2025 (1) TMI 1671 - AT - Money Laundering

Authority upholds PMLA attachment of Rs 94.24 lakh, properties as value of crime under ss.5,8

M/s. Raja Aederi Consultants Pvt. Ltd. Versus The Deputy Director, Directorate of Enforcement, Delhi

AT upheld the provisional attachment under PMLA, including the balance amount of Rs. 94,24,090/- lying with NDMC and the attached immovable properties ... Money Laundering - provisional attachment order - Scheduled offences - existence of reasons to believe u/s 5 and 8 of the PMLA, 2002 or not - whether the balance amount payable to the appellant which is still lying with NDMC, amounting to Rs. 94,24,090/- and has been attached by the Directorate? - HELD THAT:- In the present case, a volume of evidence, both gathered during the investigation conducted by the CBI as well as by the respondent Directorate, have been brought on record. Moreover, even at the time of passing the order of provisional attachment, the Appellant already stood convicted of a scheduled offence. The material brought on record is more than sufficient in our view to uphold the attachment of property pending the establishment of the guilt of the accused for the offence of money laundering. The legal position is well-settled that attachment of property under the PMLA, 2002 is merely a balancing arrangement to secure the interests of the person, as also ensure that the proceeds of crime remain available to be dealt with in the manner provided by the Act. Mere attachment of property does not alter the position with regard to the ownership or even possession of the properties which are the subject matter of such attachment. Therefore, at this stage, the balance of interests clearly lies in favour of continued attachment of the properties pending a decision on its confiscation or release. It is not the case of the appellant that no notice was issued or even that the body of the notice was in the correct format as prescribe by the rules. What is contended is that some additional information was added by way of ‘postscript’ in the notice. It is not seen how the same has prejudiced the appellant in any manner. Appeal dismissed. Attachment of immovable property - property in question was attached as ‘value’ of proceeds of crime - HELD THAT:- The underlying issue, namely, attachment of properties whose acquisition predates the period of the alleged scheduled offence(s) has been decided by this Appellate Tribunal through a detailed order in the case of Sadananda Nayak v Deputy Director [2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI] where it was held that 'It has already been clarified by us that if the definition of “proceeds of crime” is given interpretation by dividing it into two parts or by taking only two limbs, then it would be easy for the accused to siphon off or vanish the proceeds immediately after the commission of scheduled offence and in that case none of his properties could be attached to secure the interest of the victim till conclusion of the trial. This would not only frustrate the object of the Act of 2002, but would advance the cause of the accused to promote the crime of money laundering.' The contention put forward on behalf of the appellants that the subject properties could not have been attached as they were acquired prior to the alleged period of crime is hereby rejected - Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the provisional attachment order under Sections 5 and 8 of the PMLA was valid in the absence of formal prior communication of 'reasons to believe' to the noticee. 2. Whether a right to receive payment (balance amount lying with a third party) can be treated as 'property' or 'proceeds of crime' under Section 2(1)(u) read with Section 2(1)(v) of the PMLA and lawfulness of attaching such a balance amount not yet in the noticee's physical possession. 3. Whether attachment can be sustained where the property attached represents the 'value of any such property' (i.e., property of equivalent value) including where the property was acquired prior to the alleged scheduled offence. 4. Whether invocation of PMLA powers was valid where the predicate/scheduled offences relied upon (including conspiracy provision) either did not directly charge the appellant with certain offences or had acquittals in respect of public servants, and whether conviction(s) relied upon made the attachment permissible. 5. Whether failure to serve the statutory adjudication notice on the third-party holder of the attached property (the entity holding funds) vitiates the adjudication proceedings. 6. Whether procedural defects in investigation and recording of statements (leading questions under statutory Section 50-equivalent process) and claimed lack of independent inquiry by the enforcement agency undermine the attachment. 7. Whether immaterial additions to the prescribed notice form (a 'postscript') or other technical defects invalidate the adjudicatory action. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of provisional attachment absent formal prior communication of 'reasons to believe' Legal framework: Sections 5 and 8 of the PMLA empower provisional attachment and adjudication; statute prescribes recording of reasons to believe by the authorized officer under Section 5(1) and provides for the AA to proceed under Section 8(1) on the basis of the complaint. Section 68 protects irregularities that do not defeat substance. Precedent treatment: The tribunal noted conflicting single-judge High Court decisions - one requiring communication of reasons at show-cause stage and another holding no such statutory requirement prior to provisional attachment. The authority's PAO contained detailed recorded reasons and the noticee was convicted at the time of PAO. Interpretation and reasoning: The Court examined whether the statutory scheme mandates separate communication of reasons beyond the PAO and found that the PAO itself contained sufficient recorded reasons to satisfy Section 5. It observed that Section 8(1) uses different language and that the AA may proceed on the basis of the complaint; further, facts (including conviction) strengthened the legitimacy of the authority's belief. Section 68 tolerates non-substantive defects. Ratio vs. Obiter: Ratio - where the PAO records cogent reasons and the material demonstrates a reasonable belief, non-communication in a prescribed separate format does not invalidate attachment; the statutory scheme and Section 68 mitigate purely formal defects. Obiter - commentary on conflicting High Court views. Conclusion: No invalidation of the provisional attachment for lack of separate/formal communication of reasons to believe; the PAO's recorded reasons were adequate. Issue 2 - Attachment of right to receive payment (balance with third party) and characterization as 'property' / 'proceeds of crime' Legal framework: Definitions of 'proceeds of crime' and 'property' under Sections 2(1)(u) and 2(1)(v) are wide, covering tangible/intangible assets and 'the value of any such property.' Precedent treatment: The tribunal relied on authoritative interpretative decisions recognizing three limbs of 'proceeds of crime' (direct/indirectly derived property; value of such property; property equivalent in value), and prior tribunal appellate decisions that treated receivables and intangible rights as property for attachment. Interpretation and reasoning: A contractual right to receive payment is an asset/corporate 'property' reflected on a balance sheet and therefore within the statutory definition. Where payments were obtained (or become receivable) by virtue of fraud/cheating forming the scheduled offence, the receivable constitutes proceeds; moreover, even if the original tainted asset is not traceable, the statute permits attachment of an alternative/ equivalent-value property. Ratio vs. Obiter: Ratio - receivables/right to payment are property and may be attached as proceeds or as the value/equivalent of proceeds; absence of physical possession does not preclude attachment where reasonable belief exists that non-attachment would frustrate proceedings. Obiter - examples of asset treatment. Conclusion: The balance amount payable by a third party can be attached as property/proceeds of crime or as value-equivalent property; the tribunal upheld attachment of the receivable balance. Issue 3 - Attachment of property acquired prior to the alleged scheduled offence (value/equivalent property limb) Legal framework: Interpretation of the three limbs of 'proceeds of crime' - (1) property directly/indirectly derived from crime, (2) the value of such property, (3) equivalent-value property - and statutory safeguards for bona fide third parties. Precedent treatment: The tribunal applied its prior reasoning and that of higher courts holding the second limb operative to permit attachment of equivalent-value property (including assets acquired prior to the crime) where proceeds are vanished or not traceable; it rejected narrower readings that would render the middle limb redundant. Interpretation and reasoning: A purposive construction shows the legislature intended the second limb to enable recovery where tainted assets are dissipated. Attachment of pre-acquisition assets as 'value of any such property' is permissible subject to established safeguards (assessment of illicit gain and protection of bona fide third-party rights). The tribunal cited prior decisions that require an assessment (even tentative) of wrongful gain and protections for bona fide interests. Ratio vs. Obiter: Ratio - properties acquired before the scheduled offence may be attached as equivalent-value property when proceeds are untraceable, provided statutory safeguards and assessments are observed. Obiter - policy rationale against enabling accused to frustrate recovery. Conclusion: Attachment of an immovable property acquired earlier was sustainable as attachment of value-equivalent proceeds; appellant's contention that pre-acquisition ownership immunizes property was rejected. Issue 4 - Reliance on predicate offences, conviction, and applicability where certain charges/acquittals exist Legal framework: PMLA requires connection to scheduled offences; the scheduled-offence list and the need for an underlying scheduled offence for money-laundering powers to operate; interplay with conspiracy provision and whether conspiracy alone (without an underlying scheduled offence) suffices. Precedent treatment: The tribunal noted authorities holding that conspiracy provision is scheduled only where the underlying offence is scheduled; it examined that the PAO relied not merely upon ECIR but upon a trial court conviction finding cheating and conspiracy/related counts against the noticee and directors. Interpretation and reasoning: Where the authority, in forming its reasons, takes into account a conviction in the scheduled offences against the noticee, the statutory nexus for provisional attachment is strengthened. The tribunal found that the PAO explicitly recorded the conviction under penal provisions and supporting evidentiary materials, thereby establishing sufficient foundation for invocation of PMLA powers despite acquittals of some public servants or absence of certain charges against the noticee. Ratio vs. Obiter: Ratio - reliance on a conviction in scheduled offences (and attendant material) provides a valid basis for provisional attachment under PMLA; conspiracy-alone objections failed on facts where conviction and other material existed. Obiter - discussion of recent decisions on the point. Conclusion: Attachment was maintainable given the conviction and the material linking the receivables to proceeds of the scheduled offence; challenge based on non-invocation or acquittal of public servants did not vitiate the PAO. Issue 5 - Failure to serve statutory notice on third-party holder of attached funds Legal framework: First Proviso to Section 8(1) requires service on persons holding property on behalf of others; Section 68 preserves acts notwithstanding certain defects. Precedent treatment: The tribunal acknowledged that formal notice to the third-party holder was not issued but found that the third party (holder) had actual knowledge and had cooperated by providing information and had not sought impleadment or appealed. Interpretation and reasoning: The tribunal applied Section 68 and the factual record (copies of PAO sent to the holder, communications from the holder supplying payment data and absence of prejudice or challenge by the holder) to conclude non-service did not cause prejudice and did not invalidate proceedings. Ratio vs. Obiter: Ratio - failure to serve statutory notice on a holder of property does not automatically vitiate proceedings where substantive conformity exists, the holder had actual notice and participated or did not seek relief, and Section 68 applies. Obiter - emphasis on absence of prejudice. Conclusion: Non-issue of formal notice to the third-party holder did not void the attachment given actual notice, cooperation, and no prejudice. Issue 6 - Alleged investigative/statement defects (leading questions under statutory statement regime) and lack of independent inquiry Legal framework: Statements under the PMLA-equivalent statutory provision have evidentiary weight but must meet basic standards; administrative/adjudicatory proceedings weigh documentary and circumstantial material. Precedent treatment: The tribunal considered the volume of documentary and circumstantial evidence amassed by investigative agencies and the presence of trial conviction. Interpretation and reasoning: Even assuming some statements contained leading questions, the court found a broad evidentiary matrix (charge sheet, trial findings, documentary records, NDMC communications, and conviction) that amply supported the reasonable belief for provisional attachment; mere procedural imperfections in interrogations did not negate the accumulated material nor the PAO's factual basis. Ratio vs. Obiter: Ratio - isolated defects in recording statements do not automatically undo a provisional attachment when the totality of evidence and conviction sustain reasonable belief. Obiter - admonition on standards for statutory statement-taking. Conclusion: Procedural lapses in statement-taking and alleged absence of independent inquiry did not vitiate attachment given overwhelming documentary/circumstantial record and conviction. Issue 7 - Technical defects in notice format (postscript) and other formal irregularities Legal framework: Adjudicating Authority procedure regulations prescribe forms; Section 68 protects acts not invalid in substance. Precedent treatment: The tribunal held that deviation by inclusion of additional postscript was not shown to cause prejudice; statutory protection under Section 68 covers such defects. Interpretation and reasoning: Where the core content of notice/regulatory requirement is satisfied and no prejudice is demonstrated, non-material additions or minor form variations do not invalidate the proceeding under the statutory saving provision. Ratio vs. Obiter: Ratio - non-material deviations from prescribed notice form do not invalidate proceedings absent prejudice; Section 68 affords protection. Obiter - cautionary note on adherence to procedural rules. Conclusion: The postscript/formal irregularity did not invalidate the attachment.