SAFEMA Tribunal upholds provisional attachment orders under PMLA despite owners not being accused in predicate offences

The Appellate Tribunal under SAFEMA dismissed the appeal challenging provisional attachment orders under PMLA. The Tribunal held that properties can be attached even when owners are not named as accused in predicate offences, and that the relevant date for money laundering is when tainted property is projected as untainted, regardless of PMLA's enforcement date. ED's actions were found compliant with procedural requirements, including freezing accounts beyond 30 days through provisional attachment orders rather than Section 17(4) applications. The appellants failed to prove legitimate sources of income for attached properties, and all procedural challenges were rejected in favor of ED.

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1. ISSUES PRESENTED and CONSIDERED

The Appellate Tribunal considered the following core legal questions:

i) Whether FIRs registered before 01.07.2005, the date of enforcement of the Prevention of Money Laundering Act, 2002 (PMLA), can be considered for calculating the quantum of proceeds of crime under the PMLARs.

ii) Whether properties owned by appellants, who are not named as accused in any FIR or charge-sheet under Section 173 Cr.P.C., can be attached under the PMLARs.

iii) Whether the attached properties were legitimately acquired by the appellants from lawful sources and not from proceeds of crimeRs.

iv) Whether the police have the authority to take physical possession of vehicles attached by the Enforcement Directorate (ED) under the PMLARs.

v) Whether the possession of attached properties was taken in violation of Rule 4(1) of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by The Adjudicating Authority) Rules, 2013Rs.

vi) Whether freezing of bank accounts can continue beyond 30 days without an application under Section 17(4) of the PMLARs.

vii) Whether freezing of accounts can be effected only under Section 17(1A) of the PMLA and not under Section 5(1)Rs.

viii) Whether there was any violation of Rules 8 and 9 of The Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the Manner of forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005Rs.

ix) Whether an order confirming attachment under Section 8(3) of the PMLA can be passed without a prior order under Section 8(2)Rs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue i: Consideration of FIRs registered before 01.07.2005 for calculating proceeds of crime

The appellants contended that since five out of six FIRs identified by the ED pertained to offences committed before the PMLA came into force on 01.07.2005, the provisions of the PMLA should not apply to them. They argued that offences committed prior to the Act's enforcement cannot be the basis for attachment under PMLA.

The Tribunal referred to authoritative precedents, including Dyani Antony Paul v. Union of India and Vem Krishna Keerthan v. Directorate of Enforcement, which clarified that the offence of money laundering is a continuing offence and is independent of the date of commission of the predicate scheduled offence. The relevant date for determining money laundering is when the proceeds of crime are projected as untainted property or are dealt with in a manner connected to proceeds of crime.

The Tribunal also relied on the Supreme Court judgment in Vijay Madanlal Chaudhary v. Union of India, which stated that the offence under Section 3 of PMLA concerns the process or activity connected with proceeds of crime, irrespective of when the predicate offence was committed. The offence of money laundering can be committed even after the scheduled offence if the accused continues to possess or deal with proceeds of crime.

Applying this legal framework, the Tribunal held that the date of commission of the scheduled offences is not determinative; rather, the relevant date is when the accused indulges in activities connected with the proceeds of crime. Therefore, FIRs registered before 01.07.2005 can be considered for calculating proceeds of crime if the money laundering activities occurred after the Act's enforcement.

This issue was decided against the appellants and in favor of the respondent ED.

Issue ii: Attachment of properties of persons not named as accused in FIR or charge-sheet

The appellants argued that since they were neither named as accused in any FIR nor in charge-sheets, their properties should not be attached under the PMLA.

The Tribunal referred to the Supreme Court's ruling in Vijay Madanlal Chaudhary, which clarified that Section 5(1) of the PMLA is not limited to accused persons named in predicate offences. The section applies to any person involved in any process or activity connected with proceeds of crime, regardless of whether they are named in the FIR or charge-sheet.

The Court emphasized the broad objective of the PMLA to attach and confiscate proceeds of crime, irrespective of the person holding the property. Hence, properties held by persons not named as accused can be attached if they are involved with proceeds of crime.

The Tribunal accordingly rejected the appellants' contention and upheld the attachment.

Issue iii: Whether attached properties were acquired from legitimate sources

The appellants claimed that the attached properties were purchased from legitimate sources such as agricultural income, transport business earnings, and loans from banks and friends. They contended that no incriminating evidence was produced against them.

The Tribunal noted the absence of any documentary evidence such as income tax returns, bank statements, or loan documents to substantiate the appellants' claim of legitimate acquisition. In the absence of such proof, the Tribunal was not inclined to accept the appellants' contentions.

The Court observed that the appellants remain free to lead their defence during the criminal trials but that the material on record justified the attachment.

This issue was decided against the appellants and in favor of the ED.

Issues iv and v: Authority of police to take physical possession and compliance with Rule 4(1) of 2013 Rules

The appellants contended that the police had no authority to take physical possession of the vehicles attached by the ED and that such possession was taken in violation of Rule 4(1) of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by The Adjudicating Authority) Rules, 2013, which mandates that the authorized officer shall take physical possession and deposit the property in a warehouse or storage place.

The Tribunal examined Rule 4(1) and found no explicit prohibition against the ED directing local police to take physical possession of movable attached property. The appellants failed to demonstrate how the Rule was violated.

The Tribunal concluded that the police taking possession at the ED's instance was lawful and did not contravene the Rules.

These issues were decided against the appellants and in favor of the ED.

Issues vi and vii: Continuation of freezing of accounts beyond 30 days and applicable provisions for freezing

The appellants argued that freezing of accounts could only be done under Section 17(1A) of the PMLA and not under Section 5(1), and that freezing could not continue beyond 30 days without an application under Section 17(4).

The Tribunal analyzed Section 17(4), which requires that an application for retention or continuation of freezing be filed within 30 days. However, the Tribunal noted that Sections 20 and 21 of the PMLA permit retention of seized or frozen property and records for up to 180 days if the authorized officer has reason to believe such retention is necessary for adjudication.

Therefore, filing an application under Section 17(4) is not the sole method to retain frozen property; the ED can retain property under Sections 20 and 21 for adjudication purposes.

In the present case, the ED passed the Provisional Attachment Order (PAO) and filed the Original Complaint for confirmation within the prescribed period, complying with the procedural requirements.

Accordingly, the Tribunal held that the freezing and retention of accounts and properties were lawful and in conformity with the PMLA.

These issues were decided against the appellants and in favor of the ED.

Issue viii: Alleged violation of Rules 8 and 9 of the 2005 Rules

The appellants alleged violations of Rules 8 and 9 of The Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the Manner of forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005.

The Tribunal observed that the appellants failed to specify how these Rules were violated. In the absence of any contrary proof, the Court invoked the presumption under Section 114(e) of the Indian Evidence Act, 1872, that official acts have been regularly performed.

The Tribunal thus rejected the contention of violation of these Rules.

This issue was decided against the appellants and in favor of the ED.

Issue ix: Whether confirmation order under Section 8(3) can be passed without an order under Section 8(2)

The appellants contended that the Adjudicating Authority erred in confirming the PAO under Section 8(3) without passing an order under Section 8(2).

The Tribunal examined Section 8(2), which requires the Adjudicating Authority to consider replies, hear parties, and record a finding whether any of the properties are involved in money laundering. The proviso mandates giving an opportunity to persons claiming the property.

The Tribunal found that the ED had complied with the procedural requirements by issuing the PAO on reasonable belief, filing the Original Complaint, and recording statements of the appellants under Section 50 of the PMLA. The proviso to Section 8(2) was duly complied with.

Therefore, the confirmation order under Section 8(3) was validly passed following the procedure under Section 8(2).

This issue was decided against the appellants and in favor of the ED.

3. SIGNIFICANT HOLDINGS

The Tribunal established several core principles and made key determinations as follows:

"The relevant date to find out the offence of money laundering is when the proceeds is projected to be untainted property. The offence of money laundering is a continuous offence. The date of commission of the scheduled offence may not be relevant to prosecute a person for the offence of money laundering at a later point of time."

"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."

"In absence of any documentary evidence tendered by the appellant to prove legitimate acquisition, the claim that properties were purchased from legal sources cannot be accepted."

"Rule 4(1) of the 2013 Rules does not prohibit the ED from directing local police to take physical possession of attached movable property."

"Sections 20 and 21 of the PMLA allow retention of seized or frozen properties for up to 180 days for adjudication purposes, and filing an application under Section 17(4) is not the only course for continuation of freezing."

"In absence of any proof to the contrary, official acts including compliance with Rules 8 and 9 of the 2005 Rules are presumed to be regularly performed."

"The Adjudicating Authority's confirmation order under Section 8(3) is valid where procedural requirements under Section 8(2) have been complied with, including opportunity to the person claiming the property."

Based on these principles, the Tribunal dismissed the appeals, affirming the attachment and confirming the orders of the Adjudicating Authority. The appellants were granted liberty to apply for release of vehicles subject to deposit of fixed deposit receipts equivalent to their insured values or for the ED to notify financiers for auction and deposit of excess amounts, safeguarding financiers' interests.

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