2024 (12) TMI 1711 - AT - Money Laundering

Proceeds of Crime: provisional attachment upheld despite mortgage claims; PMLA covers subsequent laundering acts linked to proceeds.

Provisional attachment of immovable properties was confirmed where investigative material gave rise to a reasonable belief that significant construction ... Provisional attachment - immovable properties as proceeds of crime - prosecution for money laundering depends - reasonable belief - retrospective application​​​​​​​ of the transactions or acts predating amendments to the Schedule - rights of financial institutions protected under sections 8(5) to 8(8). Attachment of proceeds of crime - Lawfulness of confirming provisional attachment of the mortgaged immovable properties (Hotel Marc Royale I & II) as proceeds of crime - HELD THAT: - On the material placed on record the Tribunal upheld the Adjudicating Authority's finding that the hotels were constructed and funded by tainted proceeds. The seized share certificates, the WILL showing transfer of interest, and the investigation findings that major shareholders and many listed shareholders were bogus supported the inference of infusion and layering of tainted funds, forged bills and diversion of bank loans. The Tribunal rejected the bank's contention that attachment of properties mortgaged to it was impermissible where the properties were alleged proceeds of crime, observing that the inter se dispute between the bank and mortgagors cannot be resolved in these proceedings and that the substantive question of whether the properties are proceeds of crime was rightly decided on the record before the Adjudicating Authority. The provisional attachment of the mortgaged hotels was lawfully confirmed as proceeds of crime. Rights of financial institutions protected under sections 8(5) to 8(8) - Impact of attachment on the bank's right to realize its mortgage security and availability of statutory protection - HELD THAT: - The Tribunal applied its earlier reasoning that financial institutions' rights are safeguarded under the statutory mechanism (sections 8(5)-8(8)) and by the Special Court/Central Government at the stage of settlement or confiscation. It noted that attachment does not transfer title and that remedies under SARFAESI remain available; the inter se claims and ultimate settlement of interests are to be addressed under the statutory scheme and, if necessary, at the stage of trial or confiscation. Consequently, the bank's general grievance of being unable to realize its dues did not justify setting aside the attachment in these proceedings. The bank's rights to secure debt are acknowledged and protected by the statutory scheme, but do not warrant release of the attached properties in these proceedings. Prosecution for money laundering depends on date of laundering not date of predicate offence - Whether PMLA could be applied retrospectively to offences alleged to have arisen before amendments including certain scheduled offences - HELD THAT: - The Tribunal held that the relevant date for invoking the PMLA is the date of the act of money laundering (the projection, use, possession or layering of proceeds), not solely the date of commission of the predicate offence. Citing authority, it observed that money laundering may be a continuing act and that laundering occurring after the predicate offence (and after the offence was brought within the schedule) attracts the PMLA. On the facts, ECIR registration postdated the predicate FIR and the plea that the Act was being applied retrospectively was rejected as devoid of merit. The contention that PMLA could not apply on account of retrospective effect was rejected; invocation of PMLA was held permissible on the established facts. Final Conclusion: The appeal is dismissed. The provisional attachment of the two hotel properties was rightly confirmed as proceeds of crime, the bank's statutory protections for its mortgage interest remain available under the scheme of the Act, and the challenge based on alleged retrospective application of PMLA is repelled; nothing in this order prejudices the appellants' rights in the criminal trial or later proceedings under the statutory scheme. Issues: (i) Whether the Adjudicating Authority rightly confirmed the provisional attachment of the immovable properties as proceeds of crime under the Prevention of Money Laundering Act, 2002; (ii) Whether the provisions of the Prevention of Money Laundering Act, 2002 apply retrospectively to transactions or acts predating amendments to the Schedule.Issue (i): Whether the provisional attachment of the hotel properties was properly confirmed as proceeds of crime and whether the bank's claim to realize dues via sale of mortgaged properties should prevail.Analysis: The decision examines investigative material showing alleged infusion of tainted funds, bogus share certificates and forged bills, and findings that significant construction and investments were from proceeds of crime. It considers the protection afforded to financial institutions under sections 8(5)-8(8) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and prior Tribunal authority addressing competing claims of financial institutions and attachment under PMLA. The analysis distinguishes inter se disputes between a financial institution and mortgagors from the adjudication of whether properties constitute proceeds of crime and notes that remedies under SARFAESI remain available but do not override attachment where proceeds of crime are established. The Tribunal applies the standard of reasonable belief and material on record to uphold confirmation of provisional attachment.Conclusion: The provisional attachment of the immovable properties is confirmed and the appeal challenging that confirmation is dismissed (against the bank).Issue (ii): Whether PMLA provisions were impermissibly applied retrospectively in relation to alleged predicate offences committed prior to their inclusion in the Schedule.Analysis: The decision applies established authority that the relevant date for PMLA liability is the date of the money-laundering act or the date when proceeds are projected as untainted (the act of layering, integration, concealment, possession or use), and not necessarily the date of commission of the predicate offence. The Tribunal relies on precedent holding that money-laundering is an independent offence and may be continuing; consequently, actions taken after the predicate offence that involve dealing with proceeds can fall within the PMLA once connected to a scheduled offence.Conclusion: The plea of retrospective non-application is rejected; PMLA provisions apply to the laundering acts occurring after the predicate offences as found on the facts.Final Conclusion: The appeal is dismissed as devoid of merit; the attachment confirmation stands while preserving the bank's statutory remedies and without prejudice to parties' rights in the criminal trial and eventual settlement under applicable provisions.Ratio Decidendi: For the purposes of attachment and prosecution under the Prevention of Money Laundering Act, 2002, the relevant date is when acts or transactions connected with proceeds of crime (possession, acquisition, concealment, projection as untainted property, layering or integration) occur; where material gives rise to a reasonable belief that immovable properties are proceeds of crime, provisional attachment under Chapter III may be confirmed notwithstanding prior mortgage or invocation of remedies by financial institutions, subject to protection of legitimate interests under sections 8(5)-8(8) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.