2025 (7) TMI 1826 - AT - Money Laundering

Provisional attachment under PMLA Sections 5 and 8 upheld against third parties holding proceeds of crime

The AT under SAFEMA upheld the provisional attachment of property linked to money laundering, rejecting the appellant's contention that attachment is ... Money Laundering - provisional attachment order - proceeds of crime - appellant not named as an accused in FIR and even in the ECIR - appellant is not been named even in the Prosecution Complaint filed from time to time - HELD THAT:- Section 5 and 8 of the Act 2002 does not refer proceeds of crime for attachment only in the hands of the accused, rather, Section 5(1)(a) of the Act of 2002 refers to “any person” in possession of the proceeds of crime. The Apex Court in Vijay Madanlal Choudhary and Others v. Union of India & Ors. [2022 (7) TMI 1316 - SUPREME COURT (LB)] had refused to accept the similar arguments when it was urged that the property has been attached in the hands of a person not named as an accused. The attachment of the property can be in the hands of a person other than an accused as exist in the present matter. If the provision of the Act of 2002 is given interpretation to allow attachment of the property only in the hands of the accused, the very object of the Act of 2002 would frustrate in case of proceeds of crime comes in the hands of third person. In the instant case, the accused is involved in commission of predicate offence and derived proceeds of crime. It was transferred to the Companies held by the appellant. Finding proceeds of crime in the hands of a person not directly involved in the predicate offence, even then the attachment of the property was permissible in reference to Section 5(1) of the Act of 2002. The confiscation of the property is made on the conclusion of trial for the offence under the Act of 2002 when the Special Court finds that the offence of money laundering has been committed. It is authorised to pass an order that such property involving in money laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government. In the instant case trial has not been completed as admitted by the Counsel, thus, question of any order for confiscation of the property does not arise at this stage. It may, however, be clarified that confiscation of the property is not qua the accused but involved in money-laundering. The Legislature were cautious to frame the provisions so as to achieve the object of the Act of 2002 and thereby attachment of the property need not necessarily be in the hands of the accused but it may be in the hands of “any person”. Coming to the factual issue, though, not raised specifically for challenge to impugned order, it is found that Group of industries were controlled by the appellant and his family members which were recipient of proceeds of crime generated by NSEL and transferred to Aastha Group and the companies controlled by the appellant thereby element under section 3 of the Act of 2002 is made out punishable under Section 4 of the Act of 2002. The appellant did not contest the receipt of the amount by Vihang Group and even it to be under the control of the appellant. Since argument was not made in reference to the factual issue, otherwise, the attachment of the property to the extent of Rs.11.35 crores is matching to the proceeds transferred or laundered to Vigensh Group controlled by the appellant. There are no illegality in provisional attachment of the property matching to the amount of the proceeds transferred to Vihang group controlled by the appellant. Accordingly, appeal fails and is dismissed ISSUES: Whether provisional attachment of properties under Section 5 of the Prevention of Money Laundering Act, 2002 ('the Act of 2002') can be sustained against a person not named as an accused in the FIR, ECIR, or Prosecution Complaint.Whether continuation of provisional attachment beyond 180 days without filing a Prosecution Complaint against the person in whose hands the property is attached is permissible under Sections 5 and 8 of the Act of 2002.Whether the absence of an order of confiscation affects the validity or duration of the provisional attachment of property under the Act of 2002.Whether the provisional attachment of properties matching the value of proceeds of crime transferred to companies controlled by the appellant is justified under the Act of 2002. RULINGS / HOLDINGS: The Court held that Section 5(1)(a) of the Act of 2002 permits provisional attachment of property in the possession of 'any person,' not limited to an accused, if such property is proceeds of crime. The attachment in the hands of a person not named as an accused is sustainable.The continuation of provisional attachment beyond 180 days is governed by Section 8(3)(a), which allows attachment during investigation for up to 365 days or pendency of proceedings relating to the offence under the Act, regardless of whether a Prosecution Complaint has been filed against the person whose property is attached.The absence of an order of confiscation does not invalidate the provisional attachment; confiscation occurs only upon conclusion of trial under Section 8(5), and until then, attachment remains subject to the trial's outcome.The provisional attachment of properties to the extent of Rs.11.35 Crores, corresponding to proceeds of crime transferred to companies controlled by the appellant, is justified and lawful under the Act of 2002. RATIONALE: The Court applied the statutory framework of Sections 5 and 8 of the Prevention of Money Laundering Act, 2002, emphasizing that the term 'any person' in Section 5(1)(a) extends the scope of attachment beyond those formally accused, to prevent frustration of confiscation proceedings.The Court relied on the authoritative interpretation from the Apex Court in Vijay Madanlal Choudhary v. Union of India, which rejected the argument that attachment must be limited to accused persons, clarifying that attachment can be made against third parties involved in the process or activity connected with proceeds of crime.The Court clarified that the continuation of attachment under Section 8(3)(a) is linked to the pendency of proceedings relating to the offence under the Act, not necessarily against the person whose property is attached, thereby allowing attachment to continue without a Prosecution Complaint against that person.The Court noted that confiscation under Section 8(5) occurs only after trial conclusion, and provisional attachment pending trial is consistent with the legislative intent to protect the proceeds of crime from dissipation.The Court rejected the appellant's interpretation that attachment without naming the person as accused or filing a Prosecution Complaint within 365 days is impermissible, as such an interpretation would frustrate the object of the Act by allowing easy diversion of proceeds of crime to third parties.