2025 (6) TMI 858 - AT - Money Laundering

Appellate Tribunal upholds provisional attachment of four properties under PMLA Section 5(1) for money laundering charges

The Appellate Tribunal under SAFEMA dismissed the appeal challenging provisional attachment of four immovable properties under money laundering charges. ... Money Laundering - provisional attachment of property - proceeds of crime - attachment of first three immovable properties, being acquired prior to the alleged commission of the scheduled offence - attachment of fourth immovable property, being acquired after the period of alleged commission of the scheduled offence - attachment was made without the compliance/ existence of the conditions as stated under the second proviso of Section 5(1) or not. Whether the first three immovable properties cannot be attached, being acquired prior to the alleged commission of the scheduled offence? - HELD THAT:- It is pertinent to mention here that Vijay Madanlal Choudhary v. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)] has escaped the sight of Hon’ble Supreme Court of India in Smt. Pavana Dibbur v. The Directorate of Enforcement [2023 (12) TMI 49 - SUPREME COURT] and in the subsequent judgment of Hon'ble High Court of Kerala, Ernakulam Bench, in case titled as, Davy Varghese v. Enforcement Directorate, [2024 (12) TMI 1366 - KERALA HIGH COURT]. However, findings given by three judges Bench of the Apex Court in the Vijay Madanlal Choudhary v. Union of India has been relied to give interpretation to the definition. In the light of the above, there are no force in the argument of Ld. Counsel for the appellant, because when the proceeds out of crime of Rs. 20 Lakhs was not available with the appellant rather vanished and siphoned off, the property of equivalent value can also be attached by ED. In the light of the aforesaid, second limb of the definition of “proceeds of crime” is also attracted to attach the property of equivalent value. Thus, the ground raised by the appellant cannot be accepted. Whether the fourth immovable property cannot be attached, being acquired after the period of alleged commission of the scheduled offence? - HELD THAT:- As per the contention of the appellant that he was in judicial custody from 30.10.2008 till 02.08.2009, when the six cheques were encashed by Shri Bishwajeet Saha amounting to Rs. 1,22,99,666/- and only one cheque no. 100002 dated 27.10.2008 amounting to Rs. 9,82,675/- was allegedly encashed through M/s. Shree Salasar Engineering Enterprise, Kolkata of Shri Raj Gopal Kankani, on 27.10.2008. Out of this cheque amount, appellant Putul Gogoi received Rs. 4 lakhs. Apart from the said amount, as per the investigation conducted by CBI, the present appellant received total sum of Rs. 20 lakhs out of the proceeds of crime of Rs. 1,32,82,341/-. The table mentioned in para no.2 above reflects the distribution of proceeds of crime among the various accused persons. Accordingly, the fourth property though acquired after the period of commission of scheduled offence is rightly attached by E.D. and confirmed by the Adjudicating Authority. Issue no. 2 is decided in favour of Respondent E.D. and against appellant. Whether the attachment was made without the compliance/ existence of the conditions as stated under the second proviso of Section 5(1)? - HELD THAT:- In the matter at hand, there is ample evidence available from the investigation against the appellant regarding the commission of offence of money laundering and receiving the sum of Rs. 20 lakhs out of proceeds of crime generated by encashment of cheques of NF Railways. There is apparent apprehension of alienation of these properties, as pointed out by the Ld. counsel for the Respondent ED. Thus, the conditions as stated under the second proviso of Section 5(1) are fulfilled. Regarding applicability of Section 5(1)(a) & (b), the appellant is an accused in the FIR and the ECIR is also filed against him, thus, he is a person in possession of alleged proceeds of crime and there is likelihood of concealment or divesting of the impugned properties, and hence, covered under Section 5(1)(a) & (b). Accordingly, this issue is also decided against the appellant. Conclusion - i) The first three immovable properties, though acquired prior to the scheduled offence, are liable for attachment as properties equivalent in value to proceeds of crime, given the proceeds were siphoned off and not available. ii) The fourth immovable property, acquired after the offence period, is also liable for attachment as it was acquired from the proceeds of crime. iii) The provisional attachment order was validly passed in compliance with Section 5(1) of the PMLA, including the second proviso, based on sufficient material establishing possession of proceeds of crime and likelihood of alienation. Appeal dismissed. Three core issues were considered by the Appellate Tribunal in this appeal under Section 26 of the Prevention of Money Laundering Act, 2002 (PMLA):(i) Whether the first three immovable properties, acquired prior to the alleged commission of the scheduled offence, can be attached as proceeds of crime under the PMLA;(ii) Whether the fourth immovable property, acquired after the period of the alleged commission of the scheduled offence, can be attached;(iii) Whether the provisional attachment order was passed without compliance with the conditions stipulated under the second proviso of Section 5(1) of the PMLA.Issue (i): Attachment of properties acquired prior to the commission of the scheduled offenceThe relevant legal framework centers on the definition of 'proceeds of crime' under Section 2(1)(u) of the PMLA, which includes:'any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property.'The interpretation of this definition was extensively analyzed, with reliance on authoritative precedents including the Delhi High Court's decision in Prakash Industries Ltd. v. Directorate of Enforcement and the Supreme Court's ruling in Vijay Madanlal Chaudhary v. Union of India.The Tribunal noted that while properties acquired prior to the commission of the scheduled offence are generally not liable for attachment, there is a statutory provision allowing attachment of 'untainted property' equivalent in value to proceeds of crime where the actual tainted property cannot be traced or found. The Delhi High Court clarified that such attachment is permissible only if it is established that the accused had an interest in the property at least until the time of the criminal activity, and bona fide third-party rights acquired prior to the offence are protected.Applying these principles, the Tribunal observed that the appellant's proceeds of crime amounting to Rs. 20 lakhs were not available, having been siphoned off. Consequently, the attachment of properties of equivalent value, even if acquired prior to the offence, is justified under the second limb of the definition of proceeds of crime. The appellant's contention that the first three properties cannot be attached because they were acquired before the offence was rejected.The Tribunal further referred to the Supreme Court's emphasis that the definition of proceeds of crime is wide enough to include value-equivalent property held within or outside the country, thus reinforcing the legislative intent to recover the proceeds of crime effectively.Issue (ii): Attachment of the fourth property acquired post-offenceThe appellant argued that the fourth immovable property was acquired in 2016, well after the period of the scheduled offence (2008-2009), and hence could not be proceeds of crime. The appellant also contended that he was in judicial custody during the encashment of most cheques, except one dated 27.10.2008.The Tribunal analyzed the investigation findings which established that the appellant received Rs. 20 lakhs out of the total proceeds of crime amounting to Rs. 1.32 crores. The fourth property's acquisition after the offence period was held to be immaterial since the proceeds of crime were distributed to the appellant and could have been used to acquire this property.Thus, the attachment of the fourth property was upheld as valid, given that it was acquired from the proceeds of crime. The appellant's argument was rejected.Issue (iii): Compliance with conditions under second proviso of Section 5(1) of the PMLASection 5(1) empowers the Director or an authorized officer to provisionally attach property where there is reason to believe that a person is in possession of proceeds of crime and such property is likely to be concealed or dealt with to frustrate confiscation proceedings. The second proviso further allows immediate attachment if non-attachment is likely to frustrate proceedings.The Tribunal found that ample material existed on record, including statements recorded under Section 50 of the PMLA, documents, and investigation reports, to establish the appellant's involvement in money laundering and possession of proceeds of crime. There was a clear apprehension of alienation or disposal of the properties, justifying the provisional attachment.Accordingly, the Tribunal concluded that the conditions under Section 5(1), including the second proviso, were satisfied. The appellant was rightly considered a person in possession of proceeds of crime, and the attachment was not without compliance of the statutory requirements.Significant HoldingsOn the interpretation of 'proceeds of crime,' the Tribunal quoted the Delhi High Court:'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 Tribunal relied on the Supreme Court's observation:'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.'These principles establish that attachment of properties acquired prior to the offence is permissible if they are equivalent in value to the proceeds of crime and the tainted property cannot be traced, safeguarding the legislative purpose of effective recovery.The Tribunal's final determinations were:(i) The first three immovable properties, though acquired prior to the scheduled offence, are liable for attachment as properties equivalent in value to proceeds of crime, given the proceeds were siphoned off and not available;(ii) The fourth immovable property, acquired after the offence period, is also liable for attachment as it was acquired from the proceeds of crime;(iii) The provisional attachment order was validly passed in compliance with Section 5(1) of the PMLA, including the second proviso, based on sufficient material establishing possession of proceeds of crime and likelihood of alienation.The appeal was dismissed as devoid of merit, with a direction restraining the Enforcement Directorate from taking coercive steps during the trial except under exceptional circumstances, preserving the rights of the parties in the criminal proceedings.