ED can’t form an opinion if a crime was committed during probe: HC

Case Details: Prakash Industries Ltd. v. Union of India - [2023] 146 taxmann.com 502 (HC-Delhi)

Judiciary and Counsel Details

• • Yashwant Varma, J.
  • Ankur Chawla, Gurpreet Singh, C.B. Bansal, Aamir Khan, Shivam Tandon & Ms Prerna Mahajan, Advs. for the Petitioner.
  • Zoheb Hossain, Vivek Gurnani, Santokh Singh & Ms. Kumud Ranjan for the Respondent.

Facts of the Case

In the instant case, the question was raised before the High Court as to whether Enforcement Directorate (ED) can form an opinion from the material gathered by it that a predicate/scheduled offence has been committed and provisionally attach the properties based on that opinion?

High Court Held

The High Court observed that the Prevention of Money Laundering Act, 2002 (PMLA) empowers the ED to investigate Section 3 offences only. Its power to investigate and enquire stands confined to the offence of money laundering as defined in that Section. However, the same cannot be read as enabling it to assume from the material that it may gather in the course of that investigation that a predicate offence stands committed.

Sec 3 of PMLA read as follows –

“Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the [proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering”.

The High Court was of the view that the predicate offence has to be necessarily investigated and tried by the authorities empowered by law in that regard. The primary function is to investigate and try such offences remain and vest in authorities constituted under those independent statutes. ED cannot possibly arrogate itself with the power to investigate or enquire into the alleged commission of those offences.

The High Court, further noted that regard must be given to the fact that initiation of action w.r.t ‘attachment of property’ u/s 5 of the Act is premised on the competent authority having reason to believe that a person is in possession of proceeds of crime. Thus, the formation of opinion under the said provision is not related to the commission of a scheduled offence.

The High Court held that Section 66(2) read with Section 5 of the Act accounts for a situation where even though a report under Section 173 of the Cr.P.C. or a complaint may not have come to be registered, the ED would yet be empowered to proceed against the tainted property if it is of the opinion that in the absence of emergency measures being adopted, the objective of the Act to attach and confiscate proceeds of crime would be frustrated.

The High Court, further held that ED cannot form an opinion from the material gathered by it that a predicate offence has been committed and provisionally attach properties based on that opinion. Such power of ED cannot even be deduced from emergency powers of provisional attachment under the second proviso to section 5 of the Act.