Delhi High Court Judgment on the Period of Provisional Attachment Order under PMLA

INTRODUCTION

1. The unprecedented pandemic of Covid-19 has literally stormed the world and has put it to a rest. Seemingly, the impact of this pandemic has led people to believe that the world now has to be identified as the world which we knew “Before Covid-19” and the one which will be “After Covid-19”. As we are all aware, with this pandemic everything has come to a standstill. This critical situation has been examined and scrutinized by the Government of India on various occasions and as a result of this the Hon’ble Delhi High Court by way of its  judgment dated November 18, 2020 (“Judgment”) issued in the captioned matter, has dealt with an interesting question of the effect of the lockdown declared by the Central Government due to the outbreak of the Covid-19 pandemic on the period of the Provisional Attachment Orders passed under Section 5(1) of the Prevention of Money Laundering Act, 2002 (“Act”). The present article will deal with the issues raised in the judgment regarding the period of the Provisional Attachment Orders and will also provide a brief analysis of the judgment.

2. Primarily it is important to note that under Section 5 (1) of the Act, the Directorate of Enforcement may, by order in writing, provisionally attach the property for a period not exceeding one hundred and eighty days (180) from the date of the order of attachment of property. Further, Section 5 (3) of the Act clarifies that every order of attachment made under sub-section (1) of the Act shall cease to have effect after the expiry of one hundred and eighty days (180) or on the date of an order passed by the Hon’ble Adjudicating Authority, confirming the attachment.

FACTS IN BRIEF

3. In the present case, the Directorate of Enforcement, i.e. the Respondent No. 1, in exercise of its powers under Section 5(1) of the Act, passed a Provisional Attachment Order dated November 13, 2019, thereby attaching certain properties of M/s Vikas WSP Ltd. & Ors., i.e. the Petitioners, for a period of one hundred and eighty days (180) from the date of the said order. Further the Respondent No.1, in terms of Section 5(5) of the Act, filed a complaint, before the Adjudicating Authority on December 5, 2019.

4. In terms of the provisions of Section 8(1) of the Act, the Adjudicating Authority issued a Show Cause Notice dated December 18, 2019 to the Petitioners. However, before the proceedings could be concluded, on March 23, 2020 the Government of India declared a nationwide lockdown with effect from March 24, 2020 due to the spread of the COVID-19 Pandemic. It should be noted that this lockdown declared by the Government of India was partially lifted on April 20, 2020 and the Adjudicating Authority, admittedly, began functioning in a restricted manner thereafter.

5. On May 26, 2020, the Adjudicating Authority issued the Impugned Notice/Summons to the Petitioners by way of an e-mail, indicating the next date of hearing which was June 16, 2020. Hence the Petitioners filed the present petition on June 15, 2020 claiming therein that as the period of one hundred and eighty days (180) from the date of the Provisional Attachment Orders had expired, in terms of Section 5(3) of the Act, the said order ceased to have effect and therefore, the Adjudicating Authority had become functus officio and the proceedings in the complaint cannot proceed.

RELEVANT PROVISIONS

6. It is pertinent to mention that, under the Act, the Director of Enforcement, i.e. the investigating agency under the Act, is empowered to provisionally attach the properties which falls under the purview of proceeds of crime as defined under Section 2(1)(u). For the purposes of attachment of property(ies), the relevant provisions of the Act is reproduced hereunder:-

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:

(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.”

7. From the bare perusal of the above provisions, it is evident that one hundred and eighty days (180) from the passing of the Provisional Attachment Order is not prescribed as a period of limitation to do a particular act, but is the maximum period of validity of the Provisional Attachment Order. On expiry of the said period and in the absence of an order issued by the Adjudicating Authority under sub-section (3) of Section 8 of the Act, the Provisional Attachment Order will cease to have effect. It is also important to note that the Act, except in the third Proviso to Section 5(1) of the Act, does not provide for any extension of validity of the period of the Provisional Attachment Order.

SUBMISSIONS

Submissions made by the Petitioner

8. Petitioners submitted that the provisions of sub-section (1) and sub-section (3) of Section 5 of the Act provide for the maximum period of the validity of a Provisional Attachment Order and on expiry of the said period, the Provisional Attachment Order ceases to have effect without any further action/omission on part of any Authority. It was further mentioned that there is no provision in the Act by which such period can be extended by any Authority or even by a Court of law. In this regard, reliance was placed on the judgment of the Hon’ble Supreme Court in S. Kasi vs. State[1].

9. It was further submitted that the effect of an order under Section 5(1) of the Act is deprivation of the right of a person to enjoy his property. The same cannot be extended for an indefinite period. The right to enjoyment of a property is a Constitutional right guaranteed under Article 300A of the Constitution and cannot be denied to a person except in accordance with the procedure prescribed by law. In this regard, he places reliance on the judgment of the Hon’ble Supreme Court in M.C. Mehta vs. Union of India & Ors.[2].

10. It was further submitted that though the Hon’ble Supreme Court in its orders dated March 23, 2020,  May 6, 2020 and July 10,2020 passed in Suo Moto WP(C) No.3/2020- In Re: Cognizance for Extension of Limitation, has extended the period of limitation to file proceedings under the general or special laws, including the Arbitration and Conciliation Act, 1996 and the Negotiable Instruments Act, 1881, and also with respect to Section 29A and 23(4) of the Arbitration and Conciliation Act, 1996 etc., the same cannot extend the period of validity of a Provisional Attachment Order passed under Section 5(1) of the Act, as it is not a period of limitation. Further the Government of India, by a Notification dated March 31, 2020 extended the period for completion of proceedings prescribed under various Acts, like the Wealth Tax Act, 1957, The Prohibition of Benami Property Transactions Act, 1988, etc., however, the period prescribed under the provisions of the Act has not been extended. Therefore, there is no occasion for the Hon’ble Court also to extend the period prescribed.

11. The reliance was also placed on the judgment of the Hon’ble Supreme Court in New India Assurance Co. Ltd. vs. Hilli Multipurpose Cold Storage Pvt. Ltd.[3] and in Central Bureau of Investigation & Ors. vs. Keshub Mahindra & Ors.[4], it was submitted that where the statute does not vest any power with the Court to extend the period prescribed under specific law, the same must prevail and the Court cannot ignore the same on ground of equity.

12. It was further submitted that even the Hon’ble Supreme Court would not have such power under Article 142 of the Constitution, leave alone this Court under Article 226 of the Constitution. In this regard, reliance was placed on the judgment of the Hon’ble Supreme Court in Assistant Commissioner (CT) LTU, Kakinada & Ors. vs. Glaxo Smith Kline Consumer Health Care Ltd.[5] In the alternative, it was also submitted that even if the period of the lockdown declared by the Government of India has to be excluded, that is between March 24, 2020 to April 20, 2020, one hundred and eighty days (180) from passing of the Provisional Attachment Order would have expired by June 16 2020, which was the next date of hearing, rendering the Adjudicating Authority functus officio thereafter.

Submissions made by the Respondents

13. The Respondents on the other hand submitted that the Hon’ble Supreme Court by the above referred orders passed in Suo Moto W.P.(C) No.3/2020, has extended the period of limitation for various proceedings, which would also include proceedings before the Adjudicating Authority. It was submitted that the period of the Provisional Attachment Order, therefore, stands extended in terms of the said orders issued by the Hon’ble Supreme Court. By placing reliance on sub-section (1) of Section 8 of the Act, it was submitted that a notice of not less than 30 days has to be issued by the Adjudicating Authority on receipt of the Complaint under sub-section (5) of Section 5 of the Act. As the said period it self would get extended in terms of the Hon’ble Supreme Court order, it cannot be said that the Provisional Attachment Order would lose its validity only because such notice could not be issued due to the lockdown declared by the Government of India.

14. It was declared by the Respondents that the proceedings before the Adjudicating Authority is in the nature of a quasi-judicial proceedings and it is settled principal of law that a party cannot be prejudiced by the act or omission of a Court. Further, the delay in completion of the proceedings before the Adjudicating Authority, not being attributable to the Respondents, the Respondents cannot be prejudiced by the same.

ANALYSIS

15. While evaluating the submissions made by both the parties it can be analyzed that Sub-section (1) of Section 5 of the Act empowers the Director or any other officer not below the rank of the Deputy Director authorized by the Director of Enforcement in this regard, to pass an order provisionally attaching property of a person, for a period not exceeding one hundred and eighty days (180) from the date of the order. In terms of the third proviso to sub-section (1) of Section 5 of the Act, this period is extended by thirty days (30) from the date of the order vacating any stay order granted by the High Court on such Provisional Attachment Order or proceedings before the Adjudicating Authority. Sub-section (3) of Section 5 to the Act provides that every Provisional Attachment Order passed under sub-section (1) of Section 5 of the Act, shall cease to have effect after the expiry of the period of one hundred and eighty days or on the date of the order made under sub-section (3) of Section 8, “whichever is earlier”. Therefore, one hundred and eighty days (180) from the date of the order passed under sub-section (1) of section 5 of the Act, is the outer limit of the validity/life of such order and the same ceases to remain in effect, by efflux of time, beyond that date, in case no order confirming the Provisional Attachment Order is passed by the Adjudicating Authority under sub-section (3) of Section 8 of the Act prior thereto.

16.  It is pertinent to note that plain reading of sub-section (1) of Section 5 with Section 2(1)(d) of the Act leaves no manner of doubt that the effect of the Provisional Attachment Order is deprivation of the right to property.

17. The Hon’ble Delhi High Court, in the present Judgment, also recognized that Article 300A of the Constitution creates a Constitutional right in every person to hold and enjoy his property, unless deprived by authority of law. The Hon’ble Court relied on the judgment passed by the Hon’ble Supreme Court, in M.C.Mehta vs. Union of India & Ors. 2020 (supra), wherein the Hon’ble Supreme Court had emphasized that when the statue prescribes a mode, the property deprivation cannot be done in other modes. It was further emphasized in the said case that statutes which encroach upon rights, whether as regards person or property, are subject to strict construction in the same way as penal Acts. They should be interpreted, if possible, so as to respect such rights and if there is any ambiguity, the construction which is in favour of the freedom of the individual should be adopted; they must be given a strict construction. It was further reiterated that when a statutory authority is required to do a thing in a particular manner, the same must be done in that manner or not at all. The State and other authorities while acting under the Act are only creature of statute and must act within the four corners thereof.

18. The Hon’ble Delhi High Court therefore placing reliance on various judgments, stated above, concluded that once the 180 day period, as provided under Section 5 of the Act, has lapsed without such provisional attachment order being passed under Section 8(3) of the Act, then such provisional attachment order will cease to have effect and there will be no provisional attachment order before the Hon’ble Adjudicating Authority to confirm under Section 8(3) of the Act. Therefore, with the lapse of period of 180 days, as provided under Section 5 of the Act, the Hon’ble Adjudicating Authority will become functus officio.

19.  The Hon’ble Delhi High Court did not accept any argument made in equity and stated that the Court has no choice but to enforce it in full rigor, so as to achieve the object of the statute; law prevails over equity, as equity can only supplement the law, and not supplant it. Therefore, the argument raised by the Respondent No. 1 that the delay in proceedings before the Hon’ble Adjudicating Authority cannot be blamed on it and that it must not be penalized and the time period should be extended, was not accepted by the Hon’ble Delhi High Court. The Hon’ble Court went further, to state that the principle of Actus Curiae Neminem Gravabit would also have no application.

CONCLUSION

20.  In view of the same, the Hon’ble Delhi High Court in the present Judgment, concluded and held that since the 180 days from the date of the Provisional Attachment Order dated November 13, 2019 had expired without any order under Section 8(3) of the Act being passed by the Adjudicating Authority, the Adjudicating Authority had been rendered functus officio and could not proceed with the complaint filed before it.

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Authors:

Priyank Ladoia, Senior Associate
Simran Bhat, Associate

Footnotes:

[1] 2020 SCC OnLine SC 529.
[2] 2020 SCC OnLine SC 648.
[3] (2015) 16 SCC 20.
[4] (2011) 6 SCC 216.
[5] 2020 SCC OnLine SC 440.

Published In:LegitEye
Date: December 19, 2020