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Andhra Pradesh High Court

4 March 2011

B. Rama Raju and others

v
Union of India and others

Case No : W. P. Nos. 10765, 10769 and 23166 of 2010

Bench : GODA RAGHURAM, R. KANTHA RAO

Citation : 2011 Indlaw AP 86, 2011 (4) ALD 383, 2011 (3) ALT 443, [2011] 164 Comp Cas 149

Summary : (A) Criminal - Code of Criminal Procedure, 1973 - Prevention of Money-laundering (Amendment)
Act, 2005 - Prevention of Money-laundering (Amendment) Act, 2009 - Prevention of Money-Laundering Act, 2002
- Provisions - Arbitrary - Invalid - Case involved three W.P.s which challenged the vires of certain provisions of
the 2002 Act and orders passed by primary and attaching authorities and adjudicating authority - Whether,
property in ownership, control or possession of a person not charged of having committed scheduled offence
would not constitute proceeds of crime, liable to attachment and confiscation proceedings, under Chapter III of
the 2002 Act - Held, that property owned or in possession of person, other than person charged of having
committed scheduled offence was equally liable to attachment and confiscation proceedings under Chapter III -
S. 2(1)(u) was not invalid - SC decision in Attorney-General for India v. Amratlal Prajivandas, 1994 Indlaw SC
400, followed - SC decision in Smt. Heena Kausar v. Competent Authority, 2008 Indlaw SC 1272, followed - SC
decision in Smt. Heena Kausar v. Competent Authority, 2008 Indlaw SC 1272, followed - Petitions dismissed.

(B) Criminal - Code of Criminal Procedure, 1973 - Prevention of Money-laundering (Amendment) Act, 2005 -
Prevention of Money-laundering (Amendment) Act, 2009 - Prevention of Money-Laundering Act, 2002 - Provision
- Invalid - Applicability - Retrospective penalization - Whether, s. 5 was invalid for retrospective penalization -
Held, that provisions of second proviso to s. 5 were applicable to property acquired even prior to coming into
force of the provision (vide Second Amendment Act) ; and even so was not invalid for retrospective penalization -
SC decision in Attorney-General for India v. Amratlal Prajivandas, 1994 Indlaw SC 400, followed - SC decision in
Khemka and Co., 1975 Indlaw SC 416, followed - Petitions dismissed.

(C) Criminal - Code of Criminal Procedure, 1973 - Prevention of Money-laundering (Amendment) Act, 2005 -
Prevention of Money-laundering (Amendment) Act, 2009 - Prevention of Money-Laundering Act, 2002 - Provision
- Invalid - Money-laundering - Mens rea - Whether provisions of s. 8 were invalid - Held, provisions of s. 8 were
not invalid for vagueness, incoherence as to onus and standard of proof, ambiguity as regards criteria for
determination of nexus between property targeted for attachment and offence of money-laundering or for
exclusion of mens rea of criminality in acquisition of such property - S. 8(4), which enjoined deprivation of
possession of immovable property pursuant to order confirming provisional attachment and before conviction of
accused for offence of money-laundering, was valid - SC decision in Matajog Dobey v. H. C. Bhari, 1955 Indlaw
SC 44, followed - SC decision in Sukumar Mukherjee v. State of West Bengal, 1993 Indlaw SC 1723, followed -
SC decision in Moti Ram Deka v. General Manager, North-East Frontier Railway, 1963 Indlaw SC 215, followed -
SC decision in Chitralekha v. State of Mysore, 1964 Indlaw SC 103, followed - SC decision in Budhan Choudhry
v. State of Bihar, 1954 Indlaw SC 4, followed - Petitions dismissed.

(D) Criminal - Code of Criminal Procedure, 1973 - Prevention of Money-laundering (Amendment) Act, 2005 -
Prevention of Money-laundering (Amendment) Act, 2009 - Prevention of Money-Laundering Act, 2002 - Provision
- Invalid - Interconnected transactions - Presumption - Whether presumption enjoined in cases of interconnected
transactions enjoined by s. 23 was valid - Held, that presumption enjoined in cases of interconnected
transactions enjoined by s. 23 was valid - SC decision in Life Insurance Corporation of India v. Crown Life
Insurance Co., 1965 Indlaw SC 123, followed - SC decision in Izhar Ahmad Khan v. Union of India, 1962 Indlaw
SC 432, followed - SC decision in M. Narsinga Rao v. State of A. P., 2000 Indlaw SC 3126, followed - Petitions
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or of the adjudicating authority confirming the orders of provisional attachment, since any person aggrieved
by the order passed by the adjudicating authority may appeal to the Appellate Tribunal constituted under
section 25, under section 26 of the Act. There is a further appeal provided to the High Court against a
decision or order of the Appellate Tribunal, under section 42.

Pleadings in response

On behalf of the respondents, in particular the Directorate of Enforcement, the Deputy Director of
Enforcement, Hyderabad has filed a counter. It is generally contended that the writ petitions are
misconceived ; the challenge to the provisions of the Act is asserted only to protract the proceedings and
without any basis ; and that the writ petitions are not maintainable and should not be countenanced since
there is an effective and alternative remedy by way of an appeal under section 26 of Act. The counter
affidavit sets out detailed responses to the several contentions of the petitioners regarding challenges to the
provisions of the Act as well as to the contentions assailing on the merits the provisional attachment and
confirmation orders passed by the respondent authorities under the provisions of sections 5 and 8 of the Act,
respectively. As we are not inclined to consider the specific challenges to the orders of provisional
attachment or of confirmation on the merits of the decision making process or the eventual conclusion of the
authorities under the Act, in view of the available alternative remedy of an appeal, and a further appeal, we
summarise herein only those responses in the counter affidavit of the Enforcement Directorate pertaining to
the challenge to the provisions of the Act.

The counter asserts and sets out :

(A) The enacting history of the Act including International commitment and convention, resolutions of the
General Assembly of the United Nations, the statement of objects and reasons accompanying the Bill which
was eventually enacted by Parliament ; the preamble of the Act ; and its several provisions disclosing a
policy to address the scourge of laundering of money which destabilises National and International
economies, the sovereignty of several States and has adverse impact on law and order maintenance. The
provisions of the Act must therefore be interpreted consistently with the evil the provisions are intended to
address ;

(B) Money-laundering while facially appears to comprise one or more clear and simple financial transactions,
involves and comprises a complex web of financial and other transactions. A money-laundering transaction
usually involves three stages :

(i) The placement stage : The malfeasant places the crime money into the normal financial system ;

(ii) The layering stage : The money induced into the financial system is layered-spread out into several
transactions within the financial system with a view to concealing the origin or original identity of the money
and to make this origin/identity virtually disappear ; and

(iii) The integration stage : The money is thereafter integrated into the financial system in such a way that its
original association with crime is totally obliterated and the money could be used by the malfeasant and/or
the accomplices to get it as untainted/clean money.

(C) Money-laundering often involves five different directional fund flows :

(i) Domestic money-laundering flows : In which domestic funds are laundered within the country and
reinvested or otherwise spent within the country ;

(ii) Returning laundered funds : Funds originate in a country, are laundered abroad and returned back ;

(iii) Inbound funds : Illegal funds earned out of crime committed abroad are either laundered [placed] abroad
or within the country and are ultimately integrated into the country ;

(iv) Out bound funds : Typically constitute illicit capital flight from a country and do not return back to the
country ; and

(v) Flow-through : The funds enter a country as part of the laundering process and largely depart for
integration elsewhere.

(D) The Act is a special law and a self contained code intended to address the increasing scourge of
money-laundering and provides for confiscation of property derived from or involved in money-laundering.
The Act provides a comprehensive scheme for investigation, recording of statements, search and seizure,
provisional attachment and its confirmation, confiscation and prosecution. The provisions of the Act (vide
section 71) are enacted to have an overriding effect (entrenched by a non-obstante provision),
notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

(E) The provisions of the Act are fair, reasonable and have sufficient safeguards, checks and balances to
prevent arbitrary exercise of power and/ or abuse by the authorities and provide several layers of scrutiny at
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States and the Nation to remould, through experimentation, our economic practices and institutions to meet
changing social and economic needs . . .

To stay experimentation in things social and economic is a grave responsibility. Denial of the right to
experiment may be fraught with serious consequences to the Nation. It is one of the happy incidents of the
federal system that a single courageous State may, if its citizens choose, serve as a laboratory ; and try
novel social and economic experiments without risk to the rest of the country. This court has the power to
prevent an experiment. We may strike down the statute which embodies it on the ground that, in our opinion,
the measure is arbitrary, capricious or unreasonable. We have power to do this, because the due process
clause has been held by the court applicable to matters of substantive law as well as to matters of
procedure. But in the exercise of this high power, we must be ever on our guard, lest we erect our prejudices
into legal principles. If we would guide by the light of reason, we must let our minds be bold."

The above dissenting opinion of Brandeis J. is quoted with approval by the Supreme Court in Government of
Andhra Pradesh v. P. Laxmi Devi [2008] 4 SCC 720 2008 Indlaw SC 245.

That the curial oversight of legislative action involves employment of different lenses of varying intensity and
focus is also illustrated by several decisions of our Supreme Court wherein the different approaches to vires
scrutiny are discernible, in scrutinising legislation regulating personal liberties or of freedoms relating to
speech and expression heightened and stricter scrutiny vis-a-vis legislation dealing with social and economic
choices where a relatively diffused scrutiny, is employed. R. K. Garg v. Union of India [1981] 4 SCC 675 ;
[1982] 133 ITR 239 1981 Indlaw SC 372 exemplifies the latter approach of diffused scrutiny to economic
legislation.

Having considered the several challenges to the provisions of the Act and on the various grounds addressed
and in the context of the appropriate and applicable principles of judicial scrutiny we have recorded our
conclusions on each of the issues formulated for decision. We now record a summary of our conclusions.

Summary of conclusions

On the several issues framed herein before we hold :

(i) On Issue A : that property owned or in possession of a person, other than a person charged of having
committed a scheduled offence is equally liable to attachment and confiscation proceedings under Chapter
III ; and section 2(1)(u) which defines the expression "proceeds of crime", is not invalid ;

(ii) On Issue B : that the provisions of the second proviso to section 5 are applicable to property acquired
even prior to the coming into force of this provision (vide the Second Amendment Act with effect from March
6, 2009) ; and even so is not invalid for retrospective penalisation ;

(iii) On Issue C & D : that the provisions of section 8 are not invalid for vagueness ; incoherence as to the
onus and standard of proof ; ambiguity as regards criteria for determination of the nexus between a property
targeted for attachment/confirmation and the offence of money-laundering ; or for exclusion of mens
rea/knowledge of criminality in the acquisition of such property ; section 8(4), which enjoins deprivation of
possession of immovable property pursuant to an order confirming the provisional attachment and before
conviction of the accused for an offence of money-laundering, is valid ;

(iv) On Issue E : that the presumption enjoined in cases of interconnected transactions enjoined by section
23 is valid ; and

(v) On Issue F : that the burden of proving that proceeds of crime are untainted property is applicable not
only to prosecution and trial of a person charged of committing an offence under section 3 but to
proceedings for attachment and confiscation-in Chapter III of the Act as well ; but only to a person accused
of having committed an offence under section 3. The burden enjoined by section 24 does not inhere on a
person not accused of an offence under section 3. The presumption under section 23 however applies in
interconnected transactions, both to a person accused of an offence under section 3 and a person not so
accused.

We record our appreciation for the methodical, clinical and meticulous assistance provided by Sri Gopal
Choudhary, Sri S. Niranjan Reddy and Sri Rajeev Awasthi, learned counsel for the respective parties in this
case.

On the analyses, conclusions and for the reasons recorded above, we discern no merit in the writ petitions
which are accordingly dismissed but in the circumstances without costs. The petitioners are however, if so
advised, at liberty to pursue the available statutory appellate remedies on the merits of the orders of the
adjudicating authority.