Jun 07, 2024

International Fraud & Asset Tracing 2024 – Trends & Developments

This article was first published in Chambers International Fraud & Asset Tracing 2024 Global Practice Guide available at https://practiceguides.chambers.com/practice-guides/international-fraud-asset-tracing-2024/india/trends-and-developments

Attachment of Properties Under the Bharatiya Nagarik Suraksha Sanhita, 2023

In India, the criminal law machinery is chiefly governed under:

  • the Indian Penal Code, 1860 (IPC) as the primary substantive legislation;
  • the Code of Criminal Procedure, 1973 (CrPC) as the primary procedural legislation; and
  • the Indian Evidence Act, 1872 (the “Evidence Act”), governing the law of evidence.

After receiving assent from the President of India on 25 December 2023, the government of India published three new enactments, namely the Bharatiya Nyaya Sanhita, 2023 (BNS), the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) and the Bharatiya Sakshya Andhiniyam, 2023, replacing the IPC, CrPC and Evidence Act, respectively. Subsequently, the government of India (by separate notifications) notified 1 July 2024 as the date when these new pieces of criminal legislation shall come into force.

This article aims to discuss one of the key changes introduced by the BNSS, which provides the jurisdictional court or magistrate with the power to attach any property that is decided as being “proceeds of crime”. The article discusses the prescribed procedure and its conflict with the special legislation, namely the Prevention of Money Laundering Act, 2002 (PMLA), which presently governs the tracing and attachment of proceeds of crime involved in the offence of money laundering, and which will continue to be in force contemporaneously with the BNSS. The article also notes the key differences between these two pieces of legislation in relation to attachment proceedings, which include a broadening of powers of attachment under the BNSS, with correspondingly reduced safeguards. Furthermore, the article discusses the potential issues that may arise upon enforcement of the BNSS in relation to attachment proceedings.

Extant Regime Governing Attachment of Property Related to or Derived From Criminal Activity

Under the CrPC, there are limited provisions enabling attachment of property. For example, under Section 83 of the CrPC, a jurisdictional court is allowed to order attachment of property of a person who is proclaimed to be absconding, provided that the court is satisfied that such property is about to be disposed of or removed from the jurisdiction of the court.

Chapter VII-A of the CrPC further allows the court to order attachment or forfeiture of property from any person if such property is obtained or derived from the commission of an offence that may have been committed in a contracting State with reciprocal arrangements with India (“Contracting State”). The Chapter empowers the court to issue a letter of request to a court or concerned authority in the Contracting State for execution of such order for attachment or forfeiture of property.

Additionally, where a letter of request is received by the Central Government from a court or an authority in a Contracting State requesting the attachment or forfeiture of the property in India, the Central Government may forward such letter of request to the court for execution of such attachment. The court may direct any police officer not below the rank of Sub-Inspector of Police to take all steps necessary for tracing and identifying such property. In State of Madhya Pradesh v Balram Mihani; (2010) 2 SCC 602, the Supreme Court of India clarified that Chapter VII-A of the CrPC only applies to offences having international ramifications and not with respect to local offences.

Attachment of property, including immovable property, suspected of being involved in or derived from certain specified offences (being scheduled offences) is also governed by the Prevention of Money Laundering Act, 2002 (PMLA), a specialised legislation enacted in order to, inter alia, prevent money laundering and related activities as well as provide for confiscation of proceeds of crime. The PMLA defines “proceeds of crime” 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”. It is pertinent to note that proceeds of crime would also cover the property equivalent in value held within the country, where any such property is taken or held outside the country. The term “property” itself has been defined extremely widely, and includes property or assets of every description, “whether corporeal or incorporeal, movable or immovable, tangible or intangible”.

The PMLA is a self-contained code which lays down a comprehensive framework for attachment and adjudication of proceeds of crime arising from the scheduled offences to the PMLA. Under the PMLA, the Directorate of Enforcement (ED), the relevant investigative agency, may provisionally attach such properties which it has reasons to believe are proceeds of crime that are likely to be concealed, transferred or dealt with in any manner, and that may result in frustrating any proceedings relating to confiscation of such proceeds of crime. The provisional attachment is valid for a period of up to 180 days, or until this is confirmed by an adjudicating authority (AA) appointed under the PMLA. For confirmation of the attachment, the ED has to file a detailed application before the AA. The AA forwards this application to the person whose properties are attached, along with a “show cause” notice calling upon them to show cause as to why the confirmation should not be allowed.

When issuing said “show cause” notice, the AA is also required to provide its independent reasons for believing that the person has committed the offence of money laundering or is in possession of the proceeds of crime. After considering the reply to the “show cause” notice and the documents relied upon, and after hearing the ED and the aggrieved party, the AA decides whether the attachment should be confirmed. Once the attachment is confirmed, it is valid for a period of up to 365 days from the date of such confirmation, unless proceedings are initiated before the Special Court under the PMLA (or under the corresponding law of any other country, before a competent court of criminal jurisdiction outside India) for the prosecution of the accused and for seeking confiscation of the attached property. The ED cannot take custody of immovable property until and unless the Special Court allows its confiscation, after the conclusion of trial for the offence of money laundering.

Where the ED, the AA or the Special Court passes an order in relation to the proceeds of crime comprising property that is suspected to be in a Contracting State, the Special Court may, on an application by the ED, issue a letter of request to a court or an authority in such Contracting State for execution of the order. Similarly, where a letter of request is received by the Central Government from a court or an authority in a Contracting State requesting attachment, seizure, freezing or confiscation of the property in India, derived or obtained by any person from the commission of an offence under a corresponding law committed in that Contracting State, the Central Government may forward such letter of request to the concerned officer of the ED, as it thinks fit, for execution in accordance with the provisions of the PMLA.

From the above discussion, it is apparent that there are ample safeguards under the PMLA, and that the PMLA provides for a comprehensive procedure for the attachment and confiscation of any proceeds of crime.

Attachment Proceedings Under the BNSS

While retaining the limited powers of attachment conferred under Section 83 and Chapter VII-A of the CrPC, the BNSS has also included a new provision via Section 107, whereunder, if the police officer conducting an investigation has reason to believe that any property “is derived or obtained, directly or indirectly, as a result of a criminal activity or from the commission of any offence”, it may then make an application to the jurisdictional court for attachment of such property. Such application may be made only with the approval of the Superintendent of Police or the Commissioner of Police.

Under the BNSS, “proceeds of crime” have been defined as “any property derived or obtained, directly or indirectly, by any person as a result of criminal activity (including crime involving currency transfers) or the value of any such property”. Further, “property” has been defined as “property and assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and deeds and instruments evidencing title to, or interest in, such property or assets derived or used in the commission of an offence, and includes property obtained through proceeds of crime”.

As can be seen from the above, the definitions of “proceeds of crime” and “property” in the BNSS are very wide. The BNSS’s definition of “proceeds of crime” includes any property relating to “any criminal activity”, irrespective of the nature or severity of the offence.

The BNSS prescribes that, upon an application by the police, if the court has reason to believe (such reason not needing to be given in writing) that such property constitutes “proceeds of crime”, it may issue a “show cause” notice to the aggrieved party, and such person is required to respond within a period of 14 days as to why an order of attachment should not be made. The court is required to consider such response and material facts available in relation to the proposed attachment, and, after giving a reasonable opportunity of being heard to such aggrieved party, may pass an order of attachment in respect of the property found to be proceeds of crime. Notably, there is no time limit prescribed for the period for which the property may be attached before a court is required to decide that such property constitutes proceeds of crime.

Additionally, the court has been given the power to pass an ex parte order in cases where:

  • the person does not appear or represent their case before the court within the period of 14 days, or as an interim measure; and
  • the court is of the opinion that issuance of a “show cause” notice would defeat the object of attachment.

If the court finds the attached property to be proceeds of crime, the BNSS mandates the court to direct the District Magistrate to rateably distribute such proceeds of crime to persons affected by the crime. Such rateable distribution must be performed by the District Magistrate (or an officer authorised by them) within a period of 60 days from the date on which the District Magistrate receives the order of the court. If no such claimants are ascertainable or available, or if there is any surplus left after satisfying the claimants, the proceeds of crime will stand as forfeited to the government of India. The corollary to all this is that, even while investigation is ongoing, and before the commencement and conclusion of trial, any property that the court decides constitutes proceeds of crime may be irreversibly lost to the aggrieved party, well before the aggrieved party’s guilt can be established.

Once such property or the value thereof is distributed to the claimants, and if thereafter (pursuant to a detailed trial) the party is found to be innocent, their right to the property may remain forever lost. The procedure of providing for rateable distribution is vague and replete with potential for misuse, and may be subject to judicial scrutiny once it comes into force. There are no rules or guidelines prescribing the manner in which the District Magistrate may distribute the proceeds of crime, including the modes of identifying, tracing or providing notice to the victims, or of computing the amounts of compensation payable to different victims. Without a specified framework, harms of differing nature (such as psychological, emotional or social) caused to victims of a crime may not be easily quantifiable in terms of monetary value, such as to determine what would constitute appropriate “rateable distribution”. Thus, the provision as it stands today gives excessive discretion to the District Magistrate, without corresponding checks and balances, that may be prone to misuse. This is also contrary to the settled principles of law which state that the legislature may, only after laying down the legislative policy, confer discretion on an administrative agency for working out the details within the framework of that policy.

Interplay Between the BNSS and the PMLA

In Vijay Madanlal Choudhary and Others v Union of India and Others [(2022) SCC Online SC 929], the Hon’ble Supreme Court upheld the powers of attachment prescribed under the PMLA, inter alia, on the grounds that they contain various safeguards built into the legislation. On comparison, it is clear that such rights are diluted or absent under the BNSS. For example, unlike under the PMLA wherein properties are attached provisionally for a period of up to 180 days unless confirmed by an AA, under the BNSS there is no time limit prescribed for the period for which the properties may be attached before a court is required to decide that the properties constitute proceeds of crime. Further, the 14-day time period prescribed under the BNSS for responding to a “show cause” notice is significantly shorter than that prescribed under the PMLA (ie, 30 days), with the added consequence that, on failure to appear or represent their case within the 14 days, a person may be subjected to an interim ex parte order of attachment of their property.

Significantly, unlike under the PMLA wherein the AA is required to give “its reasons to believe” that a person has committed the offence of money laundering or is in possession of the proceeds of crime (which reasons are required to be in writing and provided to the aggrieved party), under the BNSS there is no requirement for the court to give its reasons for such belief in writing. The reason for dilution of such safeguards is unclear, and severely undermines the rights of a person whose property may be attached.

Further, at present, there is also no clarity on the interplay between attachment proceedings under the BNSS and the PMLA. Given that the BNSS provides for attachment of properties related to any criminal activity, and the PMLA provides for attachment of properties related only to scheduled offences, there is an overlap when it comes to attachment of properties related to scheduled offences.

It is settled law that a special legislation will prevail over general legislation generalia specialibus non derogant, and this principle is also enshrined in the Explanation to Section 2(1)(l) as well as in Section 5 of the BNSS. These provisions make it clear that in the case of any contradiction between any special law and the provisions of the BNSS, the special law will prevail, which in this case is the PMLA. Additionally, Section 71 of the PMLA also provides that it will have an overriding effect on any inconsistent law in force. A combined reading of the aforementioned provisions thus leads to the conclusion that, in the case of conflict, it is solely the PMLA which will be applicable to attachment proceedings in relation to scheduled offences, while the BNSS will apply to attachment proceedings in relation to any other offence.

However, the above conclusion still leaves many questions unanswered. For example, where an attachment of property and its consequent distribution to victims is ordered under the BNSS in relation to a scheduled offence, it is unclear as to what happens when the same property is attached under the PMLA at a later stage as proceeds of crime in relation to the same or another scheduled offence. In such a scenario, it is also unclear whether attachment proceedings under the BNSS will stand annulled or be transferred to the AA under the PMLA. In the future, the courts may thus be required to resolve such significant issues in order to ensure that the rights of parties are not violated, including their fundamental right against double jeopardy, as provided under Article 20(3) of the Constitution of India, 1950.

Concluding Remarks

A reading of the provisions under the BNSS concerning the tracing and attachment of property shows that this area suffers from vagueness and lack of clarity. A more comprehensive analysis and scrutiny of the provisions relating to attachment will only take place once these provisions come into force. It is also possible that the constitutionality of said provisions will be challenged before various courts. In fact, on 26 February 2024 the Supreme Court of India dismissed a public interest litigation challenging the new criminal laws enacted by parliament on the grounds that they had not come into force.

Further, the practical effects of the new provisions and their conflict with the special statutes will also be looked at by the courts after they come into force. Such loopholes may be closed by way of subsequent amendments and/or judicial precedents. For now, one can only follow a “wait and watch” approach.





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