2025 (7) TMI 1081 - AT - Money Laundering

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 ... Money Laundering - challenge to provisional attachment order - discounting of forged cheques, discounting of forged inland bills and availing overdraft facility against non- existent LIC policies caused huge loss to the bank with dishonest intention - reliance placed upon statement of the witnesses recorded under Section 50(2) of PMLA 2002 and two settlement deeds - HELD THAT:- The counsel for the respondents could not clarify how reliance on a settlement deed not executed by the consenting parties could have been made. If there would have been settlement between the two parties, there was no reason that the deed would contain signature only of one party leaving other. It is further found that contradictions in the statement of the witnesses which has been largely reflected by the counsel for the appellants because if the statement of all the witnesses is taken together, not only contradiction is revealed but even witnesses have not been endorsed presence of others at the time of alleged settlement and vice versa. The aforesaid is not end of the issue in reference to the settlement deed, rather based on the settlement deed, an FIR was lodged by the relative of main accused Shankar Lal Khandelwal, namely, Tikkam Khandelwal. Therein, statements of Shankar Lal Khandelwal and Tikkam Khandelwal were recorded by the police during the course of investigation. The police after its investigation filed the closure report finding no substance in the allegation - It is quite surprising that the respondents have relied on the document based on the statement of the witnesses. Even if the settlement is taken into consideration, Shri Khandelwal had taken loan from Navrattan Lal Agarwal and in settlement agreed to return the amount which cannot be said to be a crime. As against the documentary evidence, the respondents failed to produce any evidence to show that Shankar Lal Khandelwal had passed on cash amount to Navrattan Lal Agarwal thus attachment of the property in reference to purchase of Flat No. 302, III Floor, Guman Heights Complex, Jaipur could not be substantiated by the respondents. It was also alleged that accused Shankar Lal Khandelwal made payment of Rs. 1.85 Crores to Navrattan Lal Agarwal for purchase of agriculture land in Village Machwa, Kalwar Road, Jaipur from Rajpal Yadav and Shyam Lal Yadav. The allegation was made in ignorance of the value of the property. It was having value of Rs. 39.11 Lakhs and for purchase of which, transaction was entered with Shyam Lal Yadav and Mukesh Agarwal where advance payment of Rs. 7.11 Lakhs was made in April, 2005 - It may be true that accused has to defend his case and produce the evidence but the appellants are not accused in the case but Section 24 of the Act of 2002 would apply to them also. However, allegation for payment of Rs. 1.85 Crores for a land valued at Rs. 39.11 Lakhs becomes erroneous on the face of record. It is further a fact that the main accused Shankar Lal Khandelwal alleged to have passed on Rs. 7.5 Crores and Rs. 7.75 Crores to Navrattan Lal Agarwal in pursuance to the settlement to repay the loan amount taken by Shankar Lal Khandelwal. The cash and jewellery out of it was taken out of the proceeds of crime without realizing that settlement deeds were not found enforceable and, therefore, FIR in reference to it resulted in closure of the case yet against judicial propriety, the respondents have relied on the deeds which cannot be accepted to be just and proper. There are reason to cause interference in the impugned orders - appeal allowed. 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.