2025 (7) TMI 80 - AT - Money Laundering

Company granted liberty to challenge money laundering proceeds calculation before Special Judge after Tribunal declines quantification adjudication

The Appellate Tribunal under SAFEMA disposed of appeals challenging a Provisional Attachment Order related to money laundering proceeds of crime. The ... Money Laundering - proceeds of crime - Provisional Attachment Order - period of offence - increase of production beyond the sanctioned limit. HELD THAT:- The first issue raised by the appellant is with respect to the period of offence limited to May, 2009 to August, 2010, but the respondent ED is stated to quantified the POC even prior to May, 2009 and after August, 2010. Seeing the fact that prosecution complaint under Section 4 r/w Section 3 is already filed by Respondent ED before Ld. Special Judge, PMLA Court, Jaipur, the appellant company can raise this issue before the said trial court at the time of arguments on charge, as the charges are yet to be framed in PMLA case. Now, coming to the issue whether the proceeds of crime need to be quantified on the basis of excess production and earning of excess profit thereby, or whether it should be calculated on the basis of the loss caused to the environment or the expenses to restore the environment on account of pollution. This issue of quantification is a contentious issue to be decided by Ld. Special Judge, PMLA Court, in absence of any judicial precedent or statutory provision on this aspect and we are not inclined to adjudicate on this issue. Accordingly, the appeal needs to be disposed of with liberty to raise this material issue during the trial of prosecution complaint under PMLA. The present appeals are hereby disposed of with liberty to appellant company to raise all the material issues before Ld. Special Judge, PMLA Court, Jaipur. The core legal questions considered by the Appellate Tribunal under SAFEMA in this matter include:1. Whether the property attached by the Enforcement Directorate (ED) as proceeds of crime (POC) under the Prevention of Money Laundering Act, 2002 (PMLA) was rightly attached, considering the allegations of excess production and environmental violations by the appellant company.2. The appropriate period for quantifying the alleged offence of excess production and corresponding proceeds of crime.3. The correct method for quantification of proceeds of crime in environmental violation cases-whether it should be based on excess production and resultant profits or on the environmental loss and restoration costs.4. Whether the property attached by ED, purchased prior to the alleged offences, can be subject to attachment as proceeds of crime.5. The rights of the secured creditor bank over the mortgaged property in light of the attachment by ED.Issue-wise detailed analysis:1. Validity and scope of attachment of property as proceeds of crime under PMLA:The legal framework includes the Prevention of Money Laundering Act, 2002, which permits attachment of property believed to be proceeds of crime. The Environmental (Protection) Act, 1986, the Water (Prevention and Control of Pollution) Act, 1974, and the Air (Prevention and Control of Pollution) Act, 1981, along with their amendments and notifications, provide the environmental regulatory framework violated by the appellant.The appellant company was granted environmental clearances and consents to establish and operate a grain-based distillery unit with a production limit of 45,000 liters per day of Rectified Spirit (RS). Inspections by the Rajasthan State Pollution Control Board (RSPCB) and Ministry of Environment and Forests revealed violations, including production beyond the sanctioned limit (up to 65,000 liters per day), improper operation of the Effluent Treatment Plant (ETP), and discharge of untreated effluent, contravening environmental laws.The Enforcement Directorate initiated investigation under PMLA based on these predicate offences, calculated proceeds of crime by quantifying excess production and resultant profits, and provisionally attached the appellant's property.The Adjudicating Authority confirmed the attachment, and the appellant challenged this order before the Appellate Tribunal.The Court noted that the allegations in the prosecution complaints filed by RSPCB pertain to violations under the Environment (Protection) Act and Water (Prevention and Control of Pollution) Act, including excess production without clearance and environmental pollution. However, the trial on these allegations is pending, and the Appellate Tribunal cannot pre-judge the commission of offences.The Court observed that the attachment was made on the basis of the investigation and calculation of proceeds of crime by ED, which was contested by the appellant on grounds of miscalculation and the period of offence.2. Period of offence and quantification of proceeds of crime:The appellant contended that the period of alleged offence was limited to May 2009 to August 2010, as per the complaints and inspections. They argued that ED's calculation of proceeds of crime included periods prior to May 2009 and after August 2010, which were not part of the predicate offence.The appellant also pointed out that the RSPCB had granted permissions for increased production at various times, and the complaints did not allege excess production beyond the sanctioned limits during certain periods. They argued that the ED's method of calculating excess production and profits was erroneous and not supported by the prosecution complaints.The Court acknowledged these contentions but held that the issue of the correct period and quantification of proceeds of crime is a material issue to be determined during the trial before the Special Judge, PMLA Court. The Tribunal refrained from adjudicating on this issue at the appellate stage.3. Method of quantification of proceeds of crime in environmental offences:The appellant argued that the proceeds of crime should be quantified based on actual environmental loss or the expenses required to restore the environment, rather than on a notional calculation of excess production and profit. They contended that the prosecution complaints did not allege any pecuniary loss or claim for environmental restoration costs.The ED countered that the excess production beyond permitted limits, coupled with inadequate pollution control measures, constituted the basis for calculating proceeds of crime as excess profits earned illegally.The Tribunal observed that this is a contentious issue lacking judicial precedent or statutory guidance. It declined to decide on the appropriate method of quantification at this stage, leaving it to the trial court to determine after considering evidence and legal arguments.4. Attachment of property purchased prior to the alleged offences:The appellant contended that the immovable property attached was purchased in 2005, before the installation of the manufacturing unit and prior to the alleged offences. Therefore, it cannot be treated as proceeds of crime.The Tribunal noted this submission but did not expressly decide on this issue. It allowed the appellant liberty to seek substitution of the attached property by way of continuation of fixed deposits or other security, as per an earlier order, if desired. Otherwise, the attachment would continue till the conclusion of trial.5. Rights of the secured creditor bank over the mortgaged property:The bank, holding the mortgage over the attached property as collateral security for credit facilities granted to the appellant company, submitted that it has a first charge over the property under the SARFAESI Act, 2002, and the attachment by ED should not affect its rights.The Tribunal clarified that the outcome of the PMLA trial and attachment will not affect the bank's right to realize its dues or to file claims before the Special Judge, PMLA Court, as per law.Treatment of competing arguments and conclusions:The Tribunal carefully considered the appellant's arguments regarding the period of offence, the method of quantification of proceeds of crime, and the validity of attachment of property purchased prior to alleged offences. It also considered the ED's submissions on the correctness of the investigation and attachment.The Tribunal declined to adjudicate on disputed factual and legal issues that are pending trial, such as the exact period of offence, the correctness of calculation of proceeds of crime, and the method of valuation. It emphasized that these issues are to be decided by the Special Judge, PMLA Court, during trial.The Tribunal disposed of the appeals with liberty to the appellant to raise all material issues before the trial court. It clarified that the attachment order would continue unless the appellant opts for substitution of the property with fixed deposits as allowed earlier. It also protected the bank's rights over the mortgaged property.Significant holdings and principles established:'The allegation mentioned in the said prosecution complaint filed by RSPCB are yet to be decided by the Trial Court on the basis of incriminating evidence recorded during the trial and this Tribunal cannot assess the commission of said offences with respect to the violations mentioned therein.''The issue whether the proceeds of crime need to be quantified on the basis of excess production and earning of excess profit thereby, or whether it should be calculated on the basis of the loss caused to the environment or the expenses to restore the environment on account of pollution... is a contentious issue to be decided by Ld. Special Judge, PMLA Court, in absence of any judicial precedent or statutory provision on this aspect and we are not inclined to adjudicate on this issue.''It is made clear that nothing expressed herein will affect the right of the either party during the trial.''The outcome of the trial in prosecution complaint case pertaining to money laundering will not affect the right of the appellant bank in any manner whatsoever to realise its dues qua the mortgaged property and file its claim before Ld. Special Judge, PMLA Court, Jaipur, as per law.'In conclusion, the Tribunal upheld the attachment order subject to trial court adjudication on the disputed issues, allowed substitution of attached property by fixed deposits if desired, and preserved the rights of the secured creditor bank. The appeals were disposed with liberty to raise all material issues during trial, emphasizing that the appellate forum is not the appropriate venue to decide factual disputes or complex quantification issues pending before the trial court.