S.70 PMLA | Properties Purchased Prior To Scheduled Offence Can Be Attached Even If Not Purchased With Proceeds Of Crime: Madras High Court

“Even in respect of the properties purchased prior to the scheduled offence under PMLA , such properties can be attached if the criminal activity relating to scheduled offence is taken or held outside the country, then the property equivalent in value held within the country can be attached. The said properties attached within the country need not be the properties purchased from and out of the proceeds of crime or criminal activity. The very purpose of the provision is to ensure that the property acquired in result of criminal activity held outside India,” the court observed.

The bench of Justice SM Subramaniam and Justice V Sivagnanam also noted that as per Section 70 of the Act, a company could be prosecuted and the prosecution or conviction of the company, which is a legal jurisdictional person will not be dependent on the prosecution or conviction of any individual.

“Explanation (2) to Section 70 of PMLA clarifies that a company may be prosecuted, notwithstanding, whether the prosecution or conviction of any legal juridical person shall be contingent on the prosecution or conviction of any individual. Therefore, it is expressly clarified under Section 70 of PMLA that a company may be prosecuted. Thus, the ground taken by the petitioners that the company cannot be held vicariously liable runs counter to Section 70 of PMLA and stands rejected,” the court ordered.

The court was hearing a petition filed by Sterling Futures and Holidays Ltd challenging the complaint made by the Enforcement Directorate under the PMLA before the Special Judge. The CBI had registered an FIR against the shareholders of the company under Scetions 120B, 420 IPC and Section 13 of the Prevention of Corruption Act for financial fraud. Since the FIR disclosed a scheduled offence under the Act, the ED recorded ECIR. A Provisional Attachment Order was issued and confirmed by the adjudicating authority. Thereafter, the ED filed a complaint under the PMLA which was challenged in the present case.

On behalf of the company, it was argued that vicarious liability could not be fastened on the company for the alleged offence, if any committed by its shareholders and other persons. It was also argued that the properties were purchased much prior to the alleged commission of offence and thus since the properties were not purchased from and out of the alleged proceeds of crime, the provisional attachment order was not in consonance with the provisions of PMLA. The company argued that Section 70 could not operate against the company for alleged offences committed by its shareholders.

The ED opposed the plea and submitted that there was prima facie money laundering. It was submitted that the petitioner should approach the Appellate Tribunal under Section 26 of the Act against the provisional attachment order and thus the present petition filed under Section 482 of the CrPC was not maintainable.

The court noted that as per the provisions of PMLA, any property derived by a person as a result of criminal activity relating to a scheduled offence can be treated as proceeds of crime. Furthermore, when such property is taken or held outside the country, the property equivalent in value held within the country can be construed as proceeds of crime.

The court thus noted that even with respect to properties purchased prior to the scheduled offence, the same could be attached if the criminal activity relating to the scheduled offence is taken or held outside the country. The court highlighted that it was not necessary for the attached properties to be purchased from the proceeds of the crime.

Regarding the present case, the court noted that the merits of the provisional attachment order could not be adjudicated in the present petition and it would be appropriate for the parties to approach the appellate tribunal under Section 26 of the Act. The court also noted that there was a prima facie case for prosecuting the individual persons and the company and refused to quash the complaint. The court thus dismissed the petition.

Counsel for the Petitioner: Mr.Nithyash Natarajan for M/s.Sri Law Associates

Counsel for the Respondents: Mr AR.L.Sundaresan, Additional Solicitor General of India assisted by Mr. Cibi Vishnu, Special Public Prosecutor for ED.

Citation: 2024 LiveLaw (Mad) 373

Case Title: M/s.Sterling Futures and Holidays Ltd. v Directorate of Enforcement,

Case No: Crl.O.P.Nos.6925, 6926 & 6927 of 2022