2025 (8) TMI 718 - AT - Money Laundering

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

Mr. Sandu Puranchandra Rao, Mrs. Sandu Baby Swathi, Mr. Varada Rama Rao, Mrs. Varada Suseela, M/s Purnachandra HUF, M/s. Royalnirman Infra Projects Pvt. Ltd., M/s Sreegruha Estates Pvt. Ltd., M/s Mahogany Farmlands Projects Pvt. Ltd. And M/s KRR Bharat Nirman Pvt. Ltd. Versus The Deputy Director, Directorate of Enforcement, Hyderabad

Mr. Sandu Puranchandra Rao, Mrs. Sandu Baby Swathi, Mr. Varada Rama Rao, Mrs. Varada Suseela, M/s Purnachandra HUF, M/s. Royalnirman Infra Projects Pvt. ... 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.