2025 (6) TMI 534 - AT - Money Laundering

ED can attach properties as crime proceeds even if acquired before predicate offense under Section 24 PMLA

Abdul Majeed, Ali Sathar Haji and Shakkeela T. Versus The Deputy Director, Directorate of Enforcement, Cochin

The Appellate Tribunal under SAFEMA at New Delhi dismissed the appeal challenging ED's provisional attachment of properties under PMLA. The Tribunal held ... Money Laundering - properties in question attached by ED, needs to be released being acquired by the appellants much prior to the alleged predicate offence or not - properties are covered within the definition of proceeds of crime, as defined u/s 2(1)(u) of PMLA or not - discharge of burden of proof under Section 24 of PMLA, regarding the fact that the properties have been acquired using legal source of income - power to provisionally attach the property of the appellants or not. Whether the properties in question attached by ED, needs to be released being acquired by the appellants much prior to the alleged predicate offence? - Whether the said properties are not covered within the definition of proceeds of crime, as defined u/s 2(1)(u) of PMLA? - HELD THAT:- The perusal of the definition reveals three limbs of the definition 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. This Tribunal has also given an elaborate judgment on the issue in the case of Sadananda Nayak v. The Deputy Director, Directorate of Enforcement, Bhubaneswar [2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI], where all the judgments on the issue have been considered and thereby this issue was decided in favour of Respondent ED. There are no force in the argument of Ld. Counsel for the appellant, because when the proceeds out of crime was not available with the appellant rather vanished and siphoned off, the property of equivalent value has been attached by ED. The proceeds were siphoned off by diverting and by layering the proceeds. In the light of the aforesaid, second limb of the definition of “proceeds of crime” has been applied to attach the property of equivalent value - this issue is decided against the appellants and in favour of the Respondent ED. Whether the appellants have discharged their burden of proof under Section 24 of PMLA, regarding the fact that the properties have been acquired by them using legal source of income? - HELD THAT:- The contention of the appellant that the money was seized in the raid by DRI officials at the time of arrest of one Mr. Gopinath K. with respect to FIR No.3/2012/NIA/HYD and thus, there is no proceed of crime utilised for the purpose of the construction of building in the property in question, since the alleged fake money was already seized, does not hold good, as the appellant has been a habitual offender for commission of predicate offence pertaining to FICN on large number of occasions and for considerable period of time, and thus, the amount seized is only in two instances (as mentioned above), which came to the knowledge of DRI and police. Regarding the other property belonging to appellant no. 2 & 3, the respondent ED pointed out that the bank account of the appellant no. 3 reflects various cash deposits, which are unexplained by her. In fact she does not even have any explanation for the amount paid for the said property purchased and she claimed unawareness for that, hence, the same can also be assumed to have flown from her husband, who is an accused and the appellant no.3 can be presumed to have purchased the said property using the amount in her bank account which is allegedly the money she received from her husband in her bank account. Further, the appellant no.2 has contended that he jointly purchased the property in question and made a payment of Rs. 4 Lakhs towards it, which was stated by him to have been acquired from the sale of property of his father. However, no details or documentary evidence with regard to the same were produced by him. In lieu of the same, the said property is also rightly considered as a proceed of crime and thereby attached. Hence, the appellants have not discharged their burden of proof under Section 24 to explain the legal source of income for acquisition of the properties. Thus, this issue is also decided against the appellants. Whether the respondent has no power to provisionally attach the property of the appellants, on the ground that no offence is made out under section 3 of PMLA? - HELD THAT:- PMLA is a special enactment brought in force to address twin aspects, i.e.; firstly, to curtail the money laundering activities, and secondly, to provide for confiscation of property derived from or involved in money laundering. For the purpose of confiscation of properties, the attachment is important before the trial proceedings could be completed, in order to save those properties for confiscation, if trial results in conviction. Hence, for attaching the property under PMLA, the trial of offence of money laundering need not be completed, rather it is to keep the properties preserved for confiscation. Thus, the contention of the appellants that the properties cannot be attached before the conviction is resulted in trial proceedings, is vague and untenable and denied thereby. Hence, this issue is decided against the appellants. Conclusion - i) The properties attached by ED are rightly considered proceeds of crime or equivalent value thereof, even if acquired prior to the predicate offence, due to the inability to trace the actual tainted property and the habitual involvement of the appellants in the scheduled offences. ii) The appellants failed to discharge their burden under Section 24 of PMLA to prove lawful acquisition of the properties. iii) The ED had the power to provisionally attach the properties before conviction to prevent dissipation of assets involved in money laundering. Appeal dismissed. Three core legal issues were considered by the Appellate Tribunal under the Prevention of Money Laundering Act, 2002 (PMLA):(i) Whether the properties attached by the Enforcement Directorate (ED) should be released on the ground that they were acquired by the appellants prior to the alleged predicate offence and thus do not constitute 'proceeds of crime' under Section 2(1)(u) of PMLA;(ii) Whether the appellants have discharged their burden of proof under Section 24 of PMLA by demonstrating that the properties were acquired through legitimate sources of income;(iii) Whether the respondent ED had the power to provisionally attach the appellants' properties before conviction, despite the appellants' contention that no offence under Section 3 of PMLA was made out.Issue (i): Whether the attached properties were acquired prior to the predicate offence and thus not 'proceeds of crime' under Section 2(1)(u) of PMLAThe Tribunal examined the definition of 'proceeds of crime' under Section 2(1)(u) of PMLA, which includes any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence, as well as the value of any such property. The definition explicitly covers situations where the actual tainted property cannot be traced, allowing attachment of property equivalent in value.The Tribunal relied heavily on authoritative precedents, including a detailed judgment of the Delhi High Court, which clarified that properties acquired prior to the enforcement of the Act are not entirely immune from attachment if the tainted property cannot be traced. The Court in that case explained that the Act envisages attachment of both tainted and untainted property, provided the latter corresponds to the value of the proceeds of crime. It was further held that bona fide rights of third parties acquired prior to the commission of the predicate offence are protected.The Tribunal also referred to the Supreme Court's decision in Vijay Madanlal Chaudhary v. Union of India, which emphasized the wide scope of the definition, allowing attachment of property equivalent in value even if the proceeds of crime are situated outside India. This interpretation furthers the legislative intent to recover proceeds of crime effectively.Applying these principles, the Tribunal found that although the appellants claimed the properties were acquired prior to the alleged offences, the actual proceeds of crime were not available with them but had been siphoned off. Therefore, the ED was justified in attaching properties of equivalent value. The appellants' argument that the properties were acquired before the predicate offence and thus not proceeds of crime was rejected.Issue (ii): Whether the appellants discharged their burden of proof under Section 24 of PMLA to show acquisition of properties by legal meansThe appellants contended that the properties were acquired through legitimate sources. For example, appellant no.1 claimed ownership through a gift deed from his mother, with the house constructed from accumulated savings between 1985 and 2005. However, the Tribunal noted the absence of documentary evidence such as bank statements or valuation reports to substantiate these claims. Contradictions were also highlighted, including the appellant's own statement that construction was completed in 2005, not 1990 as claimed.Moreover, the appellant admitted in his statement under Section 50 of PMLA that he arranged funds to finance procurement of fake Indian currency notes (FICN) on multiple occasions, corroborated by statements of co-accused and seizure of FICN consignments. This demonstrated habitual involvement in the predicate offence, undermining his claim of legitimate acquisition.Regarding the other properties jointly held by appellants no.2 and no.3, the Tribunal observed unexplained cash deposits in bank accounts and lack of documentary proof for payments made towards acquisition. The appellant no.3's claim of ignorance about the source of funds was not accepted, and the possibility that the funds originated from her husband, an accused, was considered.Consequently, the Tribunal concluded that the appellants failed to discharge their burden under Section 24 to prove lawful acquisition of the attached properties. The properties were rightly considered proceeds of crime and attached accordingly.Issue (iii): Whether the ED had power to provisionally attach properties before conviction despite no offence being made out under Section 3 of PMLAThe Tribunal emphasized that PMLA is a special legislation aimed at curbing money laundering and enabling confiscation of property derived from such offences. Attachment prior to trial completion is a necessary procedural step to preserve properties for confiscation if conviction ensues.The appellants' contention that properties cannot be attached before conviction was rejected as 'vague and untenable.' The Tribunal clarified that the trial of the money laundering offence need not be completed before provisional attachment, as attachment is a preventive measure to safeguard the properties involved.Significant holdings and core principles established include:'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.''It is only where the respondents are unable to discover the tainted property that they can take the statutory recourse to move against properties which may fall within the ambit of 'value of any such property' or 'property equivalent in value held within the country or abroad'.''The trial of offence of money laundering need not be completed before attachment of property; attachment is to preserve the property for confiscation in case of conviction.''The burden under Section 24 of PMLA lies on the accused/appellant to prove that the property was acquired from legitimate sources, failing which the property is liable to be treated as proceeds of crime.'Final determinations:The Tribunal dismissed the appeals, holding that:The properties attached by ED are rightly considered proceeds of crime or equivalent value thereof, even if acquired prior to the predicate offence, due to the inability to trace the actual tainted property and the habitual involvement of the appellants in the scheduled offences;The appellants failed to discharge their burden under Section 24 of PMLA to prove lawful acquisition of the properties;The ED had the power to provisionally attach the properties before conviction to prevent dissipation of assets involved in money laundering;Therefore, the impugned order confirming the attachment was upheld.