2024 (10) TMI 1743 - AT - Money Laundering

Provisional attachment of properties under PMLA Section 5 upheld as assets linked to investor funds, appeal dismissed

The AT upheld the provisional attachment of properties under the PMLA, holding that the appellant failed to disclose any legitimate source for acquisition ... Money Laundering - predicate offence or not - Provisional Attachment Order with proper reason or not - reliability of statements of the accused to prove the allegation of money laundering - failure to furnish the source of acquisition of the properties attached by the respondents - HELD THAT:- The perusal of the record does not show the source to acquire the properties by the appellant and the properties acquired prior to the commission of crime is taken from the date of registration of the FIR whereas the commission of crime was started much prior to the registration of FIR. It was started from the date of collection of the amount from the investors and members of the Society which was of Rs. 650 Crores. The date of registration of FIR cannot be considered to be the date of commission of offence, rather it has committed prior to the commission of offence. The appellant has failed to give details of the properties alleged to have been purchased prior to the commission of crime and in any case even if any property was acquired prior to the commission of crime, then in absence of availability of the proceeds in the hands of the appellant, any other property of equivalent value can be attached to secure the proceeds. In the absence of any material to show the source for acquisition of properties, the only argument raised by the appellant cannot be accepted. The appellant was given show cause notice under Section 8(1) of the Act of 2002 to disclose the source of properties attached by the respondents. However, they failed to submit the document or material to disclose the source for acquisition of the properties other than through the proceeds out of crime. In view of above also, it is unable to accept the only argument raised by the appellant. The appellant was given show cause notice under Section 8(1) of the Act of 2002 to disclose the source of properties attached by the respondents. However, they failed to submit the document or material to disclose the source for acquisition of the properties other than through the proceeds out of crime. In view of above also, it is unable to accept the only argument raised by the appellant. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority rightly confirmed provisional attachment of properties under the Prevention of Money Laundering Act, 2002 (the Act) based on the investigation and ECIR that found a scheduled offence and money-laundering. 2. Whether statements of the accused recorded while in custody could be relied upon by the investigating agency to support attachment under the Act (raised but not pursued as primary ground). 3. Whether immovable properties allegedly acquired prior to the commission of the scheduled offence can be regarded as 'proceeds of crime' under Section 2(1)(u) - including application of the three-limbed definition (tainted property; value of any such property; property equivalent in value held within the country or abroad) and whether the second limb permits attachment of pre-offence property where proceeds are not traceable. 4. Whether failure of the person served with a notice under Section 8(1) to disclose sources of acquisition justifies confirmation of attachment. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of confirmation of provisional attachment under the Act Legal framework: Provisional attachment under the Act is effected to secure proceeds of crime upon a finding of scheduled offence and money-laundering; confirmation by Adjudicating Authority requires prima facie satisfaction and adherence to statutory safeguards (including service of notice under Section 8(1)). Precedent treatment: Decisions of higher fora (including a three-judge bench decision and High Court authorities) have interpreted Section 2(1)(u) and the scope of attachable property; Tribunal relied on those authorities to assess whether attachment was permissible where proceeds could not be located. Interpretation and reasoning: The Tribunal examined investigative material (ECIR, search/seizure, bank-account tracing, inter-company transfers and diversion of deposit funds) showing large scale collection (Rs.650 Crores) and diversion/loans to group entities and directors with massive defaults, establishing a predicate scheduled offence and money-laundering prima facie. Given the investigative findings and absence of disclosed sources for attached properties, the Tribunal held the Adjudicating Authority had reason to believe an offence under Section 3 and to confirm attachment to secure alleged proceeds. Ratio vs. Obiter: Ratio - confirmation upheld where investigative material established prima facie money-laundering and statutory notice was issued but not answered satisfactorily. Conclusions: The confirmation of provisional attachment was justified on the record; appeals challenging confirmation on the narrow ground of prior acquisition of some properties fail for reasons addressed under Issue 3 and Issue 4. Issue 2 - Reliance on statements recorded while in custody Legal framework: Statements recorded during investigation, including those of accused, form part of the material for determining existence of money-laundering and for attachment decisions; admissibility and weight of custodial statements may be contested in trial/prosecution proceedings. Precedent treatment: The judgment records that the appellant contended custodial statements could not be relied on; Tribunal did not make this the core basis for attachment confirmation and treated the contention as not decisive given multiplicity of independent materials (documents, seized sale deeds, encumbrance certificates, bank-account analysis). Interpretation and reasoning: Even if custodial statements raise issues of admissibility at trial, attachment under the Act depends on prima facie material which here included seized documents, certified records from Sub-Registrar, bank-account trails and ECIR; thus the Tribunal did not reverse the attachment merely on that ground. Ratio vs. Obiter: Obiter - the point was noted but not determinative; the Tribunal relied on broader investigative record. Conclusions: Reliance on custodial statements alone was not accepted as controlling; attachment was sustained on cumulative independent evidence. Issue 3 - Scope of 'proceeds of crime' under Section 2(1)(u) and attachment of properties acquired prior to commission of offence Legal framework: Section 2(1)(u) defines 'proceeds of crime' in three parts separated by 'or': (1) property obtained/derived directly or indirectly by criminal activity relating to a scheduled offence; (2) the value of any such property; (3) where such property is held outside India, property equivalent in value held within the country or abroad. The second limb is commonly understood to permit attachment of property of equivalent value where tainted property is not available. Precedent treatment: The Tribunal relied principally on binding higher-court authority (three-judge bench and subsequent High Court rulings) and on detailed treatment in Axis Bank and related decisions which recognize three categories: (a) tainted property, (b) deemed tainted/alternative attachable property (untainted but equivalent in value), and (c) equivalent property when tainted property is abroad. The Tribunal rejected narrower interpretations (e.g., that pre-offence property can never be attached) as rendering the second limb redundant, aligning with Axis Bank, Vijay Madanlal Choudhary, and subsequent High Court clarifications (including Prakash Industries). Interpretation and reasoning: The Tribunal analyzed the statutory text and legislative purpose: protecting victims and preventing dissipation of proceeds. It held the second limb was intentionally included to permit attachment of property of equivalent value when actual proceeds are not traceable or have been siphoned off. The Tribunal reasoned that if pre-offence property were categorically immune, accused could easily defeat attachment by siphoning proceeds immediately after offence. The Tribunal treated Axis Bank's safeguards (requirement of tentative assessment of wrongful gain, restriction of eventual confiscation to value of illicit gains, protection for bona fide third-party rights) as operative limits on use of the second limb. Ratio vs. Obiter: Ratio - the definition of 'proceeds of crime' has three limbs; the second limb validly permits attachment of pre-offence property of equivalent value where proceeds are not available, subject to statutory safeguards and assessment of value of illicit gains; contrary High Court decisions that negate the second limb were distinguished and not followed. Conclusions: Properties acquired prior to commission of the scheduled offence can be attached as 'proceeds of crime' under the second limb of Section 2(1)(u) where the actual tainted property is not available, provided statutory safeguards (assessment of value, protection of bona fide third-party interests, limitation of confiscation to illicit gains) are respected. The appellant's reliance on acquisition date alone was insufficient to invalidate attachment. Issue 4 - Consequence of failure to disclose source under Section 8(1) Legal framework: Section 8(1) requires the Adjudicating Authority to serve notice calling upon the person to indicate sources of income/assets and evidence for acquisition of attached property; failure to furnish particulars is material to the adjudicatory process. Precedent treatment: The Tribunal applied the statutory scheme consistently with earlier decisions: non-disclosure after service of notice weakens the person's case and supports confirmation of attachment when prima facie material points to proceeds of crime. Interpretation and reasoning: The appellant was served notices under Section 8(1) and afforded opportunity to disclose sources. The record showed no satisfactory disclosure or documentary proof establishing legitimate sources for the attached properties. In absence of such material and given the investigative evidence of siphoning/diversion of funds and inter-company transfers, the Tribunal found confirmation appropriate. Ratio vs. Obiter: Ratio - failure to discharge the statutory onus of disclosure when served under Section 8(1) is a substantive factor justifying confirmation of attachment where prima facie evidence of laundering exists. Conclusions: The appellant's failure to produce source documents after notice under Section 8(1) independently supports confirmation of attachment; appeals dismissed.