On March 6, 2020, a landmark judgement was passed by the Hon'ble High Court of Punjab & Haryana comprising of the bench of Justice Jaswant Singh and Justice Sant Parkash (Bench), in the matter of Seema Garg Versus The Deputy Director, Directorate of Enforcement, Govt. of India (Judgment)1 . The Court has held that property acquired prior to commission of scheduled offence or introduction of Prevention of Money Laundering Act, 2002 (PMLA/Act) cannot be attached unless property obtained or acquired from scheduled offence is held or taken outside the country. While allowing the appeals, the Bench further held that 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 of PMLA is not sufficient.
It has made clear by this judgment that the property obtained through a legitimate source cannot be attached by Enforcement Directorate (ED) on the ground that the property acquired/obtained through criminal activity, is not available for the attachment.
Before we understand the highlights of the judgment, it is necessary to run through the important aspects and anti- money laundering mechanism prescribed under PMLA.
PMLA was enacted in January, 2003 and has come into force with effect from July 1, 2005 along with the Rules framed thereunder. PMLA seeks to combat money laundering in India with three main objectives (i) to prevent and control money laundering, (ii) to confiscate and seize the property obtained from the laundered money and (iii) to deal with any other issue connected with money laundering in India. The enforcement of PMLA is through the instrumentality of the Central Government. PMLA empowers ED to investigate offence under Section 4 and specially excludes interference of police officer to investigate an offence unless specifically authorised by the Central Government.
'Proceeds of Crime'
This is one of the most important term under PMLA. Section 2(1)(u) of the Act has defined this term as "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 proceeds of crime may be employed or parked in a property either directly or indirectly.
Here, the term 'property' means movable, immovable, tangible, intangible, corporeal and incorporeal property and includes deeds, instruments evidencing title to or interest in such property or assets wherever located.
The Finance Act, 2019 has widen the scope of "proceeds of crime" under the Act by adding "Explanation" to Section 2(1)(u) which reads as:
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.
By virtue of this explanation, the "proceeds of crime" will also cover those properties which are derived/obtained out of any criminal activity related to the scheduled offence, and not just directly out of the scheduled offences.
The term 'Money-Laundering' has not been defined in the traditional sense under PMLA. Money laundering means any financial transaction generating any asset or value as a result of an illegal act. According to the Webster's New World Finance and Investment Dictionary, money laundering is "Making money that is generated through criminal activities appear as if it was earned through legitimate business activities" Detecting money laundering activities is often very difficult because the money is transferred between several accounts in order to conceal its true origins.
1 Seema Garg Versus The Deputy Director, Directorate of Enforcement, Govt. of India decided on March 6, 2020 by the Hon'ble High Court of Punjab & Haryana .
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