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Judgment
FPA-PMLA-1955/DLI/2017
The Appeal is filed against the Impugned Order confirming the allegation made by the Respondent vide Provisional Attachment Order No. 03/2017
dated 13.02.2017 (hereinafter referred to as “PAOâ€).
By this order, I propose to decide the appeal. This tribunal is only concerned with the appeal filed by Shri Ashish Kumar and validity of the
impugned order passed against him. It was observed in the impugned order that he is involved in the money laundering before even he was charged
under the schedule offence and under PMLA and non-recovery of any material/evidence at the time of search at his office and residence.
He was alleged to have been involved in money laundering and the Demand Drafts (hereinafter referred to as “DDsâ€) totaling to Rs. 3.65
crores allegedly in fictitious names. It is an admitted position that nothing included in the said DDs was recovered from the Appellantâ€s
residence/office when the search was conducted. No specific reasons to believe against him were produced at the time of hearing nor copy was given
to him.
It is alleged on behalf of the appellant that preparation of DDs/RTGS/NEFT/Cash Deposits etc. are done through the four Tellers in the Bank with
one Senior Officer in the supervisory role and the DD Application forms or other forms relating to above-mentioned are routed through Branch
Operation Manager. At the end of the day, Service Manager cross check all the transactions of the day and it was the duty of Service Manager to
report directly to the Head office, Mumbai. Therefore, allegation for receiving commission of Rs. 3.65 crores from customer(s) is merely presumption.
Admittedly, the persons in-charge and responsible for making drafts have neither been interrogated nor been summoned by the Respondent. The
strength of the staff in KG Marg Branch of Kotak Mahindra was 48 at the relevant point of time. No other staff are made either accused or
properties thereof attached.
The Respondent issued PAO alleging the role of the Appellant as the main person who helped Mr. Rohit Tandon in converting his demonetized
currency into monetized currency on commission basis and received commission in the form of DDs of Rs 3.65 crores in fictitious names. The
Appellant has denied any link, nexus or proximity with the alleged Demand Drafts issued in fictitious names and the same do not belong to him.
It is submitted on behalf of the appellant that the act of converting demonetized currency into monetized currency even in violation of RBI Order at
most can be considered a violation of section 188 of the Indian Penal Code, 1860 which is not a scheduled offence under PMLA. The Gazette
Notification No. 2652 dated 08.11.2016 regarding demonetization did not include any penal provision. The Specified Bank Notes (Cessation of
Liabilities) Act, 2017 does not make any penal provisions for violation of the said Gazette Notification. On the other hand, in a similar demonetization
drive carried out in 1978 through The High Denomination Bank Notes (Demonetization) Act, 1978 penalty and offences were provided under sections
10 and 11 of the said Act which is not the position in the present case. It is stated that on one hand, the Respondent stated in Table appended to Para
2 of the OC that “Proceeds involved in money laundering as commission amount converted in the form of Demand Drafts of Rs. 3.65 Cr. in
fictitious names which is presently available in the custody of Income Tax Department, in the PD Account of Pr. DIT (Inv)-I at Punjab National
Bank, Pahar Ganj, Delhiâ€. On the other hand, in Para 6.19. It is stated that “these drafts totaling to Rs. 3.65 Cr. as mentioned in Table 3
appended to Para 6.7 of the OC are not yet recovered due to non-cooperation on part of Ashish Kumarâ€.
Therefore, the Respondent is not clear in its stand as to the existence of the case.
On the part of the Respondent action, services of the Appellant have been terminated by his employer.
In para 6.12 of OC, it is stated that the Appellantâ€s commission allegedly settled at 35%, whereas in Para 6.18 of OC, it is stated that one Mr.
Dinesh Bhola handed over commission of about Rs 13.65 crores to the Appellant. Further, in Para 6.19 of the same OC, the Respondent has stated
that the Appellant got commission of Rs 3.65 crores. Hence, there are apparent contradictions making the allegations.
Admittedly, there has been no recovery of the alleged DDs or currency whether old or new from the Appellantâ€s residence or office. It is
relevant to mention here that the Respondent has not explained the mechanism and modus to arrive at the figure of Rs. 3.65 crores. Nowhere in any
of the statement recorded u/s 50 of PMLA, this figure appears.
It is stated on behalf of appellant that Appellantâ€s statements were recorded several times but the Respondent has relied upon certain statements
but the respondent is also overlooking the other extracts of the said statements. It is a settled legal position that a statement should be read as a whole
and not in parts. In this regard, reliance is placed on the following judgments of the Honâ€ble Apex Court:
(i) Radhakrishna Nagesh vs. State of Andhra Pradesh (2013) 11 SCC 688 Para 41
(ii) Lokeman Shah and Anr. vs. State of West Bengal (2001) 5 SCC 235 Para 12
(iii) Kehar Singh v. State (1988) 3 SCC 609
The Appellant in his statements has dis-owned the alleged amount of Rs. 3.65 crores whereas Mr. Tondon owned the amount seized from his
premises during search. The extracts of various statements recorded u/s 50 of PMLA is reproduced below:
(i) Statement dated 27.12.2016 of Mr. Rohit Tondon:
“Q.9 Do you know Mr. Ashish Kumar of Kotak Mahindra Bank directly or indirectly?
A. I do not know Mr. Ashish Kumar directly/ personally, though I know that he was some years back posted in GK-I branch of Kotak
Mahindra Bank. Once or twice he had visited me along with his Regional manager to wish Diwali greetings. Other than that I have never
met him or dealt with Ashish Kumar directly for any work or otherwise.â€
(ii) Statement dated 31.12.2016 of Mr. Rohit Tondon:
“Q.14 After demonetization, apart from the above said amount, have you got your old currency converted through Mr. Ashish Kumar,
Branch Manager, Kotak Mahindra Bank, K.G. Marg, New Delhi? If yes, how much amount have you got converted?
A. I have not got any amount converted into new currency through Mr. Ashish Kumar.
Q.15 Did Ashish Kumar called you or meet you personally on or after 08.11.2016?
A. Ashish Kumar did not either call me or meet me personally on or after 08.11.2016. I have also never called him.â€
(iii) Statement dated 02.01.2017 of the Appellant:
“Q. The money that you got exchanged and issued DDs in fictitious name for that how much commission you got?
A.I havenâ€t exchanged any money and the Demand Draft made as per the transaction requested by the customer and there was only bank
commission/ fees charge. I have not got any commission in the same.â€
(iv) Statement dated 27.12.2016 of Mr. Kamal Jain:
“Q. 3 Did you get any commission from Mr. Ashish?
A. No, I have not got any commission from Mr. Ashish.â€
It is alleged on behalf of appellant that the Adjudicating Authority failed to take note of the fact that the Respondent had commenced investigation
even before registration of ECIR on 26.12.2017. The Appellant was summoned by the Respondent on 17-12-2016 and was taken into illegal custody
of the Respondent on 25.12.2016 itself. The same is also reflected in the Crl WP No 1673 of 2016 dated 27-12-2016 filed before the Honâ€ble High
Court of Punjab & Haryana at Chandigarh.
It was only on 27.12.2016 that the Appellant was formally arrested by Arrest Order dated 27.12.2016, thus, it is yet to be determined as to whether
the investigation premeditated or not.
Section 5 (1) of PMLA mandates that the Authority exercising powers of attachment of property involved in money laundering is under statutory
obligation to record reasons on the basis of material in his possession. The Authority has to satisfy himself that- (a) any person is in possession of any
proceeds of crime; and (b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating
any proceedings relating to confiscation of such proceeds of crime. The PAO and OC in question are vague and unsustainable since they seek to
attach a property which is not in its custody. The proper investigation was to be conducted before hand against the appellant before impleading him a
party.
It is alleged on behalf of appellant that the Adjudicating Authority has not recorded the valid “reason†for confirmation of attachment. If
recorded, the same have to be annexed with counter affidavit to be filed in appeal filed by the person concerned. No copy of reason to believe either
produced at stage of Section 5 and 8 if recorded copies were served. In this regard, the reliance is placed of the following judgments:
(a) The Honâ€ble Supreme Court in P.P. Abdulla Vs. Competent Authority (2007) 2 SCC 510 has observed as under:
“7. …Whenever the statute requires reasons to be recorded in writing, then in our opinion it is incumbent on the respondents to produce
the said reasons before the court so that the same can be scrutinised in order to verify whether they are relevant and germane or not. This
can be done either by annexing the copy of the reasons along with the counter-affidavit or by quoting the reasons somewhere in the
counter-affidavit. Alternatively, if the notice itself contains the reason of belief, that notice can be annexed to the counter-affidavit or
quoted in it. However, all that has not been done in this case. It must be stated that an order of confiscation is a very stringent order and
hence a provision for confiscation has to be construed strictly, and the statute must be strictly complied with, otherwise the order becomes
illegal.â€
(b ) The Honâ€ble Supreme Court in the case of Mohammad Aslam Merchant v. Competent Authority (2008) 14 SCC 186 while dealing with the
statutory requirements, namely “reasons to believe†and “recording of reasons†under section 68H of the Narcotics Drugs and Psychotropic
Substances Act, 1985 observed as under:
“40. Both the statutory elements, namely, “reason to believe†and “recording of reasons†must be premised on the materials
produced before him. Such materials must have been gathered during the investigation carried out in terms of Section 68-E or otherwise.
Indisputably, therefore, he must have some materials before him. If no such material had been placed before him, he cannot initiate a
proceeding. He cannot issue a show-cause notice on his own ipse dixit. A roving enquiry is not contemplated under the said Act as
properties sought to be forfeited must have a direct nexus with the properties illegally acquiredâ€.
“41. It is now a trite law that whenever a statute provides for “reason to believeâ€, either the reasons should appear on the face of
the notice or they must be available on the materials which had been placed before him.â€
“42. We have noticed hereinbefore that when the authority was called upon to disclose the reasons, it was stated that all the reasons
were contained in the show-cause notices themselves. They, however, in our opinion, do not contain any reason so as to satisfy the
requirements of sub-section (1) of Section 68H of the Act.â€
“61. The provisions of the Act must be interpreted in a manner so that its constitutionally is upheld. The validity of the provisions might
have received constitutional protection , but when stringent laws become applicable as a result where of some persons are to be deprived of
his/her right in a property, scrupulous compliance with the statutory requirements is imperativeâ€.
(c ) In Dr. V.M. Ganesan vs The Joint Director, Directorate of Enforcement it has been categorically held that:
“45 Therefore, it is clear that in the first instance, the Adjudicating Authority can issue a show cause notice under Section 8(1) only
“if he has reason to believe that the noticee has committed an offence of money laundering or is in possession of the proceeds of
crimeâ€. The phrase “reason to believe†appearing in many of the taxation statutes has been interpreted by the Apex Court to indicate
a considered opinion. Therefore, an Adjudicating Authority is not contemplated under section 8(1) to be a mere rubber stamp. Upon receipt
of a complaint under Section 5(5), the Adjudicating Authority is not obliged automatically to issue a show cause notice under section 8(1),
unless he has “reason to believe†about the existence to two things. If he does not reason to believe that the notice has committed an
offence under Section 3 or that he is in possession of the proceeds of crime, the Adjudicating Authority cannot issue a show cause notice
under Section 8(1) on the ground that he has no reason to believe, then the provisional order of attachment will automatically lapse upon
the expiry of 180 days, as per Section 5(1)
(b). Thus, the first check post is provided is Section 8(1).â€
In the case of the provisional order of attachment passed by an Adjudicating Authority passes through the first check post and the
Adjudicating Authority issues a show cause notice under section 8(1), it is not as if he has powers only to pass an order one way. The power
conferred by Sub-section (2) of Section (8) is to record a finding “whether all or any of the properties†referred to in the notice are
involved in money laundering or not.
Section 8(2) uses the words “whether all or any of the propertiesâ€. It does not uses the words “that the propertiesâ€. If the
Adjudicating Authority records a finding under Section 8(2) that all the properties are involved in money laundering, he cannot and he will
not confirm the attachment under section 8(3).The finding recorded under Section 8(2) will terminate the proceedings, in case the
Adjudicating Authority comes to the conclusion that none of the properties was involved in money laundering. The proceeding will move
over to Sub section (3) of Section 8 only if a finding is recorded under Section 8(2) at least in respect of one property that it is involved in
money laundering. Therefore, the contention of the learned Adjudicating Authority does not have the power to set aside an order of
attachment is not correct. The Adjudicating Authority is empowered to record a finding, in view of the express language of Section 8(2) that
all or any of the properties are not involved in money laundering. One such a finding is recorded, the provisional order of attachment
passed under Section 5(1) will automatically lapse without the Adjudicating Authority doing anything further.â€
(d) The Honâ€ble Supreme Court in Joti Parshad Vs. State of Haryana 1993 Supp (2) SCC 49 7has observed that “suspicion†and “reason to
believe†are not the same thing. “Reason to believe†is a higher level of state of mind. The apex Court further observed that-
“5. Under the Indian Penal law, guilt in respect of almost all the offences is fastened either on the ground of “intention†or
“knowledge†or “reason to believeâ€. We are now concerned with the expressions “knowledge†and “reason to believeâ€.
“Knowledge†is an awareness on the part of the person concerned indicating his state of mind. “Reason to believe†is another
facet of the state of mind. “Reason to believe†is not the same thing as “suspicion†or “doubt†and mere seeing also cannot be
equated to believing. “Reason to believe†is a higher level of state of mind. Likewise, “knowledge†will be slightly on a higher
plane than “reason to believeâ€. A person can be supposed to know where there is a direct appeal to his senses and a person is
presumed to have a reason to believe if he has sufficient cause to believe the same. Section 26 IPC explains the meaning of the words
“reason to believe†thus:
“26. Reason to believe â€" A person is said to have “reason to believe†a thing, if he has sufficient cause to believe that thing and
not otherwise.â€
Mr. Rana, the learned counsel appearing on behalf of respondent has argued that the present appeal is not maintainable as no property was
attached from the appellant. Counsel for the appellant submits that the findings arrived in the impugned order against the appellant are incorrect as
observation was made against his client without any evidence. His client was declared offender even he was not charge sheeted. No evidence is
recovered from him. It is stated that merely on the basis of statement of alleged co-accused, said findings cannot be arrived.
The PMLA is a “Special Law†applicable to the subject of money laundering. Its provisions are required to be followed strictly and not in a
casual or routine manner so as to curb the laxity on the part of the Investigating Authority. In the present case, the Respondent has linked and
associated the Appellant with the alleged DDs without recovery either from the appellant or at any stage during investigation. The Honâ€ble Supreme
Court in the case of Anita Malhotra v. Apparel Export Promotion Council 2012 (1) SCC 520 and reliance is made on the following observations:
“20. As rightly stated so, though it is not proper for the High Court to consider the defence of the accused or conduct a roving enquiry
in respect of merits of the accusation, but if on the face of the document which is beyond suspicion or doubt, placed by the accused and if it
is considered that the accusation against cannot stand, in such a matter, in order to prevent injustice or abuse of process, it is incumbent on
the High Court to look into those document/documents which have a bearing on the matter even at the initial stage and grant relief to the
person concerned by exercising jurisdiction under Section 482 of the Codeâ€.
It is argued on behalf of appellant that the Adjudicating Authority committed an error in law while deciding already declaring in advance that
appellant is involved in money laundering when the charges are yet to be framed when the Appellant has denied having link whatsoever with the
alleged DDs or the alleged amount of Rs. 3.65 crores or deposited or having any link with the bank account of the Appellant or his family or any other
relative.
It is evident from the material placed on record that the Adjudicating Authority has based its findings by merely relying upon the plea of the
Respondent that the DDs worth R 3.65 crores belong to the Appellant and thus need to be attached when no recovery was made from the appellant.
The Respondent conducted searches of the residential premises of the Appellant and the Locker in the joint name of the Appellant and his wife
and nothing incriminating was recovered therefrom. This tribunal has already decided the Appeal bearing No. FPA-PMLA-1868/DLI/2017 MP-
PMLA-3679/DLI/2017 relating to the above Locker and allowed the contents recovered from the said locker.
By direction of the Respondent, access of two bank accounts of Appellant bearing No. 02610050000847 and 02870120007190 maintained with
Kotak Mahindra Bank, Eros City Square Branch, Rosewood City, Sector 49-50, Gurugram, Haryana blocked. However, Special Court (PMLA) vide
Order dated 20.07.2018 granted the access of the above-mentioned accounts to the Appellant and his wife.
Burden of Proof
The Adjudicating Authority in para 44 without even consulting the law and facts in the present case in relation to the appellant, has observed as
under:-
Section 24 of the PMLA provides for Burden of proof. Accordingly
“In any proceeding relating to proceeds of crime under this Act:-
a. In the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary
is proved, presume that such proceeds of crime are involved in money-laundering; and
b. In the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.â€
Burden of proof rested on the Defendants to show before this Authority that the proceeds of crime are not involved in Money-Laundering.
The notice to show cause is issued on the reasonable belief that Defendants have committed an offence under Section 3 or are in possession
of proceeds of crime. The Enforcement Directorate has already launched the prosecution by filing a complaint u/s 44 of PMLA for the
offence of money laundering defined u/s 3 of PMLA punishable under section 4 of PMLA. The mandatory presumption thus arises that the
proceeds of crime are involved in Money Laundering. The raising of presumption is thus justified. The material pertaining to the commission
of the scheduled offence, the emergence of the proceeds by commission of the Scheduled offence, clearly establishes the existence of
proceeds of crime. The Defendants have not established anything contrary thereto. In terms of Section 24 once it is shown that there exist
proceeds of crime, which are present in the present case beyond doubt, as by the commission of the scheduled offences, the proceeds of
crime are generated and involved in money-laundering. The money laundering is presumed as well as established. In order to rebut this
presumption, it was absolutely essential for the Defendants to show that there was no emergence of proceeds of crime. The Defendants have
however failed to show that. Nothing is produced by the Defendants, which would rebut the presumption. The burden to prove that the
properties/monies are not proceeds of crime and were not therefore tainted, rests with the Defendants, as has been held in Union of India
V/s Hassan Ali Khan and another [2011 (10) SCC 235 : 2011 (11)) SCALE 302 ]by the Honâ€ble Supreme Court of India in relation to the
provisions of section 24 of PMLA “…. There is no denying that fact that allegations have been made that the said monies were the
proceeds of crime and by depositing the same in his bank accounts, the Respondent No. 1 had attempted to project the same as untainted
money. The said allegations may not ultimately be established, but having been made, the burden of proof that the said monies were not the
proceeds of crime and were not, therefore, tainted shifted to the Respondent no. 1 under Section 24 of the PML Act, 2002.â€
It is the admitted position that when the searches were conducted at the residence and office of the appellant, nothing was recovered. If any prima
facie evidence is recovered at the time of search and seizure, then the burden of proof lies with the “party concerned†but merely on the basis of
hearsay statement of other witnesses who alleged co-accused, even it cannot be held that the burden of proof is still upon the person concerned.
Sec. â€" 24 of PMLA has been amended which read as under :
Burden of Proof - In any proceeding relating to proceeds of crime under this Act,-
(a) In the case of a person charged with the offence of money-laundering under section 3, the Authority or Court shall, unless the contrary
is proved, presume that such proceeds of crime are involved in money-laundering; and
(b) In the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.
Sec. 24(a) - the expression in the case of a person charged with means that charges are framed against the person concerned. There is a
difference between the filing of charge-sheet and the charged. When the charges are framed by the court, it can be presumed that judicial mind has
been applied at the time of framing of charges. Therefore, if the charges are framed, by ipso fact burden lies with the “person concerned†who is
bound to discharge if he is claiming any relief.
The said provision has been substituted by Act 2 of 2013, S. 19, for S. 24 (w.e.f. 15-2-2013). Prior to its substitution, S. 24 read as under:-
“Burden of proof.- When a person is accused of having committed the offence under section 3, the burden of proving that proceeds of
crime are untainted property shall be on the accused. Unamended provision has been toned down by virtue of amendment.
Therefore, unless the charges are framed with the offence of money laundering under Section-3 of the Act, the burden of proof still lies with the
respondent to prove that the person concerned is involved with the offence of money laundering in order to invoke Section-3 of the Act.
In Rajya Sabha debate held on 17th December 2012 on the issue of Section 24 of PML Act, 2002, the Honâ€ble Finance Minister, the following
discussions were taken placeâ€
Mr. Deputy Chairman, Sir, I am grateful to the hon. Members, especially ten hon. Members who have spoken on this Bill and supported the
Bill. Naturally, some questions will arise; they have arisen. It is my duty to clarify those matters. Sir, firstly, we must remember that money-
laundering is a very technically-defined offence. It is not the way we understand “money laundering†in a colloquial sense. It is a
technically-defined offence. It postulates that there must be a predicate offence and it is dealing with the proceeds of a crime. That is the
offence of money-laundering. It is more than simply converting black-money into white or white money into black. That is an offence under
the Income Tax Act. There must be a crime as defined in the Schedule. As a result of that crime, there must be certain proceeds â€" It could
be cash; it could be property. And anyone who directly or indirectly indulges or assists or is involved in any process or activity connected
with the proceeds of crime and projects it as untainted property is guilty of offence of money-laundering. So, it is a very technical offence.
The predicate offences are all listed in the Schedule. Unless there is a predicate offence, there cannot be an offence of money-laundering.
Initially the thinking was unless a person was convicted of the predicate offence, you cannot convict him of money laundering. But that
thinking is evolved now. The Financial Action Task Force has now come around to the view that if the predicate offence has thrown up
certain proceeds and you dealt with those proceeds, you could be found guilty of offence of money-laundering. What we are trying to do is
to bring this law on lines of laws that are commended by FATF and all countries have obliged to bring their laws on the same lines. I just
want to point to some of my friends that this Bill was passed in 2002. In 2002, we felt that these provisions are sufficient. In the working of
the law, we found that the provisions have certain problems. We amended it in 2005. We amended it in 2009. We still find that there are
some problems. The FATF has pointed out some problems. And, we are amending it in 2012. It is not finding fault with anyone. All I am
trying to say is that this is an evolutionary process. Laws will evolve in this way, and we are amending it again in 2012. A few questions
were raised. These are very pertinent questions and I will answer them very briefly. Firstly, both, Mr. Satish Chandra Misra and Mr. N.K.
Singh, asked me about the “burden of proof†and whether we have, in effect, given acceptance to the recommendations of the Standing
Committee that we have made a distinction in the “burden of proof†so that it does not fall heavily on persons who are not charged with
offence of money-laundering. If you look at the original section in the parent Act, section 24, when a person is accused of having committed
the offence, the burden of proving that the proceeds of crime are untainted property shall be on the accused. This was a drastic provision.
Simply by an accusation that he had committed an offence of money-laundering, the burden of proof was shifted to the accused. He may not
even be charged at that time. This was what we found to be an onerous provision and an unfair provision. And, what we have now done is
to tone down this provision. In (a) and (b), you asked me as to why (b) was there. Now, (a) and (b) will make a distinction. In (a), there is a
person charged with the offence of money-laundering â€" the principal offence under the Act. In (b), it is any other person who is brought
before the Court. Therefore, in the case of (a), we maintain the rigour of the section. We borrow from the Evidence Act, “shall
presumeâ€, and “shall presumeâ€, as you know, means that the court shall regard that the fact is proved unless it is disputed. So, we
maintain the rigour of the section. But, we use the well-accepted phrase “shall presumeâ€. In the case of any other person, we borrow
the phrase “may presumeâ€; the court may presume, may not presume and evidence to the contrary can be let off. So, we have now made
a distinction between a person charged with the main offence of money-laundering, and persons who are charged with other offences
because, as you know, under sections 43 and 44, all other offences shall be tried by the same court which tries offence of money
laundering.
Then, the question was asked that by using the word “chargedâ€, whether we are shifting the burden of proof even at the stage of the
report under 173(8). The answer is: obviously, no. Under 173(8), what is filed is a report after investigation. The word “chargeâ€
occurs for the first time in the Criminal Procedure Code under section 211, “Every charge under this Code shall State the offence with
which the accused is charged.â€. So, we borrow the language of 211 and say, replace the word “accused†and say “when a person
is charged with an offence, that is when the court frames a charge against him under section 211â€. Only at that stage, the burden shifts to
him. So, I think, that makes it very clear.
Now, the question is as to whether said debate by Rajya Sabha can be relied upon and have some legal implication to the court or not. If yes,
under which circumstances.
In the case of Union of India and Others Versus Martin Lottery Agencies Limited reported in (2009) 12 Supreme Court Cases 20 9in para 38, it is
held as under:-
There cannot be any doubt whatsoever that speech of the Hon'ble Finance Minister in the House of the Parliament may be taken to be a
valid tool for interpretation of a statute. It was so held in K.P. Varghese v. Commissioner of Income-tax, Ernakulam & Anr. [(1981) 4 SCC
173 at 184], in the following terms :
“Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory
provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the
Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to
be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in
juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of
meaning, everything which is logically relevant should be admissible.â€
In the case of K.P. Varghese versus Income Tax Officer, Ernakulam and another reported in para 8, it is held as under:
But the scope of sub-section (1) of section 52 is extremely restricted because it applies only where the transferee is a person directly or
indirectly connected with the assessee and the object of the under-statement is to avoid or reduce the income-tax liability of the assessee to
tax on capital gains. There may be cases where the consideration for the transfer is shown at a lesser figure than that actually received by
the assessee but the transferee is not a person directly or indirectly connected with the assessee or the object of under-statement of the
consideration is unconnected with tax on capital gains. Such cases would not be within the reach of sub section (1) and the assessee,
though dishonest, would escape the rigour of the provision enacted in that sub-section. Parliament therefore enacted sub-section (2) with a
view to extending the coverage of the provision in sub-section (I) to other cases of under statement of consideration. This becomes clear if
we have regard to the object and purpose of the introduction of sub-section (2) as appearing from travaux preparatoire relating to the
enactment of that provision. It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon's
case(1) was decided that""... for the sure and true interpretation of all statutes in general-four things are to be discerned and considered:
(1) What was the common law before the making of the Act, (2) What was the mischief and defect for which the common law did not provide,
(3) What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and (4) The true reason of the
remedy, and then the office of all the Judges is always to make such construction as shall suppress the mischief, and advance the remedy"".
In in re Mayfair Property Company(2) Lindley. M.R. in 1898 found the rule ""as necessary now as it was when Lord Coke reported
Heydon's case"". The rule was reaffirmed by Earl of Halsbury in Eastman Photographic Material Company v. Comptroller General of
Patents, Designs and Trade Marks(3) in the following words:
My Lords, it appears to me that to construe the Statute in question, it is not only legitimate but highly convenient to refer both to the former
Act and to the ascertained evils to which the former Act had given rise, and to the later Act which provided the remedy. These three being A
compared I cannot doubt the conclusion.
This Rule being a Rule of construction has been repeatedly applied in India in interpreting statutory provisions. It would therefore be
legitimate in interpreting sub-section (2) to consider that was the mischief and defect for which section 52 as it then stood did not provide
and which was sought to be remedied by the enactment of sub-section (2) or in other words, what was the object and purpose of enacting
that sub-section. Now in this connection the speech made by the Finance Minister while moving the amendment introducing sub-section (2)
is extremely relevant, as it throws considerable light on the object and purpose of the enactment or sub-section (2). The Finance Minister
explained the reason for introducing sub-section (2) in the following words:
“Today, particularly every transaction of the sale of property is for a much lower figure than what is actually received. The deed of
registration mentions a particular amount; the actual money that passes is considerably more. It is to deal with these classes of sales that
this amendment has been drafted-It does not aim at perfectly bona fide transactions.. but essentially relates to the day-to-day occurrences
that are happening before our eyes in regard to the transfer of property. I think, this is one of the key sections that should help us to defeat
the free play of unaccounted money and cheating of the Government.â€
Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory
provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the
Bill explaining the reason for the introduction of the Bill can certainly be referred t o for the purpose of ascertaining the mischief sought to
be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in
juristic thought not only in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of
meaning, everything which is logically relevant should be admissible. In fact there are at least three decisions of this Court, one in Loka
Shikshana Trust v. Commissioner of Income-Tax(1) the other in Indian Chamber of Commerce v. Commissioner of Income-tax(2) and the
third in Additional Commissioner of Income-tax v. Surat Art Silk Cloth Manufacturers Association(3) where the speech made by the Finance
Minister while introducing the exclusionary clause in section 2 clause (15) of the Act was relied upon by the Court for the purpose of
ascertaining what was the reason for introducing that clause. The speech made by the Finance Minister while moving the amendment
introducing sub- section (2) clearly states what were the circumstances in which sub-section (2) came to be passed, what was the mischief
for which section 52 as it then stood did not provide and which was sought to be remedied by the enactment of sub-section (2) and why the
enactment of sub-section (2) was found necessary. It is apparent from the speech of the Finance Minister that sub-section(2) was enacted
for the purpose of reaching those cases where there was under- statement of consideration in respect of the transfer or to put it differently,
the actual consideration received for the transfer was 'considerably more' than that declared or shown by the assessee, but which were not
covered by sub- section (1) because the transferee was not directly or indirectly connected with the assessee. The object and purpose of
sub-section (2), as explicated from the speech of the Finance Minister, was not to strike at honest and bonafide transactions where the
consideration for the transfer was correctly 13: disclosed by the assessee but to bring within the net of taxation those transactions where
the consideration in respect of the transfer was shown at a lesser figure than that actually received by the assessee, so that they do not
escape the charge of tax on capital gains by under-statement of the consideration. This was real object and purpose of the enactment of
sub-section (2) and the interpretation of this sub-section must fall in line with the advancement of that object and purpose. We must
therefore accept as the underlying assumption of sub-section (2) that there is under-statement of consideration in respect of the transfer and
sub-section (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in
respect of the transfer is shown at a lesser figure than that actually received.
Therefore, if in the Parliament debate, the Finance Minister or any Minister of the House is involved in the discussion and question and answer, the
said debate can be relied upon by any party. The same may not be relied upon if same with only the Member of Parliament. The said discussion by
the Minister is meant in order to understand the incorporation of said respective provision in the statute.
The Supreme Court in Kalpana Mehta & Ors. v. UOI & Ors., (2018) 7 SCC 1 has opined:
From the aforesaid, it clear as day that the Court can take aid of the report of the parliamentary committee for the purpose of
appreciating the historical background of the statutory provisions and it can also refer to committee report or the speech of the Minister on
the floor of the House of the Parliament if there is any kind of ambiguity or incongruity in a provision of an enactment. Further, it is quite
vivid on what occasions and situations the Parliamentary Standing Committee Reports or the reports of other Parliamentary Committees can
be taken note of by the Court and for what purpose. Relying on the same for the purpose of interpreting the meaning of the statutory
provision where it is ambiguous and unclear or, for that matter, to appreciate the background of the enacted law is quite different from
referring to it for the purpose of arriving at a factual finding. That may invite a contest, a challenge, a dispute and, if a contest, a
challenge, a dispute and, if a contest arises, the Court, in such circumstances, will be called upon to rule on the same.â€
Thus, to understand the intent of the legislation, the Report of the Parliamentary Standing Committee and the speech of the Minister can be taken
into consideration.
Charges in the above said matter have not been framed. It is also a matter of fact that nothing was recovered at the time of search and seizure.
As far as other parties are concerned, if after the investigation conducted, recovery is made under schedule offence and PMLA, the burden of proof
lies with the said alleged other “accused partiesâ€, the same would be tested at the time of trial which is yet to be conducted. The appellant at that
time is also has a right to cross-examination of these witnesses who have made statement against the appellant. But at this stage, when nothing was
recovered from his premises, he cannot be declared by the Adjudicating Authority in advance that he is involved in the money laundering. The said
finding without recovery would prejudice his case before the Special Court where he may face the trial.
The finding the Adjudicating Authority against the appellant about the burden of proof and presumption is not sustainable against the appellant
since nothing was recovered.
Amended provision of Section 24 is very clear in this regard. As nothing was recovered at the time of search and seizure, the initial burden still lies
with the respondent.
Considering the overall facts and circumstances and without expressing anything on merit as to whether the appellant was involved or not as it is a
matter of fact that the charges are yet to be framed. In advance, no finding can be arrived in the nature of present case of the appellant by concluding
that the appellant is involved in money laundering without any recovery. Merely, on the basis of apprehension, one cannot be declared as accused, in
advance, without any recovery. The said observations were made without application of mind as it would be prejudiced his case on merit at the time of
framing of charges or trial, if the said findings against him are intact. Thus, the observations against him for involvement of money laundering are
waived and quashed. The impugned order is modified against him in view of reason mentioned above. As far as “person concerned†where
recovery is made, the burden of proof lies with them to prove their innocence as per law.
The appeal is partly allowed by modifying order against him. However, it is clarified that this order shall have no bearing when the matter is
pending against the appellant on the basis of allegations. The same has to be considered as per law and merit of the case.
No costs.