New Delhi: The Enforcement Directorate (ED) can legally attach properties purchased with “proceeds of crime” even if the assets were acquired before the Prevention of Money Laundering Act (PMLA) was enacted officially in July 2005—the Delhi High Court has ruled, strengthening the powers of federal investigators.
As long as an individual continues to possess or use the property after the law came into force on 1 July 2005, the high court Monday ruled that they are engaged in a continuing offence that falls in the purview of the Act.
The court was examining if property purchased with the proceeds of crime before the PMLA came into force can be attached.
The case originated from a 2009 CBI investigation into a conspiracy involving Homi Rajvansh, the former additional managing director of the National Agricultural Marketing Cooperative Federation Ltd (NAFED). The probe alleged that Rajvansh, involved with private entities, executed sugar import agreements that caused massive losses to NAFED while generating “undue benefit” for his associates.
The trail of “tainted money” allegedly led to Alka Rajvansh, Homi’s wife and a director of M/s Mahanivesh Oils & Foods Pvt Ltd.
In February 2005, the company received Rs 1.5 crore through a series of transactions, which was immediately used to purchase a basement and ground-floor residence in Vasant Vihar, New Delhi. Because this purchase was finalised in March 2005—months before the PMLA became law—the company challenged ED’s subsequent 2014 attachment of the property.
Reversing single judge’s decision
The Division Bench, comprising Justice C. Hari Shankar and Justice Om Prakash Shukla, overturned a 2016 order by a single judge who had quashed the attachment.
The single judge had previously noted that because the property was bought and the money was “integrated” into the economy before July 2005, the crime was “complete” already. Also, suggesting that applying the PMLA to this property would be a retrospective application of a penal statute, the single judge ruled that this was violative of Article 20(1) of the Indian Constitution, which prevents people from being punished for acts that weren’t crimes when they were committed.
The division bench identified what it termed “three fundamental errors” in the earlier reasoning.
First, it clarified that the definition of “proceeds of crime” includes not just the initial stolen money, but the property purchased with it. “Once the subject property is also recognised as constituting proceeds of crime, there can be no question of the offence of money laundering having been completed prior to the enactment of the PMLA”, the bench noted.
Then, the court corrected a vital linguistic distinction, stating that Section 3 of the PMLA does not punish the act of ‘coming into possession’, but the ‘state of possession’ itself.
Third, the Bench emphasised that “money laundering” is defined broadly to include use and possession: “The offence of money laundering does not… end on the date when the person comes into possession of the proceeds of crime. It continues so long as the person remains in possession of the proceeds of crime.”
A continuing offence
Rejecting the argument that this interpretation violates constitutional protections against retrospective laws, the court clarified that it was not punishing the original 2005 purchase, but the ongoing possession of the illicit asset in the years following the law’s enactment.
The Bench noted that the offence of money laundering is “independent” of the original crime. Quoting Supreme Court precedent, the judgment affirmed: “The criminal activity may have been committed before the same had been notified as scheduled offence… but if a person… continues to indulge directly or indirectly in dealing with proceeds of crime… (they) may be liable to be prosecuted.”
Upholding the 2014 attachment order of the Vasant Vihar property, the court quashed the single judge order.
(Edited by Viny Mishra)
Also read: How HC order granting ‘limited’ relief to PMLA accused also outlined scope of ED’s powers & ECIR