2019 (8) TMI 1913 - AT - Money Laundering

Money laundering provisional attachment orders need proper evidence, not hearsay statements under Section 3

The Appellate Tribunal under SAFEMA held that provisional attachment orders in money laundering cases require proper evidence, not mere hearsay ... Money Laundering - scheduled offences - Provisional Attachment Order - burden of proof - reasons to believe - HELD THAT:- It is the admitted position that when the searches were conducted at the residence and office of the appellant, nothing was recovered. If any prima facie evidence is recovered at the time of search and seizure, then the burden of proof lies with the “party concerned” but merely on the basis of hearsay statement of other witnesses who alleged coaccused, even it cannot be held that the burden of proof is still upon the person concerned. Unless the charges are framed with the offence of money laundering under Section-3 of the Act, the burden of proof still lies with the respondent to prove that the person concerned is involved with the offence of money laundering in order to invoke Section-3 of the Act. Considering the overall facts and circumstances and without expressing anything on merit as to whether the appellant was involved or not as it is a matter of fact that the charges are yet to be framed. In advance, no finding can be arrived in the nature of present case of the appellant by concluding that the appellant is involved in money laundering without any recovery. Merely, on the basis of apprehension, one cannot be declared as accused, in advance, without any recovery. The said observations were made without application of mind as it would be prejudiced his case on merit at the time of framing of charges or trial, if the said findings against him are intact. Thus, the observations against him for involvement of money laundering are waived and quashed. The impugned order is modified against him in view of reason mentioned above. As far as “person concerned” where recovery is made, the burden of proof lies with them to prove their innocence as per law. The appeal is partly allowed by modifying order against him. However, it is clarified that this order shall have no bearing when the matter is pending against the appellant on the basis of allegations. Issues Involved:1. Validity of the Provisional Attachment Order (PAO) against the appellant.2. Allegations of money laundering against the appellant.3. Procedural lapses and contradictions in the respondent's case.4. Burden of proof under the Prevention of Money Laundering Act (PMLA).5. Legal interpretation of 'reason to believe' and its implications.6. Impact of legislative intent and parliamentary debates on statutory interpretation.7. Presumption of innocence and the requirement of evidence.Detailed Analysis:1. Validity of the Provisional Attachment Order (PAO) against the appellant:The appeal challenges the Impugned Order confirming the PAO issued by the respondent. The tribunal focused on whether the PAO was validly issued against the appellant, who was alleged to have been involved in money laundering activities. The tribunal noted that no material or evidence was recovered from the appellant's residence or office during the search, which undermines the basis for the PAO. The tribunal found that the PAO and the accompanying order were vague and unsustainable, as they sought to attach a property not in the respondent's custody.2. Allegations of money laundering against the appellant:The appellant was accused of facilitating the conversion of demonetized currency into monetized currency on a commission basis, allegedly receiving Rs. 3.65 crores in fictitious names. The appellant denied any connection with the alleged Demand Drafts (DDs) and argued that the act of converting demonetized currency, even if it violated RBI orders, did not constitute a scheduled offense under PMLA. The tribunal observed contradictions in the respondent's case, such as varying statements regarding the commission amount and the lack of evidence linking the appellant to the alleged DDs.3. Procedural lapses and contradictions in the respondent's case:The tribunal identified several procedural lapses and contradictions in the respondent's case. Notably, the persons responsible for making the drafts were neither interrogated nor summoned, and no other staff members were accused or had their properties attached. The tribunal highlighted discrepancies in the respondent's statements regarding the existence and recovery of the DDs, further weakening the case against the appellant.4. Burden of proof under the Prevention of Money Laundering Act (PMLA):The tribunal emphasized that under Section 24 of the PMLA, the burden of proof lies with the respondent to prove that the appellant was involved in money laundering. The tribunal noted that no charges had been framed against the appellant, and no evidence was recovered during searches. Consequently, the burden of proof remained with the respondent, as the appellant could not be presumed guilty based on hearsay or co-accused statements.5. Legal interpretation of 'reason to believe' and its implications:The tribunal scrutinized the concept of 'reason to believe' as a higher level of state of mind than mere suspicion or doubt. The tribunal referenced several judgments, including those of the Supreme Court, to assert that 'reason to believe' must be based on material evidence. The tribunal found that the respondent failed to provide sufficient cause or material evidence to justify the belief that the appellant was involved in money laundering.6. Impact of legislative intent and parliamentary debates on statutory interpretation:The tribunal considered the role of parliamentary debates and legislative intent in interpreting statutory provisions. It referenced the Rajya Sabha debate and the Finance Minister's speech to clarify the legislative intent behind Section 24 of the PMLA. The tribunal noted that such debates could be relied upon to understand the incorporation of specific provisions in the statute, particularly when addressing ambiguities or incongruities.7. Presumption of innocence and the requirement of evidence:The tribunal reiterated the principle of presumption of innocence, emphasizing that the appellant could not be declared involved in money laundering without concrete evidence. The tribunal criticized the Adjudicating Authority for prematurely concluding the appellant's involvement without recovery or framing of charges. The tribunal quashed the adverse findings against the appellant, noting that such conclusions would prejudice the appellant's case during trial.Conclusion:The tribunal partially allowed the appeal by modifying the order against the appellant. It clarified that the order would not affect pending matters against the appellant, which should be considered based on law and merit. The tribunal emphasized the need for proper evidence and adherence to legal standards, underscoring the importance of procedural fairness and the presumption of innocence.