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[AT-PMLA] Attachment under PMLA upheld even if complaint not yet filed under Black Money Act

The Hon’ble Appellate Tribunal under the Prevention of Money Laundering Act, 2002 (‘the Appellate Tribunal’) in a recent case of Dr. Girish Bali, The Joint Director, Directorate of Enforcement v. Offset India Solutions Pvt. Ltd. & Ors has set aside the order passed by the Adjudicating Authority under PMLA refusing to confirm the provisional attachment order passed by the Directorate of Enforcement (‘ED’) under Section 5(1) of the Prevention of Money Laundering Act, 2002 (‘PMLA’).


Brief facts

During the course of the search by the income-tax department on the Respondents, various incriminating evidence and documents were recovered which showed that the Respondents i.e., Sanjay Bhandari and his associates/companies owned immovable properties and assets located outside India which were not disclosed by the Respondents in the income-tax returns. The income-tax department-initiated proceedings under the Black Money Act, 2015 (‘BMA’) in 2016 and notices were issued u/s 10 of the BMA to the Respondents.


In the statements recorded under the Income-tax Act, 1961, the Respondent Shri Sanjay Bhandari admitted to owning properties outside India and interests in companies incorporated outside India. The Respondent Shri Sanjay Bhandari also admitted that he had not disclosed his interest in the properties located outside India in the income-tax returns filed by the Respondent. The income-tax department also informed the ED that the Respondents were about to alienate the properties located outside India.


The above information was shared by the income-tax department with ED, who on the basis of the said information registered an ECIR on 10.02.2017 initiating the investigation under PMLA on the ground that Section 51 of the BMA, which is a scheduled offence, has been committed.


During the course of proceedings under PMLA, the statements of associates of Shri Sanjay Bhandari were recorded wherein they stated that Shri Sanjay Bhandari intended to alienate all his properties located outside India in order to escape from his liabilities under BMA. Certain statements of other individuals were also recorded by the ED which incriminated the Respondents.


On 01.06.2017, a provisional attachment order was passed u/s 5(1) of the PMLA wherein the properties belonging to the Respondents were attached by the ED.


Findings of the Adjudicating Authority

The Adjudicating Authority under PMLA refused to confirm the provisional attachment on the following grounds:

  • The Adjudicating Authority found that no FIR has been registered by the Income Tax Department and accordingly, there was no charge sheet or a complaint for scheduled offences prior to recording an ECIR or the Provisional Attachment Order.

  • The Adjudicating Authority found that since there is no complaint or investigation report that has been filed prior to the registration of ECIR, therefore in view of the first proviso to Section 5(1) of PMLA, the provisional attachment order is bad in law.

  • The Adjudicating Authority found that the ED did not have any material in its possession to form a reasonable belief that offence u/s 51 of the BMA had been committed.

  • The Adjudicating Authority held that Part C of the Schedule to PMLA deals with the offence of cross-border implication and agreed with the submissions of the Respondents that there has been no transfer of proceeds of crime outside India and therefore the scheduled offence u/s 51 of the Act is not made out. The Adjudicating Authority agreed with the submissions of the Respondents that the immovable properties were acquired prior to coming into force of the BMA.

  • The Adjudicating Authority refused to confirm the provisional attachment on the ground that prosecution u/s 50 was initiated and not u/s 51 of the BMA so as to justify the provisional attachment.

  • The Adjudicating Authority held that evasion of tax can only be after the assessment of tax u/s 10 of the BMA.

Aggrieved by the decision of the Adjudicating Authority, the ED filed an appeal before the Appellate Tribunal seeking to set aside the order of the Adjudicating Authority under PMLA and confirmation of the provisional attachment order passed u/s 5(1) of the PMLA.


Findings of the Appellate Tribunal

After hearing the parties, the Appellate Tribunal held that the provisional attachment by the ED u/s 5(1) was correct in view of the following:

  • The Appellate Tribunal held that the provisional attachment has been done under the second proviso to Section 5(1) of PMLA which does not require the filing of any complaint or report before the Magistrate and the second proviso overrides the first proviso to Section 5(1). Therefore, the Appellate Tribunal held that the Adjudicating Authority erred in only relying on the first proviso to Section 5(1) of the PMLA.

  • The Appellate Tribunal also held that the Adjudicating Authority failed to consider the material that was supplied by the income-tax department which showed that the Respondents had immovable properties located outside India which were not disclosed in the income-tax returns and therefore had prima facie committed the offence u/s 51 of the BMA.

  • The Appellate Tribunal held that the information supplied by the income-tax department and the statements recorded under Income-tax Act, 1961 and PMLA sufficiently justify the invocation of the second proviso to Section 5(1) of PMLA.

  • The Appellate Tribunal held that the Adjudicating Authority erred in interpreting Part C of the Schedule to PMLA and ignored the full stop after clause 3. In other words, the Appellate Tribunal held that Section 51 of the BMA is a separate class of scheduled offence and need not satisfy the definition of cross-border implications as defined in the PMLA.

  • The Appellate Tribunal also held that the Adjudicating Authority did not take into consideration the observations of the Hon’ble Supreme Court in the case of Vijay Madanlal Choudhary wherein the Hon’ble Supreme Court had held that for exercising the power of provisional attachment, there is no requirement for registration of any prosecution in respect of the scheduled offence.

  • The Appellate Tribunal held that the initiation of prosecution u/s 50 of BMA had a direct bearing on the offence u/s 51 of the BMA since the non-disclosure of the properties located outside India resulted in evasion of tax u/s 51 of the BMA as well.

  • The Appellate Tribunal held that BMA had retrospective application in as much that the properties acquired prior to BMA coming into force are taxable under BMA if they have not been disclosed.

  • The Appellate Tribunal held that the finding of the Adjudicating Authority that evasion of tax can only be after the assessment of tax u/s 10 of the BMA is incorrect and runs contrary to Section 51 of the Act. The Appellate Tribunal has held that the authorities could have proceeded against the Respondents u/s 51 of the Act even without assessment u/s 10 of the BMA.


Analysis and Conclusion

The decision of the Appellate Tribunal regarding the commission of offence u/s 51 of the BMA appears to be contrary to the settled principle in law that there is a difference between evasion of tax and wilful attempt to evade tax. In our opinion, for an offence u/s 51 of the BMA to have been committed, it was absolutely essential that an assessment order u/s 10 was passed under the BMA fixing the tax liability on the Respondents. It was only if the Respondents were wilfully evading the tax under BMA could the prosecution proceedings be initiated.


However, the findings of the Appellate Tribunal regarding the powers of the ED to provisionally attach properties under the second proviso to Section 5(1) of the PMLA and there being no requirement for registration of an FIR/complaint in respect of the scheduled offence appears to be the correct position in law.


Authored by Purvi Garg, Associate at Metalegal Advocates. The views are personal and do not constitute legal opinion.

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