*THE HON’BLE SRI JUSTICE GODA RAGHURAM And THE HON’BLE SRI JUSTICE R. KANTHA RAO + WRIT PETITION Nos. 10765; 10769 & 23166 of 2010 % Dated: 04-03-2011 # B. Rama Raju … Petitioner (WP.No.10765 of 2010) VERSUS $ Union of India, Ministry of Finance, Department of Revenue, Represented by its Secretary, (Revenue), New Delhi & others. … Respondents (WP.No.10765 of 2010) ! Counsel for the petitioners : Sri S.NIRANJAN REDDY Sri AVINASH DESAI Sri K. GOPAL CHOWDARY for Sri P. PANDURANGA REDDY ^ Counsel for respondents: Sri RAJEEV AWASTHI, for PONNAM ASHOK GOUD, Asst. Solicitor General <GIST: > HEAD NOTE: ? Cases referred 1. (1983) 2.AC.751 2. (2005) UKHL.71 3. (1997) 6 SCC 241 4. (1970) 3 SCC 400 5. (1997) 2 SCC 87 6. (1993) 2 SCC 746 7. (1999) 1.SCC.759 8. [1994] 5.SCC 54 9. 2008 (7) SCALE 331 10. (1975) 2 SCC -22 11. 310 U.S.88 (1940) 12. 347 U.S.612 (1954) 13. 405 U.S.156 (1972) 14. 408 U.S. 104 (1972) 15. 408 U.S.104 (1972) 16. AIR 1950 SC 124 17. 1982 (1) SCC 271 18. 1994 (3) SCC 569 19. 613. F.3d 317 (2d CIR. 2010) 20. (1974) 4 SCC 764 21. AIR 1956 SC 44 22. 1993 (3 SCC 723) 23. AIR 1964 SC 600 24. AIR 1964 SC 1823 25. AIR 1955 SC 191 26. AIR 1949 PC 278 27. (1927) A.C. 515 at P. 520 (96 L.J.P.C. 84) 28. AIR 1964 SC 136 29. AIR 1961 SC 1316 30. AIR 1965 SC 1985 31. AIR 1990 SC 2269 32. (1975) 3 ALL.E.R.1050 33. AIR 1960 SC 971 34. (2003) 1.SCC.433 35. AIR 1962 SC 1052 36. Circumstantial Evidence 37. (2001) 1 SCC 691 38. AIR 1961 SC 293 39. AIR 2001 SC 2288 40. JT 2003 (6) 330 41. AIR 2004 SC 456 42. 2008 (4 SCC 720) 43. 256 U.S. 262 44. 1981 (4) SCC 675 IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) FRIDAY, THE FOURTH DAY OF MARCH, TWO THOUSAND AND ELEVEN :PRESENT: HON'BLE SRI JUSTICE GODA RAGHURAM AND HON'BLE SRI JUSTICE R. KANTHA RAO W.P.Nos. 10765; 10769 & 23166 of 2010 WRIT PETITION NO: 10765 of 2010 Between: 1 B. Rama Raju,S/o B. Ramalinga Raju, R/o. H.No. 1254 A, Road No. 63, Jubilee Hills, Hyderabad,., ..... PETITIONER AND 1 Union of India, Ministry of Finance , Department of Revenue Rep. by its Secretary (Revenue) New Delhi. 2 Directorate of Enforcement, Rep. by its Director, 6th Floor, Lok Nayak Bhavan Khan Market, New Delhi,., 3 Deputy Director, Directorate of Enforcement, 3rd Floor, Shakar Bhavan, Basheerbagh,Hyderabad. 4 Adjudicating Authority (Under Prevention of Money, Laundering Act, 2002) Jeevan Deep Building, 4th Floor, Sansad Marg, New Delhi,., .....RESPONDENTS Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the Affidavit filed therewith, the Hon'ble High Court may be pleased to issue a writ order or direction one more particularly one in the nature of writ of Mandamus a) declaring that Sections 5(1), 8(1), 8(2), 8(3), 8(4), 23 and 24 of The Prevention of Money-Laundering Act 2002, are unconstitutional, and/or b) declaring the Provisional Attachment Order No. 01/2009 in ECIR No. 1/HZO/2009 dt. 18-8-2009 passed by the 3rd respondent is arbitrary unconstitutional and or contrary to law and to set aside the same; and/or c) declaring that the order dt. 14-1-2010 in O.C.No. 38/2009 passed by the 4th respondent Adjudicating Authority is arbitrary is arbitrary , contrary to law and /or unconstitutional , and to set aside the same; and /or d) declaring that the 4th respondent Adjudicating Authority’s direction to the Defendant to hand over possession in the attached properties is without power of jurisdiction and also contrary to law and to further declare that the 2nd respondent or any officer is not entitled to take possession of the petitioners property; and /or e) declaring that the properties of the petitioner sought to be attached by the impugned provisional attachment order and confirmed by the impugned order of the Adjudicating Authority are free from any attachment or encumbrance in pursuance of the impugned Orders. Counsel for the Petitioner :SRI S.NIRANJAN REDDY Counsel for the Respondents :SRI. PONNAM ASHOK GOUD (ASST SOLICITOR GEN) WRIT PETITION NO: 10769 of 2010 Between: 1 B.Teja Raju,,S/o B.Ramalinga Raju,, R/o C-2, Trendset Vantage, Road No.14, Banjara Hills,, Hyderabad... ..... PETITIONER AND 1 Union of India, Ministry of Finance, Department of Revenue, Rep. by its Secretary (Revenue), New Delhi. 2 Directorate of Enforcement, Rep. by its Director, 6th Floor, Lok Nayak Bhavan, Khan Market, New Delhi., 3 Deputy Director, Directorate of Enforcement, 3rd Floor Shakar Bhavan,, Basheerbagh, Hyderabad. 4 Adjudicating Authority (under Prevention of Money, Laundering Act, 2002), Jeevan Deep Building, 4th Floor, Sansad Marg, New Delhi. .....RESPONDENTS Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the Affidavit filed therewith, the Hon'ble High Court may be pleased to issue a writ, order or direction, one more particularly in the nature of a writ "Mandamus" a) declaring that Sec. 5(1), 8(1), 8(2), 8(3), 8(4), 23 & 24 of the Prevention of Money-Laundering Act, 2002 are unconstitutional; and/or b) declaring the Provisional Attachment Order No.01/2009 in ECIR No.01/HZO/2009, dated 18.08.2009 passed by the 3rd respondent is arbitrary, unconstitutional and/or contrary to law, and to set-aside the same; and/or c) declaring that the Orders dated 14.01.2010 in O.C.No.38/2009 passed by the 4th respondent adjudicating authority is arbitrary, contrary to law and/or unconstitutional, and to set-aside the same; and/or d) declaring that the 4th respondent adjudicating authority's direction to the defendant to handover possession of the properties is without power or jurisdiction and also contrary to law, and to further declare that the 2nd respondent or any officer is not entitled to take possession of the petitioner's property; and/or e) declaring that the properties of the petitioner sought to be attached by the impugned provisional attachment Order and confirmed by the impugned Order of the adjudicating authority are free from any attachment or encumbrance in pursuance of the impugned Orders. Counsel for the Petitioner :SRI. P.PANDU RANGA REDDY Counsel for the Respondents :SRI. PONNAM ASHOK GOUD (ASST SOLICITOR GEN) AND WRIT PETITION NO: 23166 of 2010 Between: 1 N. Subba Raju, S/o. N. Janakirama Raju, R/o. 8-64, NSI Colony, Phase - II, Ameenapura, Patancheru Mandal,, Medak District.. ..... PETITIONER AND 1 Union of India, Ministry of Finance, Department of Revenue Rep. by its Secretary ( Revenue ),New Delhi. 2 Directorate of Enforcement, Rep, by its Director, 6th Floor, Lok Nayak Bhavan, Khan Market, New Delhi. 3 Deputy Director, Directorate of Enforcement 3rd Floor, Shakar Bhavan,Basheerbagh, Hyderabad. .....RESPONDENTS Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the Affidavit filed therewith, the Hon'ble High Court may be pleased issue a writ, order or direction, one more particularly in the nature of a writ of " Mandamus " (a) declaring that sections 2(u), 3, 5 (1), 8, 23 and 24 of The Prevention of Money Laundering Act, 2002 are unconstitutional and / or (b) declaring the provisional Attachment order No. 01 / 2009 in ECIR No. 01/ HZO/2009 dated. 18.08.2009 passed by the 3rd respondent is arbitrary, unconstitutional and / or contrary to law, and to set aside the same; and / or (c) declaring that the properties of the petitioner sought to be attached by the impugned provisional attachment order are free from any attachment or encumbrance in pursuance of the impugned orders, (d) and / or pass Counsel for the Petitioner :SRI. AVINASH DESAI Counsel for the Respondents:SRI. PONNAM ASHOK GOUD (ASST SOLICITOR GEN) The Court made the following Common Order THE HON’BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE R. KANTHA RAO WRIT PETITION NOs. 10765, 10769 & 23166 OF 2010 COMMON ORDER: (Per Hon’ble Sri Justice Goda Raghuram) These writ petitions substantially challenge the vires of certain provisions of the Prevention of Money Laundering Act, 2002 (Central Act 15 of 2003) [‘the Act’]; amended by the Prevention of Money Laundering (Amendment) Act, 2005 (Central Act 20 of 2005) [‘the Amendment Act’]; further amended by the Prevention of Money-Laundering(Amendment)Act, 2009 [Central Act 21 of 2009] (the 2nd Amendment Act) and orders passed by the primary and attaching authorities and the adjudicating authority. The particulars, the circumstances and the defence to the provisions of the Act and the impugned orders are set out hereinafter. W.P.No. 10765 of 2010: B.Rama Raju s/o B.Ramalinga Raju seeks (i) invalidation of Sections 5(1), 8(1), 8(2), 8(3), 8(4), 23 and 24 of the Act; (ii) a declaration that the provisional attachment order No. 1/09 in ECIR No. 01/H20/2009, dated 18.08.2009 passed by the Deputy Director, Enforcement, Hyderabad (R-3), is arbitrary and illegal; (iii) that the order dated 14.01.2010 passed by the Adjudicating Authority (R-4) in OC. No.38/09 is arbitrary and illegal; (iv) a declaration that the 4th respondent’s direction to the petitioner to hand over possession of the attached properties is without jurisdiction and contrary to law and the Directorate of Enforcement (R-2) or any other officer is not entitled to take possession of the petitioner’s properties; (v) a declaration that the petitioner’s properties sought to be attached by the impugned provisional attachment order (dated 18-08-2009) as confirmed by the impugned order (dated 14-01-2010) of the 4th respondent are free from attachment or encumbrance; and (vi) for attendant reliefs. W.P.No. 10769 of 2010: B.Teja Raju also s/o B.Ramalinga Raju seeks (i) invalidation of the same provisions of the Act as in W.P.No. 10765/10; (ii) invalidation of the provisional attachment order No. 01/2009 in ECIR Nl. 01/HZO/1009, dated 18.08.2009 of the Deputy Director Enforcement; (iii) invalidation of the order of the 4th respondent dated 14.01.2010 in OC No.38/09 and other declarations as to the properties of the petitioner herein as in W.P.No.10765/10. W.P.No. 23166 of 2010: N.Subba Raju s/o Janakirama Raju seeks (i) invalidation of Sections 2(u), 3, 5(1), 8, 23 and 24 of the Act; (ii) invalidation of the provisional attachment order No. 01/2009 in ECIR No. 01/HZO/2009 dated 18.08.2009 of the Deputy Director, Enforcement; (iii) a direction that the petitioner’s properties sought to be attached by the impugned provisional attachment order are free from attachment or encumbrance. Since the grievance, the challenge to the vires of certain provisions of the Act and the contentions in this behalf are substantially similar in all the writ petitions, we record a summary of the pleadings in W.P.No. 10765/10. W.P.No. 10765/2010: A) The Deputy Director, Enforcement, passed the provisional attachment order dated 18.08.2009, purportedly u/Sec. 5 of the Act, in respect of movable properties comprising the shares of M/s SRSR Holdings Ltd., in M/s Satyam Computer Services Ltd., and 287 immovable properties of various companies and persons including the petitioner. The petitioner’s immovable properties enumerated at Sl.No. 246 to 251 in the table of immovable properties in the order were provisionally attached. B) The Deputy Director, Enforcement, filed Application No. 38/2009 on 15.09.2009 before the Adjudicating Authority against 132 defendants. The petitioner is the 8th defendant therein. The Adjudicating Authority issued notice to all the 132 defendants in respect of the movable and immovable properties enumerated in the complaint of the Deputy Director, Enforcement, on 15.09.2009, the day the complaints were filed. C) Several of the defendants including the petitioner filed applications before the Adjudicating Authority setting out objections to its jurisdiction; seeking dismissal of the complaint; and discharge of the notice. The Adjudicating Authority however orally pronounced disposal of the objection applications on 20.11.2009 (the date of the hearing). A copy of the order dated 20.11.2009 was furnished to the several defendants including the petitioner on 24.1.2009. D) The petitioner and some other defendants filed W.P. No. 27058/09 challenging the Adjudicating Authority’s notice dated 15.09.2009 and the order dated 20.11.2009. This court by the order dated 1.12.2009 in W.P.No. 25846/09 (filed by another defendant) allowed the petitioner therein to appear before the Adjudicating Authority to seek information as to whether he was being proceeded against as one who committed an offence u/Sec. 3 of the Act or for being in possession of the proceeds of a crime. Consequent on this order the petitioner also applied to the Adjudicating Authority for relevant information. On 7.12.2009 the Adjudicating Authority informed all the defendants seeking information that they were being proceeded against for committing an offence u/Sec. 3 of the Act. E) This court eventually disposed of the writ petition filed by the petitioner on 10.12.2009 on similar lines as other writ petitions directing that the proceedings before the Adjudicating Authority be postponed to 21.12.2009 and the writ petitioners submit their defense and proceed with the matter according to law. F) On 20.12.2009 the petitioner filed his response to the show cause notice issued by the Adjudicating Authority. The counsel for the petitioner was heard on 23.12.2009. Written submissions were also filed. G) On 14.01.2010 the Adjudicating Authority passed an order confirming attachment of the petitioners’ properties; directed the attachment to continue during pendency of the proceedings pertaining to the scheduled offence before the trial court and till its conclusion and until the order of the trial court becomes final; and further directed that the defendants shall hand over possession of properties to the Enforcement Directorate or any officer authorized, forthwith. The challenge to the vires of provisions of the Act: 1. Section 2(u) of the Act defines “proceeds of crime” expansively to include property or the value thereof, derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence even if in the hands of a person who has no knowledge or nexus with such criminal activity allegedly committed by others. The expansive definition thus inflicts grossly unreasonable consequences on innocent persons and is, therefore, unconstitutional offending Articles 14, 20, 21 and Article 300 – A of the Constitution. 2. U/Sec. 5(1) of the Act the authorized officer may provisionally attach properties for a period not exceeding 150 days if he has reason to believe on the basis of material in his possession that any person is in possession of proceeds of crime; that such person has been charged of having committed a scheduled offence and such proceeds of crime are likely to be concealed etc. in any manner which could result in frustrating any proceedings relating to confiscation of such proceeds of crime, under Chapter III. The two provisos to Sec. 5(1) were incorporated by the 2nd Amendment Act. Under the first proviso no order of attachment shall be made unless the report is forwarded u/Sec. 173 Cr.P.C. in relation to a scheduled offence, or a complaint is filed before a Magistrate or a Court for taking cognizance of the scheduled offence. The 2nd proviso enacts that notwithstanding anything in Clause (b), any property of a person may be attached under the Section if an authorized officer has reason to believe that such property involved in money-laundering, if not immediately attached is likely to frustrate any proceedings under the Act. Section 5(1) is vague and confusing. While under the main provision [Sec.5 (1)], ‘such property’ is the property of a person charged of a scheduled offence; the 2nd proviso enables property of any person, and of involved in money-laundering, to be proceeded against. The term ‘involved in money laundering’ is vague and ambiguous. There is no indication as to the nature or degree of involvement required. It is not clear whether the liability runs with the property or is only in respect of property belonging to a person charged with committing a scheduled offence. The provision is also bereft of guidelines consistent and commensurate with the serious consequences that follow. The provision is therefore arbitrary and unconstitutional. 3. The proviso to Sec. 5(1) can be operated only from the date of coming into force of provisions of the 2nd Amendment Act. It cannot therefore apply against property acquired or possessed prior to enactment of this provision or in respect of any scheduled offence prior to its enactment. It is however being construed otherwise. Since the consequence of attachment and eventual confiscation are severe and have penal and punitive consequences there could be no retrospective incidence of liability. The operational reality of retrospective application of the provisos to Sec. 5(1) of the Act by the executing agencies – the respondents renders the provision unconstitutional as offending Articles 14, 20 and 300-A of the Constitution. 4. Section 8 of the Act provides for adjudication following a provisional attachment u/Sec. 5(1) and a complaint u/Sec. 5(5). Sec. 8(1) sets out the conditions precedent to the exercise of jurisdiction and initiation of proceedings by a notice and as to the nature and scope of the notice. The Adjudicating Authority is required to apply its mind to the complaint and the material filed therewith and form a reason to believe that a person has committed an offence u/Sec. 3 or is in possession of proceeds of crime. On settled principle and authority, the reason to believe is neither academic nor on subjective satisfaction but must follow upon an objective consideration, for good and sufficient reasons. The notice issued by the Adjudicating Authority should be directed only against such persons as it has reasons to believe have committed an offence u/Sec. 3 or are in possession of the proceeds of crime. The offence of money laundering as defined in Sec.3 is in respect of acts of persons. There are no guidelines as to what properties can be said to be ‘involved in money laundering’ and thus subject to attachment and/or confiscation under the Act. The Act does not enable the Adjudicating Authority to go into the legality, validity, propriety or correctness of the provisional attachment order made u/Sec. 5(1), even though the Adjudicating Authority is required to consider confirmation of such attachment. The criteria for provisional attachment are different from the course of enquiry and the consideration that the Adjudicating Authority must apply to confirm the order of attachment. The standard of evidence and the sequence of leading evidence is also uncertain. Thus, persons against whom proceedings are pursued are disabled from presenting their defence in the proceedings and are thus denied fair trial, violative of Art.14. The impugned order of the Adjudicating Authority illustrates absence of focus and clarity as to what is adjudicated and decided upon; on what criteria; and under what procedure and application of standards of appreciation of evidence. The scheme of adjudication set out in Sec. 8(1) to (3) being vague, unfair and diffused, is violative of Art.14. 5. Under the scheme of the Act even if a person is acquitted by the Special Court of the offence of money laundering, the Adjudicating Authority’s finding as to such person being involved in money laundering and the involvement of such person in money laundering would nonetheless stand undisturbed and such person would not have any recourse against orders of attachment and confiscation. The same consequence follows if the person is not even accused of or charged with the offence of money laundering; and his guilt determined by improper standards of trial or proceedings and by an improper forum, is inflicted with punitive consequences. The provisions of the Act are thus arbitrary and offend Articles 14, 21 and 300-A of the Constitution. 6. Section 8(4) of the Act as construed by the respondent authorities enables deprivation of possession and enjoyment of an attached immovable property even before conclusion of the trial of the scheduled offence. This provision is harsh and so disproportionate as to violate Articles 14, 21 and 300-A of the Constitution. 7. Section 23 provides that where money laundering involves two or more interconnected transactions, proving that one or more of such transactions is involved in money laundering raises a rebuttable presumption that the rest of the transactions form part of such interconnected transactions. Such legislatively enjoined presumption is grossly unreasonable and excessively disproportionate and places irrational burdens upon the defendant. Sec.23 thus violates Article 14 and its consequences violate Article 300-A as well. 8. Section 24 enacts that the burden of proving that proceeds of crime are untainted property is on the person accused of having committed the offence u/Sec. 3. This provision is contradictory and vague. It is being construed as if a bald and baseless allegation of there being proceeds of crime and/or that any property constitutes proceeds of crime is presumed to be true and the burden is upon the accused to prove to the contrary. These provisions offend Art.14. In any case Sec.24 applies only to the trial of an offence u/Sec.3. In a proceedings u/Sec. 8(1) the defendant is not an accused. However the Adjudicating Authority is construing the provisions of Sec.24 as applicable to proceedings u/Sec. 8(1) as well. On such construction Sec. 24 is illegal, unreasonable and offends Art.14. 9. The impugned provisional attachment order (dated:18/08/2009) is illegal as properties of persons not even accused of any scheduled offence are attached; there is no assertion in the order as to the commission of any scheduled offence or of any fact disclosing commission of any scheduled offence; there is no statement of facts or material on the basis of which the officer has formed a belief that the properties are likely to transferred; no facts or reasons are recorded disclosing application of mind, a condition precedent to passing an order of provisional attachment. The provisional attachment order is thus invalid. 10. The order of the Adjudicating Authority (dated: 14.01.2010) passed u/Sec. 8(3) of the Act is invalid since the Authority failed to apply its mind to whether there is substance in the complaint as to the commission of any scheduled offence, when and by whom the offence was allegedly committed. Since the Adjudicating Authority failed to deal with any of the submissions, contentions and arguments of the petitioner and other defendants; since the order proceeds on generalizations, surmises and conjectures; and the Adjudicating Authority erred in assuming and holding that it was not necessary to draw a conclusion as to the commission of an offence to consider adjudication u/Sec. 8 of the Act, the same is vitiated by an error in holding that the investigation by the CBI and the Directorate of Enforcement, are sufficient material to infer the commission of a scheduled offence as well as an offence u/Sec.3 of the Act. The confirmation order is unsustainable for failure to consider whether determination of guilt as to commission of a scheduled offence; whether for the purpose of punishment or for attachment and/or confiscation of property, must be predicated on the same standards of evidence -“ beyond reasonable doubt”. There are other and detailed challenges pleaded to the validity of the order of the Adjudicating Authority (dt. 14/01/2010). We are not inclined to consider the several challenges to the merits of the orders of provisional attachment or of the Adjudicating Authority conforming the orders of provisional attachment, since any person aggrieved by the order passed by the Adjudicating Authority may appeal to the Appellate Tribunal constituted u/Sec. 25, under Section 26 of the Act. There is a further appeal provided to the High Court against a decision or order of the Appellate Tribunal, under Section 42. 11. PLEADINGS IN RESPONSE: On behalf of the respondents, in particular the Directorate of Enforcement, the Deputy Director of Enforcement Hyderabad has filed a counter. It is generally contended that the writ petitions are misconceived; the challenge to provisions of the Act is asserted only to protract the proceedings and without any basis; and that the writ petitions are not maintainable and should not be countenanced since there is an effective and alternative remedy by way of an appeal under Sec.26 of Act. The counter affidavit sets out detailed responses to the several contentions of the petitioners regarding challenges to the provisions of the Act as well as to contentions assailing on merits provisional attachment and confirmation orders passed by the respondent authorities under the provisions of sections 5 and 8 of the Act, respectively. As we are not inclined to consider the specific challenges