2025 (6) TMI 1435 - AT - Money Laundering

ED's provisional attachment upheld as money laundering evidence found sufficient despite properties predating PMLA enforcement

Smt. Kusum Lata, Shri Yadav Singh and Kusum Garments Pvt. Ltd. Versus The Joint Director Directorate of Enforcement, Lucknow

The Appellate Tribunal under SAFEMA dismissed the appeal challenging ED's provisional attachment of properties in a money laundering case. The Tribunal ... Money Laundering - attachment of properties - ED did not conduct an independent investigation into the predicate offence - most of the immovable properties can be attached or not, being acquired prior to the enforcement of PMLA, as well as prior to the alleged commission of the scheduled offence - provisions of PC Act as predicate offence are applicable retrospectively or not - attachment was made without the compliance/ existence of the conditions as stated under the second proviso of Section 5(1) - fulfilment of requirements of Section 5(1)(a) & (b) or not. Whether the attachment needs to be set-aside, as Respondent ED has not conducted any independent investigation, qua the predicate offence? - HELD THAT:- ED is not required to conduct any investigation for the predicate offence. ED can only point out any glaring mistake, or lacunae in the said investigation conducted by police/CBI, which may come to its knowledge while conducting the investigation under PMLA. However, ED cannot arrive at different conclusion qua the predicate offence and quantum of fraud/POC, while conducting investigation for PMLA, as it is not a supervisory investigating agency. Thus, this contention is decided against the appellants, as no independent investigation is required to be made by the ED, to assess the quantum of DA. Whether most of the immovable properties cannot be attached, being acquired prior to the enforcement of PMLA, as well as prior to the alleged commission of the scheduled offence? - Whether the provisions of PC Act as predicate offence are applicable retrospectively, since the offence of disproportionate assets punishable under Section 13 (2) of PC Act,1988 was inserted in the schedule to the PMLA, 2002, w.e.f. 01.06.2009, but most of the disproportionate assets were acquired/purchased much prior to the said amendment? - HELD THAT:- The period of commission of the schedule offence is from 01.04.2004 to 04.08.2015. The contention of the Ld. Counsel for the appellants that the properties acquired prior to the coming into force of PMLA w.e.f. 01.07.2005 and amendment of the schedule w.e.f. 01.06.2009 and hence, the most of the properties are not covered within the definition of proceeds of crime is devoid of any merits. The relevant date is a date when the tainted property is projected to be untainted and as a consequence to it, the ECIR is recorded showing offence under Section 3 of the 2002 Act. The relevant date to find out the scheduled offence and the offence of money laundering is when it is projected to be untainted property to make out an offence under section 3 of the Act of 2002 - The relevant date to find out offence of money laundering is when proceeds is projected to be untainted property. 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, (on account of high expenditure out of the ill- gotten money) 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 - the issues are decided against the Appellants and in favour of the Respondent ED. Whether the attachment was made without the compliance/ existence of the conditions as stated under the second proviso of Section 5(1)? - Whether requirements of Section 5(1)(a) & (b) are not fulfilled independent of and in conjunction before attaching the properties? - 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 being found in possession of disproportionate assets and thereby utilizing the illicit money for purchase of the impugned properties. The appellant has also not been able to prove his legal sources of income to acquire the impugned properties being found disproportionate to his known sources of income. The explanation and defence taken by the appellants are apparently without any basis and the same is apparently an afterthought strategy, as he has not informed his department regarding the extra income of his family members and friendly loans, as per relevant CCS Conduct Rules applicable to him. Moreover, there is apparent apprehension of alienation of these properties seeing the fact that after registration of the FIR by CBI, the Respondent ED also recorded ECIR for conducting investigation for the offence of money laundering. 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) - issues decided against the appellant and in favour of Respondent ED. Conclusion - i) No independent investigation by the ED into the predicate offence was necessary. ii) The provisions of the PC Act as predicate offences apply for the purpose of money laundering irrespective of the date of acquisition of assets, and the attachment of properties acquired prior to the PMLA enforcement was valid. iii) The conditions under the second proviso of Section 5(1) were fulfilled, and the requirements of clauses (a) and (b) were met independently and in conjunction, justifying the provisional attachment. Appeal dismissed. The core legal questions considered by the Tribunal in this matter are as follows:i) Whether the attachment of properties by the Enforcement Directorate (ED) requires setting aside on the ground that ED did not conduct an independent investigation into the predicate offenceRs.ii) Whether immovable properties acquired prior to the enforcement of the Prevention of Money Laundering Act (PMLA), 2002, and prior to the alleged commission of the scheduled offence, can be attachedRs.iii) Whether the provisions of the Prevention of Corruption (PC) Act, 1988, as predicate offences, apply retrospectively, given that the offence of disproportionate assets under Section 13(2) PC Act was inserted in the schedule to the PMLA only with effect from 01.06.2009, while most alleged disproportionate assets were acquired earlierRs.iv) Whether the attachment was made without compliance with or existence of the conditions stipulated under the second proviso of Section 5(1) of the PMLARs.v) Whether the requirements of Section 5(1)(a) and (b) of the PMLA were fulfilled independently and in conjunction before attaching the propertiesRs.Issue-wise Detailed AnalysisIssue i): Necessity of Independent Investigation by ED into Predicate OffenceThe Tribunal examined whether the ED was obligated to conduct an independent investigation into the predicate offence of disproportionate assets under the PC Act, or whether it could rely solely on the investigation conducted by the CBI.The legal framework clarified that the police or CBI is the competent agency to investigate the predicate offence under the relevant penal statutes. The ED's role under the PMLA is limited to investigating the offence of money laundering, which is distinct and independent from the predicate offence. The ED's investigation focuses on:Prima facie incriminating evidence for the scheduled offence;Quantum of proceeds of crime generated;Whether proceeds of crime are laundered or likely to be laundered;Mode of layering or trail of proceeds of crime;Identification of other properties that can be attached if proceeds are dissipated;Verification of genuineness of claimants of attached properties.The Tribunal emphasized that the ED is not a supervisory agency over the police or CBI and is not empowered to re-investigate the predicate offence or arrive at conclusions contrary to the investigating agency. The ED may, however, highlight glaring lacunae in the investigation if discovered during its inquiry.Accordingly, the Tribunal held that no independent investigation by the ED into the predicate offence was necessary and rejected the appellants' contention on this issue.Issues ii) & iii): Attachment of Properties Acquired Prior to Enforcement of PMLA and Retrospective Application of PC Act ProvisionsThe appellants contended that properties acquired before the enforcement of the PMLA (01.07.2005) and prior to the insertion of disproportionate assets offence in the schedule (01.06.2009) could not be attached as proceeds of crime.The Tribunal rejected this contention, relying on authoritative precedents and statutory interpretation. It was held that the relevant date for determining the offence of money laundering is the date on which the property is projected as untainted or the act of money laundering is committed, not the date of commission of the predicate offence.The Tribunal referred to several key judgments, including:A High Court decision holding that Article 20 of the Constitution prohibits conviction only for offences in force at the time of commission, but the offence of money laundering is independent and continuous, and prosecution depends on the date of laundering, not the predicate offence.A Telangana High Court ruling affirming that money laundering is a continuing offence and possession or concealment of proceeds of crime after the predicate offence is prosecutable.The Supreme Court's ruling in Vijay Madanlal Chaudhary v. Union of India, which clarified that money laundering is an independent offence relating to proceeds of crime derived from scheduled offences, and the offence may be committed even after the predicate offence, including projecting property as untainted.The Tribunal also analyzed the definition of 'proceeds of crime' under Section 2(1)(u) of the PMLA, noting that it includes property obtained directly or indirectly from criminal activity, as well as the value of such property, including property equivalent in value held within or outside the country.It was held that even properties acquired prior to the enforcement of the PMLA may be attached if they are equivalent in value to proceeds of crime that cannot be traced or have been dissipated. The Tribunal relied on the principle that where the actual tainted property is not found, properties of equivalent value may be attached to satisfy the objectives of the PMLA.Thus, the Tribunal concluded that the provisions of the PC Act as predicate offences apply for the purpose of money laundering irrespective of the date of acquisition of assets, and the attachment of properties acquired prior to the PMLA enforcement was valid.Issues iv) & v): Compliance with Conditions under Section 5(1) of the PMLASection 5(1) of the PMLA authorizes provisional attachment of property if the Director or an authorized officer has reason to believe, recorded in writing, that:(a) A person is in possession of proceeds of crime;(b) Such proceeds are likely to be concealed, transferred, or dealt with in a manner frustrating confiscation proceedings.The provisos require that a report or complaint under Section 173 CrPC has been forwarded or filed regarding the scheduled offence, or that immediate attachment is necessary to prevent frustration of proceedings.The Tribunal found ample evidence from the investigation establishing the appellant's possession of disproportionate assets disproportionate to known sources of income, without satisfactory explanation or disclosure to the department as required under CCS Conduct Rules.There was also a prima facie apprehension of alienation or concealment of the properties, especially given the ongoing criminal proceedings and the recording of ECIR by the ED.Consequently, the Tribunal held that the conditions under the second proviso of Section 5(1) were fulfilled, and the requirements of clauses (a) and (b) were met independently and in conjunction, justifying the provisional attachment.Significant Holdings'The police/CBI has to conduct the investigation for the commission of the predicate/schedule offence and ED is not empowered to re-investigate the same. It has to see only the following points during its investigation for money laundering... ED cannot arrive at different conclusion qua the predicate offence and quantum of fraud/POC, while conducting investigation for PMLA, as it is not a supervisory investigating agency.''The relevant date to find out the scheduled offence and the offence of money laundering is when it is projected to be untainted property to make out an offence under section 3 of the Act of 2002... The offence of money laundering is a continuing offence... The relevant date is the date on which the person indulges in the process or activity connected with such proceeds of crime.''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... the property equivalent in value held within the country or abroad can be proceeded with.''There is ample evidence available from the investigation against the appellant regarding the commission of offence of money laundering being found in possession of disproportionate assets... The appellant has also not been able to prove his legal sources of income... The explanation and defence taken by the appellants are apparently without any basis and the same is apparently an afterthought strategy.''The conditions as stated under the second proviso of Section 5(1) are fulfilled... The appellant 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).'In conclusion, the Tribunal dismissed the appeals as devoid of merits, affirming the attachment orders and confirming that nothing in the decision affects the parties' rights during the criminal trials.