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

The Appellate Tribunal under SAFEMA dismissed the appeal challenging property attachment under PMLA. The Tribunal held that ED satisfied statutory requirements under Section 5 by demonstrating tangible material and reasonable belief that appellants possessed proceeds of crime likely to be concealed or transferred. Properties purchased by accused's family members and later transferred were validly attached as "value thereof" under the third limb of proceeds of crime definition, applicable retrospectively from 2015 amendment. The Tribunal found the properties were rightly attached despite being acquired before the scheduled offence, as PMLA proceedings operate independently of predicate offences once initiated.

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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 Analysis

Issue (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 country

These 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 Holdings

The 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.

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