Provisional attachment under PMLA may cover closely held company funds linked to interconnected laundering transactions and untainted source proof

Funds infused into a closely held company may be treated as property involved in money-laundering where the record shows interconnected transactions linking the investments to proceeds of crime, and the corporate form will not defeat provisional attachment on those facts. The person resisting attachment bears the burden of showing that the property is untainted, and failure to produce basic source and accounting records weakens that case. Prior freezing under NDPS proceedings does not bar provisional attachment under the PMLA, because the two remedies serve different statutory purposes. The attachment order is also sustainable where the notice and order together disclose the material and the reason to believe required for action.

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Issues: (i) whether the provisional attachment of the company's bank balances and fixed deposits under the Prevention of Money-Laundering Act, 2002 was valid on the footing that the funds received as share capital formed proceeds of crime; (ii) whether the appellants had discharged the burden of proving that the attached properties were not tainted property, including in the context of interconnected transactions and the timing of the investments; (iii) whether prior freezing of part of the amount under the NDPS proceedings barred provisional attachment under the Prevention of Money-Laundering Act, 2002; and (iv) whether the order disclosed the requisite satisfaction that there was reason to believe that the properties were involved in money-laundering.

Issue (i): whether the provisional attachment of the company's bank balances and fixed deposits under the Prevention of Money-Laundering Act, 2002 was valid on the footing that the funds received as share capital formed proceeds of crime;

Analysis: The attached amounts represented funds received from two NRI investors, who were closely related to persons connected with the illicit drug transaction under investigation. The company was not a listed public company, the shareholding was closely held by related persons, and the funds were found to have been mixed with business assets and routed through different forms such as imports, sundry debts, fixed deposits, and bank balances. On those facts, the corporate form could not be used to defeat the statute, and the property was treated as liable to provisional attachment as property involved in money-laundering.

Conclusion: The attachment of the company's funds was upheld and was valid.

Issue (ii): whether the appellants had discharged the burden of proving that the attached properties were not tainted property, including in the context of interconnected transactions and the timing of the investments;

Analysis: The statutory presumption applicable to interconnected transactions operated against the appellants, and the burden lay on them to show that the funds were untainted. The appellants failed to produce the source of income, bank records, balance sheets, income-tax returns, or other material to establish the legitimacy of the investments. The fact that the investments were made before the overt drug seizure transaction or before the PMLA came into force did not assist them, because the relevant inquiry was whether the property was projected as untainted and formed part of a connected laundering chain.

Conclusion: The burden was not discharged, and the challenge on this ground failed.

Issue (iii): whether prior freezing of part of the amount under the NDPS proceedings barred provisional attachment under the Prevention of Money-Laundering Act, 2002;

Analysis: The earlier freezing order under the NDPS proceedings served a different statutory purpose from provisional attachment under the Prevention of Money-Laundering Act, 2002. The latter was aimed at securing property for possible confiscation under that special enactment. The prior freezing order did not oust jurisdiction under the Prevention of Money-Laundering Act, 2002, and the absence of prior permission from the High Court did not invalidate the attachment.

Conclusion: The prior freezing order did not prevent provisional attachment under the Prevention of Money-Laundering Act, 2002.

Issue (iv): whether the order disclosed the requisite satisfaction that there was reason to believe that the properties were involved in money-laundering;

Analysis: The provisional attachment order and the show-cause notice, read together, recorded the material considered, the basis for believing that the amounts were proceeds of crime, and the apprehension that the property might be concealed or dealt with so as to frustrate confiscation proceedings. That was sufficient to show the statutory satisfaction required for provisional attachment.

Conclusion: The requisite satisfaction was recorded, and the objection was rejected.

Final Conclusion: The concurrent findings sustaining provisional attachment were affirmed, and the challenge to the attachment failed in its entirety.

Ratio Decidendi: Where material shows that funds infused into a closely held company are part of interconnected transactions linked to scheduled-offence proceeds, the property may be provisionally attached under the Prevention of Money-Laundering Act, 2002, and the possessor bears the burden of proving that the funds are untainted; prior freezing under another enactment does not bar such attachment.

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