 |
| Gold Coin having a value |
EQUIVALENT VALUE UNDER PMLA
Do Subscribe to our YouTube Channel for more legal updates in Hindi.
The Prevention of Money Laundering Act, 2002 (the Act) deals with not only attachment of property derived or obtained, directly or
indirectly as a result of criminal activity relating to a scheduled offence but
also with the attachment of the property legitimately acquired by accused as
equivalent value if ‘proceeds of crime’ is not traceable.
Clause
(u) of sub-section (1) of section 2 of the Act defines ‘proceeds of crime’ as
under:
“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;
This
definition clearly says that where ‘proceeds of crime’ has been taken or held
outside the country, alienated, transferred or disposed of in any manner, any
other property of same value held by the such person either in India or abroad
may be attached for ‘equivalent value’.
Conditions
for attachment of property for ‘equivalent value’ under the Act are as under:
1. ‘Proceeds of crime’ has been alienated,
disposed of in any manner;
2. Where
‘proceeds of crime’ is not traceable or the Authorities failed to trace
‘proceeds of crime’; and
3. Where
the person responsible has received ‘illicit gain’ of the criminal activity
relating to ‘scheduled offence’.
The
Authorities entrusted for administration and enforcement of the provisions of the
Act are under greater statutory obligation to give effect to its provisions in
letter and spirit. Accordingly, all the authorities exercising its power under
the Act are duty bound to ensure that the attachment proceeding is not an idle
formality but such proceeding has to be in consonance and conformity with the
intent and purpose for which the Act has been enacted. It means any property
cannot be attached blindly as ‘equivalent value’. Authorities must be very
careful before attaching properties as ‘equivalent value’ because various High
Courts and the Appellate Tribunal (PMLA) have settled the position of
‘equivalent value’.
Do Subscribe to our YouTube Channel for more legal updates in Hindi.
Do Subscribe to our YouTube Channel for more legal updates in Hindi.
Dealing
the mandate of attachment for any property as ‘equivalent value’, the Appellate
Tribunal in Shri Surendra Singhi v. The Joint Director Directorate of
Enforcement, Hyderabad & Ors. [FPA-PMLA-1928/HYD/2017 (Decided on
21.12.2018)], held as under:
“13.
Value as defined in Sec. 2 (zb) of the PMLA has to be harmoniously read with
Sec. 2 (u) of the Act which mandates to acquisition value only to situations
where the proceeds of crime being attached. Such application cannot be
pedantically extended to situations where the property equivalent of alleged
proceeds of crime are being attached, which do not have any nexus or continuum
with the alleged direct proceeds of crime. The said exercise can only be done
if ED is not in a position to recover the actual amount of proceeds of crime
from the accused who by manipulation spent the proceeds of crime and the ED is
not able to recover the same and attached that only under those circumstances,
the property can be attached equivalent to value thereof if the party has some
link and nexus in the crime or the attached property was purchased from proceed
of crime and is in possession of third party.”
In
Dy. Director, ED vs. Axis Bank & Others [(2019) SCC OnLine Del 7854],
the High Court of Delhi held as under:
“103. The special legislation against money-laundering
(PMLA) seeks to enforce the sanction of confiscation (initiated by attachment)
against ill-gotten assets expecting to ensnare them in a net wider than under
most of the existing laws germane to the issue of economic well-being, security
and integrity of India as a sovereign State. The expansive definition of the
targeted property, described as “proceeds of crime”, as given in Section
2(1)(u) is as under:
“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;
104. The
above definition may be deconstructed into three parts:-
(i). property
derived or obtained (directly or indirectly) as a result of criminal activity
relating to scheduled offence; or
(ii). the
value of any such property as above; or
(iii). if
the property of the nature first above mentioned has been “taken or held”
abroad, any other property “equivalent in value” whether held in India or
abroad.
105. It
is vivid that the legislature has made provision for “provisional attachment”
bearing in mind the possibility of circumstances of urgency that might
necessitate such power to be resorted to. A person engaged in criminal activity
intending to convert the proceeds of crime into assets that can be projected as
legitimate (or untainted) would generally be in a hurry to render the same
unavailable. The entire contours of the crime may not be known when it comes to
light and the enforcement authority embarks upon a probe. The crime of such
nature is generally executed in stealth and secrecy, multiple transactions
(seemingly legitimate) creating a web lifting the veil whereof is not an easy
task. The truth of the matter is expected to be uncovered by a detailed probe
which may take long time to undertake and conclude. The total wrongful gain
from the criminal activity cannot be computed till the investigation is
completed. The authority for “provisional” attachment of suspect assets is to
ensure that the same remain within the reach of the law.
106. Among
the three kinds of attachable properties mentioned above, the first may be
referred to, for sake of convenience, as “tainted property” in as much as there
would assumably be evidence to prima facie show that the source of
(or consideration for) its acquisition is the product of specified crime, the
essence of “money-laundering” being its projection as “untainted property”
(Section 3). This would include such property as may have been obtained or
acquired by using the tainted property as the consideration (directly or
indirectly). To illustrate, bribe or illegal gratification received by a public
servant in form of money (cash) being undue advantage and dishonestly gained,
is tainted property acquired “directly” by a scheduled offence and consequently
“proceeds of crime”. Any other property acquired using such bribe as
consideration is also “proceeds of crime”, it having been obtained “indirectly”
from a prohibited criminal activity within the meaning of first limb of the
definition.
107. In contrast, the second and third
kinds of properties mentioned above would ordinarily be “untainted property”
that may have been acquired by the suspect legitimately without any connection
with criminal activity or its result. The same, however, are intended to fall
in the net because their owner is involved in the proscribed criminality and
the tainted assets held by him are not traceable, or cannot be reached, or
those found are not sufficient to fully account for the pecuniary advantage
thereby gained. This is why for such untainted properties (held in India or abroad)
to be taken away, the rider put by law insists on equivalence in value. From
this perspective, it is essential that, before the order of attachment is
confirmed, there must be some assessment (even if tentative one) as to the
value of wrongful gain made by the specified criminal activity unless it be not
possible to do so by such stage, given the peculiar features or complexities of
the case. The confiscation to be eventually ordered, however, must be
restricted to the value of illicit gains from the crime. For the sake of
convenience, the properties covered by the second and third categories may be
referred to as “the alternative attachable property” or “deemed tainted
property”.
109. The inclusive definition of “proceeds
of crime” respecting property of the second above-mentioned nature - i.e. “the
value of any such property” - gives rise (as it has done so in these five
appeals) to potential multi-layered conflicts between the person suspected of
money-laundering (the accused), a third party (with whom such accused may have
entered into some transaction vis-a-vis the property in question) and the
enforcement authority (the State). Since the second of the above species of
“proceeds of crime” uses the expression “such property”, the qualifying word
being “such”, it is vivid that the “property” referred to here is equivalent to
the one indicated by the first kind. The only difference is that it is not the
same property as of the first kind, it having been picked up from among other
properties of the accused, the intent of the legislature being that it must be
of the same “value” as the former. The third kind does use the qualifying words
“equivalent in value”. Though these words are not used in the second category,
it is clear that the said kind also has to be understood in the same sense.
110. Thus, it must be observed that, in
the opinion of this court, if the enforcement authority under PMLA has not been
able to trace the “tainted property” which was acquired or obtained by criminal
activity relating to the scheduled offence for money-laundering, it can
legitimately proceed to attach some other property of the accused, by tapping
the second (or third) above-mentioned kind provided that it is of value near or
equivalent to the proceeds of crime. But, for this to be a fair exercise, the
empowered enforcement officer must assess (even if tentatively), and
re-evaluate, as the investigation into the case progresses, the quantum of
“proceeds of crime” derived or obtained from the criminal activity so that
proceeds or other assets of equivalent value of the offender of
money-laundering (or his abettor) are subjected to attachment to such extent,
the eventual order of confiscation being always restricted to take over by the
Government of illicit gains of crime, the burden of proving facts to the
contrary being on the person who so contends.”
In
a recent case of Seema Garg v. The Deputy Director, Directorate of
Enforcement [PMLA No.1 of 2019(O&M) (Decided on 06.03.2020)], the
Punjab and Haryana High Court of Punjab and Haryana has widely dealt with
‘value of such property’ and held as under:
“14. From the conceded position and arguments of
both sides, we find that following questions arise for our adjudication:
(i) Whether provisional attachment of property
is sustainable after the expiry of 90 or 365 days from the date of order passed
by adjudicating authority?
(ii) Whether property acquired prior to
enactment of PMLA i.e. prior to 1.7.2005 can be provisionally attached under
Section 5 of the PMLA?
(iii) Whether phrase ‘value of such property’
occurring in definition of ‘proceeds of property’ includes any property of any person
irrespective of source of property?
(iv) Whether officer attaching property is
required to record reason that property is likely to be concealed, transferred
or dealt with in any manner which may frustrate proceedings relating to confiscation?
19. In view of above discussion, we summarise
our findings as below:
(i) In case investigation is pending, filing
of complaint against others is not sufficient to deprive any person from
benefit of time cap of 365 days,
(ii) Property acquired prior to commission of
scheduled offence i.e. criminal activity or introduction of PMLA cannot be
attached unless property obtained or acquired from scheduled offence is held or
taken outside the country.
(iii). Director or any other officer authorised by
him is bound to record reasons which must be specific and mere reproduction of
wording of Section 5 is not sufficient.”
Considering
the above, it apparent that provision of ‘equivalent value’ has been
incorporated in the Act to serve the purpose of law rather for the convenient
attachment of any property by the Authorities. Attachment of any property as
‘equivalent value’ can only be done when the ‘proceeds of crime’ is untraceable
and the person concern had ‘illicit gain’ from the criminal activity relating
to ‘scheduled offence’.
Now
the Punjab and Haryana High Court in above case has clearly stated that property
acquired prior to commission of scheduled offence i.e. criminal activity or
introduction of the Act cannot be attached unless property obtained or acquired
from scheduled offence is held or taken outside the country.
Do Subscribe to our YouTube Channel for more legal updates in Hindi.
Do Subscribe to our YouTube Channel for more legal updates in Hindi.
