The article presents a comprehensive overview of the provisions and procedures pertaining to the restoration of properties that have been attached or confiscated under the Prevention of Money Laundering Act, 2002 (PMLA). It delves into the legal framework established by the PMLA for the purpose of property restoration, encompassing the requisite conditions and requirements for making a claim for restoration. Additionally, the article explores the procedural guidelines outlined in the Prevention of Money-Laundering (Restoration of Property) Rules, 2016, governing restoration both after the conclusion of a trial and during the trial proceedings. Moreover, it analyzes the potential issues and challenges encountered in the restoration process, supplemented by the examination of a pertinent case. The article concludes by evaluating the feasibility and implications of restoration under the provisions of the PMLA.
Introduction
The Prevention of Money Laundering Act, 2002 (“PMLA”) is a law passed by the Parliament with an aim to combat illicit financial activities and the laundering of ill-gotten gains. PMLA defines the offence of money laundering in a broad manner and, apart from prescribing a punishment of up to 7 years on the accused person, also provides for the confiscation of any property involved in the offence of money laundering.
The Directorate of Enforcement (“ED”), which serves as the nodal agency for enforcing the provisions of the PMLA, routinely attaches properties during the course of investigations based on the belief that the properties are involved in the offence of money laundering and are liable to be confiscated. The Special Courts, where the trial of the offence of money laundering takes place, also determine whether certain properties (whether attached or not) are involved in the offence of money laundering and therefore liable to confiscation. The article analyses the provisions of PMLA which deals with claiming the properties that have been attached or confiscated under PMLA.
Legal provisions under PMLA for restoration of property
Section 8(5) of PMLA states that upon the conclusion of a trial of the offence of money laundering if the Special Court finds that offence of money laundering has been committed, it shall order for confiscation of the property involved in money laundering or which has been used for the commission of offence of money laundering.
Section 8(6) of PMLA states that upon the conclusion of the trial if the Special Court finds that the offence of money laundering has not taken place or the property is not involved in the offence of money laundering, the Special Court shall pass an order for releasing the property to the person who is entitled to receive it.
Section 8(7) of the PMLA further stipulates that if the trial of the offence of money laundering cannot be conducted due to the death of the accused person or the person being declared a proclaimed offender or for any other valid reason, the Special Court has the authority to consider an application by the Director or any other person claiming entitlement to the possession of the property can pass an order for confiscation or release of the property on the basis of the material before it.
Prior to 14.05.2015, the PMLA did not contain any express provision for the restoration of the property. The PMLA was therefore amended vide Finance Act 2015, and sub-section 8 was added to section 8 of PMLA.
Section 8(8) of PMLA states that if a property has been confiscated by the Central Government u/s 8(5) of the PMLA, the Special Court has the authority to direct the Central Government to restore the confiscated property to a claimant who has a legitimate interest in the property and has suffered a quantifiable loss as a result of an offence of money laundering. However, the first proviso to section 8(8) specifies certain conditions that must be met for the Special Court to entertain a claim for restoration of the property. These conditions include:
the claimant has acted in good faith,
the claimant has suffered a loss despite taking all precautions and
the claimant is himself not involved in the offence of money laundering.
For the purpose of section 8(8) of PMLA, the Central Government notified the Prevention of Money-Laundering (Restoration of Property) Rules, 2016 (“the Rules”) on 26.09.2016 which contains the procedure to be followed by the Special Court for restoration of the property. The Rules initially contemplated restoration of the property only on the conclusion of the trial of the offence of money laundering as per section 8(8) of the Act.
Since the trial of the offence of money laundering take a long time to conclude, section 8(8) of the PMLA was amended w.e.f. 19.04.2018 and a second proviso was inserted which stated that the Special Court may if it thinks fit, consider the claim of the claimant for the restoration of the property even during the course of the trial.
Pursuant to the second proviso, the Rules were amended w.e.f. 11.1.2019 and a separate procedure was provided for the restoration of property during the course of the trial as well.
Procedure for restoration of property under the Rules
An application for restoration of property can be filed by a claimant who is defined under the Rules as a person who:
has acted in good faith.
has suffered a quantifiable loss as a result of the offence of money laundering, despite having taken all reasonable precautions.
is not involved in the offence of money laundering.
If the person satisfies the above definition of claimant, they can file an application for restoration of the property before the Special Court. The procedure for seeking restoration of property at the conclusion of the trial and during the trial is broadly summarized as under.
Procedure for restoration of confiscated property after the conclusion of the trial (Rule 3)
Publication in Newspaper: The Special Court shall within 45 days of passing of the order confiscating the property under section 8(5) of PMLA, publish a notice in two daily newspapers calling for claimants to submit their claims for restoration of property.
Pro-rata distribution: The Rules provide that if the confiscated property is insufficient to fully compensate all the claimants, the Special Court may pass an order for restoration of property on a pro-rata basis in accordance with the share of loss suffered by the claimants.
The time limit for submission of claims: Claimants are required to submit their claims within 30 days from the date of notice publication. However, the Special Court has the discretion to extend the deadline for filing the claims by an additional period of 30 days if it is satisfied that the claimant had sufficient cause for not filing the claims within the initial period of 30 days.
Procedure for restoration of confiscated property after the trial is concluded (Rule 3-A)
To seek the restoration of property during the course of the trial, the claimant can file an application after framing the charge under section 4 of PMLA. The property in respect of which an application can be filed can either be a property which has been attached [under Section 5(1) of PMLA] by ED or a property which has been seized or frozen[Under Section 17 or Section 18 of PMLA] by ED. Once such an application is filed, the procedure to be followed is as under:
Publication in Newspaper: The Special Court shall publish a notice in two daily newspapers inviting claimants to submit their claims for restoration of property.
Pro-rata distribution: If the property is insufficient to meet the loss suffered by the claimant, the Special Court shall pass an order for restoration of property directing the Central Government to auction the property and disburse the proceeds on a pro-rata basis in accordance with the share of loss suffered by the claimants.
Bond to be submitted by the claimant: Any claimant receiving any property under this rule is required to execute a bond to produce the restored property before the Special Court as and when required.
The time limit for submission of claims: The claimants are required to submit their claims within 30 days from the date of notice publication. However, the Special Court can extend the deadline for filing the claims by a further period of 30 days if it is satisfied that the claimant had sufficient cause for not filing the claims within the initial period of 30 days.
The opportunity of being heard to be given to the owner of the property: The Rules provide that no order for restoration of property shall be passed without giving an opportunity of being heard to the owner of the property or in the event of his death, to the legal representative of such person.
Issues and Analysis:
Difficulty in discharging the onus during the stage of the trial
When seeking the restoration of property under the Rules, the onus is entirely on the person to prove that they have acted in good faith, incurred a quantifiable loss, and are not involved in the offence of money laundering. However, during the interim stage i.e., immediately after the charges are framed, it may be challenging for the person to satisfy the Special Court on the above-mentioned parameters.
Opposition by the owners of the property
The owners of the property (in case the attached or frozen property is not owned by the claimant) will certainly challenge the restoration of property on the ground that they have not committed the offence of money laundering and therefore the attached or frozen property cannot be handed over to the claimants till the conclusion of the trial. Therefore, Rule 3-A of the Rules, though benevolent in nature, may not ultimately achieve the stated objective and the applications filed by the claimants may not yield the desired outcomes in a time-bound manner.
Attachment by multiple agencies
Furthermore, the attachment of properties by multiple agencies poses a significant challenge in restoring the property to the rightful claimants.
In the case of M/s Lemon Seeds Hospitality Pvt. Ltd[Misc. Application No. 583 of 2019 in MPID Special Case No. 1 of 2014], certain properties were attached by different entities i.e., (i) the Competent Authority under Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (“MPID”), (ii) by Economic Offences Wing, Crime Branch, Mumbai (“EOW”) and (iii) by Competent Authority under PMLA. The Competent Authority under MPID Act conducted an auction of the properties, and the Applicant became the auction purchaser. However, due to continuing attachments by EOW and PMLA, the Applicant was unable to obtain a clear title to the properties.
In response, The ED stated that the restoration of the property should follow Rule 3-A of the PMLA, and since the charges in the case had not yet been framed, the property cannot be restored to the Applicant. However, the Special Court held that the Applicant was entitled to receive the property u/s 8(7) of the PMLA, considering the lengthy duration expected for the trial due to the substantial number of accused persons involved and taking into account the objectives of the MPID Act.
Conclusion:
The Rules are benevolent in nature and enable a person to claim restoration of their property in cases where the property belonging to such person has been wrongly attached or frozen by the ED or where such persons have suffered a quantifiable loss as a result of an offence of money laundering. Such a person does not have to wait till the conclusion of the trial to claim restoration of the property.
The Special Court in the Lemon Seeds case took a benevolent view and granted the benefit of restoration of property u/s 8(7) of the PMLA, even though the said section did not directly apply to the facts of the case. However, the Special Court took a favourable view, considering the Applicant as a bona fide auction purchaser, and therefore, the property rightfully belongs to the Applicant.
However, in most other cases under the PMLA, such a benevolent view may not be feasible if the property sought to be restored has been attached based on involvement in the offence of money laundering or has been used in the commission of money laundering. Furthermore, if numerous claimants have suffered losses, the distribution of proceeds on a pro-rata basis would be subjective and likely to be disputed by the claimants.
Authored by Nitish Solanki, Associate at Metalegal Advocates. The views are personal and do not constitute legal opinion.