2025 (8) TMI 718 - AT - Money Laundering

Freezing of 55 Bank Accounts Upheld Under SAFEMA for Rs. 126 Crore Proceeds of Crime, Section 5

The AT under SAFEMA upheld the freezing of 55 bank accounts and seizure of records linked to the appellant, who was found involved in issuing fake ... Money Laundering - proceeds of crime - misappropriation of funds - retention of the records and freezing of bank accounts and foreign currency - offence of cheating and criminal breach of trust - HELD THAT:- The appellant was found involved in issuing fake cash receipts to the customers by appointing unauthorized persons on behalf of the Company. It was also revealed that the letter of the Company was used for cash receipt in lieu of issuing a computer generated receipt as per the policy of the company. The appellant remained successful in deleting the cash receipt entered into computer. The cheques were received from the customers but these cheques bounced yet entry was made in the books by the employees of the Company who were influenced by the appellant. The appellant deposited the amount in his bank accounts and of his associates. The appellants were found in receipt of the proceeds of crime, thus, their 55 bank accounts were freezed apart from seizure of the digital devices and the documents. There are no illegality in passing the order of freezing of the bank accounts and seizure of the records in the facts and circumstances of the case. It is no doubt that initially the FIR disclosed the name of Shri B. Laxminarayan, the MD of the Company but later on role of the appellant came in light of the statement of witnesses recorded by the respondent. It is alleged that a sum of Rs. 126 Crores came to the appellant from different persons which fact remains unrebutted. The accused Shri B. Laxminarayan was, otherwise, the kingpin and has been arrested. However, the appellants are also recipient of the proceeds of crime and therefore their bank accounts have been freezed. There are no reason to release the records seized by the respondent and also to de- freeze the bank accounts. It may be, however, clarified that this Tribunal passed an order to allow the appellant to operate the bank accounts after maintaining the amount in the bank account matching to the proceeds of crime. The order aforesaid has been passed after taking into account the fact that the freezing of the bank accounts should not be over and above the amount involved in the case. The Counsel for the appellant could not show documents to indicate an agreement appointing the appellant as Commission Agent for booking of the flats. It is said to have been reflected in the settlement between the appellant and the company on the FIR filed by the Company alleging receipt of the amount directly by the appellant from the customers. The appellant and the company apart from MD of the company may have entered into a settlement to adjust the money received amongst themselves after cheating the investors and the home-buyers, thus, would be of no consequence on this case. The appellant and company settled the amount amongst themselves for the amount of proceeds of crime. The settlement was entered between the accused and the appellant to see that somehow the home-buyers and investors claims may not be settled with due benefits to them or to give flats. The settlement is only to layer the proceeds of crime. The present matter was initiated on the complaint of the investors / home-buyers alleging cheating by the company apart from Shri B. Laxminarayan, MD of SIVIPL and in the investigation the role of the appellant has also come. There are no case to cause interference in the impugned order. Accordingly, appeals fail and are dismissed. 1. ISSUES PRESENTED and CONSIDERED 1. Whether the appellants, not named in the original FIR but implicated during investigation, can have their bank accounts frozen and records retained under the Prevention of Money Laundering Act, 2002 (PMLA). 2. Whether the seizure of documents, digital devices, and freezing of bank accounts of the appellants was justified given the facts and evidence collected during investigation. 3. Whether the settlement between the appellant and the company regarding alleged misappropriation of funds affects the ongoing investigation and seizure/freezing orders under PMLA. 4. Whether the appellants' involvement in money laundering and receipt of proceeds of crime was sufficiently established to warrant continuation of the impugned order. 5. Whether the appellants were entitled to operate their bank accounts during the period of freezing and under what conditions. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legitimacy of freezing bank accounts and retention of records against appellants not named in the original FIR - The legal framework under Section 17(1) and 17(4) of the Prevention of Money Laundering Act, 2002 empowers the Adjudicating Authority to seize and retain records and freeze bank accounts where proceeds of crime are involved. - The original FIR named the Managing Director and unknown persons for offences including cheating and criminal breach of trust involving investor funds. The appellants were not named initially. - Investigation revealed that the appellants, particularly the ex-Director heading Sales and Marketing, were involved in misappropriation and diversion of funds collected from investors. - The Court noted that multiple FIRs were lodged by investors/home-buyers against the company and that the appellants' role emerged during investigation, supported by statements and audit findings. - The appellants' bank accounts and records were seized/frozen based on incriminating evidence including digital devices, documents, and bank statements showing receipt and diversion of funds. - The Tribunal held that being unnamed in the original FIR does not preclude seizure/freezing if investigation reveals involvement and proceeds of crime linked to the appellants. - Conclusion: Freezing of bank accounts and retention of records against appellants was legally justified under PMLA given the evidence discovered during investigation. Issue 2: Justification of seizure of documents and freezing of bank accounts - The investigation uncovered a modus operandi involving collection of cash against company policy, issuance of fake manual cash receipts by unauthorized persons, deletion of computer-generated receipts, and depositing cheques in personal and related accounts. - The Chartered Accountant's statement detailed siphoning off Rs. 126 Crores by the sales team headed by the appellant, including use of multiple bank accounts in the names of the appellant, family members, and associated entities. - Search operations at residential and office premises of the appellants yielded incriminating documents and digital devices, supporting the allegations. - The Court found that the seized bank accounts and documents were directly linked to proceeds of crime and money laundering activities. - The appellants failed to rebut the evidence or provide legitimate explanations or documentation for the funds received and properties acquired. - The Tribunal emphasized that seizure and freezing were necessary to prevent dissipation of assets and to preserve evidence for prosecution. - Conclusion: Seizure of documents and freezing of bank accounts were warranted and proportionate measures under the circumstances. Issue 3: Effect of settlement between appellant and company on the ongoing investigation and seizure/freezing orders - The appellant had entered into a settlement with the company regarding an FIR filed by the company alleging misappropriation of Rs. 40 Crores, resulting in transfer of properties to the company. - The Tribunal distinguished this internal settlement from the ongoing investigation initiated on FIRs lodged by investors/home-buyers alleging cheating and non-delivery of flats. - The settlement was held to have no bearing on the claims of investors or on the investigation under PMLA, which is independent and focused on proceeds of crime. - The settlement was viewed as an attempt to layer proceeds of crime and did not absolve the appellant from liability or involvement in money laundering. - Conclusion: The settlement did not affect the validity of the seizure/freezing orders or the investigation against the appellants. Issue 4: Sufficiency of evidence establishing appellants' involvement in money laundering and receipt of proceeds of crime - The internal audit and investigation revealed Rs. 126 Crores siphoned off by the sales team led by the appellant. - Evidence included unauthorized collection of cash, issuance of fake receipts, manipulation of accounting records, and deposit of customer cheques into personal and related accounts. - The appellant and family members acquired multiple properties disproportionate to their declared incomes, indicating laundering of proceeds. - Bank account analysis showed deposits from customers' cheques in the appellant's and relatives' accounts, including proprietary concerns controlled by the appellant. - The Tribunal found the evidence credible and unrebutted, establishing a prima facie case of money laundering and receipt of proceeds of crime by the appellants. - The respondent's submission that a prosecution complaint would be filed against the appellants further supported the findings. - Conclusion: Evidence sufficiently established appellants' involvement in money laundering and justified continuation of seizure and freezing measures. Issue 5: Entitlement of appellants to operate bank accounts during freezing and conditions thereof - The Tribunal recognized that freezing bank accounts should not exceed the amount involved as proceeds of crime. - An order was passed permitting the appellants to operate their bank accounts subject to maintaining a balance not exceeding the amount identified as proceeds of crime. - This balanced the need to prevent dissipation of illicit funds while allowing appellants limited access for legitimate purposes. - Conclusion: Conditional operation of bank accounts during freezing was appropriate and upheld.