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2017 (8) TMI 754 - ATPMLA Money Laundering

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Issues: (i) Whether immovable properties acquired and mortgaged before the alleged criminal activity, and not shown to have been acquired from proceeds of crime, could be provisionally attached and confirmed under the Prevention of Money Laundering Act, 2002. (ii) Whether secured creditors in possession of mortgaged properties were entitled to priority over attachment under the money-laundering proceedings in view of the SARFAESI regime and the later statutory amendments conferring priority on secured creditors.

Issue (i): Whether immovable properties acquired and mortgaged before the alleged criminal activity, and not shown to have been acquired from proceeds of crime, could be provisionally attached and confirmed under the Prevention of Money Laundering Act, 2002.

Analysis: The properties in question were acquired long before the alleged diversion of funds and before the relevant PMLA proceedings. The material on record showed that the properties were already mortgaged to the banks, and there was no material linking the acquisition of those assets with proceeds of crime. The definition of proceeds of crime requires a nexus with criminal activity relating to a scheduled offence. In the absence of such nexus, and where the banks and other stakeholders were bona fide parties with pre-existing security interests, the properties could not be treated as properties involved in money laundering.

Conclusion: The attachment and its confirmation were unsustainable in respect of the mortgaged properties, and the finding was in favour of the appellants.

Issue (ii): Whether secured creditors in possession of mortgaged properties were entitled to priority over attachment under the money-laundering proceedings in view of the SARFAESI regime and the later statutory amendments conferring priority on secured creditors.

Analysis: The banks had already initiated recovery measures under SARFAESI and held mortgage charges over the properties. The later statutory amendments giving priority to secured creditors were treated as operative in the field of recovery of secured debts. The reasoning proceeded on the basis that a secured creditor's statutory priority could not be displaced where the properties were not shown to be proceeds of crime and the banks were not accused of any laundering activity.

Conclusion: The banks' security interests were held to prevail, and the attachment could not be maintained against the secured assets. The finding was in favour of the appellants.

Final Conclusion: The common order confirmed by the Adjudicating Authority was set aside, and the attached properties were released from attachment, recognising the bona fide and prior rights of the secured creditors over assets not shown to be proceeds of crime.

Ratio Decidendi: Property cannot be attached under the money-laundering law unless a legally sustainable nexus with proceeds of crime is established, and where the asset is subject to a prior bona fide security interest, the secured creditor's statutory priority cannot be defeated in the absence of such nexus.

PMLA attachment cannot override prior secured creditor rights where the property is not shown to be proceeds of crime.
Immovable properties acquired and mortgaged before the alleged criminal activity could not be provisionally attached under PMLA because no material showed a nexus with proceeds of crime; in the absence of such nexus, the assets were not properties involved in money laundering and the attachment failed. Secured creditors holding prior mortgage charges were entitled to statutory priority under the SARFAESI regime and later amendments, and that priority could not be displaced where the banks were bona fide parties and not implicated in laundering; the attachment against the secured assets was therefore unsustainable.

Provisional attachment under the Prevention of Money Laundering Act - proceeds of crime - innocent third party / bona fide mortgagee - priority of secured creditors over attachments - conflict between PMLA and SARFAESI/DRT regime - requirement of nexus/knowledge for invocation of Section 3 PMLAProvisional attachment under the Prevention of Money Laundering Act - proceeds of crime - requirement of nexus/knowledge for invocation of Section 3 PMLA - Whether the immovable properties provisionally attached under the PMLA were 'proceeds of crime' and therefore liable to remain attached. - HELD THAT: - The Tribunal found on the material before it that the subject properties were acquired and mortgaged in favour of the banks well before the alleged scheduled offences and before the PMLA provisions sought to be applied. The Enforcement Directorate itself had recorded and admitted that the properties were in possession of the respective owners prior to the dates of alleged fraud and that the properties were mortgaged to the banks. Applying the statutory definition of 'proceeds of crime' and the established requirement of a prima facie nexus and culpable knowledge/participation to attract Section 3, the Tribunal concluded that there was no satisfactory material to show that the properties were derived from criminal activity or that the mortgagees (the banks) or the mortgagors had the requisite involvement or knowledge. The Adjudicating Authority's confirmation of the provisional attachment was therefore held to be unsustainable on the merits for the purpose of confirming attachment under Section 8. [Paras 56, 61, 65]The provisional attachment could not be sustained because the properties were not shown to be proceeds of crime and the necessary nexus/knowledge to attract PMLA was absent.Innocent third party / bona fide mortgagee - priority of secured creditors over attachments - conflict between PMLA and SARFAESI/DRT regime - Whether the banks, as bona fide mortgagees and secured creditors who had prior charges and possession under SARFAESI/DRT proceedings, were entitled to protection from ED's attachment and whether secured creditors' rights prevailed. - HELD THAT: - The Tribunal examined the banks' pleaded position and documentary record showing creation and registration of charges, possession taken under SARFAESI proceedings and pending recovery actions before DRT. It noted legislative developments amending the SARFAESI and Recovery statutes to confer explicit priority and protection to secured creditors (post 2016 amendments) and relied on jurisprudence recognising that innocent secured creditors cannot be unduly prejudiced by attachment where no illegality in title is shown. On the facts, the banks were found to be innocent parties with prior security interests and active recovery proceedings; depriving them of their proprietary and recovery rights by confirming ED's attachment would cause undue prejudice. The Tribunal held that the Adjudicating Authority failed to appreciate these aspects and that the banks' priority and rights warranted release of the properties. [Paras 51, 56, 65, 66]The banks, being bona fide secured creditors with prior charges and recovery proceedings, have superior rights which militated against the confirmation of attachment; their interests must be protected and the properties released.Provisional attachment under the Prevention of Money Laundering Act - adjudicatory error in confirming attachment - Whether the Adjudicating Authority's confirmation of the provisional attachment should be set aside. - HELD THAT: - Having concluded that the properties were not shown to be proceeds of crime and that the banks had prior secured rights and pending recovery remedies, the Tribunal held that the Adjudicating Authority erred in confirming the provisional attachment in a mechanical manner without adequately considering the banks' evidence and legal position. The Tribunal therefore found the confirmation order unsustainable and warranted interference. [Paras 60, 65, 66]The Adjudicating Authority's order confirming the provisional attachment was set aside.Final Conclusion: For the reasons stated, the impugned confirmation dated 02.07.2015 and the Provisional Attachment Order dated 04.02.2015 are set aside and all eight properties are released from attachment forthwith; no costs.

2018 (1) TMI 273 - ATPMLA Money Laundering

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Tribunal Modifies Penalties, Stresses Consistency
The Tribunal modified the penalties imposed under Section 13(2) of PMLA, reducing them from the maximum penalty to warnings under Section 13(2)(a). It emphasized the need for consistent and non-discriminatory penalties. The banks were directed to report suspicious conversations or attempted transactions as required under Section 12 of PMLA and release the deposited amounts or FDRs immediately.

Attempted suspicious transaction - suspicious transaction - reporting obligation under Section 12 of PMLA - power to impose penalty under Section 13(2) of PMLA - requirement of Section 65B certificate for electronic evidence - admissibility of sting operation recordingsRequirement of Section 65B certificate for electronic evidence - admissibility of sting operation recordings - Admissibility of video recordings and transcripts of Cobrapost sting without a Section 65B certificate - HELD THAT: - The Tribunal held that the impugned orders were founded on electronic records (video recordings and transcripts) which were not accompanied by the mandatory certificate under Section 65B of the Evidence Act and therefore were inadmissible. Reliance on Anvar P.V. v. P.K. Basheer and subsequent authority establishes that electronic records as secondary evidence cannot be admitted unless Section 65B requirements are satisfied. Further, tape-recorded material requires strict proof (voice identification, assurance against tampering, custody, audibility etc.) and sting recordings by private parties attract additional scrutiny; the original/unedited recordings were not produced and the available clips/transcripts were admitted to be edited or rearranged. In those circumstances the Director could not lawfully base the major penalty orders on such inadmissible electronic material without proving genuineness as required by law. [Paras 76, 77, 78, 79, 80]The electronic recordings and transcripts relied upon were inadmissible in the absence of a Section 65B certificate and production of original/unedited material, and could not sustain the Director's imposition of major penalties.Attempted suspicious transaction - suspicious transaction - reporting obligation under Section 12 of PMLA - Whether the Cobrapost conversations amounted to attempted suspicious transactions requiring reporting under Section 12 and the PML Rules - HELD THAT: - The Tribunal analysed the statutory scheme (Section 12 and Rules, in particular Rule 2(g) and Rule 2(h)) and relevant regulatory guidance (RBI Master Circular, IBA indicators). It observed that Rule 2(g) includes 'attempted transaction' within 'suspicious transaction' and that the reporting duty is triggered where a person acting in good faith has reasonable ground to suspect the involvement of proceeds of crime, absence of bona fide purpose, unusual complexity or TF risks. Considering the content and context of the recorded conversations (which were not denied in substance by the banks) and the RBI clarification that aborted/abandoned transactions must be reported as attempted transactions, the Tribunal concluded that the subject conversations were of a nature that should have been reported as attempted suspicious transactions to FIU-IND. [Paras 33, 54, 61, 62, 63]The Cobrapost conversations, viewed with regulatory guidance and the Rules' definitions, were treatable as attempted suspicious transactions that ought to have been reported under Section 12 and the Rules.Reporting obligation under Section 12 of PMLA - power to impose penalty under Section 13(2) of PMLA - Liability of banks for failure to report the attempted suspicious transactions - HELD THAT: - The Tribunal held that where bank employees engaged in discussions that exhibited knowledge or facilitation of laundering (and where such conversations were not contested in substance), the banks could not evade responsibility simply because the reporter was not a documented customer or because particulars were incomplete. The statutory scheme contemplates a good-faith obligation on reporting entities to report suspicious and attempted suspicious transactions; systemic failures or repeated lapses in branches (including involvement of senior officers) can render the banks liable under Section 13. Thus, notwithstanding evidentiary infirmities, the Tribunal found that the subject conversations ought to have triggered alerts and reporting by the banks. [Paras 58, 59, 60, 61, 62]Banks were responsible for reporting the attempted suspicious transactions; failure to do so constitutes non-compliance with obligations under Section 12 attracting action under Section 13.Power to impose penalty under Section 13(2) of PMLA - Appropriate quantum and reasoning for penalties imposed by the Director under Section 13(2) - HELD THAT: - While the Tribunal agreed that the subject conversations were reportable, it found the Director's uniform imposition of the maximum penalty under Section 13(2)(d) to be non-speaking and unjustified. The FIU had in other instances issued only warnings for similar conduct; no reasons were given for imposing maximum penal measures on these appellants. Given the absence of adequate reasoning and the evidentiary defects as to the electronic material relied upon, the Tribunal concluded that major penalties under Section 13(2)(d) were unsustainable. Instead, the Tribunal modified the orders to impose penalties under Section 13(2)(a) (i.e., issuance of warning) and directed appropriate prospective caution to banks and employees. [Paras 77, 78, 79, 80, 81]The orders imposing maximum penalties under Section 13(2)(d) are set aside; matters are covered under Section 13(2)(a) and major penalties reduced for lack of speaking reasons and infirmities in proof.Power to impose penalty under Section 13(2) of PMLA - Relief concerning amounts/FDRs deposited pursuant to the impugned orders - HELD THAT: - Having modified the impugned orders on merits and held that major penalties were not sustainable, the Tribunal directed immediate release of amounts or FDRs deposited by the banks pursuant to the impugned orders or interim measures and directed refunds where applicable. All pending applications were disposed of in consonance with the modification. [Paras 81, 82]Amounts/FDRs deposited pursuant to the impugned orders are to be released forthwith and related refunds made; appeals disposed accordingly.Final Conclusion: The Tribunal held that the Cobrapost conversations, when assessed against the statutory definitions and regulatory guidance, were reportable as attempted suspicious transactions and banks had an obligation to report; however, the Director's reliance on unaccompanied/unedited electronic material rendered the imposition of maximum penalties unsustainable. Consequently, the major penalties under Section 13(2)(d) were set aside and modified to actions under Section 13(2)(a), and amounts/FDRs deposited pursuant to the impugned orders were ordered to be released immediately.

2017 (6) TMI 1289 - ATPMLA Money Laundering

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PMLA proceeds of crime require a proven nexus to criminal activity; legitimate royalty receipts cannot be attached without tainted funds.
Royalty and licence-fee receipts from lawful copyright licensing were not "proceeds of crime" under PMLA because the enforcement material did not show that the respondent derived any property from criminal activity linked to a scheduled offence. The tribunal found no reliable evidence of a tainted-money trail, no transfer or siphoning of illicit funds to the respondent, and no basis to quantify proceeds of crime in the respondent's hands. Mere retention of legitimate commercial receipts, without a direct nexus to criminal activity, was insufficient to justify provisional attachment. The bank balances were therefore not liable to attachment.

Proceeds of crime - money laundering - provisional attachment order - reasonable belief / reason to believe - notice to show cause under section 8(1) - nexus between alleged scheduled offence and property - speculative evidence / conjectural inference - freezing of property under section 17(1 A)Proceeds of crime - money laundering - nexus between alleged scheduled offence and property - Whether the amounts standing in the bank accounts of M/s Phonographic Performance Ltd. are proceeds of crime and involved in money laundering - HELD THAT: - The Tribunal upheld the Adjudicating Authority's conclusion that the appellant/Enforcement Directorate failed to establish the essential ingredients of Section 3 PMLA - criminal activity and property derived or obtained as a result thereof - in respect of the amounts in PPL's bank accounts. The material showed that alleged scheduled offences were directed at IPRS and its directors; there was no material establishing that IPRS's proceeds, if any, were transferred, siphoned or conveyed to PPL or that PPL participated in the criminal activity. Reliance placed on lump sum receipts and on SMHPL's conjectural division of shares did not supply the necessary factual nexus. In absence of any material showing flow of proceeds from the accused to PPL or that PPL derived property from the scheduled offences, the funds could not be treated as proceeds of crime and thus were not liable to be attached under section 5. The Tribunal agreed with the Adjudicating Authority that the PAO could not be confirmed. [Paras 31, 32, 36, 37]Amounts in the attached bank accounts are not proceeds of crime and are not involved in money laundering; the provisional attachment order is not to be confirmed.Notice to show cause under section 8(1) - reasonable belief / reason to believe - Validity of the show cause notice issued under section 8(1) PMLA and whether reasons for issuance were required to be recorded in the notice itself - HELD THAT: - The Tribunal accepted the Adjudicating Authority's view that the issuance of a notice under section 8(1) requires the Authority to be prima facie satisfied that a case for issuance is made out, and that the statute does not mandate recitals of elaborate reasons on the face of the notice so long as the materials forming the basis of reasonable belief are available to the Authority. The Tribunal found no fault in the Adjudicating Authority's issuance of the notice, observing that the reasonable belief was formed on the PAO, original complaint and the materials placed before the Authority. [Paras 28, 29]The show cause notice under section 8(1) was validly issued; reasons for reasonable belief need not be exhaustively recited in the notice when materials supporting the belief are before the Authority.Freezing of property under section 17(1 A) - Whether the bank accounts were 'frozen' and, if so, whether procedural consequences of freezing (including application under section 17(4)) were triggered - HELD THAT: - The Tribunal endorsed the Adjudicating Authority's finding that there was no order of freezing produced or proved to have been served on the respondent. Section 17(1 A) requires a freezing order to be served; none was shown. Consequently contentions founded on the procedural consequences of freezing (such as limitation to apply under section 17(4)) were held to be unfounded. The Adjudicating Authority correctly rejected assertions that the accounts had been frozen without compliance with statutory formalities. [Paras 30]There was no proved freezing order under section 17(1 A); related contentions accordingly fail.Speculative evidence / conjectural inference - provisional attachment order - Permissibility of basing attachment on statements that amount to speculation (notably SMHPL's estimate of a 50:50 split) and adequacy of material relied upon by Enforcement Directorate to justify attachment - HELD THAT: - The Tribunal agreed with the Adjudicating Authority that the Investigating Officer and the Directorate impermissibly relied on speculative statements - for example, SMHPL's director's conjecture that PPL and IPRS share could be construed as 50% each - in concluding sums received by PPL were payable to IPRS and hence proceeds of crime. The record did not disclose contractual terms or documentary evidence to substantiate such apportionment; SMHPL was not party to the MoU between IPRS and PPL and thus had no competent basis to allocate shares. The Tribunal found such conjectural inferences inadequate to establish the quantum or flow of alleged proceeds and therefore insufficient to sustain the provisional attachment. [Paras 21, 22, 26, 27, 28]Attachment anchored on speculative or conjectural inference was impermissible; material relied upon was inadequate to justify provisional attachment.Final Conclusion: The appeal is dismissed; the Tribunal affirms the Adjudicating Authority's decision that the provisional attachment of amounts standing to the credit of M/s Phonographic Performance Ltd. cannot be confirmed because the Enforcement Directorate failed to establish that those amounts are proceeds of crime or that PPL was party to the criminal activity, the show cause notice was validly issued, and there was no proved freezing order under section 17(1 A).

2017 (8) TMI 1076 - ATPMLA Money Laundering

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Issues: (i) Whether the amounts collected and invested by the copyright society as royalties could be treated as proceeds of crime for the purposes of attachment and confirmation under the Prevention of Money Laundering Act, 2002; (ii) Whether the provisional attachment could be confirmed against the appellant on the basis of the alleged scheduled offence and the material placed before the Adjudicating Authority.

Issue (i): Whether the amounts collected and invested by the copyright society as royalties could be treated as proceeds of crime for the purposes of attachment and confirmation under the Prevention of Money Laundering Act, 2002.

Analysis: The attached funds were generated from lawful licensing activity and represented royalty collections pending distribution, with a substantial portion already distributed in the ordinary course. The material did not establish that the monies were derived from criminal activity relating to a scheduled offence. The mere allegation that some royalty remained unpaid or that a dispute existed with a member did not, by itself, convert the entire royalty corpus into proceeds of crime. The statutory definition of proceeds of crime requires property derived or obtained as a result of criminal activity, and the record did not show such nexus for the attached investments.

Conclusion: The royalty collections and investments were not shown to be proceeds of crime.

Issue (ii): Whether the provisional attachment could be confirmed against the appellant on the basis of the alleged scheduled offence and the material placed before the Adjudicating Authority.

Analysis: Under the scheme of the Act, attachment and confirmation require reason to believe based on material showing involvement in money-laundering and a nexus between the property and the alleged criminal activity. The record did not demonstrate such rational basis, and the appellant's explanation that the amounts were held pending completion of member formalities was not properly dealt with. The confirmation order was therefore unsupported by adequate material and was passed without properly appreciating the appellant's case and the nature of the attached property.

Conclusion: The confirmation of provisional attachment could not be sustained.

Final Conclusion: The appeal succeeded and the impugned confirmation order was set aside, with the attached properties not liable to be treated as involved in money-laundering on the material before the Tribunal.

Ratio Decidendi: Property collected in the course of lawful business cannot be treated as proceeds of crime unless a real nexus with criminal activity is shown, and provisional attachment under the money-laundering law must rest on reason to believe supported by relevant material.

Lawful royalty collections cannot be treated as proceeds of crime without a proven nexus to criminal activity.
Amounts collected through lawful copyright licensing and held as royalty distributions were not shown to be proceeds of crime because the record did not establish a nexus with any scheduled offence. Mere non-payment of part of the royalty pool or a dispute with a member did not convert the entire corpus or related investments into tainted property under the PMLA. Provisional attachment also could not be confirmed because the material before the Adjudicating Authority did not support a reasoned belief that the property was involved in money-laundering, and the appellant's explanation was not properly considered. The confirmation order was therefore set aside.

Proceeds of crime - reason to believe - provisional attachment - offence of money laundering - innocent third party / bona fide purchaser - knowledge / mens rea requirementProceeds of crime - provisional attachment - reason to believe - offence of money laundering - Whether the amounts invested by IPRS (royalties retained and invested in mutual funds) constituted "proceeds of crime" and whether the Adjudicating Authority rightly confirmed the provisional attachment order. - HELD THAT: - The Tribunal held that the Adjudicating Authority had no material basis to conclude that the invested amounts were "proceeds of crime" within the meaning of the PMLA. The court explained that attachment under the Act requires that the authority have "reason to believe"-a state of mind higher than mere suspicion-supported by material showing nexus between the property and scheduled offences. The Adjudicating Authority had recorded only the pleadings and allegations, failed to grapple with the appellant's evidence and explanations about (i) lawful collection and international practice of delayed distribution of royalties, (ii) statutory and documentary steps taken to verify membership/ownership, and (iii) the fact that outstanding amounts largely reflected undistributed royalties for reasons such as non compliance by members and contingent buffers. The Tribunal observed that absent any clear finding as to which documents (if any) were forged or how the large investment figure related to quantified criminal gains, the conclusion that Rs.70,17,00,483/- were proceeds of crime was unsustainable. Relying on the statutory scheme (Sections 3, 4, 5 and 8) and precedents on the test of "reason to believe" and mens rea, the Tribunal set aside the confirmation of the PAO and found the impugned order liable to be quashed for lack of rational nexus and inadequate consideration of the appellant's submissions. [Paras 40, 41, 43, 46, 66]Impugned order confirming the provisional attachment was set aside for lack of material and absence of a reasonable basis to believe the attached investments were proceeds of crime; PAO confirmation quashed.Innocent third party / bona fide purchaser - knowledge / mens rea requirement - Adjudication under Section 8 - Whether an innocent party whose property has been provisionally attached under the PMLA can approach the Adjudicating Authority for release of the attached property and on what basis the plea may be considered. - HELD THAT: - The Tribunal affirmed that the statutory scheme permits innocent persons to approach the Adjudicating Authority to demonstrate that attached properties are not involved in money laundering. While Section 8 enables the Authority to examine replies and relevant materials before recording a finding, the Tribunal emphasised that the offence under Section 3 has two essential prerequisites-(i) direct/indirect attempt, knowing assistance or actual involvement, and (ii) projection of the proceeds as untainted property-and that mens rea/knowledge is central. If a claimant establishes bona fides and absence of knowledge or involvement, the Authority can and should release the property. The Tribunal relied on decisions it discussed to conclude that the Adjudicating Authority must consider the innocence plea and relevant corroborative material rather than mechanically endorse the complainant's averments. [Paras 55, 56, 57]An innocent party may invoke the Adjudicating Authority under Section 8 to seek release of attached properties; absence of knowledge/involvement and bona fide status must be considered and may justify release.Interest on unpaid royalties - equitable relief - Whether unpaid artists are entitled to receive the pending royalties and interest. - HELD THAT: - The Tribunal noted the appellant's confirmation to pay unpaid artists their royalties in accordance with law and observed that unpaid artists are entitled to claim interest on the amounts due. The court treated this as an ancillary equitable consequence flowing from its decision to set aside the attachment and from the appellant's acceptance to discharge outstanding liabilities. [Paras 66]Appellant directed to pay the unpaid artists as per law; unpaid artists entitled to claim interest on due royalties.Final Conclusion: The Tribunal set aside the Adjudicating Authority's order confirming the provisional attachment, holding that the respondent lacked sufficient material and a reasonable basis to treat the invested royalties as "proceeds of crime"; the Tribunal directed that the appellant pay unpaid artists their lawful dues (with interest) and held that innocent parties may seek release of attached property from the Adjudicating Authority when bona fides and absence of knowledge/involvement are shown.

2017 (8) TMI 753 - ATPMLA Money Laundering

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Reasoned finding and speaking order are essential before confirming attachment under money laundering law; matter remanded for fresh adjudication.
An attachment order under the prevention of money laundering regime cannot be sustained where the Adjudicating Authority fails to record a reasoned finding on the principal factual dispute and does not pass a speaking order on the material issues raised. The record showed a specific plea that the attached funds were legitimate monies of M/s Indu Builders and not proceeds of crime, yet the impugned order did not properly address the supporting material or the objection to the show-cause notice. The order was therefore set aside and the matter remanded for fresh adjudication on all issues.

Provisional attachment under PMLA - proceeds of crime - requirement of a speaking order / reasoned findings - remand for fresh adjudication - right to raise procedural infirmity (notice without reasons)Provisional attachment under PMLA - proceeds of crime - requirement of a speaking order / reasoned findings - remand for fresh adjudication - Whether the Adjudicating Authority's confirmation of the provisional attachment should be sustained in absence of a reasoned finding on whether the Rs. 70 lakh belonged to the allegedly 'proceeds of crime' or to the portion claimed as legitimate funds in M/s Indu Builders' account. - HELD THAT: - The Tribunal found that the Adjudicating Authority's impugned order did not explain which material or document supported the conclusion that the Rs. 70 lakh originated from the alleged proceeds of crime (the larger impugned corpus) rather than from the portion claimed to be legitimate funds. The appellant had specifically pleaded and relied on statements and documentary material asserting that the amount constituted part of the legitimately claimed sum; that contentious factual question was not addressed in a speaking manner. Because the issue of source of funds was a central and disputed factual matter, the Adjudicating Authority was obliged to decide it on merits and record clear, reasoned findings. In the absence of such reasoning, the Tribunal set aside the impugned order and remanded the matter for fresh adjudication, directing the Adjudicating Authority to consider and decide all pleas raised by the appellant and to deliver a reasoned order within the timeframe fixed by the Tribunal. The Tribunal also prescribed that the Bench of the Adjudicating Authority should consist of the Chairman and two Members including Member (Legal). [Paras 8, 9, 10, 11, 12]Impugned order set aside and matter remanded to the Adjudicating Authority for fresh decision with speaking findings on whether the Rs. 70 lakh is from the contested proceeds of crime or from the legitimately claimed portion, and for disposal of all other pleas raised by the appellant.Right to raise procedural infirmity (notice without reasons) - remand for fresh adjudication - Whether the appellant may raise before the Adjudicating Authority the contention that a notice was issued without assigning reasons and have that contention decided on merit. - HELD THAT: - The Tribunal allowed the appellant to agitate the grievance regarding issuance of notice without assigning reasons before the Adjudicating Authority. It directed that the said issue be considered on merit by the Adjudicating Authority when the matter is heard afresh, thereby leaving the procedural complaint for adjudication in the course of the remand proceedings. [Paras 13]Appellant permitted to raise the contention of notice issued without reasons before the Adjudicating Authority; that issue to be considered and decided on merit during the remand proceedings.Final Conclusion: The impugned order confirming the provisional attachment is set aside and the matter is remanded to the Adjudicating Authority for fresh, reasoned adjudication on whether the Rs. 70 lakh formed part of the alleged proceeds of crime or of the legitimately claimed funds and on all other pleas urged by the appellant; the Adjudicating Authority shall hear the parties on the fixed date and deliver a speaking order within the directed timeframe, and the appellant may also press the grievance about a notice issued without reasons which the Adjudicating Authority shall decide on merit.

2017 (6) TMI 1401 - APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT, NEW DELHI Money Laundering

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Issues: (i) Whether the confirmation of provisional attachment under the Prevention of Money Laundering Act, 2002 was vitiated for want of jurisdiction, absence of reason to believe, the appellant's alleged bona fides, or the plea of retrospectivity. (ii) Whether the appellant was entitled to retain possession of the attached property during the pendency of proceedings on terms.

Issue (i): Whether the confirmation of provisional attachment under the Prevention of Money Laundering Act, 2002 was vitiated for want of jurisdiction, absence of reason to believe, the appellant's alleged bona fides, or the plea of retrospectivity.

Analysis: The attachment was supported by material referred to in the show-cause notice, including the charge-sheet and investigation material, and the authority had recorded reasons in writing. The Tribunal held that the scheme of sections 5 and 8 permits provisional attachment and its adjudication, and that the Enforcement Directorate could issue prohibitory directions during investigation to preserve the property. The plea that the appellant was a bona fide purchaser and that the property was purchased from legitimate sources did not displace the attachment at this stage. The contention based on retrospectivity was rejected because the relevant scheduled offences stood included from 1 June 2009 and the transaction steps and payments were subsequent. The challenge to the order confirming attachment therefore failed.

Conclusion: The confirmation of provisional attachment was upheld and the appellant's challenge on merits failed.

Issue (ii): Whether the appellant was entitled to retain possession of the attached property during the pendency of proceedings on terms.

Analysis: The Tribunal noted that the appellant had already paid substantial consideration and was in possession of the property. Balancing equities, it accepted the alternative prayer for continued possession subject to monthly deposit, with the amount to abide the result of the proceedings before the Special Court.

Conclusion: The appellant was permitted to continue in possession subject to compliance with the deposit condition.

Final Conclusion: The attachment order was sustained, but limited interim relief regarding possession was granted on conditions, leaving the ultimate rights of the parties to be determined in the pending trial.

Ratio Decidendi: Under the Prevention of Money Laundering Act, 2002, provisional attachment may be sustained where the authority records reasons to believe on the basis of material in its possession that the property is involved in money laundering, and a bona fide purchase plea does not by itself defeat attachment at the adjudicatory stage.

Provisional attachment under money laundering law sustained where reasons to believe and supporting material were recorded, with limited possession relief granted.
Provisional attachment under the Prevention of Money Laundering Act was treated as sustainable where the authority had recorded reasons in writing and relied on material such as the charge-sheet and investigation record. The Tribunal noted that sections 5 and 8 allow provisional attachment and adjudication, and that prohibitory directions may be issued during investigation to preserve the property. A plea of bona fide purchase did not defeat attachment at that stage, and the retrospectivity argument failed because the scheduled offences were already included from 1 June 2009 and the relevant transaction steps were later. Limited interim possession was nevertheless allowed on monthly deposit terms pending the Special Court proceedings.

Provisional attachment under PMLA - reason to believe - proceeds of crime and value thereof - power to issue prohibitory directions during investigation - limits on registering officer's inquiry and ministerial duty of registration - bona fide purchaser and part performance - confirmation of provisional attachment by Adjudicating Authority - possession and interim relief subject to security/depositProvisional attachment under PMLA - reason to believe - confirmation of provisional attachment by Adjudicating Authority - Validity of confirmation of provisional attachment of the immovable property by the Adjudicating Authority - HELD THAT: - The Tribunal upheld the Adjudicating Authority's confirmation of the provisional attachment. It found that the show-cause notice and the attachment order recorded reasons to form a 'reason to believe' based on material including the CBI charge-sheet, accompanying documents and investigation material compiled by the Joint Director; the fact that a designated court had taken cognizance of the charge-sheets lent further credence to that belief. The Tribunal rejected the contention that the proviso/requirements of section 5(1) were not satisfied, observing that payments and steps by the purchasers occurred after the relevant offences were scheduled and that prima facie the purchasers were aware of litigation against the vendors - matters to be finally determined at trial. On this basis the confirmation was not held arbitrary or without jurisdiction. [Paras 40, 41, 42, 43]Confirmation of provisional attachment was upheld.Power to issue prohibitory directions during investigation - limits on registering officer's inquiry and ministerial duty of registration - Legality of Enforcement Directorate's prohibitory communication to the Sub-Registrar and the scope of the Sub-Registrar's duty to register instruments - HELD THAT: - The Tribunal recognised the force in the purchasers' submissions that the Sub-Registrar's statutory duty to register is largely ministerial and that a registering officer cannot go beyond grounds provided by the Registration Act and Rules. However, the Tribunal also accepted authorities and reasoning that, in the course of investigation, PMLA authorities are empowered to collect information and issue directions to prevent disposition of suspected proceeds of crime; earlier High Court decisions indicated such directions, issued in the course of investigation under PMLA, fall within the investigatory powers. The Tribunal therefore did not find the ED's communication sufficient to vitiate the attachment proceedings or to require unconditional relief to the purchasers at this stage. [Paras 20, 25, 31, 36]The prohibitory directions did not render the attachment confirmation unlawful; the ministerial duty of the Sub-Registrar did not override investigatory directions issued under PMLA in the facts before the Tribunal.Proceeds of crime and value thereof - bona fide purchaser and part performance - Whether appellants, as alleged bona fide purchasers who paid fair market value and took possession, were entitled to relief from attachment because the property or its value was not 'proceeds of crime' - HELD THAT: - The Tribunal considered the appellants' contention that they had purchased the property out of legitimate funds, relied on part performance (section 53A) and that under the definition of 'proceeds of crime' the value paid (if untainted) should not be treated as tainted. It observed that although the purchasers placed materials asserting legitimate sources, the Adjudicating Authority had other material indicating involvement of the vendors and related entities, and prima facie the purchasers had knowledge of pending litigation against vendors. The Tribunal held that these factual contests could not be resolved at the interlocutory stage and must await trial; if the Special Court ultimately finds the purchasers innocent, they would obtain appropriate relief. [Paras 39, 41, 42]Appellants' plea of being bona fide purchasers did not warrant lifting of attachment at this stage; factual determination to be made at trial.Possession and interim relief subject to security/deposit - Interim possession of the attached property pending final adjudication - HELD THAT: - While upholding the confirmation, the Tribunal exercised discretion to permit the appellants to continue in possession of the property as an equitable interim measure. The permission was made conditional upon monthly deposits to the Enforcement Directorate from the date of the order, to be held without prejudice until final disposal; if appellants are held innocent after trial the deposits will be refunded, otherwise they will vest with the respondent. [Paras 43]Possession permitted to continue with appellants subject to monthly deposit condition (security) until final disposal.Final Conclusion: The Tribunal dismissed the appellants' challenge to the Adjudicating Authority's confirmation of the provisional attachment, concluding that the requisite 'reason to believe' was recorded on available investigation material and that factual disputes about bonafide purchase and tainted proceeds require trial; as an interim equitable measure the appellants were allowed to retain possession subject to a monthly deposit to the Enforcement Directorate pending final adjudication.

2017 (8) TMI 800 - ATPMLA Money Laundering

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Tribunal grants stay on property possession order, maintains attachment, restricts property disposal.
The Tribunal allowed the applications for stay of the order regarding taking over possession of the attached properties, directed the continuation of the attachment order, and prohibited the parties from disposing of or creating any third-party rights in the properties. The matter was listed for further hearing on 1st November 2017.

Provisional attachment under PMLA - taking possession in terms of Section 8(4) of PMLA - custodia legis / property in custody of court - requirement of court's leave before taking possession - Possession Rules, 2013 - Rule 7 application to court - interim stay of possession pending appeal - amendment of memo of appeal and condonation of delayAmendment of memo of appeal and condonation of delay - Applications for amendment of memo of appeal and condonation of delay - HELD THAT: - The Tribunal treated the applications for amendment of the memo of appeal and for condonation of delay as consequential to the initial joint filing and subsequent separate filings. Having examined the circumstances that one appeal was initially filed jointly and later treated as a separate appeal by one party, the applications for amendment and for condonation of delay were allowed. [Paras 4]Applications for amendment of the memo of appeal and for condonation of delay are allowed.Taking possession in terms of Section 8(4) of PMLA - custodia legis / property in custody of court - requirement of court's leave before taking possession - Possession Rules, 2013 - Rule 7 application to court - Whether the Enforcement Directorate can take over physical possession of properties in the custody of a court under Section 8(4) of the PMLA without obtaining leave of that court or making the application contemplated by Rule 7 of the Possession Rules, 2013 - HELD THAT: - The Tribunal examined authorities and the statutory scheme and distinguished precedents relied on by the respondent. It held that the question of taking over possession of property in custodia legis is governed by established principles that proceedings affecting property in the custody of a court ordinarily require the leave of that court, to avoid conflict of jurisdiction and protect the custody of the property. Rule 7 of the Prevention of Money laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 requires that where confirmed attached property is in the custody of any court, the authorized officer must make an application to that court seeking release of the property in favour of the Directorate. In view of Rule 7 and the principle that property in custodia legis is ordinarily exempt from judicial process except with leave, the respondent's submission that possession can be taken without leave was rejected insofar as it sought immediate takeover of custody under Section 8(4). [Paras 22, 23, 24]Possession of properties that are in the custody of a court cannot be taken over by the Directorate under Section 8(4) without complying with the requirement to seek the court's leave/application as envisaged by Rule 7 of the Possession Rules; the respondent's contention to the contrary is rejected.Interim stay of possession pending appeal - provisional attachment under PMLA - Interim relief - stay of action to take over possession of the attached flats pending disposal of appeals - HELD THAT: - Having considered the facts, including that the properties were in custody of the Special Court and were previously delivered to the appellants on bond, and noting that appellants had made out an arguable case (including challenge to the reliance on stale material for the PAO), the Tribunal concluded that prima facie the appellants were entitled to interim protection from being dispossessed in execution of the impugned orders. Accordingly, the applications for stay of action to take over possession of the three flats were allowed unconditionally until the appeals are finally decided. The Tribunal clarified that this interim relief did not disturb the order of attachment itself. [Paras 20, 21, 25]Action to take over possession of the specified flats in pursuance of the impugned order and any notices under Section 8(4) shall remain stayed until final disposal of the appeals; the provisional attachment continues.Provisional attachment under PMLA - restrictions on alienation pending appeal - Interim restrictions on dealing with attached properties during pendency of appeal - HELD THAT: - While staying action for taking over physical possession, the Tribunal made clear that the attachment order as such continues. To protect the integrity of the attachment it directed that, until disposal of the appeal, the appellants shall not dispose of or create any third party right or interest in the attached properties. [Paras 29, 30]Order of attachment shall continue and appellants are restrained from disposing of or creating any third party rights or interests in the attached properties pending disposal of the appeals.Final Conclusion: Applications for amendment of the memo of appeal and condonation of delay allowed; interlocutory applications for stay of action to take over possession of the three specified flats allowed unconditionally until final disposal of the appeals; the provisional attachment of the flats remains in force and appellants are restrained from creating any third party rights in the attached properties; main appeals to be heard on merits on the listed date.

2017 (8) TMI 799 - ATPMLA Money Laundering

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Issues: (i) Whether the provisional attachment of the appellant's immovable property under the Prevention of Money Laundering Act, 2002 could be sustained in view of the arbitral award and the competing claims regarding the amount received from the second respondent; (ii) what relief, if any, should be granted against the confirmed attachment.

Issue (i): Whether the provisional attachment of the appellant's immovable property under the Prevention of Money Laundering Act, 2002 could be sustained in view of the arbitral award and the competing claims regarding the amount received from the second respondent.

Analysis: The arbitral award resolved the civil dispute between the parties, but it did not determine whether the transaction involved proceeds of crime or money laundering, which remained a distinct issue under the special statute. The Tribunal accepted that property can be attached under the Prevention of Money Laundering Act, 2002 even if the possessor is not charged with the scheduled offence, and that the question of confiscation ultimately lies before the Special Court. On the material available, the Tribunal found that funds from the alleged fraud had been invested in the subject property, but also held that the amount actually traceable to the appellant should be taken at Rs. 4.67 crores, as reflected in the record and the appellant's own submissions. The Tribunal therefore concluded that complete release without safeguards was not warranted, but the attachment could be modified on terms.

Conclusion: The attachment was not wholly set aside on merits, but was directed to be released subject to the appellant furnishing a fixed deposit receipt of Rs. 4.67 crores as security.

Final Conclusion: The appeal succeeded in part: the confirmed attachment was modified and the property was ordered to be released against security, leaving the question of final confiscation to the Special Court.

Ratio Decidendi: Under the Prevention of Money Laundering Act, 2002, property alleged to represent proceeds of crime may be attached even if the possessor is not an accused in the scheduled offence, but the appellate authority may modify attachment and impose security conditions where the traceable tainted amount is ascertainable and final confiscation remains for the Special Court.

Proceeds of crime attachment may be modified where traceable tainted funds are identifiable and security is provided.
Property alleged to represent proceeds of crime may be attached under the Prevention of Money Laundering Act, 2002 even if the possessor is not charged with the scheduled offence, because the civil dispute resolved by an arbitral award does not determine liability under the special statute. The Tribunal found that funds from the alleged fraud were invested in the property, but limited the traceable amount to Rs. 4.67 crores on the record and the appellant's own submissions. It therefore declined full release, modified the confirmed attachment, and ordered release of the property against security by fixed deposit receipt for that amount, leaving final confiscation to the Special Court.

Proceeds of crime - provisional attachment - confirmation of provisional attachment - effect of civil/arbitral award on PMLA proceedings - presumption in interconnected transactions - burden of proof in PMLA adjudication - release of attached property on furnishing securityEffect of civil/arbitral award on PMLA proceedings - proceeds of crime - Finality of the arbitration award between the appellant and respondent no.2 does not preclude or conclusively determine the question whether the transactions were involved in money laundering for the purposes of PMLA proceedings. - HELD THAT: - The Tribunal held that the arbitral award is a final civil remedy between the parties but did not consider or decide the question whether the transactions were involved in offences under the PMLA; civil findings therefore are not conclusive in PMLA adjudication. Reliance on Sections 40-43 of the Evidence Act and the decision in K.G. Premshanker establishes that a prior civil award does not bar parallel criminal/quasi criminal proceedings and is relevant only to the extent it bears on facts in issue. Consequently, the Award's declaration that the appellant need not return the consideration does not determine whether monies paid were "proceeds of crime" invested in the subject property. [Paras 48, 49]The arbitral award, though final inter partes, does not preclude PMLA proceedings and is not conclusive proof that the amounts/property are not proceeds of crime.Provisional attachment - confirmation of provisional attachment - presumption in interconnected transactions - burden of proof in PMLA adjudication - Whether an immovable property in possession of a person not charged with a scheduled offence can be provisionally attached/confirmed under PMLA where proceeds of crime are shown to be invested in it. - HELD THAT: - The Tribunal affirmed that PMLA permits attachment of property involved in money laundering even if the possessor has not been charged with the scheduled offence. The adjudicating authority is entitled to form a reasoned belief and provisionally attach property where the investigation demonstrates that proceeds of crime were invested. Section 23's presumption regarding interconnected transactions and the statutory burden on claimants to prove non involvement were noted. The Tribunal found serious allegations and investigative findings that part of the funds fraudulently obtained by respondent no.2 were paid to the appellant as part consideration and invested in the property, justifying provisional attachment and its confirmation. [Paras 36, 55, 56]Attachment and confirmation of the property under PMLA is permissible even though the appellant is not charged with the scheduled offence, where proceeds of crime are prima facie shown to be invested in the property.Proceeds of crime - presumption in interconnected transactions - Quantum of the proceeds of crime invested in the subject property for purposes of the attachment. - HELD THAT: - There was a dispute as to the amount received by the appellant from respondent no.2. Having considered the arbitration record, endorsements and the appellant's own written submissions, the Tribunal accepted that the amount paid by respondent no.2 to the appellant in terms of the agreement should be taken as Rs. 4.67 crores. Consequently, the Tribunal treated the proceeds of crime invested in the property, for the purpose of securing the property, at that figure rather than the department's higher quantification. [Paras 59, 61]The proceeds of crime invested in the attached property are taken to be Rs. 4.67 crores for the limited purpose of securing the attachment.Release of attached property on furnishing security - confirmation of provisional attachment - Whether the attached immovable property can be released and on what conditions. - HELD THAT: - Balancing that confiscation is the domain of the Special Court but recognising the Tribunal's power under the Act to modify orders on appeal, the Tribunal directed release of the attached immovable property including the mill subject to the appellant furnishing an FDR of Rs. 4.67 crores in favour of the Enforcement Directorate within two months as security. The FDR was to be without prejudice; if the Special Court ultimately holds the amount not to be proceeds of crime, the appellant would recover principal and interest; otherwise the Department would be entitled to the amount. The order was framed as an interim, conditional measure pending final adjudication. [Paras 63, 64, 65]The attachment is modified: release of the property is ordered subject to the appellant furnishing an FDR of Rs. 4.67 crores to the Enforcement Directorate within two months; upon satisfaction, the property shall be released; final confiscation remains for the Special Court.Final Conclusion: The Tribunal modified the Adjudicating Authority's confirmation of provisional attachment by directing release of the attached immovable property on the appellant furnishing an FDR of Rs. 4.67 crores as security within two months; the FDR is to be returned if the Special Court finds the amount not to be proceeds of crime, otherwise it will be applied to satisfy confiscation. The arbitral award does not bar the PMLA proceedings and attachment was held permissible on the present prima facie material.

2017 (8) TMI 798 - ATPMLA Money Laundering

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Provisional attachment under PMLA sustained where material established reason to believe the property was linked to proceeds of crime.
Provisional attachment of the Vishal House property under the Prevention of Money Laundering Act, 2002 was upheld because the material before the Tribunal, including the CBI charge-sheet, supporting documents and Enforcement Directorate statements, satisfied the statutory requirement of reason to believe that the property represented proceeds of crime. The Tribunal found a traceable fund-flow link with the concerned group entities and rejected the contention that the absence of a direct charge against the appellant or the timing of the auction purchase displaced the attachment. It also found no legal infirmity in the confirmation order and no basis to displace the statutory presumptions.

Provisional attachment - proceeds of crime - reason to believe - show cause notice under Section 5(1) of the PMLA - fund flow / money trail - presumption under Section 23 of the PMLA - burden under Section 24 of the PMLAProvisional attachment - show cause notice under Section 5(1) of the PMLA - reason to believe - Validity of the provisional attachment of Vishal House and sufficiency of the material forming the 'reason to believe' recorded in the show cause notice. - HELD THAT: - The Tribunal examined whether the Deputy Director/ED had subjective and objective material to form the 'reason to believe' required for issuance of the show cause notice and provisional attachment. The show cause notice set out material including the CBI charge sheet, accompanying documents and materials gathered by the Joint Director during investigation, together with statements of directors of various companies. The Tribunal held that the show cause notice did in fact disclose the material basis for the ED's belief and that cognizance of the charge sheet by the designated court lent further support to the formation of that belief. On this basis the Tribunal found no illegality or absence of reasons in the issuance of the provisional attachment order in respect of Vishal House. [Paras 19]The provisional attachment and the show cause notice were valid; the ED had sufficient material to form the 'reason to believe'.Proceeds of crime - fund flow / money trail - Whether Vishal House was acquired out of proceeds of crime and whether there was a nexus between VEOL and JMD Media Pvt. Ltd. such that the property could be treated as tainted. - HELD THAT: - The Tribunal analysed statements and documentary material showing transfers from the de-facto owners and group firms to M/s VikalpRasayan and onward to JMD Media Pvt. Ltd., including admissions by directors and related persons. The material indicated transfers amounting to sums which were then paid by JMD Media to SBI for purchase of Vishal House. The Tribunal accepted the ED's finding that the investigation revealed misuse of credit facilities by VEOL and that interlinked transactions among group companies resulted in the flow of funds used by JMD Media to acquire the property. The Tribunal rejected the appellant's contention that the property could not be proceeds of crime because the original units were purchased in 1991 or because JMD's acquisition at auction in 2009 was independent; the factual fund-flow findings established a prima facie nexus. [Paras 20, 21, 22]On the material before it, the Tribunal upheld the finding that Vishal House was tainted by proceeds of crime through the established fund flow and nexus with VEOL.Scheduled offences and temporal scope of the Schedule - Whether amendment of the Schedule to the PMLA (effective 01.06.2009) precluded attachment because the alleged offences dated earlier than the amendment. - HELD THAT: - The appellant contended that offences alleged (2005-2008) were not scheduled offences prior to the 2009 amendment and therefore could not support attachment. The Tribunal observed that the units in question were sold in 2011 and that the appellant's argument regarding the timing of the schedule amendment had no force in the present facts. The Tribunal treated the timing argument as unavailing in face of the material establishing taint and fund transfers. [Paras 25]The challenge based on non-retrospectivity of the 2009 Schedule amendment was rejected; it did not vitiate the attachment on the facts before the Tribunal.Presumption under Section 23 of the PMLA - burden under Section 24 of the PMLA - Applicability of statutory presumptions and burden-shifting provisions (Sections 23 and 24) to the appellant and whether the appellant discharged the requisite burden. - HELD THAT: - The Adjudicating Authority had applied the statutory presumptions and held that the appellant did not discharge the onus. The Tribunal examined the evidentiary record including statements and documentary fund-flow evidence and concluded that the appellant had not satisfactorily rebutted the material establishing linkage of funds to the group firms and de-facto owners. On this basis the Tribunal found no error in applying the presumptions and in holding that the appellant had not discharged the burden. [Paras 21, 24]Sections 23 and 24 were properly applied; the appellant failed to discharge the burden to rebut the statutory presumptions on the material before the authorities.Effect of pre-attachment communication to Sub-Registrar - Legality and effect of the Enforcement Directorate's letter to the Sub-Registrar dated 21.07.2011 restraining registration prior to issuance of a provisional attachment order. - HELD THAT: - The appellant challenged the ED's pre-attachment communication as without statutory power and void ab initio, contending it led to refusal to register the sale deed and prejudiced their rights. The Tribunal reviewed the sequence of events and the overall findings of taint and fund flow, and concluded that the substantive impugned order confirming attachment contained no infirmity. The Tribunal did not accept the contention as sufficient to set aside the confirmation of provisional attachment in view of the material supporting the ED's actions. [Paras 14, 25]The pre-attachment communication did not render the confirmed attachment invalid on the facts before the Tribunal; the objection to that communication did not vitiate the impugned order.Interim possession and deposit pending final disposal - Whether possession of the attached property should be permitted to remain with the appellant pending final adjudication and on what terms. - HELD THAT: - While upholding the confirmation of attachment, the Tribunal recognised that the appellant had already paid the auction consideration and was in possession. In the exercise of discretion and in fairness, the Tribunal permitted the appellant to continue in possession subject to monthly deposits to the ED from the date of order until final disposal of PMLA proceedings; the deposit to be refunded if the appellant is held to be an innocent purchaser, or credited to the ED if otherwise. [Paras 43]Possession allowed to continue with the appellant on condition of depositing stipulated monthly sums pending final adjudication; appeal allowed to that limited extent but otherwise dismissed.Final Conclusion: The Tribunal upheld the Adjudicating Authority's confirmation of the provisional attachment of Vishal House, finding sufficient material (CBI charge sheet, investigative material and admissions) to form the requisite 'reason to believe' and to establish a prima facie fund flow linking the property to proceeds of crime. The appellant's challenges, including timing of the Schedule amendment and the ED's pre-attachment communication to the Sub-Registrar, were rejected. The appellant was permitted to retain possession on condition of periodic deposits pending final disposal; otherwise the appeal is dismissed.

2017 (8) TMI 966 - ATPMLA Money Laundering

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Tribunal lacks jurisdiction, case remanded for reconsideration with Judicial Member per High Court directive.
The impugned orders dated 01.12.2015 and 03.03.2015 were set aside for lack of jurisdiction due to the absence of a Judicial Member as directed by the High Court. The case was remanded to the Adjudicating Authority for reconsideration after appointing a Judicial Member. The provisional attachment order remains in effect until the case is decided in compliance with the High Court's directions. The tribunal did not delve into the merits of the case but emphasized adherence to the High Court's directives.

Requirement of Judicial Member - constitution of Bench - jurisdiction - compliance with High Court directions - provisional attachment to continue pending fresh adjudicationRequirement of Judicial Member - jurisdiction - compliance with High Court directions - Impugned orders were passed without a Judicial Member as contemplated by the High Court directions and are thus without jurisdiction and liable to be set aside. - HELD THAT: - The tribunal found that the Hon'ble High Court of Sikkim had directed urgent appointment of a Judicial Member and that the adjudicating orders impugned (including the order dated 01.12.2015 and the earlier final order dated 15.06.2015 / 03.03.2015 insofar as comparable) were passed in the absence of a Judicial Member. Although a person was appointed as Member (Legal), he was not appointed as the Judicial Member contemplated by the High Court's directions. The tribunal observed that those directions were mandatory for compliance in the proceedings before the Adjudicating Authority; non compliance rendered the orders passed without jurisdiction and therefore nullities. The tribunal declined to express a final view on the merits of the underlying disputes, limiting its decision to the jurisdictional consequence of non compliance with the High Court directions. [Paras 20, 21, 23, 24]Set aside the impugned orders dated 01.12.2015 and 03.03.2015 (and other comparable orders passed without a Judicial Member) on the ground that they were passed without jurisdiction.Constitution of Bench - provisional attachment to continue pending fresh adjudication - compliance with High Court directions - Matters remanded to the Adjudicating Authority to be decided afresh after constitution of a Bench including a Judicial Member in accordance with the High Court directions; provisional attachment to continue until fresh adjudication. - HELD THAT: - Having set aside the orders as without jurisdiction, the tribunal directed that the matters (OC Nos. 381/2014 and 409/2015 and the appeals arising therefrom) be remanded to the Adjudicating Authority for urgent fresh adjudication on merits after the appropriate steps are taken to appoint a Judicial Member and constitute a Bench as per the High Court's directions. The tribunal made clear that it was not expressing any opinion on the merits and that the period of attachment would exclude the period spent during the writ proceedings, while ordering that the provisional attachment remain in force until the Adjudicating Authority completes the fresh adjudication in accordance with the directions. [Paras 26, 27, 28]Remand appeals to the Adjudicating Authority for fresh decision after constitution of a Bench including a Judicial Member; provisional attachment to continue until such fresh adjudication; all pending applications disposed of.Final Conclusion: The impugned adjudicating orders passed without the Judicial Member required by the High Court's directions are set aside as without jurisdiction; the matters are remanded to the Adjudicating Authority for fresh adjudication after appointment of a Judicial Member and constitution of an appropriate Bench, with the provisional attachment to continue pending that fresh decision.

2017 (8) TMI 965 - ATPMLA Money Laundering

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Court Overturns Attachment Order, Emphasizes Victim Rights
The court set aside the Adjudicating Authority's Order confirming the Provisional Attachment Order, finding it unjustified and a violation of law. The Appellant, deemed a victim and not a perpetrator, successfully argued against the attachment of properties under the Prevention of Money-Laundering Act. The court emphasized the distinction between victim and perpetrator rights, ultimately ruling in favor of the Appellant and overturning the confirmation of the provisional attachment.

Provisional attachment - provisional attachment: requirements of possession of proceeds of crime and likelihood of concealment/transfer - reason to believe - victim versus accused - confirmation of provisional attachment by Adjudicating Authority - custody pursuant to judicial order - application of reason to believe standard (not mere suspicion)Provisional attachment - custody pursuant to judicial order - Validity of provisional attachment/its confirmation where the cash was in the Bank's custody pursuant to a judicial order and release on bond - HELD THAT: - The Tribunal found that the Adjudicating Authority failed to appreciate that the cash of Rs. 57,00,000/- had been handed over to the Bank by an order of the Magistrate on furnishing of a bond and that custody was thus judicially recognised. The Authority's conclusion that temporary custody did not entitle the Bank to any right unless final proof was adduced was held to be a misreading of the Magistrate's order and to disregard the prima facie satisfaction of ownership recorded by the trial court. The Tribunal held that continuation and confirmation of the provisional attachment without accounting for this judicial custody was arbitrary and contrary to the material before the Authority. [Paras 15, 24, 25, 31]The confirmation of provisional attachment as regards the cash in the Bank's judicial custody was erroneous and set aside.Provisional attachment: requirements of possession of proceeds of crime and likelihood of concealment/transfer - confirmation of provisional attachment by Adjudicating Authority - Whether the statutory pre-conditions for passing a provisional attachment order under the PMLA (possession of proceeds of crime and likelihood of concealment/transfer) were satisfied - HELD THAT: - The Tribunal accepted the submission that Section 5(1)(a)-(b) require satisfaction of two elements before provisional attachment: that the person is in possession of proceeds of crime and that such proceeds are likely to be concealed, transferred or dealt with so as to frustrate confiscation. The Authority's confirmation was held to be unsupported because the cash was not in the accused's possession but in the Bank's custody pursuant to court order, and there was no material to show a real likelihood of concealment or transfer that would frustrate confiscation proceedings. The Tribunal concluded that the Authority did not apply the statutory test correctly and proceeded on inadequate reasoning. [Paras 16, 17, 31]Provisional attachment could not be sustained as the statutory pre-conditions were not satisfied on the material before the Authority.Reason to believe - application of reason to believe standard (not mere suspicion) - Whether the Adjudicating Authority applied the correct standard of 'reason to believe' under Section 8(1) of the PMLA when confirming the provisional attachment - HELD THAT: - The Tribunal reiterated that 'reason to believe' is a higher threshold than mere suspicion and requires cogent reasons in writing; an adjudicatory authority must consider all aspects before confirmation. The Authority's brief affirmation that it was satisfied of money laundering and proceeds of crime was treated as insufficient; the Authority did not give cogent, specific reasons to meet the statutory standard and failed to confront material showing the Bank was the victim and had judicial custody of the cash. Consequently the confirmation was vitiated for want of proper application of the 'reason to believe' test. [Paras 23, 31]The Adjudicating Authority did not apply the correct 'reason to believe' standard and its confirmation is set aside.Victim versus accused - Whether the Bank, being the victim whose money was alleged to have been siphoned, could be treated as person in possession of proceeds of crime so as to warrant attachment - HELD THAT: - The Tribunal noted the admitted position in the record that the Bank was the victim of the fraud and that investigative material and statements of the accused corroborated that the money belonged to the Bank. Given this status, the Authority erred in treating the Bank's possession (under judicial custody) as if it constituted possession of proceeds of crime justifying attachment. The Tribunal emphasised that mere status as custodian or victim does not equate to involvement in money laundering and the Authority failed to show otherwise. [Paras 18, 21, 27, 28, 31]The Bank's status as victim and custodian of the funds negated treatment as person in possession of proceeds of crime for purposes of sustaining the attachment.Final Conclusion: The appeal is allowed: the Adjudicating Authority's Order OC No.555/2016 dated 08.07.2016 confirming Provisional Attachment Order No.01/2016 dated 26.02.2016 is set aside for failure to apply the statutory tests and to account for the judicial custody and victim status of the Bank.

2017 (8) TMI 964 - ATPMLA Money Laundering

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Mandatory Rule 7 compliance governs possession of attached PMLA property; unauthorised seizure without court leave is invalid.
Confirmed attachment of a vehicle under the Prevention of Money Laundering Act, when the property is in custodia legis, could not be enforced by taking possession without first obtaining leave of the court. The mandatory procedure under Rule 7 of the 2013 Rules required the authorised officer to move the Special Court with the provisional attachment order and the confirmation order before possession could lawfully be taken. Because the respondent bypassed that procedure and did not inform or obtain leave of the court, the possession was unauthorised and had to be restored to the appellant.

Custodia legis - provisional attachment under PMLA - procedure under Rule 7 of PMLA (Confirmed attached property in the custody of court) - requirement of leave of the court for dealing with property in custody of court - binding precedent of the Supreme Court in Kanhaiyalal regarding receiver/custodyProcedure under Rule 7 of PMLA (Confirmed attached property in the custody of court) - requirement of leave of the court for dealing with property in custody of court - provisional attachment under PMLA - Whether the respondent was entitled to take possession of a vehicle which was in the custody of a court without first following the procedure prescribed by Rule 7 of the PMLA Rules, 2013 and without obtaining leave of that court. - HELD THAT: - The Tribunal found that the vehicle was in the custody of the court (custodia legis) following its release on superdari and that Rule 7(1) of the PMLA Rules requires the authorized officer to make an application to that court by providing a copy of the provisional attachment order and the confirmation order of the Adjudicating Authority before taking possession. The record showed no application was made to the Special Court and the respondent took possession without informing the court. Reliance on decisions permitting provisional attachment under PMLA did not negate the clear procedural mandate of Rule 7 where the property is in custody of a court. Applying the principle that property in custodia legis is protected from independent action by other authorities without leave, the Tribunal held the respondent's custody-taking was unauthorized and ordered restoration of possession to the appellant, while permitting the respondent to seek the prescribed relief before the Special Court. [Paras 10, 11, 16, 18]Possession taken by the respondent without following Rule 7 and without leave of the court was unauthorized; respondent shall hand over possession of the vehicle to the appellant forthwith, subject to the appellant not disposing it, and the respondent remains at liberty to apply to the Special Court under Rule 7.Custodia legis - binding precedent of the Supreme Court in Kanhaiyalal regarding receiver/custody - Whether decisions relied upon by the respondent could be read as permitting taking possession of property from court custody without leave, in contravention of the Supreme Court's decision in Kanhaiyalal and the established rule protecting property in custodia legis. - HELD THAT: - The Tribunal observed that earlier High Court decisions cited by the respondent did not consider or refer to the Supreme Court's ruling in Kanhaiyalal, which establishes that proceedings affecting property in the possession and management of a court-appointed receiver (or otherwise in custodia legis) taken without leave of that court are illegal or at least voidable and that parties proceeding without such leave may be liable for contempt. A later Supreme Court authority was also cited to stress the binding nature of Supreme Court precedents on subordinate courts. Given the binding status of Kanhaiyalal and the clear protective rule for property in custodia legis, the Tribunal held that the respondent's reliance on conflicting decisions did not justify ignoring the Supreme Court authority or the procedural requirement of Rule 7. [Paras 12, 13, 14, 15]Supreme Court precedent in Kanhaiyalal and the rule protecting property in custodia legis are binding; conflicting authorities that do not consider that precedent do not permit taking possession without leave.Final Conclusion: The appeal was allowed insofar as the respondent had taken possession of the vehicle without complying with Rule 7 and without leave of the court; possession was directed to be returned to the appellant immediately (subject to non-disposal), and the respondent was permitted to approach the Special Court by filing the application prescribed under Rule 7 for determination thereafter.

2017 (8) TMI 1075 - ATPMLA Money Laundering

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Application for Stay Denied, Property Possession Allowed in Dr. Mallya Case
The Tribunal dismissed the application for stay, allowing the respondent to take possession of the attached property. The appellant company, controlled by Dr. Vijay Mallya, was denied interim relief as Dr. Mallya's control and conduct indicated an intention to evade repayment, justifying the attachment. The Tribunal found that the distinct legal entity argument did not apply in this case due to Dr. Mallya's involvement and control over the company, emphasizing that absconding parties cannot seek discretionary relief.

Provisional attachment and confirmation of provisional attachment - proceeds of crime (including value thereof) - continuing offence - piercing the corporate veil - control and ownership as basis for attachment - post-confirmation possession under section 8(4) PMLA - exercise of appellate discretionary stay of possessionPiercing the corporate veil - control and ownership as basis for attachment - The corporate distinctness of the appellant company does not preclude attachment where the company is prima facie controlled and effectively operated by the alleged offender. - HELD THAT: - The Tribunal examined material including the statement of the appellant's director and the disclosed shareholding to conclude prima facie control of Mandwa Farms Pvt. Ltd. by Dr. Vijay Mallya. The Tribunal found that the factual matrix differed from authorities relied upon by the appellant which uphold separate corporate personality; here the appellant was shown to be controlled and actively influenced by Dr. Mallya. Given those findings, the appellant could not shelter behind separate corporate identity to frustrate proceedings, and the attachments could be maintained pending adjudication. [Paras 11, 12, 13, 14, 15]The appellant's plea of separate corporate identity was rejected on the prima facie record and control by Dr. Vijay Mallya was held to justify sustaining attachment.Proceeds of crime (including value thereof) - continuing offence - provisional attachment and confirmation of provisional attachment - post-confirmation possession under section 8(4) PMLA - exercise of appellate discretionary stay of possession - The attachment was properly confirmed as relating to proceeds of crime (including the concept of 'value thereof') in the context of money laundering being a continuing offence, and the Tribunal will not exercise its discretion to stay possession where the facts show risk of asset dissipation and the principal is absconding. - HELD THAT: - Relying on the adjudicating authority's reasoning, the Tribunal accepted that the concept of 'proceeds of crime' is wide and includes the 'value thereof', and that money laundering is a continuing activity permitting attachment of converted or substituted property. The Tribunal noted instances relied upon by the Authority indicating risk of disposal of assets and the absconding status of Dr. Mallya. In view of these factors and the statutory scheme that contemplates Enforcement Directorate taking possession after confirmation, the Tribunal declined to grant interim stay of the possession order and declined to exercise appellate discretion to delay possession. [Paras 19, 20, 21, 32, 33]The application for stay was dismissed and the respondent was held entitled to take possession of the attached property in accordance with the Act and rules.Final Conclusion: The application for interim stay was dismissed. On the prima facie record the appellant was held to be controlled by Dr. Vijay Mallya, the attachment was treated as relating to proceeds of crime in a continuing offence, and the Enforcement Directorate is entitled to take possession of the attached property under the statute.

2017 (8) TMI 670 - ATPMLA Money Laundering

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Tribunal declares Enforcement Directorate's attachment of properties illegal
The Tribunal declared the Enforcement Directorate's provisional attachment of properties already in custody of the Central Bureau of Investigation as illegal and lacking immediate necessity. It emphasized the importance of following proper legal procedures under the Prevention of Money Laundering Act, 2002, and obtaining court permission before attaching properties in court custody. The confirmation of the provisional attachment orders was deemed invalid due to insufficient evidence and lack of independent investigation. The Enforcement Directorate was directed to repay the proceeds to the court's account, and all appeals and pending applications were disposed of with no costs awarded.

Provisional attachment - custodia legis - immediate attachment - failure to record reasons for imminent frustration - procedure under Rule 7 for confirmed attached property in custody of Court - confirmation of provisional attachment by Adjudicating Authority - interference with custody of property by taking possession without leave of CourtProvisional attachment - custodia legis - interference with custody of property by taking possession without leave of Court - Validity of the Enforcement Directorate's provisional attachment of movable property already in the custody of the Special Court/CBI since 2009 - HELD THAT: - The Tribunal found that the amounts and movable property had been in the custody of the Special Court for CBI cases from 2009 and therefore were in custodia legis. The ED's provisional attachment in 2014 of the same property, and its taking possession/realisation from banks without obtaining leave of the Court, amounted to interference with the judicial custody and was improper. The Tribunal relied on the principle that property in custodia legis is exempt from unauthorised judicial process by other authorities and that any interference requires the leave or appropriate application to the Court holding custody. The fact that the ED realised fixed deposits standing in the name of the Principal Special Judge without bringing the matter to that Court or following the procedure prescribed rendered the provisional attachment invalid. [Paras 31, 36, 38, 46, 47]The provisional attachment made by the ED in respect of property already in the custody of the CBI Special Court is illegal and is set aside.Immediate attachment - failure to record reasons for imminent frustration - confirmation of provisional attachment by Adjudicating Authority - procedure under Rule 7 for confirmed attached property in custody of Court - Whether the provisional attachment and subsequent confirmation complied with the requirements of Section 5(1) proviso, Section 8 procedure and Rule 7 of the Rules - HELD THAT: - The Tribunal held that the ED and the Adjudicating Authority failed to justify the 'immediate' provisional attachment nearly five years after the CBI's seizure, and did not satisfy the proviso to Section 5(1) by recording reasons in writing for belief that non-attachment would frustrate proceedings. The Tribunal further observed that where confirmed attached property is in the custody of a Court, the authorised officer must apply to that Court under Rule 7 for release; ED did not follow the Rule 7 procedure before taking possession. The Adjudicating Authority also confirmed the attachment without adequate material showing the requisite reason-to-believe or compliance with the statutory/Rule 7 process. For these procedural defects the provisional attachment and confirmation could not be sustained. [Paras 42, 43, 45, 46, 47]The provisional attachment order(s) and the Adjudicating Authority's confirmation are procedurally flawed for non-compliance with Section 5(1) proviso, Section 8 process and Rule 7, and are set aside.Interference with custody of property by taking possession without leave of Court - confirmation of provisional attachment by Adjudicating Authority - Whether the conduct of the ED in transferring the bank amounts and realizing fixed deposits without producing original receipts or following court process justified continuation of attachment - HELD THAT: - The Tribunal recorded that ED directed the banks to transfer the seized amounts and realized fixed deposits standing in the name of the Principal Special Judge without producing original fixed deposit receipts or following required process. The Special Court had held that ED's action amounted to interference with the judicial process and directed restoration of proceeds to the Court's account with liberty to ED to file a fresh application before the Special Court. The Tribunal accepted that ED's unilateral realisation and transfer were irregular and compounded the illegality of the provisional attachment and its confirmation. [Paras 23, 26, 27, 46, 47]The ED's taking possession and transfer/realisation of the fixed deposit proceeds without complying with Court process was irregular and supports setting aside the attachment and its confirmation.Final Conclusion: The Tribunal set aside the Adjudicating Authority's order dated 22.08.2014 confirming the provisional attachment and quashed the provisional attachment order nos. 02-06/2014 dated 10.03.2014 as illegal and unsustainable for the reasons recorded; all appeals disposed of with no costs.

2017 (8) TMI 1193 - ATPMLA Money Laundering

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Appellate Tribunal sets aside attachment order, underscores need for court permission, upholds property rights
The Appellate Tribunal allowed the appeal, setting aside the provisional attachment order and emphasizing the need for the Enforcement Directorate to seek the Court's permission to attach properties in Custodia Legis. The Tribunal upheld the principle that properties in the possession of a Court Receiver cannot be attached without the Court's leave, ensuring respect for judicial orders and proper legal procedures.

Custodia legis - attachment under PMLA - provisional attachment - confirmation of attachment - equitable mortgage / secured creditor claim - leave of court for proceedings against property in custody of Receiver - procedural review / recall of order - overriding effect of PMLA provisionsCustodia legis - leave of court for proceedings against property in custody of Receiver - attachment under PMLA - Whether the Adjudicating Authority / Enforcement Directorate could confirm attachment under the PMLA of immovable property which was in the possession/custody of a Court Receiver without obtaining leave of the court which had appointed the Receiver. - HELD THAT: - The Tribunal held that once the mortgaged property was in the custody and possession of the Court Receiver (custodia legis) pursuant to orders of the Bombay High Court, other authorities could not lawfully proceed to attach or vest the property without the leave of that court. Reliance was placed on the principle in Kanhaiyalal (and consistent Supreme Court authorities) that proceedings against property in the hands of a court-appointed Receiver without the leave of that court are illegal or at least voidable and interfere with the rule that custody by a Receiver precludes independent judicial process against the property. The Adjudicating Authority was therefore obliged to take cognisance of the High Court orders brought to its notice and seek the High Court's permission before confirming attachment; having failed to do so, its confirmation of provisional attachment was unsustainable. [Paras 32, 33, 34, 41, 47]The confirmatory attachment was set aside insofar as it related to the mortgaged property in the custody of the Court Receiver; the Adjudicating Authority erred in confirming attachment without the leave of the court which had appointed the Receiver.Equitable mortgage / secured creditor claim - attachment under PMLA - overriding effect of PMLA provisions - Whether the Appellant's status as a secured creditor with an equitable mortgage entitled it to relief from attachment and whether the PMLA provisions operate to vest the attached property free of existing encumbrances notwithstanding custodia legis. - HELD THAT: - The Tribunal found that the Appellant had a prima facie secured claim by virtue of equitable mortgage and that the Adjudicating Authority was wrong to conclude that PMLA provisions automatically had overriding effect to vest the property free of encumbrances even when the property was in the custody of the Court Receiver. The Authority failed to engage with the Appellant's disclosure of court-appointed possession and did not apply the law correctly in treating the secured creditor's claim as only an encumbrance insufficient to prevent attachment without regard to custodia legis and the need for court permission. [Paras 31, 36, 46, 47]The Appellant's claim as a secured creditor was recognised and the confirmation of attachment could not stand without addressing the court custody and requisite leave; the Appellant's application was allowed and the attachment set aside in respect of the property held by the Court Receiver.Procedural review / recall of order - provisional attachment - confirmation of attachment - Whether the Tribunal's order dated 12.01.2016 granting the Appellant liberty to invoke its right of hearing before the Adjudicating Authority under Section 8(2) and consequent procedural steps were legally impermissible, and whether the Adjudicating Authority's refusal to entertain the Appellant's Section 8(2) application was correct. - HELD THAT: - The Tribunal held that the order of 12.01.2016 granting liberty to the Appellant to seek a hearing under Section 8(2) did not offend principles of law and that procedural review/recall is available where a proceeding is vitiated by procedural illegality. The Appellate Tribunal's direction and the Appellant's subsequent application before the Adjudicating Authority engaged the doctrine of procedural review; the Adjudicating Authority ought to have considered the application on that procedural basis and the material placed before it (including service of the representation and High Court orders). Its rejection of the application without proper appreciation of these procedural defects and of the custody position was held to be incorrect. [Paras 20, 42, 44, 47]The Tribunal upheld the procedural route taken by the Appellant, found that the Adjudicating Authority erred in rejecting the Section 8(2) application without due consideration of procedural defects and the court custody issue, and allowed the Appellant's challenge to the impugned order.Final Conclusion: The appeal is allowed: the Adjudicating Authority's confirmatory order of attachment is set aside in respect of the mortgaged property which was in the custody of the Court Receiver; the Appellant's application is allowed and, if the Enforcement Directorate still seeks attachment, it must first approach the Bombay High Court for leave to proceed and obtain decision on the merits by that court.

2017 (8) TMI 669 - ATPMLA Money Laundering

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Issues:
1. Appeal filed against order under Prevention of Money Laundering Act, 2002 for not being passed within 180 days.
2. Argument regarding extension of time period under PMLA.
3. Reference to various judgments supporting the submission.
4. Respondent's submission on the order passed on merits.
5. Dispute over application of proposition of law.
6. Previous appeal's decision and compliance with the order.
7. Failure to challenge previous order and denial of its benefit.
8. Acknowledgment of due process not being followed.
9. Rejection of appellant's objection and decision to hear the appeal on merits.

Analysis:

The appeal before the Appellate Tribunal ATPMLA was filed against an order under the Prevention of Money Laundering Act, 2002, alleging that the order dated 30.12.2015 by the Adjudicating Authority was passed beyond the stipulated 180 days from the provisional attachment order of 10th March, 2015. The appellant contended that the order was invalid and contrary to the Act due to the delay. The appellant's counsel argued that the time period could not be extended beyond 180 days, even with consent, citing statutory provisions under PMLA. Reference was made to several judgments to support this argument.

On the other hand, the respondent argued that the order passed on 11th August, 2015, granting six months for deciding the matter on merits, was not challenged by the appellant in the High Court. It was emphasized that the impugned order was passed after complying with the order of 11th August, 2015. While acknowledging the strict application of legal propositions, it was asserted that the facts and circumstances of the present case were different.

The Tribunal noted that in a previous appeal by the same appellants, the contention regarding insufficient time to file a reply and defend the case was accepted, leading to the impugned order being set aside for fresh adjudication within six months. The appellants did not challenge this decision, and it was highlighted that due process had not been followed as per the direction issued on 11th August, 2015. Consequently, the objection raised by the appellant was rejected, and the Tribunal decided to hear the appeal on its merits.

In light of the above analysis, the Tribunal scheduled the next hearing for 7th July, 2017, to proceed with the appeal based on its merits.

Appellate Tribunal rules on delay challenge in Money Laundering Act appeal
The Appellate Tribunal ATPMLA heard an appeal against an order under the Prevention of Money Laundering Act, 2002, challenging a delay in passing the order within 180 days. The appellant argued that the delay rendered the order invalid, citing statutory provisions. However, the Tribunal rejected the appellant's objection, noting that previous decisions had allowed for fresh adjudication within a specified timeframe. The Tribunal decided to proceed with hearing the appeal on its merits, scheduling the next hearing for 7th July, 2017.

Provisional attachment under PMLA - time limit for confirmation of provisional attachment - remand for fresh adjudication after granting opportunity to be heard - finality of an unchallenged appellate direction - status quo and preservation of attached propertiesTime limit for confirmation of provisional attachment - provisional attachment under PMLA - Validity of the adjudicating authority's confirmation order dated 30.12.2015 where the provisional attachment was made on 10.03.2015 and the confirmation was rendered after 180 days. - HELD THAT: - The Tribunal recalled that in an earlier appeal by the same appellants the Tribunal had set aside the impugned order and remanded the matter to the Adjudicating Authority directing a fresh adjudication within six months after giving the appellants an opportunity to file pleadings and documents and be heard. That operative direction remained unchallenged by the appellants and was not the subject of a review petition. The remand order expressly preserved the provisional attachment and imposed status quo obligations on the parties but granted time for fresh adjudication. The confirmation order impugned in the present appeals was passed after compliance with the remand direction and on merits. In these circumstances the contention that the confirmation was invalid merely because it was passed beyond 180 days from the provisional attachment was rejected: the unchallenged appellate direction for fresh adjudication governed the procedure and timeline, and the Authority's subsequent adjudication complied with that direction and due process. [Paras 6, 7, 8, 9]Objection that the confirmation order was invalid for being passed after 180 days is rejected; the confirmation was rendered pursuant to the unchallenged remand direction and after due process, and the ground is dismissed.Remand for fresh adjudication after granting opportunity to be heard - finality of an unchallenged appellate direction - Effect of the Tribunal's remand order dated 11.08.2015 (granting six months to the Adjudicating Authority) on the present challenge to the timing and validity of the confirmation order. - HELD THAT: - The Tribunal's remand directed the Adjudicating Authority to pass a fresh adjudication within six months after allowing the appellants to file pleadings and be heard; during pendency the provisional attachment and status quo were to continue. The appellants did not challenge that remand order in the High Court nor seek review. Given the unchallenged nature of that direction and the conformity of the subsequent adjudication to the remand, the Tribunal treated the remand order as determinative of the permissible timeline for confirmation and held that the Authority was entitled to pass the confirmation within the framework of the remand rather than being constrained by the 180 day period argued by the appellants. [Paras 6, 7, 8]The remand order operated to govern the procedure and timeframe; its unchallenged status precludes the appellants from invalidating the later confirmation on the ground of lapse of 180 days.Final Conclusion: The Tribunal rejected the appellants' contention that the confirmation order was invalid for being passed beyond 180 days from the provisional attachment, holding that the earlier unchallenged remand directing fresh adjudication within six months after giving opportunity to be heard governed the timeline and procedure; the objection was dismissed and the appeals were directed to be heard on merits.

2017 (8) TMI 1140 - ATPMLA Money Laundering

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Tribunal upholds co-ownership claim under Money Laundering Act, orders fresh adjudication and possession restoration.
The appeal was allowed by the Tribunal, confirming its maintainability under the Prevention of Money Laundering Act. The appellants' claim of co-ownership and lawful possession of the property was upheld, with the Tribunal setting aside the confirmation order to the extent of their interest. The Tribunal emphasized the importance of complying with statutory provisions, principles of natural justice, and fair hearing. It directed the Adjudicating Authority to issue notice to the appellants and conduct a fresh adjudication. Possession of the disputed portion was ordered to be restored to the appellants, pending further proceedings.

Non-service of notice under Section 8(1) of the PMLA and breach of audi alteram partem - principles of natural justice in quasi judicial proceedings - co ownership and rights of a co owner pending partition - provisional attachment confirmed without hearing vitiates confirmation to the extent of unnotified co owner's share - Appellate Tribunal's power to review its own order under its statutory review power and remit for fresh adjudication - remand to Adjudicating Authority for fresh decision after issuance of notice under Section 8(1)Non-service of notice under Section 8(1) of the PMLA and breach of audi alteram partem - principles of natural justice in quasi judicial proceedings - Whether the Adjudicating Authority confirmed attachment without serving statutory notice to persons claiming joint title and thereby violated natural justice - HELD THAT: - The Tribunal found that no notice as mandated under Section 8(1) of the PMLA was served on the appellants despite their claim of joint ownership and despite recitals in the registered documents noting their claim. The second proviso to Section 8(1) requires service on all persons holding property jointly and the proviso to Section 8(2) requires opportunity of hearing to a person claiming the property. Applying settled principles of natural justice, the Tribunal held that failure to issue such notice and to afford hearing vitiated the confirmation of attachment insofar as it affected the appellants' undivided share and was capricious and arbitrary. [Paras 33, 38, 39, 47, 52]Confirmed that omission to serve Section 8(1) notice and to hear the appellants breached principles of natural justice and vitiated the confirmation of attachment to the extent of the appellants' claimed share.Co ownership and rights of a co owner pending partition - provisional attachment confirmed without hearing vitiates confirmation to the extent of unnotified co owner's share - Whether the appellants have made out a prima facie case of ownership and continuous possession of the specified room and toilet and whether attachment should be set aside to that extent - HELD THAT: - On the material placed before it the Tribunal recorded a prima facie finding that appellant No.1 had uninterrupted possession and occupation of one room and a toilet since 1953 and that the appellants claimed undivided shares in the property by succession. The Tribunal noted authorities establishing that a co owner is owner until partition. In view of the absence of prior notice and the appellants' prima facie title and possession, the Tribunal concluded that the confirmation of attachment could not stand insofar as it affected the appellants' claimed undivided share and possession of the specified premises. [Paras 31, 32, 45, 53, 54]Held prima facie entitlement to ownership/possession of the room and toilet and that the confirmation of attachment is liable to be set aside to the extent of the appellants' undivided share.Appellate Tribunal's power to review its own order under its statutory review power and remit for fresh adjudication - remand to Adjudicating Authority for fresh decision after issuance of notice under Section 8(1) - Whether this Tribunal could review its earlier order and remit the matter to the Adjudicating Authority for fresh decision after issuance of the statutory notice - HELD THAT: - Relying on the Appellate Tribunal's statutory powers to review its decisions, the Tribunal observed that the Adjudicating Authority has no power to review its final order after it has become functus officio. The Tribunal examined precedent and procedure and exercised its review power to set aside the confirmation insofar as it affected the appellants and remanded the matter to the Adjudicating Authority with directions to issue notice under Section 8(1), afford opportunity to all parties including the appellants, and decide the question of involvement in money laundering in accordance with law within the statutory/ prescribed timeframe. [Paras 22, 24, 55, 56]Reviewed its earlier order to the extent indicated, set aside the confirmation insofar as it affected the appellants, and remanded the matter to the Adjudicating Authority for fresh adjudication after issuance of Section 8(1) notice and hearing.Restoration of possession subject to undertaking - continuance of provisional attachment during pendency of remand proceedings - Whether physical possession of the specified premises should be restored to the appellants pending remand proceedings and on what conditions - HELD THAT: - Balancing the parties' interests, the Tribunal directed that, subject to the appellants furnishing an undertaking not to create any encumbrance or third party rights in the property, physical possession of the specified room and toilet (as per Exhibit B) be restored to the appellants within two weeks. The Tribunal further clarified that the provisional attachment shall continue in terms of the PMLA during the pendency of the remand proceedings and that the Tribunal expressed no opinion on the ultimate civil rights or on whether the property is involved in money laundering. [Paras 54, 56, 58, 59]Directed restoration of physical possession of the specified premises to the appellants on furnishing an undertaking, while the provisional attachment remains in force pending fresh adjudication.Final Conclusion: The Tribunal set aside the Adjudicating Authority's confirmation of the provisional attachment only to the extent it affected the appellants' claimed undivided share and possession of one room and a toilet, restored physical possession of that portion subject to an undertaking not to create encumbrances, and remanded the matter to the Adjudicating Authority to issue notice under Section 8(1), afford hearing to all parties and decide the involvement of the property in money laundering in accordance with law; the remaining portion of the attachment confirmed earlier remains unaffected.

2017 (8) TMI 1139 - ATPMLA Money Laundering

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Parallel writ proceedings and continuing attachment orders led the Tribunal to keep the review petition in abeyance.
Parallel writ proceedings challenging the same appellate order can justify keeping a review petition in abeyance where the reliefs substantially overlap and the higher court is already seized of the issue. The Tribunal also noted that interim orders in related LPA proceedings continued the attachment of the seized property and affected possession and statutory retention timelines, so it declined to decide the review at that stage. The review was accordingly adjourned sine die pending disposal or clarification by the High Court.

Power to remand appeals to the adjudicating authority - jurisdictional limits of an appellate tribunal under a special statute - continuation of retention/status quo of seized property pending adjudication - effect of parallel writ proceedings on maintainability of review/appellate proceedings - statutory time-limits for retention of seized propertyEffect of parallel writ proceedings on maintainability of review/appellate proceedings - jurisdictional limits of an appellate tribunal under a special statute - Whether the review petition before the Appellate Tribunal should be entertained in view of a pending writ petition in the High Court challenging the same appellate order and seeking similar relief. - HELD THAT: - The Tribunal noted that the identical order of 31.12.2015 challenged in the present review is also the subject-matter of Writ Petition No.1766/2016 filed by the appellant's wife and son before the High Court, and that the reliefs sought overlap. The Tribunal observed that the writ petitioners would be beneficiaries if the review were allowed, and that a parallel challenge to the same order in two fora was undesirable. Having regard to the pendency of the writ petition and the fact that the appellant intends to continue proceedings before the High Court, the Tribunal concluded that it is appropriate to await the decision of the High Court rather than decide the review at this stage. The Tribunal therefore declined to proceed with adjudication of the review petition and adjourned it sine die until the writ petition is decided or a clarificatory order is passed by the High Court. [Paras 16, 17]Review adjourned sine die until Writ Petition No.1766/2016 is disposed of or a clarificatory order is passed by the High Court.Continuation of retention/status quo of seized property pending adjudication - statutory time-limits for retention of seized property - Whether the Tribunal should proceed with the review in view of interim orders in LPA No.72/2015 which restrained further proceedings and directed that the attachment of the property shall continue. - HELD THAT: - The Tribunal recorded the course of proceedings in LPA No.72/2015 and the interim orders of the Division Bench of the High Court restraining further steps pursuant to the provisional attachment and clarifying that attachment shall continue while the period of stay would not be reckoned for purposes of the statutory 180-day period. Having regard to those orders - including the clarification that attachment continues - the Tribunal found it prudent to await the higher court's directions before entertaining the review application, since the LPA orders materially affect the status and custody/possession aspects of the seized jewellery and the reliefs sought in the review. [Paras 7, 9, 10, 16]In view of the interim orders in LPA No.72/2015 (including continuation of attachment) the Tribunal will await directions from the High Court and has adjourned the review sine die.Final Conclusion: The Tribunal has not adjudicated the merits of the review; instead the review petition is adjourned sine die pending disposal or clarification of Writ Petition No.1766/2016 before the High Court, having regard to overlapping reliefs and interim orders in related LPA proceedings.

2017 (8) TMI 1012 - ATPMLA Money Laundering

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Issues: (i) Whether the impugned attachment-confirmation order could be sustained when the adjudicating authority proceeded without a Judicial Member and the appellants stood on the same footing as a co-noticee who had already obtained relief from the High Court; (ii) Whether the proceedings were vitiated by denial of reasonable opportunity and violation of natural justice.

Issue (i): Whether the impugned attachment-confirmation order could be sustained when the adjudicating authority proceeded without a Judicial Member and the appellants stood on the same footing as a co-noticee who had already obtained relief from the High Court.

Analysis: The challenge went to the composition of the adjudicating authority and the legality of the order passed by a single-member bench not comprising a Judicial Member. The decision also noted that the High Court's final judgment in the connected matter had held that, in a lis involving serious questions of law and fact, the matter should be heard by a bench including a Judicial Member and that the judgment had attained finality. As the appellants were parties to the same common complaint and stood in the same position, the benefit of that final judgment was held to extend to them on parity.

Conclusion: The impugned order could not be sustained and was liable to be set aside on parity.

Issue (ii): Whether the proceedings were vitiated by denial of reasonable opportunity and violation of natural justice.

Analysis: The appellants were given inadequate time to respond, their request for time to file a reply was rejected, and the matter was proceeded with in haste. The procedural course adopted before passing the order was held to be inconsistent with fair hearing requirements and contrary to the governing statutory scheme.

Conclusion: The proceedings were vitiated by violation of natural justice.

Final Conclusion: The appeals succeeded, the impugned order was set aside, and the matters were remitted for fresh adjudication after granting the appellants time to file replies, while the attachment was directed to continue.

Ratio Decidendi: Where the legality of an adjudicatory order is undermined by an improper bench composition and denial of a fair opportunity, the order cannot be sustained and must be set aside, with the benefit of a final connected judgment applied to similarly placed parties on parity.

Improper bench composition and denial of fair hearing vitiated attachment-confirmation proceedings, leading to remand for fresh adjudication.
An attachment-confirmation order passed by a single-member adjudicating authority without a Judicial Member was held unsustainable where a connected High Court judgment had already finalised that such serious questions of law and fact required a bench including a Judicial Member; the benefit of that ruling extended to similarly placed co-noticees on parity. The proceedings were also found vitiated because the appellants were denied reasonable time to reply, their request for adjournment was rejected, and the matter was decided in haste, contrary to natural justice. The appeals succeeded, the order was set aside, and the matters were remitted for fresh adjudication with time to file replies, while the attachment continued.

Constitution of adjudicating bench - requirement of Judicial Member for adjudicatory functions - binding effect of a final High Court judgment on parties to same lis - remand for fresh consideration by a properly constituted bench - principles of natural justice in adjudicatory proceedings - continuance of provisional attachment pending re-adjudicationConstitution of adjudicating bench - requirement of Judicial Member for adjudicatory functions - binding effect of a final High Court judgment on parties to same lis - Validity of the impugned order dated 15.06.2015 passed by the Adjudicating Authority by a single Member who was not a Judicial Member, in light of the final judgment of the High Court of Sikkim. - HELD THAT: - The Tribunal held that the final judgment of the Hon'ble High Court of Sikkim, delivered in writ proceedings by one defendant in the common O.C., is binding on the other defendants who are parties to the same O.C., and consequently the effect of that judgment must be applied by parity to these appeals. The Tribunal noted the High Court's conclusions on the need for a Judicial Member to be part of the Bench in matters involving serious questions of law and fact and accepted that the impugned order dated 15.06.2015 was passed in the absence of a Judicial Member. While the Tribunal did not examine the larger issue raised by the respondent regarding the scheme of the Act (reserved for other pending appeals), it found that the Sikkim High Court's judgment had attained finality, had been acted upon by the respondent, and therefore the order passed on 15.06.2015 cannot be allowed to stand vis-a -vis similarly placed defendants. On that ground of parity the impugned order was set aside (not on merits). [Paras 36, 38, 39, 40, 42]The impugned order dated 15.06.2015 is set aside on the ground of parity with the final judgment of the High Court of Sikkim; the matter is to be treated in conformity with that judgment.Remand for fresh consideration by a properly constituted bench - principles of natural justice in adjudicatory proceedings - continuance of provisional attachment pending re-adjudication - Relief and procedural directions following setting aside of the impugned order, including remand for fresh consideration and status of attachment. - HELD THAT: - The Tribunal directed that, on parity with the High Court's directions, the appellants be granted four weeks to file their replies to the show cause notice if not already filed, and that the Adjudicating Authority after constitution of a Bench including a Judicial Member (as per the High Court's directions) shall decide the matters on merits within three months from the date specified by the Tribunal. The Tribunal expressly confined its order to parity and remand for fresh adjudication by a properly constituted Bench, and did not decide the substantive merits of the attachment. Meanwhile, the provisional attachment of properties shall continue in force pending the fresh adjudication. [Paras 23, 25, 41, 43, 44]Appeals allowed on parity; appellants granted four weeks to file replies, Adjudicating Authority to decide on merits within three months after constitution of appropriate Bench, and the attachment shall continue meanwhile.Final Conclusion: The appeals are allowed on the ground of parity with the final judgment of the Hon'ble High Court of Sikkim: the impugned order of 15.06.2015 is set aside (without adjudicating merits), the appellants are given four weeks to file replies, the Adjudicating Authority shall re-decide the matters on merits within three months after constitution of a Bench including a Judicial Member, and the provisional attachment shall continue in the interim.

2017 (8) TMI 1011 - ATPMLA Money Laundering

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Bona fide commercial receipts are not proceeds of crime under PMLA absent nexus to the scheduled offence or laundering knowledge.
Property received through a bona fide commercial sponsorship agreement for promotional services, paid by cheque in the ordinary course of business, was not treated as proceeds of crime under the PMLA. The amount in the appellant's bank account was used for club running expenses, player payments and administrative costs, and the record did not show retention, diversion, concealment, knowledge of illegal source, or direct or indirect involvement in laundering. On those facts, the bank balance lacked the necessary nexus to the scheduled offence and was not liable to provisional attachment or confirmation; the attachment was set aside.

Proceeds of crime - provisional attachment under the Prevention of Money Laundering Act - conditions for provisional attachment under the Prevention of Money Laundering Act - bona fide receiver / purchaser - knowledge or nexus with accused - confirmation of provisional attachment - value for consideration versus property as proceedsProceeds of crime - bona fide receiver / purchaser - knowledge or nexus with accused - Whether the amount of Rs. 32,11,797/- standing in the appellant's bank account as on 25.09.2014 constituted proceeds of crime in the hands of the appellant. - HELD THAT: - The Tribunal found as an admitted fact that the appellant received Rs. 1,94,50,000/- from Saradha group units during Sept.2010-Oct.2012 under a co-sponsorship agreement and that these receipts were deposited and utilised in the normal course of the club's business (payments to players, staff, administrative expenses), with cheques, TDS and disclosures to authorities. There was no evidence that amounts received were held back, diverted or retained as proceeds, nor evidence of the appellant's knowledge of the alleged criminality of the payor or of any conduit/nexus facilitating money laundering. The timing showed the Saradha receipts were received up to Oct.2012 and utilised thereafter; the attached balance as on 25.09.2014 derived from later sponsorships. Applying the principle that a bona fide recipient of payments for valuable consideration does not hold those payments as proceeds of crime (and having regard to precedents cited), the Tribunal concluded that the sum in the appellant's account was not proceeds of crime in the hands of the appellant. [Paras 12, 13, 14]The attached amount is not proceeds of crime in the hands of the appellant and therefore is not liable to attachment under the PMLA.Conditions for provisional attachment under the Prevention of Money Laundering Act - provisional attachment under the Prevention of Money Laundering Act - confirmation of provisional attachment - Whether the Provisional Attachment Order dated 29.10.2014 and its confirmation by the Adjudicating Authority in respect of the appellant's bank balance were legally sustainable. - HELD THAT: - The Tribunal examined the material relied upon for provisional attachment and its confirmation and found no prima facie material to show that the attached balance was likely to be concealed, transferred or dealt with so as to frustrate confiscation proceedings, nor that the appellant was in possession of proceeds of crime with requisite knowledge or nexus. The respondent produced no evidence rebutting the appellant's account of ordinary business receipts and utilisation, and failed to show that the attached amount represented the value of proceeds of crime. The Tribunal applied the protective principle that bona fide recipients who received payments for valuable consideration and who disclose their accounts can rebut a presumption of proceeds being in their hands, and held that confirmation of the provisional attachment was not justified on the record. [Paras 8, 13, 17]The provisional attachment and its confirmation, insofar as they relate to the specified bank balance of the appellant, are unsustainable and are set aside.Final Conclusion: The appeal is allowed; the provisional attachment dated 29.10.2014 and the Adjudicating Authority's confirmation dated 03.03.2015 are set aside insofar as they relate to the amount standing to the appellant's credit, the Tribunal holding that the sum was not proceeds of crime in the appellant's hands and the confirmation of attachment was therefore unjustified.

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