Appellate Tribunal upholds property attachment in scholarship fund money laundering case despite appellants' challenge

The Appellate Tribunal under SAFEMA at New Delhi dismissed an appeal challenging property attachment orders in a money laundering case involving large-scale misappropriation of scholarship funds. The appellants contended that no prosecution complaint was filed within 365 days and that they had no direct link to the alleged offence. The Tribunal held that attachment proceedings protect property until investigation and trial conclusion, and since a prosecution complaint was already filed, releasing properties would render proceedings nugatory. The Tribunal found sufficient evidence linking the first appellant to money laundering, including his admission regarding fund sources from the consultancy company. The appeal was dismissed with confirmation of the attachment orders.

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The core legal questions considered by the Appellate Tribunal under the Prevention of Money Laundering Act (PMLA), 2002, in these appeals are:

1. Whether the Enforcement Directorate (ED) was justified in retaining the seized properties, documents, digital records, and bank accounts of the appellants beyond 365 days, especially given the delay in filing the prosecution complaint (PC) after the impugned order.

2. Whether the appellants were involved in the commission of the scheduled offence of money laundering and whether there was sufficient evidence to establish a direct link between the appellants and the proceeds of crime.

3. Whether the Adjudicating Authority validly recorded the "reason to believe" required under the PMLA for confirmation of the provisional attachment order (PAO) and retention of the seized properties.

Issue 1: Validity of Retention of Seized Properties Beyond 365 Days and Delay in Filing Prosecution Complaint

The relevant legal framework includes Section 8(3) of the PMLA, which permits the provisional attachment of property involved in money laundering for a maximum period of 365 days, subject to confirmation by the Adjudicating Authority. The appellants contended that the ED failed to file the prosecution complaint within 365 days from the order dated 13.02.2024, as the PC was filed only on 28.03.2025, thus rendering the retention of the seized properties illegal.

The Court noted that the purpose of attachment proceedings under the PMLA is to protect the property involved in the offence until the conclusion of investigation and trial. The Court emphasized that the seized properties were included in the list of properties for confiscation in the prosecution complaint. Therefore, the filing of the prosecution complaint, even if delayed, does not invalidate the retention of the properties. The Court further observed that allowing release of the properties at this stage would render the investigation and trial infructuous, as the government would be unable to confiscate the properties if the accused are convicted.

The Court distinguished this from previous limited provisions under the Criminal Amendment Ordinance, 1944, and Sections 451 and 452 of the CrPC, highlighting the broader scope and intent of the PMLA to protect proceeds of crime through attachment until trial conclusion.

Thus, the Court rejected the appellants' contention that delay in filing the prosecution complaint invalidated the retention of the seized properties.

Issue 2: Involvement of Appellants in the Scheduled Offence and Link to Proceeds of Crime

The appellants argued that they were not involved in the alleged offences, were not named in the predicate offence chargesheets, and that no direct link was established between them and the proceeds of crime. They also submitted that they had cooperated by furnishing financial details and tax records.

The Court analyzed the evidence collected by the ED and CBI, including statements recorded under Section 17 of the PMLA, which revealed admissions by the appellants regarding receipt of funds from the proceeds of the fraudulent scholarship scheme. Specifically:

• Appellant 1 admitted that money received in his bank account originated from withdrawals from M/s ITFT Consultancy Pvt. Ltd., which ran the implicated institute.
• Appellant 3 admitted receiving Rs. 1.92 crore from ITFT Consultancy Pvt. Ltd. for services but failed to provide documentary evidence.
• Appellant 4 admitted receiving remuneration from ITFT Consultancy Pvt. Ltd. without formal appointment.

Further, the investigation revealed that scholarship funds disbursed to students were diverted fraudulently to private institutes' accounts and subsequently to the appellants' accounts, without students' knowledge or consent. The Court held that possession of proceeds of crime by any person, even if not named in the predicate offence or prosecution complaint, falls within the scope of Section 5(1) of the PMLA.

The Court relied on binding Supreme Court precedents, including:

• Union of India v. J.P. Singh, which clarified that the complaint under Section 44 of the PMLA relates to the offence and not necessarily to the accused named, and that attachment can be made even if the person is not shown as accused in the complaint.
• Vijay Madanlal Choudhary and Ors. vs. Union of India, which established that the PMLA's objective is to attach and confiscate proceeds of crime irrespective of whether the person is an accused in the predicate offence, thereby extending the attachment to any person involved in the proceeds of crime.

The Court concluded that the attachment of property in possession of the appellants was not arbitrary and was justified based on the incriminating material and admissions.

Issue 3: Recording of "Reason to Believe" by the Adjudicating Authority for Confirmation of PAO

The appellants contended that the Adjudicating Authority failed to record any reasonable grounds or "reason to believe" for confirming the provisional attachment order and retention of properties.

The Court examined the role of the Adjudicating Authority, which is to form an initial opinion on the existence of "reason to believe" that the property is involved in money laundering offences, based on the material submitted by the investigating agency.

The Court referred to the judgment in Pay Perform India Private Limited vs. Union of India, which held that the Adjudicating Authority's primary function is to form a "proper and fair opinion" on the existence of reason to believe, and thereafter confirm the attachment until disposal of the case by the Special Court.

The Court found that the Adjudicating Authority had validly recorded a prima facie case against the appellants and had sufficient incriminating material to justify the retention of the properties. Therefore, the contention of the appellants was rejected.

Significant Holdings and Core Principles

"The purpose of the attachment proceedings is to protect the property, till the conclusion of the investigation of the offence of money laundering and after filing of prosecution complaint, till the conclusion of trial."

"There is no dispute that the complaint is based on ECIR dated 17th March, 2017 in which the respondent was shown as one of the accused. Moreover, clause (a) will apply during the continuation of the proceedings relating to an offence under the PMLA in a Court. ... It is not necessary for the applicability of clause (a) that the person affected by the order under Section 8(3) must be shown as an accused in the complaint."

"The sweep of Section 5(1) is not limited to the Accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being Accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime."

"The primary function of the Adjudicating Authority is to form an initial opinion as to existence of the 'reason to believe' that an offence that whether the property is involved in the offence of money laundering and thereafter to make the order of attachment absolute, until the disposal of the case by the Special Court."

The Tribunal dismissed the appeals, holding that:

• The delay in filing the prosecution complaint beyond 365 days did not invalidate the retention of seized properties, as the purpose of attachment is to protect the property until trial conclusion.
• The appellants were found to be in possession of proceeds of crime and the attachment was justified even though they were not named in the predicate offence chargesheets or prior prosecution complaints.
• The Adjudicating Authority properly recorded the reason to believe for confirming the provisional attachment order.
• No coercive action shall be taken against the appellants' frozen accounts without the Trial Court's permission or trial conclusion.

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