The Prevention of Money Laundering Act, 2002 came into force with effect from 1st July, 2005. The Act was amended several times. Let us see the important amendments made in Section- 2 of PMLA 2002.
Proceeds of Crime / value equivalent attachment:
Sec-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;
The above definition was amended in 2015 vide Finance Act 2015 w.e.f 14.05.2015 by inserting the following words
“or where such property is taken or held outside the country then the property equivalent in value held within the country”
The above definition was again amended in 2018 vide Finance Act 2018 w.e.f 19.04.2018 by inserting the following words
“or abroad”
The above definition was again amended in 2019 vide Finance Act 2019 w.e.f 01.08.2019 by inserting the following Explanation;
‘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;
On going through the above amendments an important question arises here is that whether ‘value of any such property’ in the definition of ‘proceeds of property’ includes any property of any person irrespective of source of property?
Basically, the above said amendments were carried out to plug the loop holes in the original Act and further the change in the definition of “proceeds of crime” would allow the Enforcement Directorate to proceed against assets of “equivalent value” located even outside the country. Further, the “Explanation” clarifies the position of ‘proceeds of crime’. Now, the scope of the ‘proceeds of crime’ will be understood to relate to any property that directly or indirectly derived or obtained through any “criminal activity” relatable to scheduled offences. Since the criminal activity is not defined in the said act, department has now got the sweeping power to attach any property by making allegation that the said properties are derived out of some criminal activity related to the Scheduled offence. The Government, through these amendments, has made the anti-money laundering laws airtight by expanding the ambit of the “proceeds of crime”. Therefore, the property will be considered as tainted if it relates to any offence on the basis of which a PMLA case has been initiated.
Moreover, with these amendments, the department is vested with vast powers to attach the properties in two ways; 1. Directly as proceeds of Crime – when the properties derived were directly out of the proceeds of crime, 2. As equivalent in value – when the Department were unable to find the proceeds by direct means then they have the power to attach the property equivalent in value even if the properties were purchased prior to that of the PMLA legislation. This opens another Pandora’s box.
Even though there is a settled provision “As no law can be applied from retrospective effect” under Article 20(1) of the Constitution of India, the Enforcement Department goes ahead in its action of attaching the property acquired much earlier to that of the alleged offence by merely implementing the enormous powers vested under this PMLA,2002.
However in this regard, no finality has been attained till date due to the pendency of various litigations before the Honourable Supreme Court as well as the Honourable High Court. In the following judgments various interpretations were made by the Honourable Courts with regard to the concept of Value equivalent/ proceeds of crime.
- In the case of Rathinam v. UOI, 1994 AIR 1844, 1994 SCC (3) 394 the Hon’ble Delhi High Court held that “Therefore, the expression value of any such property’ would be a value equivalent to the value of a property derived or obtained directly or indirectly by any person as a result of criminal activity. The property itself may no longer be available but the equivalent value of such a property, whether held in cash, etc., would be available for attachment”. In the above case, the Hon’ble Delhi High Court had an occasion to interpret the term “value equivalent” while examining various issues placed by the Appellant, though the challenge was not with reference to value equivalent alone. However, the observation by the Hon’ble High Court indicates that the authority can attach value equivalent of property only when the proceeds of crime is neither available nor traceable.
- In the case of Abdullah Ali Basharaf and Another Vs Enforcement directorate and others in W.P.3531/2018 & CM 13961/2018, 19484/2018, 39904/2018 & 51202/2018 dated 9.1.2019 the Honourable High Court of Delhi made the following observation while interpreting Section 2 (1) (u) of the PMLA.
“107) A plain reading of the aforesaid definition indicates that the definition/expression of proceeds of crime is in two parts. The first part relates to proceeds of crime derived or obtained by crime and the second relates to property of an equivalent value. The expression ‘proceeds of crime ‘means any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence. …………………..
“108) The second part of the definition of the expression “Proceeds of crime” includes within its ambit, a property equivalent to the value of the property which is derived from any criminal activity and is held outside the country. In other words, if any property that is derived or obtained from any criminal activity relating to a scheduled offence is held outside India, then a property of an equivalent value held in India would also fall within the scope of expression of proceeds of crime. Thus if it is established that the petitioners hold any property overseas, which is derived or obtained by a scheduled offence, then the enforcement directorate would be well within it right to initiate proceedings against any property held by the petitioners in India to the extent of the value of proceeds of crime held overseas. In such a case it would be irrelevant whether the assets acquired in India were acquired prior or after the PMLA came into force.”
3.In a recent judgement dated 06.03.2020 the Division Bench of Hon’ble High Court of Punjab and Haryana in the case of Seema Garg and Ors Vs. The Deputy Director, Directorate of Enforcement has set aside the order of the Hon’ble Tribunal and categorically held that
“In our considered opinion, to understand true meaning of second limb of definition of ‘proceeds of crime’, it must be read in conjunction with Section 3 and 8 of the PMLA. If all these sections are read together, phrase ‘value of such property’ does not mean and include any property which has no link direct or indirect with the property derived or obtained from commission of scheduled offence i.e. the alleged criminal activity. ‘Value of such property’ means property which has been converted into another property or has been obtained on the basis of property derived from commission of scheduled offence e.g. cash is received as bribe and invested in purchase of some house. House is value of property derived from scheduled offence.”.
“Accordingly, we find and hold that phrase ‘value of such property’ does not mean and include any property which has no link direct or indirect with the property derived or obtained from commission of scheduled offence i.e. the alleged criminal activity.”.
SRI LAW ASSOCIATES
Disclaimer: Posting on this blog is for information purpose only and it’s not a legal advice.