Appellate Tribunal allows appeal against provisional attachment order in money laundering case citing flawed settlement deeds

The Appellate Tribunal under SAFEMA at New Delhi allowed an appeal challenging a provisional attachment order in a money laundering case. The case involved allegations of discounting forged cheques, forged inland bills, and fraudulent overdraft facilities against non-existent LIC policies causing bank losses. The Tribunal found that the respondents' reliance on settlement deeds was flawed as these contained signatures of only one party and were not executed by consenting parties. Witness statements revealed contradictions and failed to endorse each other's presence during alleged settlements. The police investigation resulted in a closure report finding no substance in allegations. The Tribunal noted that documentary evidence failed to substantiate cash transfers between the accused parties. Additionally, allegations of payment of Rs. 1.85 crores for agricultural land valued at only Rs. 39.11 lakhs were found erroneous. The Tribunal concluded that reliance on unenforceable settlement deeds was improper and allowed the appeal.

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ISSUES:

Whether the provisional attachment of properties under the Prevention of Money Laundering Act, 2002 (PMLA) was justified in the absence of direct connection of appellants with the commission of the predicate offence.Whether reliance on statements of the main accused recorded under Section 50(2) of the PMLA, particularly regarding alleged cash transactions, can justify attachment of properties when contradicted by documentary evidence.Whether the alleged settlement deeds between the main accused and a third party, not signed by both parties and disputed by appellants, can be relied upon to establish proceeds of crime and justify attachment.Whether the Adjudicating Authority formed the requisite "reasons to believe" under Section 8(1) of the PMLA for confirmation of provisional attachment.Whether properties acquired through declared and disclosed sources, including banking channels and withdrawal of capital from partnership firms, can be treated as proceeds of crime for attachment.Whether attachment of properties based solely on oral statements of an accused involved in ongoing litigation with the third party is sustainable.

RULINGS / HOLDINGS:

The provisional attachment of the appellants' properties was not justified as the appellants were not directly connected with the commission of the offence, and the properties were acquired from disclosed and legitimate sources.The Court held that reliance on the statement of the main accused under Section 50(2) of the PMLA, alleging cash repayment of amounts received through banking channels, was improper when contradicted by clear documentary evidence, including bank statements, showing no cash withdrawals or payments.The alleged settlement deeds, lacking signatures of both parties and witnesses, were held to be "not enforceable documents" and could not be relied upon to substantiate proceeds of crime or justify attachment.The Adjudicating Authority failed to demonstrate formation of "reasons to believe" under Section 8(1) of the PMLA, rendering confirmation of provisional attachment legally unsustainable.Properties acquired through withdrawal of capital from partnership firms and legitimate banking transactions could not be deemed proceeds of crime merely on the basis of uncorroborated oral statements or disputed allegations.Attachment based solely on the oral statement of an accused who had subsequently retracted allegations by affidavit and was embroiled in litigation with the third party was held to be unsustainable and contrary to judicial propriety.

RATIONALE:

The Court applied the statutory framework of the Prevention of Money Laundering Act, 2002, particularly Sections 8(1) and 50(2), which require "reasons to believe" and credible evidence to justify attachment of properties as proceeds of crime.The Court emphasized the primacy of documentary evidence over oral statements, especially when the latter are made by accused persons with possible ulterior motives, as demonstrated by the affidavit withdrawing previous statements.The judgment underscored that a "settlement deed" not signed by both parties and lacking witnesses cannot be treated as a valid instrument to establish the transfer of proceeds of crime.The Court noted the importance of judicial propriety and the need to respect closure reports accepted by competent courts, which negated the allegations underlying the attachment.This decision reflects a doctrinal insistence on rigorous scrutiny of evidence before confirming attachment under the PMLA, ensuring protection against arbitrary deprivation of property rights based on uncorroborated or dubious evidence.

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