Money laundering means masking or dissimulating illegal revenue and making it seem genuine. A Money Laundering Act 2002 has been introduced to address such situations. The Act provides officials with broad authorities to ensure that the Act is effectively applied. This article covers the search and seizure of property in accordance with this Act.

Various powers of officials under the Money Laundering Prevention Act

According to the Money Laundering Act 2002, the head of the Deputy Director authorised by him, who is under the authority of any Deputy Director of any facility, location, vehicle, or aircraft may permit someone to search when he has any cause to believe that criminal proceeds are retained.

In addition, this Act also authorises the central government to permit a person to order a person to search. A person authorised may order a person’s search if the person has cause to consider that such a secret is helpful or relevant to proceedings under the Act as regards something under his own custody, ownership or control.

Officers who are not below the rank of adjutant directors of the Enforcement Directorate can search people and take property records that are helpful or relevant.

Money Laundering Act Search Prevention

Any officer subject to the law may be approved for search by the director or by anyone accredited by him. The approval is in Form I prescribed. The search can only be made when a report has been delivered to a judge or when a complaint has been lodged with the judge or the Court.

Two local people would be searched. By smashing locks, doors etc. the authority may enter. In addition, a car, a vessel or an aircraft may halt. During the search, the occupant, the area, and the vehicle may be present.

Seizure process

Any record or item that you find in the search is frozen by the police or authority. If record/property cannot be seized, the officer might order the property to freeze.

The officer can give this over for safe custody to the individual from whom the items have been taken. The conviction notice is ready. In order to be searched and confiscated, it would be in Form II and the Code of Criminal Procedure would apply.

It should create and submit to the Adjudicating Authority, in a sealed envelope, an index of a copy of the reason recorded for search with the material in its possession. The screened envelope is designated as private and is kept confidential in an outer envelope. The authorities must keep a proper record. Recognition shall be granted by the adjudicating authority in form IV.

Seized property conservation

If an official has cause to think that the property has been needed for the award under Section 8- Section 20(1) of the Act, the property seized or frozen under the relevant provisions of the Act may be held by the authorised officer.

It should be emphasised that 180 days from the day the goods were frozen or seized, the property may be kept. The adjudicating authority is to be informed of the specifics of such property in the way required. Unless the adjudicating body permits retention of goods beyond this period, the confiscated property should be restored to the individual from whom it was seized after the 180 days term.

Submit copies of search, seizure, and freezing reports

The Authority should compile and transmit to the Adjudicating Authority an index of copies of the grounds given for search in its possession.

Material is material that after search and seizure is in the custody of authorities. Reports submitted to the Magistrate or police report submitted – Rule 2(1) (k).

The envelope labelled ‘confidential’ should be sealed. The sealed envelope will be stored in a ‘confidential’ envelope. The authorities will keep proper records. Real records.

Acceptance in the form stipulated IV [Rule 9] will be given to the Adjudicating Authority.

They are preserved for a minimum period of 10 years [Rule 10].

Summons for Attendance

A further Director, together with the required papers [Section 50(2) of the Money Laundering Law] may issue a summons to attend his office.

The called person is obligated to attend to any matter under consideration and speak the truth. He shall declare and submit the necessary papers [section 50(3) of the Money Laundering Prevention Act].

For reasons to be documented, the created records may be imposed by the authorities. Unless approved by the Director [section 50(5) of the Laundering Act], records cannot be maintained beyond the period of three months.

The invitation is in specified form V.

The Department of Enforcement under FEMA has these authorities.

Provisional attachment under the Money Laundering Act Provisional

The attachment refers to an order made in accordance with the law to prevent transferring, transferring, disposing or moving the property. Provisionally, the property implicated in money laundering is subject to the Act.

An authority may attach an item for up to 180 days temporarily if it has cause to think that a person is likely to be handled or cached or transferred in the proceeds of a crime and that this may be detrimental to the confiscation procedure for the proceeds of a crime.

The reasons for this belief must be written down. The reasons shall be sent to the adjudicating authority in a sealed envelope together with a copy of the attachment order.

Only after the report is sent to the judge in accordance with Article 173 of the CrPc for cognizance, can a temporary attachment order be issued. In the event of an emergency when the property may disappear, it may be noted that the temporary attachment may be established before filing such reports.

Confiscated property management and disposal

If the adjudicating authority determines that a property is engaged in money-laundering, it may order or, if already attached, it may maintain the attachment until the judging court’s judgement is final. If the person is proven guilty, the awarding authority may seize the property. The property to be confiscated is here to be mentioned in Central Govt.

The Central Government shall designate the manager to receive and administer the seized property, and the manager shall adopt measures to dispose of the property.

As administrators of the receiving and managing property confiscated under the act, special enforcement directors for the Regional Office of ED are appointed.

The arrest of a Person

If a person has cause to think he is guilty of a crime punished by the Act, the Director, Deputy Director or any other Central Government-authorized agents can arrest. This justification must be based on the material in its possession [Section 19(1) of the Money Laundering Act] and must be recorded in writing.

For this aim, the FEMA Directorate of Enforcement was authorised.

Criminal offences under the Money Laundering Act can be recognised and leased, regardless of any contravention of the Code of Criminal Procedure. Customers may arrest a person without a warrant under the provisions set out in Articles 19 and 45 of the Laundry Prevention Act – Explanation of Section 45(2) of the Laundering Prevention Act introduced, e.g., 1-8-2019. Officers who do not accept warranty may arrest a person.

The retrospective impact of this provision is that the drafting of paragraph 45 of the Money Laundering Protection Act was defective.

A detained person shall be presented within 24 hours before the Metropolitan Magistrate’s Judicial Magistrate [section 19(2) of Money Laundering Prevention Act].

The report shall be submitted to the arresting authority after arrest, as required by 19 of the parties (2). Prevention of money laundering (the forms and the way in which a person receives a copy from the arrest warrant together with the material to the arresting authority and the period for which it is retained) Rules 2005 include the procedures for the same.

The Central Government’s ‘Arresting Officer’ may qualify as the Director, Deputy, and Assistant Director of Enforcement, FEMA. The order for arrest should be in the III form.

The Adjudicating Authority shall give an acknowledgement. ‘Materials’ must mean any information or material that the director, deputy director, or deputy manager holds, on the grounds that he has registered under paragraph 19(1) of the Act. For a minimum of ten years, the Adjudicating Authority shall preserve a copy of the arrest warrant and any documentation.

Prevention of money laundering (form and method to forward a copy of an order of arrest to a person together with the material to the adjudicating authority and the period for which the person was detained) Rules, 2005 have been established to follow the procedure of arrest and forwarding copy to that person.

Conclusion

In order to fight the offense of legalisation of revenue/benefit from an unlawful source, the prevention of money laundering Act 2002 was created. The Act grants police broad powers, which entails the search, seizure, and imposition of records, to guarantee an efficient execution of the Act.

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The banks and financial institutions had been facing numerous difficulties and hindrances in recovering their loans and thereafter getting the securities enforced as charged with them. As a result of which there was felt a dire need to draft an appropriate mechanism via which the banks and financial institutions could manage to recover their stuck up dues. Keeping into purview the need of the hour in 1981, a committee under the guidance and chairmanship of Shri T Tiwari examined and highlighted the legal and other difficulties that the banks and financial institutions were facing and thereafter suggested remedial measures to mitigate the difficulties faced by the banks and financial institutions.

The remedial measures as were suggested by the committee included amendment in existing laws and constituting a special tribunal that would solely work for recovery of dues to banks and financial institutions by adopting a summary procedure. On this note the Recovery of Bad Debts Due to Banks and Financial Institutions Act, 1993 was enacted.

The Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate Tribunal (DRATs) were constituted and set up under the Recovery of Debts Due to Bank and Financial Institution Act (RDDBFI Act), 1993 with the primary objective of providing expeditious adjudication along with recovery of debts due to banks and financial institutions. Prior to the establishment of the DRTs/DRATs, the process of recovery of best was quite cumbersome. In the year 1990, more than 15 lakh cases as filed by the banks and financial institutions were pending before various courts. The total amount of these pending cases was around Rs. 6,000 Crore.it is evident to mention that after the establishment of DRTs/DRATs the recovery scenario has improved to some extends. At the end of 2016 there were nearly 93000 cases that were pending before the DRTs all over the country. At present there are 34 DRTs and 5 DRATs functioning in various part of the country.

Compared to the ordinary court procedures, DRTs were able to handle volume of cases with low recovery delay during initial phase of its establishment. Though DRTs had made impact on recovery front, various issues in relation to their performance on ground of rising volume of NPAs began to crop up during the later phase. The reasons for the aforesaid issues were quite evident. Inadequate infrastructure coupled with insufficient number of DRTs had made them incompetent to handle the humongous volume of rising recovery cases.

The rising pendency of recover matters before DRTs had reached an alarming point where it was of dire importance to introduce amendments in the existing mechanism that could curb the situation from worsening. In light of the above a series of amendments were introduced in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 during the year 2016 but these amendments are yet to be enforced.

Through the amendments in the year 2016 the timelines for filing written statement, passing of orders, appeals etc. were significantly reduced to speed up the recovery process. The amendment empowered the Central Government to provide for uniform procedural rules for conducting proceedings in the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal. The retirement age of the Presiding Officer of Debt Recovery Tribunal was increased from 62 years to 65 years and that of the Chairperson of the Debt Recovery Appellate Tribunal was increased from 65 years to 67 years. The provisions for reappointment of the presiding officer and chairperson back to their position were also laid out via the amendment. The amendment shifted the territorial jurisdiction for filing case for recovery from DRT having jurisdiction in defendant’s area of residence or business to the DRT having jurisdiction over the area of the bank branch where the debt is pending for recovery.

The series of amendments did not end up here. There evolved one more new legislation that targeted recovery of a debt in a speedy and time-bound manner. The new legislation introduced was the Insolvency and Bankruptcy Code 2016. The Insolvency and the Bankruptcy Code was enacted to combine and bring in amendment in relation to insolvency process of Corporate Persons, Individuals and Partnership Firms in a duly time-bound manner that would result in maximization in value of assets of the above-mentioned persons; to promote entrepreneurship; availability of credit along with balancing of interest of the stakeholders.

The Code was drafted keeping into account the need of the hour and therefore the target audience that was covered under the ambit of the code included Company; Limited Liability Partnerships; Personal guarantors to Corporate Debtors; Individuals and lastly Partnership & Proprietorship Firms.

Part III of the Code was specifically drafted to cater to insolvency and bankruptcy process for individuals and partnership firms whose amount of default or pending dues are not less than one thousand rupees. On this note the adjudicating authority empowered to deal with the insolvency and bankruptcy matters of Individuals; Partnership & Proprietary Firms is Debt Recovery Tribunal (DRT) that is constituted under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

For undertaking and resolving the matters related to the insolvency and bankruptcy of the individuals and partnership & proprietorship firms, the appropriate adjudicating authority will be the Debt Recovery Tribunal that is situated at the place where the individual debtor actually and voluntarily resides or carries on business or works for gain. Once the concerned Debt Recovery Tribunal is ascertained keeping into purview the territorial jurisdiction thereafter it shall be empowered to entertain and dispose of suits /proceedings by against the individual debtors; claims made by or against the individual debtor and questions of priorities or questions of law or facts.

The adjudicating authorities as prescribed under the insolvency and bankruptcy code have been aligned very carefully and with clear intent. On this note for matters related to insolvency and bankruptcy of individuals and partnership & proprietorship firms its only debt recovery tribunals which are by law empowered to undertake and dispose of the cases therewith. It is very crystal clear that civil courts or authorities therein have no authority to entertain any suit or proceedings on which debt recovery tribunal or debt recovery appellate tribunal have authority as granted by the Code.

Abhishek Jain at MUDS after analyzing and interpreting the Code is of the view that “Failure to repay the home loans would drag the future defaulters to dedicated bankruptcy courts as the Code is seeking to align framework on individual insolvency two years after it revamped such laws for stressed companies.

Three sets of entities will fall under the ambit of individual insolvency provisions. The entities falling under the horizon of individual insolvency would include personal guarantor to corporate debtor; partnership & proprietorship firms and other individual borrowers.”

Role of DRT under IBC

DRT is the adjudicating authority for Individuals, Partnership & Proprietary Firms under the IBC has been vested with various powers and roles. According to subsection (2) of section 179 of the Code, the DRT shall have the power to entertain and dispose of the following:

• Any application or proceeding by or against the Individual debtor ;
• Any claim made by or against the Individual debtor and
• Any question of priorities or any question of law or facts arising out of or in relation to the insolvency and bankruptcy of the individual debtor or firm under this code.

Jurisdiction of DRT

The territorial jurisdiction shall be the place of residence (actual or voluntary) of the individual debtor or the place of business or any other place from where he works for gain. On this note, the application for initiating the insolvency resolution process or Bankruptcy proceedings against individuals or partnership firms shall be filed before DRT having jurisdiction over the place at either of the aforesaid mentioned venues.

Section 180 of the code also states that the Civil Courts shall not have any authority to entertain any suit or proceedings in respect to any matter on which DRT has the power to entertain under the code. Also the Section 9 of the Code of Civil Procedure, 1908 gives power to the courts to try all the suits of civil nature except suits from which such courts are expressly or impliedly barred. Therefore by being barred by section 180 of the code, Civil Courts shall not have jurisdiction over matters on which DRT has jurisdiction.

After having unveiled the fact that DRT is the major and sole authority for admitting and resolving the matters related to insolvency and bankruptcy of individuals and partnership & proprietary firms, it is of utmost importance to understand the assigned flow and the timelines for presenting the appeals forth the various adjudicating authorities aligned for the individuals, partnership & Propriety firms.

The adjudicating authority for corporate persons shall be DRT. The appeals if any against the order of DRT shall be filed before DRAT. Further, any person aggrieved by the order of DRAT may file an appeal to the Supreme Court. The appeal filed before the Supreme Court shall be only on the question of law arising out of order passed by order of DRT or DRAT.

DRT

The adjudicating authority for Individuals and partnership firms as mentioned above shall be the DRT having territorial jurisdiction over the place where the individual debtor actually or voluntarily resides or carries on business or personally works for gain.

DRAT

Once the application under IBC is admitted by the DRT against the individual or partnership firm then any person aggrieved by the order of DRT may prefer an appeal before the DRAT. Every appeal shall be filed before DRAT within thirty days. An appeal can be filed beyond thirty days if DRAT is satisfied that there was a sufficient cause for not being able to file within the thirty days duration but then within fifteen days period after thirty days only.

Supreme Court

If a person is not satisfied and is aggrieved by the order of DRAT then in such a case he can file an appeal to the Supreme Court. The application to be filed shall be based only on the question of law that arouse out of the order only. The application before the Supreme Court shall be filed within forty-five days from the date of receipt of order of DRAT. However, the Supreme Court may allow extension beyond forty-five days if it is satisfied that person was prevented by sufficient clause. The extension allowed shall be only fifteen days beyond the forty-five days duration.

The Time limit for disposal of the Appeal

The application shall be disposed off by DRT or DRAT within the period specified in the Code. However, if the application is not disposed off within the prescribed time limit, then the DRT or DRAT shall record the reason for delay in writing. The Chairperson of DRAT shall take the reason for a delay into consideration and thereafter if required may extend the period prescribed in the act by another period not exceeding ten days.

Also Read:- Adjudicating Authority for Corporate Persons

Vide clear and bifurcated demarcation of adjudicating authorities the appeals will be entertained and disposed off in a lucid and time-bound manner

Hope this article was informative in providing insight about adjudicating authority for individuals and partnership firms.
Stay connected with MUDS for more updates.

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Insolvency and Bankruptcy code, 2016 is a consolidate enactment of various code. This code provides single window clearance system of all earliest enactment. Section 2 of the code states that the provisions of code shall apply to the following person:

1. Any company incorporated under the Companies Act, 2013 or any other previous law.
2. Any other company which is governed by any Special Act
3. Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008
4. Partnership firm whether registered or not under the Partnership Act, 1932
5. Any Individual Person.

The code extends to the Whole of India.

PROVIDED THAT the provisions applicable on the Partnership Firm and Individual person shall not  apply to the state of Jammu and Kashmir.

Constitution of the Insolvency and Bankruptcy Board of India:

The board shall be a body corporate having perpetual succession, and shall consists of the following members:

1. A Chairperson
2. At least three members who shall be an officer of the Central Government and shall not be person of any rank below the rank of the Joint Secretary or equivalent:

• One shall represent the Ministry of Finance
• One shall represent the Ministry of Corporate Affairs, &
• One shall represent the Ministry of Law

3. One member which shall be nominated by Reserve Bank of India.
4. Five other members which shall be nominated by Central Government in which at least three members shall be whole time members.

Insolvency professional agency:

Insolvency professional agency shall be a section 8 company incorporated under companies Act, 2013.

Any section 8 company wanting to become an Insolvency Professional Agency, is required to get itself registered with the Insolvency and Bankruptcy Board of India as per section 201 of Insolvency and Bankruptcy Code, 2016.

Thus, an Insolvency Professional Agency shall take a Certificate of Registration from the Insolvency and Bankruptcy Board of India.

Function of Insolvency professional agency:

1. Grant membership to the person on payment of membership fees.
2. The Insolvency Professional Agency may suspend or cancel the membership, if any member does not fulfills the criteria specified in the regulation and bye-laws.
3. The Insolvency Professional Agency shall redress the grievances of members.
4. Every Insolvency Professional Agency shall make bye-laws for standard of Professional Conduct of the members.

It was rightly said by Ralph Waldo Emerson– “Every Wall is a Door”
Thus, take a step forward to open the door for the new FDI norms.

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Why not give them a call right now at +91 9599653306 and start a conversation immediately.

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