MS KAUSHALYA INFRASTRUCTURE DEVELOPMENT CORPORATION LIMITED THROUGH ITS DIRECTOR MR MAHESH MEHRA V. UNION OF INDIA THROUGH ITS DIRECTOR OF ENFORCEMENT

W.P.(Cr.)/226/2021

AI Insights

The case involves M/s Kaushalya Infrastructure Development Corporation Limited, which filed a petition against the Union of India and its Directorate of Enforcement, challenging a provisional attachment order under the Prevention of Money Laundering Act, 2002. The petitioner argued that the attachment of their property was unjustified as the property was not derived from proceeds of crime, and the necessary legal standards for such an attachment were not met. The respondents defended the attachment, citing the submission of forged invoices and the resultant financial gain as proceeds of crime. The court examined the definitions and requirements under the Prevention of Money Laundering Act, particularly focusing on the concepts of 'proceeds of crime' and the conditions under which property can be provisionally attached.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 724377 (HC-JHARKHAND)
• Appeal Type: Others
• Pronouncement Date: 26-10-2021
• Assessment Year: misc
• Other Referred Cases: Joti Parshad v. State of Haryana, Radha Krishan Industries v. State of Himachal Pradesh, HDFC Bank Limited v. Government of India, Abdullah Ali Balsharaf and another v. Directorate of Enforcement, Himachal EMTA Power Limited v. Union of India, Excel Powmin Ltd. v. Union of India, Deputy Director Directorate of Enforcement Delhi v. Axis Bank
• Laws Referred To: Prevention of Money Laundering Act, 2002, Indian Penal Code, 1860, Prevention of Corruption Act, 1988
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: AMIT DAS; SHIVAM SAHAY
• Assessee Lawyers: INDRAJIT SINHA; POOJA KUMARI
• Keywords: Criminal conspiracy; Forged invoices; Money laundering; Provisional attachment; Scheduled Offence
• Section: 13(2); 13(1)(d); 5(1); 468; 120-B; 120-B; 420; 471; 467; 2(1)(u)

Judgement Text

" -1- W.P. (Cr.) No. 226 of 2021 IN THE HIGH COURT OF JHARKHAND AT RANCHI W.P. (Cr.) No. 226 of 2021 M/s Kaushalya Infrastructure Development Corporation Limited, a company registered under the Companies Act through its Director Mr. Mahesh Mehra, son of Late Baijnath Mehra, age 66 years, having its registered office at HB-170, Sector III, Salt Lake, P.O. Vidhannagar, P.S. South Vidhannagar, City Kolkata, West Bengal-700106 … Petitioner -Versus- 1. Union of India through its Director of Enforcement, Directorate of Enforcement, Kaushalya Chambers II, Pee Pee Compound, Main Road, P.O. & P.S. Hindpiri, Dist.- Ranchi-834001 2. Deputy Director, Directorate of Enforcement, Government of India, Kaushalya Chambers II, Pee Pee Compound, Main Road, P.O. G.P.O. Ranchi, P.S. Hindpiri, Town and District- Ranchi-834001 … Respondents ----- CORAM: HON’BLE MR. JUSTICE SANJAY KUMAR DWIVEDI ----- For the Petitioner : Mr. Indrajit Sinha, Advocate Miss Pooja Kumari, Advocate For the Respondents : Mr. Amit Kumar Das, Advocate Mr. Shivam Utkarsh Sahay, Advocate ----- 06/26.10.2021. Heard Mr. Indrajit Sinha assisted by Miss Pooja Kumari, learned counsel for the petitioner and Mr. Amit Kumar Das assisted by Mr. Shivam Utkarsh Sahay, learned counsel for the respondents. 2. The petitioner has filed this petition for quashing the provisional attachment order No.5 of 2021 dated 30.06.2021, contained in Annexure-2 passed by respondent no.2 by which in purported exercise of powers interalia under Section 5(1) of the Prevention of Money Laundering Act, 2002 (hereinafter to be referred to as “the Act, 2002”) has provisionally attached the assets/properties of the petitioner being land measuring 2.49/1.6 acres situated at R.S. Khatian No.287 (Old 90), Dag No. 614 (old 37/4), J.L. No.731, Mauza Jungle Khash, Police Station and Sub Registry Office, Jhargram, District West Midnapore, West Bengal along with a building/ Hotel standing thereon (Kaushalya Heritage) in lieu of proceeds of -2- W.P. (Cr.) No. 226 of 2021 crime to the extent of Rs.1,08,95,583/- for a period of 180 days. 3. Mr. Indrajit Sinha, learned counsel for the petitioner submits that the facts giving rise to this writ petition are that the CBI, ACB Ranchi had registered FIR No. RC-19(A)/09-R dated 22.10.2009 for the offence allegedly committed under Section 120 (B) read with Sections 420, 467, 468 and 471 of the Indian Penal Code, 1860 and under Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 against three accused persons, in which, the petitioner-company has also been arrayed as accused no.3. In the FIR, it has been alleged that one Baleshwar Baitha and Heeraman Mahto both Executive Engineers, Road Construction Department, Daltonganj, during period 2004-06 entered criminal conspiracy amongst themselves and with the petitioner-company. In pursuance of the said conspiracy, the petitioner-company submitted false/bogus invoices showing a procurement of bitumen for the execution of contractual works awarded to them, which caused wrongful gain to the contractor and official concerned and corresponding huge wrongful loss to the Government of Jharkhand. The CBI submitted Chargesheet No.2 dated 31.01.2011 under Sections 120 (B) read with Sections 420, 468 and 471 of IPC and Section 13(2) read with Section 13(1)(d) of the PC Act against the petitioner- company. He further submits that on 08.05.2004, Notice Inviting Tender (NIT) was issued and the work was allotted to the petitioner-company on 19.07.2004 for strengthening for Parwa-Garhwa Road. Pursuant thereto an agreement was entered between the petitioner-company and the Department on 19.08.2004 and supplementary agreement was entered on 19.10.2004. He also submits that the property has been attached for 26 numbers of forged invoices which according to respondent no.2 comes to -3- W.P. (Cr.) No. 226 of 2021 sum of Rs.1,08,95,583/-. He submits that on this background the attachment order has been passed for the property, in question. He draws attention of the Court to Section 2(1)(u) of the Prevention of Money Laundering Act, which defines the meaning of proceeds of crime. By way of referring this Section, he submits that as per this Section 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 or where such property is taken or held outside the country, that can also be attached. He further submits that the attachment order has been passed under Section 5(1) of the Act, 2002. According to him, there is no concealment on behalf of the petitioner in light of Section 5(1)(b) and there is no binding by the concerned authority to the tune of amount, which has been shown as proceeds of crime. To buttress this argument, he relied upon the judgment rendered by the Hon'ble Supreme Court in the case of Joti Parshad v. State of Haryana, reported in 1993 Supp (2) SCC 497. 4. Paragraph 5 of the said judgment is quoted herein below: “5. Under the Indian penal law, guilt in respect of almost all the offences is fastened either on the ground of “intention” or “knowledge” or “reason to believe”. We are now concerned with the expressions “knowledge” and “reason to believe”. “Knowledge” is an awareness on the part of the person concerned indicating his state of mind. “Reason to believe” is another facet of the state of mind. “Reason to believe” is not the same thing as “suspicion” or “doubt” and mere seeing also cannot be equated to believing. “Reason to believe” is a higher level of state of mind. Likewise “knowledge” will be slightly on a higher plane than “reason to believe”. A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a reason to believe if he has sufficient cause to believe the same. Section 26 IPC explains the meaning of the words “reason to believe” thus: “26. ‘Reason to believe’.— A person is said to have ‘reason to believe’ a thing, if he has sufficient cause to believe that thing but not otherwise.” -4- W.P. (Cr.) No. 226 of 2021 In substance what it means is that a person must have reason to believe if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned. Such circumstances need not necessarily be capable of absolute conviction or inference; but it is sufficient if the circumstances are such creating a cause to believe by chain of probable reasoning leading to the conclusion or inference about the nature of the thing. These two requirements i.e. “knowledge” and “reason to believe” have to be deduced from various circumstances in the case. In the context of the circumstances obtaining in the instant case namely that the appellant admittedly was a licenced stamp vendor and he was found in possession of counterfeit stamps, the explanation of the accused also becomes relevant and important in assessing and appreciating whether he had such knowledge or reason to believe that the stamps were counterfeited. Admittedly he used to purchase stamps from the treasury and all such transactions are duly recorded in the official registers. There is absolutely no material whatsoever to show that the counterfeit stamps were in fact purchased by him from the treasury. A bare allegation by way of an explanation by the accused-appellant that he purchased all the stamps including the counterfeit ones from the treasury appears on the face of it to be false, as he has neither produced registers maintained by him nor did he make even an effort to summon the treasury records. There is no material whatsoever even to probablise such a plea. In these circumstances the only inference that can be drawn is that he had “knowledge” and “reason to believe” that the stamps which he had in his possession and which he was selling or offering to sell, were counterfeit ones. These ingredients of the two provisions of law are fully established. Therefore the convictions are correct. The offence also is a serious one and the sentence awarded is not excessive. The appeal is therefore dismissed.” 5. By way of referring this judgment, he submits that reason to believe is not the same thing as suspicion or doubt and mere seeing also cannot be equated to believing. Reason to believe is a higher level of state of mind, which is lacking in the case in hand. 6. Learned counsel for the petitioner further submits that recently Hon'ble the Supreme Court has considered the attachment proceeding with regard to Central GST Act in the case of Radha Krishan Industries v. State of Himachal Pradesh and others, reported in (2021) 6 SCC 771. -5- W.P. (Cr.) No. 226 of 2021 7. Paragraphs 49, 50, 51, 52, 56 and 70 of the said judgment are quoted herein below: “49. Now in this backdrop, it becomes necessary to emphasise that before the Commissioner can levy a provisional attachment, there must be a formation of “the opinion” and that it is necessary “so to do” for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalisation of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory preconditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that “for the purpose of protecting the interest of the government revenue, it is necessary so to do”, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue. 50. By utilising the expression “it is necessary so to do” the legislature has evinced an intent that an attachment is authorised not merely because it is expedient to do so (or profitable or practicable for the Revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the Revenue can be protected only by a provisional attachment without which the interest of the Revenue would stand defeated. Necessity in other words postulates a more -6- W.P. (Cr.) No. 226 of 2021 stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallised. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assessee can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorise Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue. 51. These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement. While dealing with a similar provision contained in Section 45 of the Gujarat Value Added Tax Act, 2003, one of us (Hon’ble M.R. Shah, J.) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v. State of Gujarat observed : (Vishwanath Realtor case26, SCC OnLine Guj para 26) “26. Section 45 of the VAT Act confers powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency of any proceedings of assessment or reassessment of turnover escaping assessment. However, the order of provisional attachment can be passed by the Commissioner when the Commissioner is of the opinion that for the purpose of protecting the interest of the Government Revenue, it is necessary so to do. Therefore, before passing the order of provisional attachment, there must be an opinion formed by the Commissioner that for the purpose of protecting the interest of the Government Revenue during the pendency of any proceedings of assessment or reassessment, it is necessary to attach provisionally any property belonging to the dealer. However, such satisfaction must be on some tangible material on objective facts with the Commissioner. In a given case, -7- W.P. (Cr.) No. 226 of 2021 on the basis of the past conduct of the dealer and on the basis of some reliable information that the dealer is likely to defeat the claim of the Revenue in case any order is passed against the dealer under the VAT Act and/or the dealer is likely to sale his properties and/or sale and/or dispose of the properties and in case after the conclusion of the assessment/reassessment proceedings, if there is any tax liability, the Revenue may not be in a position to recover the amount thereafter, in such a case only, however, on formation of subjective satisfaction/opinion, the Commissioner may exercise the powers under Section 45 of the VAT Act.” (emphasis supplied) 52. We adopt the test of the existence of “tangible material”. In this context, reference may be made to the decision of this Court in CIT v. Kelvinator of India Ltd.27 S.H. Kapadia, J. (as the learned Chief Justice then was) while considering the expression “reason to believe” in Section 147 of the Income Tax Act, 1961 that income chargeable to tax has escaped assessment inter alia by the omission or failure of the assessee to disclose fully and truly all material facts necessary for the assessment of that year, held that the power to reopen an assessment must be conditioned on the existence of “tangible material” and that “reasons must have a live link with the formation of the belief”. This principle was followed subsequently in a two-Judge Bench decision in CIT v. Techspan (India) (P) Ltd. While adverting to these decisions we have noticed that Section 83 of the HPGST Act uses the expression “opinion” as distinguished from “reasons to believe”. However for the reasons that we have indicated earlier we are clearly of the view that the formation of the opinion must be based on tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue. 56. A significant aspect of Rule 159(5) is that upon the levy of a provisional attachment, the person whose property is attached is empowered to file an objection within seven days on the ground that the property was or is not liable to attachment. In using the expression “was or is no longer liable for attachment”, the delegate of the legislature has comprehended two alternative situations. The first, evidenced by the use of the words “was” indicates that the property was on the date of the attachment in the past not liable to be attached. That is the reason for the use of the past tense “was”. The expression “is not liable to attachment” indicates a situation in praesenti. Even if the property, arguably, was validly attached in the past, the person whose property has been attached may demonstrate to the Commissioner that it is not liable to be attached in the present. 70. Ex facie, the above order passed by the Joint Commissioner does not indicate any basis for the formation of the opinion that the levy of a provisional attachment was necessary to protect the interest of the government revenue. The order in the file noting refers to the fact that the case of GM Powertech had been decided under Section 74 resulting in -8- W.P. (Cr.) No. 226 of 2021 an additional demand of Rs 39 crores on account of a fraudulent claim of ITC for FYs 2017-18 and 2018-19. GM Powertech is alleged to have passed on ITC to various Registered Tax Persons (“RTP”) situated in Himachal Pradesh by issuing invoices inter alia to the appellant during 2018-19 for which a case under Section 74 had been initiated. The order records that the appellant had claimed ITC of Rs 3.25 crores on the strength of the invoices issued by GM Powertech. The order merely records that the submissions which were urged by the appellant on 5-8-2020 “are not sustainable”. “In view of the facts involved in the case”, the Joint Commissioner concluded that it is necessary at this stage to safeguard the government revenue and since the appellant had sold goods to Fujikawa the payment due to it was being attached provisionally. The order of the Joint Commissioner contains absolutely no basis for the formation of the opinion that a provisional attachment was necessary to safeguard the interest of the Revenue. No tangible material has been disclosed. The record clearly reveals a breach of the mandatory preconditions for the valid exercise of powers under Section 83 of the HPGST Act.” 8. By way of referring this judgment, he submits that in this case it has been held that it is mandatory satisfaction for ordering provisional attachment which has been held in the case of Radha Krishan Industries and in the case of the petitioner, satisfaction is not disclosed as in internal page 35 of the attachment order, it has been admitted that the property linked directly with proceeds of crime could not be done as there were numerous transactions dealing with cash deposits and withdrawals. 9. Learned counsel for the petitioner further submits that Section 2(1)(u) and relevant Section of the Prevention of Money Laundering Act has been considered by the Hon'ble Patna High Court in the case of HDFC Bank Limited v. Government of India and ors., reported in MANU/BH/0417/2021. 10. Paragraphs 12, 16 and 25 of the said judgment are quoted herein below: “12. In my view, the property derived from legitimate source cannot be attached on the ground that property -9- W.P. (Cr.) No. 226 of 2021 derived from scheduled offence is not available for attachment. Limb Patna High Court CR. WJC No.2398 of 2017 dt.28-06-2021 No.II above is confined to value of property derived or obtained from criminal activity and not any property of the person alleged to be involved in money laundering. Otherwise the legislature would not have defined the \"proceeds of crime\", which was attachable under Section 5 of the PMLA. Indisputably, the property-in-question were acquired by respondent No.5 not from the alleged tainted money; rather it was acquired when there was no allegation of any act of money laundering committed by respondent No.5. Therefore, the properties-in-question do not fall within the mischief of second limb as \"value of property derived or obtained from criminal activity\". 16. I adopt the view of the Division Bench of Punjab and Haryana High Court in preference to the single Judge judgment of Delhi High Court in Deputy Director of Enforcement V. Axis Bank and others relied upon by learned counsel for respondent Nos.1 to 4 for the simple reason that the issue directly involved herein was there before the Punjab and Haryana High Court and not before the Delhi High Court. Finally, this Court finds that the phrase \"value of such property\" does not mean and include any property which have no link direct or indirect with the property derived or obtained from commission of scheduled offence i.e., the alleged criminal Patna High Court CR. WJC No.2398 of 2017 dt.28-06- 2021 activity. 25. What can be provisionally attached under Section 5(1) of the P.M.L. Act is a 'proceeds of crime' and to establish Patna High Court CR. WJC No.2398 of 2017 dt.28-06-2021 that the property attached is 'proceeds of crime', there must be material in possession of the authority to ventilate that the authority had \"reason to believe\". In the case on hand, the authority appears to have passed the order contained in Annexure-3 in flagrant violation of the mandate of Section 5(1) of the P.M.L.A, 2002, as there was no material before the authority to come to the conclusion that the property-in- question was 'proceeds of crime' or such 'proceeds of crime' was likely to be concealed, transferred etc. The authorities did not enter into an enquiry to find out any material that the property in question was 'proceeds of crime' nor opted for a show cause notice to the petitioner or respondent No.5 to give an opportunity of hearing before making provisional attachment, order at Annexure-3. Under the N.D.P.S. Act, freezing of property is akin to provisional attachment order vide definition of 'freezing' in Section 68B(e) of the N.D.P.S.Act.” 11. By way of referring this judgment, learned counsel for the petitioner submits that unless it is established that the property attached is proceeds of crime, the said order cannot be passed. Reason to believe is having a -10- W.P. (Cr.) No. 226 of 2021 higher state of mind, which is absent in the case of the petitioner. 12. On the same line, he submits that the Hon'ble Delhi High Court has recently considered the Act, in question in the case of Abdullah Ali Balsharaf and another v. Directorate of Enforcement and others, reported in 2019 SCC OnLine Del 6428. 13. Paragraphs 56, 107 and 108 of the said judgment are quoted herein below: “56. It is clear from the aforesaid scheme of the PMLA that any property can be provisionally attached under Section 5 or be seized under Section 17 or be frozen under Section 17(1A) of the PMLA. However, any such order can be passed only if the necessary checks and balances are complied with; namely, that the seizure or attachment is preceded by the concerned authority having reason to believe that such properties are proceeds of crime or are otherwise related to crime. Further, such reasons to believe must be formed on the basis of material in possession of the concerned officer and must be recorded in writing. In addition, such orders cannot be extended beyond the period of one hundred and eighty days, within which the Adjudicating Authority has to examine the matter and pass an order after issuing notice to the concerned persons and after affording the concerned person full opportunity to be heard. Any person aggrieved by any such order of the Adjudicating Authority is entitled to prefer an appeal to the appellate tribunal constituted under Section 25 of the Act. 107. A plain reading of the aforesaid definition indicates that the definition / expression of proceeds of crime is in two parts. The first part relates to proceeds of crime derived or obtained by crime and the second relates to property of an equivalent value. The expression proceeds of crime means any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence. Clearly the shares in question do not fall within this part of the definition. This is so because shares were subscribed by remittances paid through banking channels much prior to commission of any alleged crime and much prior to the PMLA coming into force. 108. The second part of the definition of the expression proceeds of crime includes within its ambit, a property equivalent to the value of the property, which is derived from any criminal activity and is held outside the country. In other words, if any property that is derived or obtained from any criminal activity relating to a scheduled offence is held outside India, then a property of an equivalent value held in India, would also fall within the scope of expression of proceeds of -11- W.P. (Cr.) No. 226 of 2021 crime. Thus, if it is established that the petitioners hold any property overseas, which is derived or obtained by a scheduled offence, then the Enforcement Directorate would be well within its right to initiate proceedings against any property held by the petitioners in India to the extent of the value of the proceeds of crime held overseas. In such a case, it would be irrelevant whether the assets acquired in India were acquired prior to or after the PMLA came into force.” 14. On the point of definition under Section 2(1)(u) of the Prevention of Money Laundering Act, learned counsel for the petitioner also relied upon the judgment rendered by the Hon'ble Delhi High Court in the case of Himachal EMTA Power Limited v. Union of India and others, reported in 2018 SCC OnLine Del 11078. 15. Paragraphs 14 to 19 of the said judgment are quoted herein below: “14. The next question to be examined is whether any interference with the impugned order is warranted by this Court at this stage. It is relevant to note that the impugned order is only a provisional order of attachment and the question whether the same has to be confirmed is now required to be adjudicated by the Adjudicating Authority in terms of Section 8 of the PML Act. In this view, this Court was initially reluctant to interfere at this stage. However, a plain reading of the impugned order clearly indicates that the impugned order is fundamentally flawed and is without authority of law. The impugned order of provisional attachment is founded on the allegation that the property sought to be attached has been used in commission of a scheduled offence and, therefore, is liable to be attached as proceeds of crime. However, it is obvious that merely because a property used in commission of crime, the same cannot be construed as proceeds of that crime. 15. At this stage, it would be relevant to refer to Section 5(1) of the PML Act, the relevant extract of which is set out below: \"Section 5 (1) - Where the Director or any other officer not below the rank of Deputy Director authorized 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 -12- W.P. (Cr.) No. 226 of 2021 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.\" 16. A plain reading of Section 5(1) of the PML Act indicates that an order of provisional attachment can be passed only where the concerned officer has reasons to believe on the basis of material in his possession that: (a) any person is in possession of proceeds of crime; and (b) such proceeds are likely to be concealed, transferred, or dealt with any manner which would result in frustrating any proceedings relating to confiscation of such proceeds of crime. The expression \"proceeds of crime\" is defined under clause (u) of Section 2 (1) of the PML Act as under: \"Section 2 (u) - \"proceeds of crime\" means 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 (or where such property is taken or held outside the country, then the property equivalent in value held within the country).\" 17. It is clear from the language of Section 2(u) of the PML Act that the expression \"proceeds of crime\" refers to a property, which is \"derived or obtained\" by any person as a result of criminal activity. Therefore, in order to pass an order of provisional attachment, it was necessary for the ED to have reasons to believe that the property sought to be attached was \"derived or obtained\" from any scheduled crime. 18. A plain reading of the impugned order indicates that there is no material whatsoever on the basis of which the ED could have possibly concluded that the investments made by HEPL were derived or obtained as a result of any criminal activity relating to a scheduled offence. In the impugned order, the ED has elaborately discussed the allegation made against HEPL. It is also recorded that at the time of filing of the application for allocation of coal block, the capital of HEPL was 5 lakhs which had swelled upto 7.91 crores after filing application for a coal block. The investment made by joint venture constituents of HEPL, namely, Himachal Pradesh Power Corporation Ltd. and EMTA, were further invested by HEPL; including in subscribing to the shares of CGL. The same cannot by any stretch be held to be proceeds of crime. The ED has, essentially sought to attach the investments made in HEPL on the allegation that the same have been used in commission of a scheduled offence. This is apparent from paragraphs 7 and 16 of the impugned order which are set out below: \"7. AND WHEREAS, the investment of Rs. 7.91,00,000/- was made after filing for allocation of Coal Block, and the same has been used in commission of scheduled offence. i.e. the allocation of coal block by fraudulent means and to further obtain mining lease on the basis of said allocation. Further, there is a balance of Rs. -13- W.P. (Cr.) No. 226 of 2021 1,33,700/- lying in the bank accounts as mentioned at Para 5(xiv) and the fixed deposit No. 015340100288/8 dated 4.7.2017 amounting to Rs. 11,86,710/-. * * * 16. AND WHEREAS, the following amounts have been used in the commission of scheduled offence and are proceeds crime in terms of Section 2 (u) and 2 (v) of PMLA, 2002:- S.No. Amount in Rs. Remarks 1. 2,45,00,000 Investment in M/s GCL By M/s HEPL and lying in Corporation Bank, Bhowanipur Branch, Kolkata A/cNo.510101003473693 of M/s GCL. 2. 11,86,710 Lying as fixed deposits No.015340100288/8 dated 04.07.2017 3. 1,26,540 Lying in A/c No.0153201100424 4. 7,160 Lying in A/c No.0153201002578 Total 2,58,20,410 19. The said assumption that any amount used in commission of a scheduled offence would fall within the expression \"proceeds of crime\" as defined under Section 2(1) (u) of the PML Act is fundamentally flawed. In the present case, the allegation against HEPL is that it had obtained allocation of coal block on the basis of misrepresentation. However, it is not disputed that mining of the coal from the block had not commenced, therefore, HEPL did not derive or obtain any benefit from the coal block. The ED has also not indicated any reason, which could lead one to believe that HEPL had derived any other benefit from the allocation of the coal block in question.” 16. On the point of interpretation of Sections 2(1)(u), 5(1) and 8(1) of the Prevention of Money Laundering Act, 2002, learned counsel for the petitioner relied upon the judgment rendered by the Hon'ble Calcutta High Court in the case of Excel Powmin Ltd. v. Union of India and ors., reported in MANU/WB/0302/2020. 17. Paragraphs 21, 31 and 45 of the said judgment are quoted herein -14- W.P. (Cr.) No. 226 of 2021 below: “21. Although Section 5 specifically mentions that the reason for such belief is to be recorded in writing, such requirement is absent in Section 8. Section 8 stipulates that if the AA has reason to believe that any person has committed an offence under Section 3 or is in possession of proceeds of crime, it may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under subsection (1) of Section 5 or seized or frozen under Section 17 or Section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money laundering and confiscated by the Central Government. 31. However, such argument is unacceptable in view of the independent provisions of Sections 5 and 8 which, at each of those stages, contemplate independent reasons to believe. Section 5 stipulates that if the authority concerned has reason to believe, to be recorded in writing, on the basis of material in his possession, that a crime as contemplated therein may have been committed, he may, by an order in writing, provisionally attach the property in question. 45. As such, it is evident that the noticee has no remedy against the illegality of a notice under Section 5(1) or Section 8(1) of the PMLA and/or even on the outcome of the ensuing hearing, if it goes against the noticee. Hence, the line of distinction in Biswanath Bhattacharya (supra), with Ajantha Industries (supra) does not exist in the present case, since there is no provision for a challenge to the legality of the notice or the outcome of the hearing, which is more akin to Ajantha Industries (supra) than Biswanath Bhattacharya (supra).” 18. By way of referring this judgment, he submits that the case of the petitioner is identical in nature. He further submits that the landed property, in question was purchased by the petitioner on 06.11.1999. According to him, this was purchased prior to the alleged commission of offence and this cannot be the subject matter of proceeds of crime under Section 2(1)(u) of the Prevention of Money Laundering Act. 19. By way of referring the impugned order, learned counsel for the petitioner submits that the authority concerned has stated that he is having the reason to believe for passing the order, which is contradictory in view of -15- W.P. (Cr.) No. 226 of 2021 the reasons recorded in paragraph 6 at page 35 of the impugned order. He further submits that there is no material and finding in the impugned order that the petitioner is inclined or taking any steps for alienating the property in question, in view of the fact that the said property is already mortgaged with the financial institution. On these grounds, learned counsel for the petitioner submits that the impugned order is fit to be quashed by this Court. 20. Per contra, Mr. Amit Kumar Das, learned counsel for the respondents submits that there is no illegality in the impugned order. He further submits that the agreement was entered between the Government and the petitioner-company for construction of Parwa-Garhwa Road. The petitioner has submitted 26 forged invoices of procurement of bitumen. In connivance with other authorities, the petitioner has obtained the money and in that view of the matter, it has cheated the Government and for that CBI case was instituted under Indian Penal Code including the Prevention of Corruption Act. He further submits that so far as Section 420 is concerned, it comes under the scheduled offences in view of Section 3 of the Act. He also submits that the respondents have rightly passed the impugned order and there is no illegality in the impugned order. He placed Section 2(1)(u) of Act, 2002 and submits that proceeds of crime means 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 or where such property is taken or held outside the country. To buttress this argument, he refers Section 2(1)(u) of the Prevention of Money Laundering Act and submits that the land in question was purchased in the year 1999 and the cost of the land was shown as Rs.8 Lakhs. He further submits that -16- W.P. (Cr.) No. 226 of 2021 now the value of the land is shown as Rs.30,12,900/- and the hotel in question was built up in that property in which Rs.89,63,511/- are being invested. He also submits that so far as building construction is concerned, that is latter and proceeds of crime investment cannot be overlooked. He further submits that in the account, the amount has been interlinked and it is very difficult for respondent no.2 to bifurcate the amount, in question. He also submits that the order is effective for 180 days only and after 180 days, this order will lose its force. The petitioner has already been noticed under Section 8(1) of the Act and the onus lies on the part of the petitioner to disclose before the concerned authority how the property in question was not involved. He refers to paragraph 8 of the impugned order and submits that the finding of 26 numbers of forged invoices is there, which comes to Rs.1,08,95,583/-. By way of referring page 102 paragraph (x) of the impugned order, he submits that the amount of Rs.1,08,95,583/- was found to have been credited in the bank account in the name of contractor- company, but the same got intermingled with business venture of the said company therefore proceeds of crime could not be traced. According to him, the order of provisional attachment is well founded. To buttress this argument, he relied upon the judgment rendered by the Hon'ble Delhi High Court in the case of Deputy Director Directorate of Enforcement Delhi v. Axis Bank and others, reported in 2019 SCC OnLine Del 7854. 21. Paragraphs 49, 109, 111, 122, 154, 155 and 171 of the said judgment are quoted herein below: “49. The malaise of money laundering has been a challenge faced by various members of the global community for many a decade now. At least two international organisations (the -17- W.P. (Cr.) No. 226 of 2021 European Commission and the Gulf Cooperation Council) and a number of sovereign States had set up an inter- governmental body called the Financial Action Task Force (FATF) on Money-Laundering with the objective of development and promotion of policies to combat the menace. The FATF, by its recommendations made in 1990, suggested measures to be adopted similar to those set forth in the Vienna Convention (on criminalizing the drug money laundering) including legislative ones, to enable their competent authorities to confiscate property laundered, proceeds from, instrumentalities used in or intended for use in the commission of any money-laundering offence or property of corresponding value. By its document titled \"The Forty Recommendations\" (1996), it reiterated the said suggestion for legislative measures to be adopted for confiscation of such assets or \"property of corresponding value\", cautioning that such measures be \"without prejudicing the rights of bona fide third parties\". 109. The inclusive definition of \"proceeds of crime\" respecting property of the second above-mentioned nature - i.e. \"the value of any such property\" - gives rise (as it has done so in these five appeals) to potential multi-layered conflicts between the person suspected of money-laundering (the accused), a third party (with whom such accused may have entered into some transaction vis-a-vis the property in question) and the enforcement authority (the State). Since the second of the above species of \"proceeds of crime\" uses the expression \"such property\", the qualifying word being \"such\", it is vivid that the \"property\" referred to here is equivalent to the one indicated by the first kind. The only difference is that it is not the same property as of the first kind, it having been picked up from among other properties of the accused, the intent of the legislature being that it must be of the same \"value\" as the former. The third kind does use the qualifying words \"equivalent in value\". Though these words are not used in the second category, it is clear that the said kind also has to be understood in the same sense. 111. If such other property as above (the alternative attachable property or deemed tainted property) is owned by, or held in the name of, the accused, objections to attachment (or confiscation) would generally concern the material on which reasons to believe about money-laundering and acquisition of proceeds of crime are founded or the value of the property which has been attached. Again, the possibility of conflict involving interest of a third party comes in for which the bonafides of the acts through which such third party may have acquired interest in the targeted property, as indeed of the lawfulness and adequacy of consideration for such acquisition, would need scrutiny. 122. As in the case of RDBA, the above clause of SARFAESI Act would not render PMLA subservient to it because of the different objects and reasons of both enactments. Thus, the PMLA, enacted in 2002 (but enforced in 2005), continued to prevail, particularly in the matter of attachment and confiscation, by virtue of Section 71 which reads thus :- -18- W.P. (Cr.) No. 226 of 2021 \"71. Act to have overriding effect - The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.\" 154. Generally speaking, the third party whose interest in a property may be adversely affected on account of it being attached under PMLA would be one who may have acquired such interest, right or title by a transaction involving, directly or indirectly, the person who is accused of, or charged with, the offence of money-laundering. Such acquisition of interest, right or title may be by transactions in the nature of sale / purchase, gift, lease, mortgage, pledge, hypothecation, etc. In the present cases, the respondent banks cried foul by objecting to the attachment orders respecting properties which were subject matter of mortgage or hypothecation with them. 155. It is well settled that by hypothecation, no interest or property is transferred to the hypothecatee, the latter acquiring nothing more than an equitable and notional charge to have his claim realized by sale of goods hypothecated [Paramatha Nath Talukdar v. Maharaja Probirendra M. Tagore, AIR 1966 Calcutta 405]. The possession remains with the hypothecator, the hypothecatee having the right to take possession of the hypothecated property, in the event of default, and to sell it for realization of the debt secured by hypothecation [Syndicate Bank vs. Official Liquidator, AIR 1985 Delhi 256]. 171. It will be advantageous to summarise the conclusions reached by the above discussion, as under :- (i). The process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering. (ii). The empowered enforcement officer is expected to assess, even if tentatively, the value of proceeds of crime so as to ensure such proceeds or other assets of equivalent value of the offender of money-laundering are subjected to attachment, the evaluation being open to modification in light of evidence gathered during investigation. (iii). The empowered enforcement officer has the authority of law in PMLA to attach not only a \"tainted property\" - that is to say a property acquired or obtained, directly or indirectly, from proceeds of criminal activity constituting a scheduled offence - but also any other asset or property of equivalent value of the offender of moneylaundering, the latter not bearing any taint but being alternative attachable property (or deemed tainted property) on account of its link or nexus with the offence (or offender) of money- laundering. (iv). If the \"tainted property\" respecting which there is evidence available to show the same to have been -19- W.P. (Cr.) No. 226 of 2021 derived or obtained as a result of criminal activity relating to a scheduled offence is not traceable, or the same for some reason cannot be reached, or to the extent found is deficient, the empowered enforcement officer may attach any other asset (\"the alternative attachable property\" or \"deemed tainted property\") of the person accused of (or charged with) offence of money-laundering provided it is near or equivalent in value to the former, the order of confiscation being restricted to take over by the government of illicit gains of crime. (v). If the person accused of (or charged with) the offence of money-laundering objects to the attachment, his claim being that the property attached was not acquired or obtained (directly or indirectly) from criminal activity, the burden of proving facts in support of such claim is to be discharged by him. (vi). The objective of PMLA being distinct from the purpose of RDBA, SARFAESI Act and Insolvency Code, the latter three legislations do not prevail over the former. (vii). The PMLA, by virtue of section 71, has the overriding effect over other existing laws in the matter of dealing with \"money-laundering\" and \"proceeds of crime\" relating thereto. (viii). The PMLA, RDBA, SARFAESI Act and Insolvency Code (or such other laws) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other with regard to the assets respecting which there is material available to show the same to have been \"derived or obtained\" as a result of \"criminal activity relating to a scheduled offence\" and consequently being \"proceeds of crime\", within the mischief of PMLA. (ix). If the property of a person other than the one accused of (or charged with) the offence of money- laundering, i.e. a third party, is sought to be attached and there is evidence available to show that such property before its acquisition was held by the person accused of money-laundering (or his abettor), or it was involved in a transaction which had inter- connection with transactions concerning money-laundering, the burden of proving facts to the contrary so as to seek release of such property from attachment is on the person who so contends. (x). The charge or encumbrance of a third party in a property attached under PMLA cannot be treated or declared as \"void\" unless material is available to show that it was created \"to defeat\" the said law, such declaration rendering such property available for attachment and confiscation under PMLA, free from such encumbrance. (xi). A party in order to be considered as a \"bonafide third party claimant\" for its claim in a property being -20- W.P. (Cr.) No. 226 of 2021 subjected to attachment under PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or complicit in, the offence of money-laundering, and that it has made all compliances with the existing law including, if so required, by having said security interest registered. (xii). An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides. (xiii). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property), claiming that it had acquired the same at a time around or after the commission of the proscribed criminal activity, in order to establish a legitimate claim for its release from attachment it must additionally prove that it had taken \"due diligence\" (e.g. taking reasonable precautions and after due inquiry) to ensure that it was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest. (xiv). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property) claiming that it had acquired the same at a time anterior to the commission of the proscribed criminal activity, the property to the extent of such interest of the third party will not be subjected to confiscation so long as the charge or encumbrance of such third party subsists, the attachment under PMLA being valid or operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party. (xv). If the bonafide third party claimant (as aforesaid) is a \"secured creditor\", pursuing enforcement of \"security interest\" in the property (secured asset) sought to be attached, it being an alternative attachable property (or deemed tainted property), it having acquired such interest from person(s) accused of (or charged with) the offence of money-laundering (or his abettor), or from any other person through such transaction (or inter-connected transactions) as involve(s) criminal activity relating to a scheduled offence, such third party (secured creditor) having initiated action in accordance with law for enforcement -21- W.P. (Cr.) No. 226 of 2021 of such interest prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party. (xvi). In the situations covered by the preceding two sub- paragraphs, the bonafide third party claimant shall be accountable to the enforcement authorities for the \"excess\" value of the property subjected to PMLA attachment. (xvii). If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court.” 22. By way of referring this judgment, learned counsel for the respondents submits that the case of the respondents is fully covered in light of the said judgment and this petition is fit to be dismissed. He tried to distinguish the judgments relied by the learned counsel for the petitioner and by way of referring certain paragraphs of the said judgments, he submits that these judgments are not applicable in the facts and circumstances of the present case. 23. In light of the above submissions of the learned counsel appearing for the parties, the Court has gone through the materials on the record. Proceeds of crime has been defined under Section 2(1)(u) of the Prevention of Money Laundering Act, which is quoted herein below: “2.(1)(u) “proceeds of crime” means 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 [or where such property is taken or held outside the country, then the property equivalent in value held within the country [or abroad]]; Explanation.—For the removal of doubts, it is hereby clarified that “proceeds of crime” include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled -22- W.P. (Cr.) No. 226 of 2021 offence;] 24. On perusal of this Section, it is crystal clear that any property derived or obtained, directly or indirectly by any person as a result of criminal activity will come within the proceeds of crime. In the explanation it is clarified that “proceeds of crime” include property not only derived or obtained from the scheduled offence, but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. 25. Section 5(1) is the power of the authority for attachment of the property. Section 5(1) is quoted herein below: \"Section 5. Attachment of property involved in money- laundering -(1) - Where the Director or any other officer not below the rank of Deputy Director authorized 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.\" 26. Section 5(1)(b) clearly speaks that such proceeds of crime are likely to be concealed, transferred or dealt with in any manner, then only the order attachment of the property can be passed. Section 8 of the Act prescribes the procedure of adjudication, which says that on receipt of a complaint under sub-section (5), or applications made under sub-section (4) of section 17 or under sub-section (10) of section 18, if the adjudicating authority has reason to believe that any person has committed an offence under section 3 or is in possessions of proceeds of crime, he will proceed for -23- W.P. (Cr.) No. 226 of 2021 such execution after providing notice to the accused. Thus in view of Section 2(1)(u) of the Act, the proceed of crime is required to be considered in view of the said definition. For applying Section 5(1), one of the condition precedent under Section 5(1)(b) is that proceeds of crime are likely to be concealed, transferred or dealt with in any manner for passing such order the authority concerned is required to come to clear cut finding that the charged person is taking steps or inclined to alienate the property in question. Although at paragraph (xi) at page 103 of the impugned order, it has been stated by the concerned authority that if the properties are left unattached, they are likely to be concealed, transferred or dealt with by the accused person, but there is no material and reason assigned for coming to that finding. The property in question is mortgaged with the financial institution. In Radha Krishan Industries (supra), the Hon'ble Supreme Court has considered similar provision and held that there will be reason and material to come to that finding. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the Government revenue. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. It is an admitted fact that the landed property was -24- W.P. (Cr.) No. 226 of 2021 purchased by the petitioner prior to institution of the criminal case. The amount in question shown to the tune of Rs.89,63,511/- to be invested in construction of hotel in question. The authority has come to the conclusion that the proceeds of crime of Rs.1,08,95,583/- has been invested, which is the subject matter of 26 forged invoices. It has been admitted at page 94 of the impugned order, which reads as under: “Though the efforts have been made to identify the movable and immovable properties linked directly with Proceeds of Crime, but the same could not be done as there were numerous transactions dealing with cash deposits and withdrawals. Hence, in such scenario other properties of the person(s) accused in the matter seem fit to be attached under PMLA as 'value thereof'.” 27. Thus, it is an admitted fact that there is no finding and it has not been identified that movable or immovable property linked directly with proceeds of crime but the same could not be done by the authority concerned. The material and reason has also not been disclosed so far as alienation of the property in question is concerned. There is no doubt that the authority is having the power to attach the property, but that power is required to be exercised in terms of the statute, which is lacking in the case in hand. Accordingly, the provisional attachment order No.5 of 2021 dated 30.06.2021, contained in Annexure-2 passed by respondent no.2 is, hereby, quashed. The matter is remanded back to the concerned authority to pass a fresh order in light of the discussions made herein above. 28. This criminal writ petition is, therefore, allowed and disposed of. (Sanjay Kumar Dwivedi, J.) Ajay/ "