2015 (12) TMI 1083 - HC - Money Laundering

Court allows civil appeals, finding property not proceeds of crime. Nexus not proven between appellants and fraudsters.

C. Chellamuthu Versus Deputy Director, Prevention of Money Laundering Act, Directorate of Enforcement, Mumbai

The court allowed the civil miscellaneous appeals, setting aside the impugned orders. It concluded that the appellants successfully rebutted the ... Property representing the proceeds of crime - attachment of the properties - Held that:- In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, who involved in criminal activities and the person, who sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not given any valid reasons for not filing the same before the Adjudicating Authority . Having considered the Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank. In view of these facts, the judgment in Radha Mohan lakhotia's case [2010 (8) TMI 947 - BOMBAY HIGH COURT ]is in favour of the appellants as they have rebutted the presumption that the property in question is proceeds of crime. Issues Involved:1. Whether the property in the hands of persons prosecuted for criminal offences and/or scheduled offence alone can be attached.2. Whether the property in the hands of subsequent bona fide purchasers without knowledge of crime purchased by legal consideration can be attached.3. Whether property purchased bona fide with legal sale consideration loses the character of proceeds of crime and the sale proceeds in the hands of vendor only can be attached.Detailed Analysis:Issue 1: Attachment of Property in Hands of Persons Prosecuted for Criminal Offences and/or Scheduled OffenceThe appellants contended that the proceedings initiated against them for provisional attachment of the property were without jurisdiction and void ab initio, as they were not accused of any criminal offence or scheduled offence. They argued that only the property in the hands of those accused persons could be attached. The respondent countered that the term 'person' in Section 5 of the Prevention of Money Laundering Act (PMLA) includes all persons in possession of proceeds of crime, not just those accused of criminal activities. The court referred to Sections 2(p), 2(s), 2(u), 3, 4, and 5 of the PMLA, and judgments from the Bombay High Court and Andhra Pradesh High Court, which held that proceeds of crime in the hands of persons not involved in money laundering or accused of criminal offences can also be attached. The court concluded that there is no restriction in Section 5 regarding the person in possession of proceeds of crime, and thus, the provisional attachment of property is not restricted to the hands of accused persons alone.Issue 2: Attachment of Property in Hands of Subsequent Bona Fide PurchasersThe appellants argued that they were bona fide purchasers without knowledge of any fraud and paid the sale consideration from their legitimate agricultural income. They claimed that the property in their hands was not the proceeds of crime. The respondent contended that subsequent transactions do not convert tainted proceeds of crime into untainted property and that the appellants failed to prove that the sale consideration was obtained by legitimate means. The court noted that under Sections 23 and 24 of the PMLA, there is a presumption that the property in the hands of the appellants is proceeds of crime, but the appellants have the right to rebut this presumption. The court found that the appellants had provided statements and bank records showing their agricultural income and sale of lands, which the respondent failed to verify. The court concluded that the appellants had rebutted the presumption that the property in question is proceeds of crime, and the respondent failed to prove any nexus or link between the appellants and the original fraudsters.Issue 3: Character of Proceeds of Crime in Bona Fide PurchasesThe appellants contended that the property lost its character of proceeds of crime in the hands of their vendor Gunaseelan, as the respondent failed to prove that Gunaseelan did not purchase the property out of legitimate income or that he was a benami of the fraudsters. The court noted that Gunaseelan's statement, recorded under Section 50 of the Act, indicated that he purchased the property for cultivation and later sold it to the appellants. The respondent did not produce any evidence to disprove Gunaseelan's statement or show that he was connected to the fraudsters. The court held that once a person proves that their purchase is genuine and the property in their hands is untainted, the respondent can only attach the sale proceeds in the hands of the vendor and not the property in the hands of a bona fide purchaser.Conclusion:The court allowed the civil miscellaneous appeals, set aside the impugned orders, and concluded that the appellants had rebutted the presumption that the property in question was proceeds of crime. The respondent failed to establish any nexus between the appellants and the original fraudsters, and the property in the hands of the bona fide purchasers could not be attached.