate
order is passed before issuance of notice which is
requirement as per settled law.
43.1. Thus, from the above it is evident that Appellate
Tribunal found that the notice under Section 8(1) was not
in conformity with the requirement of the statute and that
the adjudicating authority did not form any reason to
believe that the noticee had committed an offence under
Section 3 or is in possession of proceeds of crime.
Therefore, the very foundation for issuance of notice under
Section 8(1) was absent. Applying the decision of the
Delhi High Court in J.Sekhar v. Union of India
(1 supra), the above omission strikes at the very root of
the matter rendering the adjudication proceedings as well
as the provisional attachment order illegal.
44. Various other flaws vitiating the order of the
adjudicating authority were pointed out by the Appellate
Tribunal observing that the same reflected non-application
of mind. Appellate Tribunal opined that no purpose would
be served by continuing with the attachment. Since the
trial before the Special Court may take a number of years,
therefore, the State Government may take a stand about
the project. However, despite saying so Appellate Tribunal
adverted to Section 8(8) of PMLA including the second
proviso and relegated the appellant to the Special Court to
seek release of the attached property holding that till such
time attachment would continue. Though Appellate
Tribunal extracted Section 8(8) of PMLA, it did not say
that it had passed the order of relegation on the basis of
the aforesaid provision. Relevant portion of the order of
the Appellate Tribunal is as under:
160. As far as attachment as per details mentioned in
preceding paras of head vii) and viii) with regard to
attachment of Rs.23.23 crores of VANPIC Port Pvt. Ltd. i.e.
about 561 acres land and Rs.27.72 crores spent by VANPIC
Project Pvt. Ltd i.e. about 855 acres of land is concerned, it is
vacant land. The possession is not with the appellants who
being a partner with RAK has spent huge amount. MOU and
agreement have already been executed with regard to
VANPIC Project. The said project was in the interest of
public. Government of Andhra Pradesh is not the party in
the present appeals. This Tribunal is not aware about the
stand of the Andhra Pradesh Government as to whether it is
still interested in the said project as the same was prime
facie between Government to Government. It is also not
aware as to whether Government is now agreeable to
Nimmagadda Prasad and its group as a partner with RAK or
not. Therefore, it is not proper to give any findings in this
regard, otherwise it would amount to enforcement of MOU
and agreement. However, prima facie, this Tribunal is of the
opinion that no purpose would be served to continue the
attachment as the said project was originally meant for
public welfare of Hyderabad. The said project has already
been delayed for more than ten years. The trial, if conducted
if charges are framed, may take number of years. Therefore,
the State Government has to take the stand about the said
project. If necessary, the State Government may obtain the
advice from Central Government, but the Chief Minister
should not involve himself in said process directly or
indirectly.
161. The amended provision of Section 8(8) of PMLA along
with two proviso are reproduced hereunder:-
"Where a property stands confiscated to
the Central Government under sub-section (5),
the Special Court, in such manner as may be
prescribed, may also direct the Central
Government to restore such confiscated
property or part thereof of a claimant with a
legitimate interest in the property, who may
have suffered a quantifiable loss as a result of
the offence of money laundering:
Provided that the Special Court shall
not consider such claim unless it is satisfied
that the claimant has acted in good faith and
has suffered the loss despite having taken all
reasonable precautions and is not involved in
the offence of money laundering:]
[Provided further that the Special Court
may, if it thinks fit, consider the claim of the
claimant for the purposes of restoration of such
properties during the trial of the case in such
manner as may be prescribed.]
162. In view of peculiar facts and circumstances, the
appellants are granted liberty to approach the Special Court
on this issue. It is directed that Government of Andhra
Pradesh may also appear before the Special Court and raise
its specific stand so that the appropriate order be passed by
the Special Court. Till that time, the attachment shall
continue.
45. During the hearing, it was stressed by Mr. Nanda,
learned Senior Counsel for the appellant that in so far the
findings recorded by the Appellate Tribunal, as extracted
supra, are concerned, no appeal has been filed by the
Enforcement Directorate, and therefore, such findings
returned by the Appellate Tribunal have attained finality.
Learned Additional Solicitor General of India could not
also point out as to whether any appeal has been
preferred against the findings returned by the Appellate
Tribunal against the respondent.
46. If we look at the findings returned by the Appellate
Tribunal vis-à-vis the provisional attachment order and
the order of the adjudicating authority on one hand and
the conclusions of the Appellate Authority on the other
hand, it is evident that the conclusions are not consistent
with the findings returned by the Appellate Tribunal;
rather wholly inconsistent. Appellate Tribunal has held
that while carrying out the provisional attachment, the
attaching authority did not record reason to believe that
the petitioner is in possession of any proceeds of crime
and that such proceeds of crime were likely to be
concealed, transferred etc., which may frustrate any
proceedings relating to confiscation of such proceeds as is
the mandatory requirement under Section 5(1) of PMLA.
Appellate Tribunal also found fault with the approach
adopted by the adjudicating authority in overlooking the
above conditions. The show cause notice under Section
8(1) of PMLA was issued in a mechanical manner without
application of mind and without forming any reason to
believe that the noticee had committed an offence under
Section 3 or was in possession of proceeds of crime. The
adjudicating authority did not record any reason that the
provisional attachment should continue. These are
jurisdictional errors which have been clearly pointed out
by the Appellate Tribunal. The above requirements being
the foundation for attachment - either provisional or
confirmation or continuation, in the absence thereof the
provisional attachment order as well as the confirmation
order of the adjudicating authority would be illegal, null
and void, being without jurisdiction. Consequently, the
natural corollary flowing from the findings would be that
such property should be released from attachment.
Instead of doing that, Appellate Tribunal relegated the
appellant to the forum of Special Court to seek de-
attachment after itself observing that the trial before the
Special Court, if conducted, may take number of years.
47. Supreme Court in Opto Circuit (supra) was dealing
with a matter arising out of PMLA, more pertinently the
challenge related to freezing of accounts on instruction of
the Enforcement Directorate. In that context, Supreme
Court observed that the scheme of PMLA is well intended.
While it seeks to achieve the object of preventing money
laundering and to bring to book the offenders, it also
safeguards the rights of the persons who would be
proceeded against under PMLA by ensuring fairness in
procedure. It was in that context that Supreme Court
emphasised the need to follow the laid down procedure
under PMLA observing that when a statute provides a
thing to be done in a particular manner, then it has to be
done in that manner alone and in no other manner.
48. In J.Sekar @ Sekar Reddy, Supreme Court adverted to
its earlier decision in Radheshyam Kejriwal v. State of West
Bengal10 and culled out the ratio of the said decision. It has
been held amongst others that adjudication proceedings
and criminal proceedings are independent in nature to
each other.
49. Before parting with the record, we may revert back
to the decision of the Supreme Court in Vijay Madanlal
Choudhary (supra). As noted in the earlier part of the
judgment, one of the grievances raised before the Supreme
Court, rather challenge made, pertained to the stipulation
in sub-section (4) of Section 8 providing for taking over
possession of the property. We have already extracted
sub-section (4) of Section 8 and analysed the said
provision which basically says that when the provisional
(2011) 3 SCC 581
order of attachment is confirmed, the Director or the
authorised officer shall forthwith take possession of the
attached property. Relying on the principle set out in
Section 5(4) of PMLA which according to the Supreme
Court needs to be extended even after confirmation of
provisional attachment order until a formal confiscation
order is passed, Supreme Court has held that the
stipulation in sub-section (4) of Section 8 is required to be
invoked only in exceptional situations. Merely because the
provisional attachment order is confirmed, it does not
follow that the property stands confiscated; and until an
order of confiscation is formally passed, there is no reason
to hasten the process of taking possession of such
property. This is what the Supreme Court has held:
304. 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 Section 5(1) is
confirmed, it does not follow that the property stands
confiscated; and until an order of confiscation is formally
passed, there is no reason to hasten the process of taking
possession of such property. The principle set out in
Section 5(4) of the 2002 Act needs to be extended even
after confirmation of provisional attachment order until a
formal confiscation order is passed. Section 5(4) clearly
states that nothing in Section 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 to 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 finds that the offence of money-laundering
has not taken place or the property is not involved in
money-laundering, it shall order 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 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.
49.1. After holding so, Supreme Court clarified that taking
over of possession of the property in question before a
formal order of confiscation is passed merely on the basis
of confirmation of provisional attachment order should be
an exception and not a rule. It has been held as follows:
305. Indisputably, statutory Rules have been framed by
the Central Government in exercise of powers under
Section 73 of the 2002 Act regarding the manner of taking
possession of attached or frozen properties confirmed by
the Adjudicating Authority in 2013, and also regarding
restoration of confiscated property in 2019. Suffice it to
observe that direction under Section 8(4) for taking
possession of the property in question before a formal
order of confiscation is passed merely on the basis of
confirmation of provisional attachment order, should be an
exception and not a rule. That issue will have to be
considered on case-to-case basis. Upon such harmonious
construction of the relevant provisions, it is not possible to
countenance challenge to the validity of sub-section (4) of
Section 8 of the 2002 Act.
49.2. Elaborating further, Supreme Court held that
physical dispossession of the person from the property,
which is an extreme and drastic action, in every case is
unwarranted. Supreme Court has opined that it is
possible that the Special Court may eventually decide the
issue in favour of the person in possession of the property
as not being proceeds of crime or for any other valid
ground. Therefore, it would be a case of serious
miscarriage of justice, if not an abuse of the process, to
take physical possession of the property before an order is
passed by the Special Court. Relevant findings are as
under:
306. The learned counsel appearing for the Union of
India, had invited our attention to the recommendations
made by FATF in 2003 and 2012 to justify the provision
under consideration. The fact that non-conviction based
confiscation model is permissible, it does not warrant an
extreme and drastic action of physical dispossession of the
person from the property in every case -- which can be
industrial/ commercial/ business and also residential
property, until a formal order of confiscation is passed
under Section 8(5) or 8(7) of the 2002 Act. As
demonstrated earlier, it is possible that the Special Court
in the trial concerning money-laundering offence may
eventually decide the issue in favour of the person in
possession of the property as not being proceeds of crime
or for any other valid ground. Before such order is passed
by the Special Court, it would be a case of serious
miscarriage of justice, if not abuse of process to take
physical possession of the property held by such person.
Further, it would serve no purpose by hastening the
process of taking possession of the property and then
returning the same back to the same person at a later date
pursuant to the order passed by the Court of competent
jurisdiction. Moreover, for the view taken by us while
interpretating Section 3 of the 2002 Act regarding the
offence of money-laundering, it can proceed only if it is
established that the person has directly or indirectly
derived or obtained proceeds of crime as a result of
criminal activity relating to or relatable to a scheduled
offence or was involved in any process or activity
connected with proceeds of crime.
307. It is unfathomable as to how the action of
confiscation can be resorted to in respect of property in the
event of his acquittal or discharge in connection with the
scheduled offence. Resultantly, we would sum up by
observing that the provision in the form of Section 8(4) can
be resorted to only by way of an exception and not as a
rule. The analogy drawn by the Union of India on the basis
of decisions of this Court in Divisional Forest Officer v. G.V.
Sudhakar Rao11, Biswanath Bhattacharya v. Union of
India12, Yogendra Kumar Jaiswal v. State of Bihar13, will be
of no avail in the context of the scheme of attachment,
confiscation and vesting of proceeds of crime in the
Central Government provided for in the 2002 Act.
Conclusion:
50. Therefore, viewed in the above context and
considering all aspects of the matter, we are of the opinion
that while the Appellate Tribunal is correct in holding that
the provisional attachment order and the order of the
adjudicating authority confirming attachment suffered
from fundamental flaws, thus being without jurisdiction,
it fell short of declaring such orders as illegal; it further
fell in error in relegating the appellant to the forum of
Special Court to seek release of the attached property as it
amounts to abdicating its authority and allowing an
illegality to continue.
(1985) 4 SCC 573
(2014) 4 SCC 392
(2016) 3 SCC 183
51. That being the position, we are of the unhesitant
view that the appeal of the appellant deserves to be
allowed. The appeal is accordingly allowed. Therefore, the
question framed above is answered in favour of the
appellant and against the respondent.
52. Consequently, we direct the respondent to release
the attached property i.e., 855.7130 acres of land in
Prakasham and Guntur districts of Andhra Pradesh as per
Annexure - L2 enclosed with the provisional attachment
order, to the appellant.
Miscellaneous applications, pending if any, shall
stand closed. There shall be no order as to cost.
______________________________________
UJJAL BHUYAN, CJ
______________________________________
SUREPALLI NANDA, J
27.09.2022
pln
