2025 (6) TMI 522 - AT - Money Laundering

ED validly attached properties as proceeds of crime under Section 5 PMLA despite pre-offence acquisition

Vishal Mehta, Suraj Mehta and Sonia Mehta Versus The Deputy Director, ED, Mumbai

The Appellate Tribunal under SAFEMA dismissed the appeal challenging property attachment under PMLA. The Tribunal held that ED satisfied statutory ... Attachment of properties - Money Laundering - proceeds of crime - attachment of properties - scheduled offences - proceeds of crime - existence of tangible material and reasons to belief that the appellant is in possession of proceeds of crime or not - impugned properties are acquired by the appellant using his legitimate source of income or not - provision of value thereof for attaching the properties of equivalent value held within the country will be applicable with the retrospective effect or not - attachment of property as equivalent in value held within the country i.e. under third limb of the definition of proceeds of crime. Whether the respondent ED has brought on record any tangible material and has any reasons to belief that the appellant is in possession of proceeds of crime and such proceeds are likely to be concealed, transferred or dealt with any manner which may result in frustrating any proceedings under the Act and thereby fulfilled the requirements of Section 5? - HELD THAT:- In view of the detailed facts like the registration of FIR against the accused persons, acquisition of proceeds of crime, by sending the remittance to foreign countries, layering the proceeds of crime in the name of the companies of the accused persons, and filing of the prosecution complaint during this intervening period, we are of the considered view that the said properties are rightly attached by the ED and confirmed by the Adjudicating Authority. This issue is accordingly decided against the appellants and in favour of ED. Whether the impugned properties are acquired by the appellant using his legitimate source of income and thus, not ‘proceeds of crime? - Whether the provision of value thereof for attaching the properties equivalent the value held within the country will be applicable with the retrospective effect, since it was inserted in the year 2015? - Whether the property can be attached as ‘equivalent in value held within the country i.e. under third limb of the definition of proceeds of crime, despite the fact that appellant is not an accused and in the light of retrospective application of the third limb, as it was inserted in 2015? - HELD THAT:- The perusal of the definition reveals three limbs of the definition of proceeds of crime, out of which first part refers to the property acquired or derived directly or indirectly by a person relating to the criminal activity to a scheduled offence. The second part includes “the value of any such property”. The second part is generally mixed with third part for giving interpretation. However, if we see carefully, the third part is clearly an offshoot of the second part and of explanatory in nature, as before the amendment and insertion of third part, many litigants started agitating the issue that in case the proceeds of crime are not available in India, then the properties in abroad cannot be attached as value thereof. Hence, in case of non-availability of direct/indirect proceeds of crime, then the properties can be attached as value thereof, whether available in India or abroad. The investigation and chargesheet reveals that the impugned properties have been purchased by Sonia Mehta with her sons, who is are accused in the predicate offence and later transferred her share in these properties to her sons, i.e. Suraj Mehta and Vishal Mehta. Hence, these two properties can be attached as ‘value thereof’, even if those were purchased prior to the date of commission of the offence, as the proceedings under PMLA are independent of the predicate offence and once the proceedings are initiated, then the properties acquired prior to the date of commission of offence can be attached as value thereof, in case the proceeds of crime are not available. Moreover, even the other two appellants, to whom the impugned properties were transferred, namely, Suraj Mehta and Vishal Mehta along with their mother too have been named in the criminal cases filed against them. It is pertinent to mention here that Jatin Mehta and his family members i.e. the present appellants have already absconded, as pointed out by Ld. Counsel for Respondent ED. Thus, the conduct of the present appellant clearly shows their involvement for the commission of predicate offence as well as the offence of money laundering under Section 3 of the PMLA, 2002. Conclusion - The ED had fulfilled the statutory requirements under Section 5 of the PMLA and that the impugned properties were rightly attached as proceeds of crime or equivalent property under the PMLA. Appeal dismissed. The core legal questions considered by the Tribunal in this appeal under Section 26 of the Prevention of Money Laundering Act, 2002 (PMLA) are as follows:i) Whether the Enforcement Directorate (ED) has brought on record tangible material and has a bona fide reason to believe that the appellants are in possession of proceeds of crime, and that such proceeds are likely to be concealed, transferred, or otherwise dealt with so as to frustrate proceedings under the Act, thereby satisfying the requirements of Section 5 of the PMLA;ii) Whether the impugned properties were acquired by the appellants using legitimate sources of income and thus do not constitute 'proceeds of crime';iii) Whether the provision relating to attachment of properties equivalent in value held within the country, as inserted in the PMLA in 2015, applies with retrospective effect;iv) Whether properties can be attached as 'equivalent in value held within the country' under the third limb of the definition of proceeds of crime, even if the appellant is not an accused, particularly in light of the retrospective application of this provision.Issue-wise Detailed AnalysisIssue (i): Whether ED has brought tangible material and bona fide reasons to believe possession of proceeds of crime and risk of concealment or transfer under Section 5Rs.The Tribunal examined the extensive investigation conducted by the Central Bureau of Investigation (CBI) and ED, which revealed a massive fraud involving multiple banks and companies linked to the appellants. The investigation uncovered that the appellants and their associates had orchestrated a criminal conspiracy involving fraudulent enhancement of sales turnover, manipulation of export-import transactions through UAE-based shell companies, and siphoning off proceeds amounting to approximately USD 1.26 billion in the form of gold and diamond-studded jewelry. The proceeds were layered through various overseas entities and ultimately routed into accounts controlled by family members of the appellants.The investigation also traced immovable properties in Mumbai registered in the names of the appellants' family members, acquired through funds traced back to the proceeds of crime. The ED provisionally attached these properties under Section 5(1) of the PMLA, supported by documents, statements of witnesses, and charge sheets filed by the CBI.The Tribunal found the material on record sufficient to constitute tangible evidence and a bona fide reason to believe that the appellants possessed proceeds of crime and that there was a risk of concealment or transfer of such property, justifying attachment under Section 5. The Tribunal held that the attachment was rightly confirmed by the Adjudicating Authority.Issues (ii), (iii), and (iv): Legitimacy of acquisition, retrospective application of 'value thereof' provision, and attachment of properties equivalent in value held within the countryThese interconnected issues were analyzed with reference to the definition of 'proceeds of crime' under Section 2(1)(u) of the PMLA. The definition comprises three limbs:The first limb refers to property directly or indirectly derived from criminal activity relating to a scheduled offence;The second limb refers to the value of any such property;The third limb, inserted by amendment in 2015, provides that where such property is taken or held outside India, the property equivalent in value held within the country or abroad may be treated as proceeds of crime.The Tribunal observed that the third limb is explanatory and designed to address situations where the actual proceeds of crime are not available in India, allowing attachment of equivalent value properties within the country or abroad. This interpretation aligns with legislative intent to enable effective recovery of proceeds of crime.The Tribunal referred extensively to authoritative precedents, including a recent decision of the Delhi High Court, which clarified that properties acquired prior to the commission of the offence may be subject to attachment as 'value thereof' if the actual tainted property cannot be traced. The Apex Court's ruling in Vijay Madanlal Chaudhary v. Union of India was also cited, emphasizing the wide scope of the definition of proceeds of crime, including value of property and equivalent property held within or outside India, to further legislative intent in recovery efforts.Applying these principles, the Tribunal noted that the impugned properties were initially purchased by the appellants' mother and sons prior to the commission of the predicate offences but were subsequently transferred to the appellants. The investigation revealed that the appellants and their family members had absconded and were involved in layering and diversion of proceeds of crime through complex transactions and front companies. The Tribunal found that the properties were rightly attached as 'value thereof' under the PMLA, even if acquired prior to the offence, given the absence of actual proceeds of crime within India and the appellants' involvement in the predicate offences.The Tribunal rejected the appellants' contention that the properties were acquired from legitimate sources, as the investigation and charge sheets established a nexus between the properties and proceeds of crime. The Tribunal also held that the retrospective application of the 2015 amendment was valid for the purpose of attachment, consistent with judicial precedents.Further, the Tribunal addressed the appellants' argument that they were not accused persons and thus properties could not be attached under the third limb. The Tribunal observed that the appellants were named in criminal proceedings and that the PMLA proceedings are independent of predicate offences. The properties, therefore, could be attached as equivalent value properties to prevent frustration of the recovery process.Significant HoldingsThe Tribunal's crucial legal reasoning includes the following verbatim excerpt from the Delhi High Court judgment relied upon:'105. It would be pertinent to recall that properties which were acquired prior to the enforcement of the Act may not be completely immune from action under the Act in light of what this Court had held in Axis Bank. As was explained by the Court in Axis Bank, the expression proceeds of crime envisages both 'tainted property' as well as 'untainted property' with it being permissible to proceed against the latter provided it is being attached as equal to the 'value of any such property' or 'property equivalent in value held within the country or abroad'. However, both the italicised categories would be liable to be invoked in cases where the actual tainted property cannot be traced or found out.'Further, the Apex Court's observation in Vijay Madanlal Chaudhary v. Union of India was quoted:'68. It was also urged before us that the attachment of property must be equivalent in value of the proceeds of crime only if the proceeds of crime are situated outside India. This argument, in our opinion, is tenuous. For, the definition of 'proceeds of crime' is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence, but also of the value of any such property. If the property is taken or held outside the country, even in such a case, the property equivalent in value held within the country or abroad can be proceeded with.'The Tribunal concluded that the ED had fulfilled the statutory requirements under Section 5 of the PMLA and that the impugned properties were rightly attached as proceeds of crime or equivalent property under the PMLA. The Tribunal dismissed the appeals as devoid of merit.