Money-laundering attachment upheld where diverted loan funds were treated as proceeds of crime and equivalent value could be attached.

Diversion and non-repayment of loan funds routed through company accounts were treated as proceeds of crime because the funds were linked to alleged cheating and defrauding of the bank and farmers, and their use and dissipation satisfied the ingredients of money-laundering under Section 3 of PMLA. The provisional attachment was upheld because the authority recorded relevant material showing irregularities, fund routing, and risk of frustration of proceedings, thereby meeting the statutory requirement of reason to believe under Section 5(1). Attachment of equivalent value was also sustained: where the original proceeds were not traceable, equivalent-value attachment was permissible, and the valuation adopted was not shown to be unfair or unsupported.

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Issues: (i) Whether the diversion and non-repayment of loan funds constituted proceeds of crime and attracted the offence of money-laundering under Section 3 of the Prevention of Money Laundering Act, 2002; (ii) whether the provisional attachment order was supported by the requisite reason to believe under Section 5(1) of the Prevention of Money Laundering Act, 2002; (iii) whether the attachment of the equivalent value of the property and the valuation adopted for that purpose were vitiated.

Issue (i): Whether the diversion and non-repayment of loan funds constituted proceeds of crime and attracted the offence of money-laundering under Section 3 of the Prevention of Money Laundering Act, 2002.

Analysis: The record showed that loan funds sanctioned for the farmers' scheme were routed into the company's accounts, diverted to other accounts, and could not be traced in their original form. The alleged scheduled offences of cheating and defrauding the bank and farmers were treated as the source of the monetary gain, and the subsequent use and dissipation of those funds brought the case within the statutory definition of money-laundering. The continuing nature of the activity connected with proceeds of crime was also recognised.

Conclusion: The issue was decided against the appellant; the funds were treated as proceeds of crime and the ingredients of Section 3 were held to be satisfied.

Issue (ii): Whether the provisional attachment order was supported by the requisite reason to believe under Section 5(1) of the Prevention of Money Laundering Act, 2002.

Analysis: The attachment order recorded material showing irregularities in the loan accounts, routing of funds, and the likelihood that non-attachment would frustrate the proceedings, including in view of the financial condition of the company. The decision emphasised that the authority had independently applied its mind to the material in possession, and that the court could examine the existence of relevant material and nexus, but not the sufficiency of the reasons. On that basis, the statutory requirement of reason to believe was treated as fulfilled.

Conclusion: The issue was decided against the appellant; the provisional attachment was held to be founded on a valid reason to believe.

Issue (iii): Whether the attachment of the equivalent value of the property and the valuation adopted for that purpose were vitiated.

Analysis: The decision held that the definition of proceeds of crime is wide enough to include the value of such property, and that attachment of equivalent value is permissible where the actual proceeds are not available. The challenge to valuation was rejected because the valuation was proximate in time to the attachment and there was no sufficient basis to discredit its fairness or independence. The attached property was also in the company's possession.

Conclusion: The issue was decided against the appellant; attachment of equivalent value and the valuation adopted were upheld.

Final Conclusion: The attachment and confirmation order were sustained, and the appeal failed in entirety.

Ratio Decidendi: Where the material shows diversion of funds linked to a scheduled offence and the actual proceeds are not traceable, property of equivalent value may be provisionally attached if the authority records a reason to believe based on relevant material, and the sufficiency of that material is not open to reappraisal on merits.

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