Nine family members lose challenge to provisional attachment orders for properties linked to money laundering proceeds

The Appellate Tribunal under SAFEMA at New Delhi dismissed appeals by nine family members challenging provisional attachment orders under money laundering provisions. The appellants, including spouses, daughters-in-law, sons, and grandchildren of the main accused Shri Devki Nandan Garg, failed to establish legitimate sources for their property acquisitions and financial transactions. The Tribunal found that properties purchased by housewives without independent income, gifts to grandchildren, and various financial transfers were proceeds of crime being layered through family members. Statements recorded under Section 50(2) of the 2002 Act supported the attachment orders. The appellants could not provide bank statements, income proof, or credible explanations for substantial property purchases and fund accumulations. The Tribunal concluded all properties and accounts were rightfully attached as they originated from proceeds of crime, with transfers designed to evade attachment by placing assets in relatives' names.

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ISSUES:

Whether the provisional attachment of movable and immovable properties under the Prevention of Money Laundering Act, 2002 (PMLA) was justified based on the formation of "cogent reasons to believe" that such properties are proceeds of crime.Whether the appellants, being relatives of the accused, lawfully acquired the attached properties through legitimate sources or whether these properties represent proceeds of crime.Whether mere filing of income tax returns or disclosure of source of funds absolves the appellants from the allegation of possession of proceeds of crime under PMLA.Whether statements recorded under Section 50(2) of the PMLA Act of 2002 can be relied upon to form the basis for attachment orders.Whether procedural irregularities, such as non-provision of statements before issuance of show-cause notices or provisional attachment orders, affect the validity of the attachment.Whether gifts and loans among family members, when linked to proceeds of crime, can be treated as layering and projection of proceeds of crime as untainted property.Whether properties acquired prior to the commission of scheduled offences can be attached for their "value thereof" under PMLA.

RULINGS / HOLDINGS:

The provisional attachment of the properties was upheld as the authorities had formed "cogent reasons to believe" that the properties were acquired out of proceeds of crime, satisfying the requirements under the Prevention of Money Laundering Act, 2002.Statements recorded under Section 50(2) of the Act, voluntarily made and signed by the appellants, were relied upon as sufficient evidence to justify attachment, notwithstanding the appellants' claims of procedural irregularities.Filing of income tax returns or disclosure of source of funds does not automatically legitimize property if the funds are linked to proceeds of crime; "declaration of illegitimate funds in Income Tax Returns does not provide any immunity from legal action under PMLA."Loans and gifts among family members, when traced to proceeds of crime and shell entities, constitute layering and projection of proceeds of crime as untainted property and justify attachment.Properties acquired prior to the commission of scheduled offences may be attached for their "value thereof" if they are shown to have been transferred to evade attachment.Failure of appellants to disclose or prove legitimate sources for repayment of loans or acquisition of properties supports the inference that such properties are proceeds of crime.Allegations of misquotation or manipulation of statements by appellants were not accepted as sufficient to invalidate the attachment orders.Provisional attachment orders were not interfered with due to lack of any substantive evidence to the contrary and due to the complex web of transactions involving shell companies and accommodation entries.

RATIONALE:

The Court applied the statutory framework of the Prevention of Money Laundering Act, 2002, particularly the provisions relating to provisional attachment of properties under Section 5 and the evidentiary value of statements recorded under Section 50(2).The Court emphasized that the burden under Section 24 of the PMLA lies on the respondent agency to form "reason to believe" that the properties are proceeds of crime, which can be inferred from the investigation, statements, and documentary evidence.The Court recognized that mere disclosure of income tax returns or claimed sources of income is insufficient if the investigation reveals that such funds are linked to criminal activity, including through shell companies and accommodation entries.The Court noted that layering and projection of proceeds of crime as untainted property through family members and dummy entities is a recognized modus operandi, justifying attachment of properties held by relatives.The Court rejected procedural objections related to non-provision of statements prior to show-cause notices, holding that such irregularities do not vitiate the attachment where the statement is voluntary and the investigation is thorough.The Court accepted the principle that properties acquired before the offence may be attached for their value if there is evidence of transfer to defeat attachment, reflecting a doctrinal approach to prevent evasion of law.The Court found no merit in appellants' claims of misrepresentation or afterthought explanations, given the consistency of investigative findings and corroborative evidence from multiple agencies.

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