The Kerala High Court has observed that the Prevention of Money Laundering Act 2002 ( PMLA ) does not mandate attaching a property unconnected with the proceeds of crime. The bench set aside the order of provisional attachment of properties purchased by the petitioners in 1997, 1999, and 1987, which was much prior to the commission of the crime in 2014.
Davy Varghese, the petitioner who is a septuagenarian, who claims to be suffering from a terminal illness, along with his wife, has approached the Court seeking to quash the order of provisional attachment issued under the Prevention of Money-Laundering Act, 2002 (‘PML Act’). According to the petitioners, by the attachment, they have been wholly crippled to even manage the day-to-day living as all their immovable properties, bank accounts and all their vehicles have been attached.
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Petitioners alleged that their family has business interests in hosiery, textiles and chit funds apart from real estate. They contend that they availed loans from financial institutions for their business activities and were regularly repaying them as well. In the year 2015, they approached the Karuvannur Service Co-operative Bank No.112 (‘the Bank’) for an overdraft facility for their business ventures. After satisfaction of the security offered, which included their residential property, a total loan of Rs.3.49 Crores was granted in the name of the first petitioner and his four business associates. Petitioners allege that the security offered by them was far more valuable than the amounts availed as overdraft facility and the present market value of the mortgaged property is more than Rs.8.5 Crores.
In the meantime, petitioners learnt from the media that some irregularities were detected at the bank relating to the disbursement of loans to other persons and an investigation was being conducted. While so, petitioners received summons from the first respondent requiring their presence and production of documents relating to the loans availed by them, which were duly complied with. Petitioners allege that during the enquiry they were made to sign certain statements dictated by the officials of the first respondent and later they were served with a provisional order of attachment dated 13.10.2023 bearing No.05/2023.
The order attached five of their immovable properties – four belonging to the second petitioner and one that of the first petitioner apart from the motorcar of the second petitioner and the bank accounts held by them. Petitioners allege that the provisional attachment order is manifestly illegal, without jurisdiction or authority and have hence approached this Court under Article 226 of the Constitution of India.
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A statement has been filed by the respondents contending that the writ petition is not maintainable as the remedy lies elsewhere under the PML Act. It was pleaded that the committee members including the Secretary and other persons of the bank had conspired from 2014 onwards to swindle more than Rs.100 Crores thereby making pecuniary gains.
It was alleged that several loans were sanctioned to the same person against the limit of the bank that too based on the same security, using fake addresses, after altering the bank’s software and at times without the knowledge of the owner of the property. According to an F.I.R registered as Crime No.650/2021 on 14.7.2021, under sections 406, 420, 409 and 465 read with section 34 of the IPC against six persons, the Enforcement Directorate initiated enquiry proceedings since a scheduled offence under section 420 of IPC was involved.
The first respondent further alleged that during the investigation, several searches were conducted and it was realised that loans were availed by persons violating the provisions of the byelaws of the bank and the public was cheated of crores of money which were embezzled by the accused.
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The bench observed writ petition is maintainable when an order of attachment of a property was issued without jurisdiction or is non est in law. It was noted that five properties of the petitioners were attached, which were purchased in 1997, 1999, 1987 and two of the properties in 2015. It also noted that the alleged predicate offences were committed between 2014 to 2020.
Section 5 of the Act enables authorities to provisionally attach properties which are ‘proceeds of crime’. The Court interpreted the term ‘proceeds of crime’ defined under the PMLA to state that there were three types of proceeds of crime; “(i). property derived or obtained from a criminal activity, (ii) value of any such property and, (iii) if the property is taken or held outside India, then a property equivalent in value held within India.”
The Court observed that properties could be attached if such property was obtained or derived as a result of any criminal activity relating to a scheduled offence. It observed that even properties obtained indirectly could be attached under the PMLA.
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The bench viewed that powers of attachment under the PMLA cannot be exercise for attaching properties acquired prior to the commission of the predicate offences, unless proceeds of crime were to be taken out of the country.
A single bench of Justice Bechu Kurian Thomas set aside the order of provisional attachment of properties purchased by the petitioners in 1997, 1999 and 1987 which is much prior to the commission of the crime in 2014. The Court also noted that the PMLA came into existence only in 2002.
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