Writ Petition Nos. 10765, 10769 and 23166 of 2010. Case: B. Rama Raju, S/o B. Ramalinga Raju Vs Union of India (UOI), Ministry of Finance, Department of Revenue, represented by its Secretary, (Revenue) and Ors.. High Court of Andhra Pradesh (India)
| Case Number | Writ Petition Nos. 10765, 10769 and 23166 of 2010 |
| Counsel | For Appellant: S. Niranjan Reddy, Avinash Desai and K. Gopal Chowdary, Advs. for P. Panduranga Reddy, Adv. And For Respondents: Rajeev Awasthi, Adv. for Ponnam Ashok Goud, Asst. Solicitor General |
| Judges | Goda Raghuram and R. Kantha Rao, JJ. |
| Issue | Prevention of Money Laundering Act, 2002 - Sections 2, 2(1), 3, 4, 5, 5(1), 5(5), 6, 8, 8(1) to (3), 8(4), 8(6), 16, 17, 17(4), 18, 18(1), 18(10), 18(91), 20, 21, 22, 23 and 24, 25, 26, 28, 29, 42, 44 and 71; Prevention of Money Laundering (Amendment) Act, 2005; Prevention of Money-Laundering (Amendment) Act, 2009; Income-tax Act, 1961 - ... |
| Judgement Date | March 04, 2011 |
| Court | High Court of Andhra Pradesh (India) |
Order:
Goda Raghuram, J., (At Hyderabad)
These writ petitions substantially challenge the vires of certain provisions of the Prevention of Money Laundering Act, 2002 (Central Act 15 of 2003) ('the Act'); amended by the Prevention of Money Laundering (Amendment) Act, 2005 (Central Act 20 of 2005) ('the Amendment Act'); further amended by the Prevention of Money-Laundering (Amendment) Act, 2009 (Central Act 21 of 2009) (the 2nd Amendment Act) and orders passed by the primary and attaching authorities and the adjudicating authority. The particulars, the circumstances and the defence to the provisions of the Act and the impugned orders are set out hereinafter.
W.P. No. 10765 of 2010:
B. Rama Raju s/o B. Ramalinga Raju seeks (i) invalidation of Sections 5(1), 8(1), 8(2), 8(3), 8(4), 23 and 24 of the Act; (ii) a declaration that the provisional attachment order No. 1/09 in ECIR No. 01/H20/2009, dated 18.08.2009 passed by the Deputy Director, Enforcement, Hyderabad (R-3), is arbitrary and illegal; (iii) that the order dated 14.01.2010 passed by the Adjudicating Authority (R-4) in OC. No. 38/09 is arbitrary and illegal; (iv) a declaration that the 4th Respondent's direction to the Petitioner to hand over possession of the attached properties is without jurisdiction and contrary to law and the Directorate of Enforcement (R-2) or any other officer is not entitled to take possession of the Petitioner's properties; (v) a declaration that the Petitioner's properties sought to be attached by the impugned provisional attachment order (dated 18-08-2009) as confirmed by the impugned order (dated 14-01-2010) of the 4th Respondent are free from attachment or encumbrance; and (vi) for attendant reliefs.
W.P. No. 10769 of 2010:
B. Teja Raju also s/o B. Ramalinga Raju seeks (i) invalidation of the same provisions of the Act as in W.P. No. 10765/10; (ii) invalidation of the provisional attachment order No. 01/2009 in ECIR Nl. 01/HZO/1009, dated 18.08.2009 of the Deputy Director Enforcement; (iii) invalidation of the order of the 4th Respondent dated 14.01.2010 in OC No. 38/09 and other declarations as to the properties of the Petitioner herein as in W.P. No. 10765/10.
W.P. No. 23166 of 2010:
N. Subba Raju s/o Janakirama Raju seeks (i) invalidation of Sections 2(u), 3, 5(1), 8, 23 and 24 of the Act; (ii) invalidation of the provisional attachment order No. 01/2009 in ECIR No. 01/HZO/2009 dated 18.08.2009 of the Deputy Director, Enforcement; (iii) a direction that the Petitioner's properties sought to be attached by the impugned provisional attachment order are free from attachment or encumbrance.
Since the grievance, the challenge to the vires of certain provisions of the Act and the contentions in this behalf are substantially similar in all the writ petitions, we record a summary of the pleadings in W.P. No. 10765/10.W.P. No. 10765/2010:
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The Deputy Director, Enforcement, passed the provisional attachment order dated 18.08.2009, purportedly Under Section 5 of the Act, in respect of movable properties comprising the shares of M/s SRSR Holdings Ltd., in M/s Satyam Computer Services Ltd., and 287 immovable properties of various companies and persons including the Petitioner. The Petitioner's immovable properties enumerated at Sl. No. 246 to 251 in the table of immovable properties in the order were provisionally attached.
B) The Deputy Director, Enforcement, filed Application No. 38/2009 on 15.09.2009 before the Adjudicating Authority against 132 Defendants. The Petitioner is the 8th Defendant therein. The Adjudicating Authority issued notice to all the 132 Defendants in respect of the movable and immovable properties enumerated in the complaint of the Deputy Director, Enforcement, on 15.09.2009, the day the complaints were filed.
C) Several of the Defendants including the Petitioner filed applications before the Adjudicating Authority setting out objections to its jurisdiction; seeking dismissal of the complaint; and discharge of the notice. The Adjudicating Authority however orally pronounced disposal of the objection applications on 20.11.2009 (the date of the hearing). A copy of the order dated 20.11.2009 was furnished to the several Defendants including the Petitioner on 24.1.2009.
D) The Petitioner and some other Defendants filed W.P. No. 27058/09 challenging the Adjudicating Authority's notice dated 15.09.2009 and the order dated 20.11.2009. This Court by the order dated 1.12.2009 in W.P. No. 25846/09 (filed by another Defendant) allowed the Petitioner therein to appear before the Adjudicating Authority to seek information as to whether he was being proceeded against as one who committed an offence Under Section 3 of the Act or for being in possession of the proceeds of a crime. Consequent on this order the Petitioner also applied to the Adjudicating Authority for relevant information. On 7.12.2009 the Adjudicating Authority informed all the Defendants seeking information that they were being proceeded against for committing an offence Under Section 3 of the Act.
E) This Court eventually disposed of the writ petition filed by the Petitioner on 10.12.2009 on similar lines as other writ petitions directing that the proceedings before the Adjudicating Authority be postponed to 21.12.2009 and the writ Petitioners submit their defense and proceed with the matter according to law.
F) On 20.12.2009 the Petitioner filed his response to the show cause notice issued by the Adjudicating Authority. The counsel for the Petitioner was heard on 23.12.2009. Written submissions were also filed.
G) On 14.01.2010 the Adjudicating Authority passed an order confirming attachment of the Petitioners' properties; directed the attachment to continue during pendency of the proceedings pertaining to the scheduled offence before the trial court and till its conclusion and until the order of the trial court becomes final; and further directed that the Defendants shall hand over possession of properties to the Enforcement Directorate or any officer authorized, forthwith.
The challenge to the vires of provisions of the Act:
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Section 2(u) of the Act defines "proceeds of crime" expansively to include property or the value thereof, derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence even if in the hands of a person who has no knowledge or nexus with such criminal activity allegedly committed by others. The expansive definition thus inflicts grossly unreasonable consequences on innocent persons and is, therefore, unconstitutional offending Articles 14, 20, 21 and Article 300 - A of the Constitution.
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Under Section 5(1) of the Act the authorized officer may provisionally attach properties for a period not exceeding 150 days if he has reason to believe on the basis of material in his possession that any person is in possession of proceeds of crime; that such person has been charged of having committed a scheduled offence and such proceeds of crime are likely to be concealed etc. in any manner which could result in frustrating any proceedings relating to confiscation of such proceeds of crime, under Chapter III. The two provisos to Section 5(1) were incorporated by the 2nd Amendment Act. Under the first proviso no order of attachment shall be made unless the report is forwarded Under Section 173 Code of Criminal Procedure in relation to a scheduled offence, or a complaint is filed before a Magistrate or a Court for taking cognizance of the scheduled offence. The 2nd proviso enacts that notwithstanding anything in Clause (b), any property of a person may be attached under the Section if an authorized officer has reason to believe that such property involved in money-laundering, if not immediately attached is likely to frustrate any proceedings under the Act.
Section 5(1) is vague and confusing. While under the main provision (Section 5(1)), 'such property' is the property of a person charged of a scheduled offence; the 2nd proviso enables property of any person, and of involved in money-laundering, to be proceeded against. The term 'involved in money laundering' is vague and ambiguous. There is no indication as to the nature or degree of involvement required. It is not clear whether the liability runs with the property or is only in respect of property belonging to a person charged with committing a scheduled offence. The provision is also bereft of guidelines consistent and commensurate with the serious consequences that follow. The provision is therefore arbitrary and unconstitutional.
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The proviso to Section 5(1) can be operated only from the date of coming into force of provisions of the 2nd Amendment Act. It cannot therefore apply against property acquired or possessed prior to enactment of this provision or in respect of any scheduled offence prior to its enactment. It is however being construed otherwise. Since the consequence of attachment and eventual confiscation are severe and have penal and punitive consequences there could be no retrospective incidence of liability. The operational reality of retrospective application of the provisos to Section 5(1) of the Act by the executing agencies - the Respondents renders the provision unconstitutional as offending Articles 14, 20 and 300-A of the Constitution.
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Section 8 of the Act provides for adjudication following a provisional attachment Under Section 5(1) and a complaint Under Section 5(5). Section 8(1) sets out the conditions precedent to the exercise of jurisdiction and initiation of proceedings by a notice and as to the nature and scope of the notice. The Adjudicating Authority is required to apply its mind to the complaint and the material filed therewith and form a reason to believe that a person has committed an offence Under Section 3 or is in possession of proceeds of crime. On settled principle and authority, the reason to believe is neither academic nor on subjective satisfaction but must follow upon an objective...
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