2025 (8) TMI 806 - AT - Money Laundering

Attachment of Equivalent Property Allowed Under SAFEMA When Proceeds of Crime Are Missing

Shri P. Dhanraj Versus The Deputy Director, Directorate of Enforcement, Chennai

Shri P. Dhanraj Versus The Deputy Director, Directorate of Enforcement, Chennai - TMI 1. ISSUES PRESENTED and CONSIDERED Whether the appellant, as Branch Manager, was involved in the commission of scheduled offences under the Prevention of Money Laundering Act, 2002 (PMLA) and related IPC and Prevention of Corruption Act offences. Whether the appellant had the authority and responsibility to sanction the loans to the 35 borrowers and whether due diligence was exercised. Whether the encashment of two cheques taken from each borrower on the date of loan disbursement constitutes proceeds of crime attributable to the appellant. Whether the property provisionally attached under the PMLA was rightly considered proceeds of crime or property of equivalent value, especially when acquired prior to the commission of the scheduled offence. Whether properties acquired prior to the commission of the scheduled offence can be attached as proceeds of crime or property of equivalent value under the PMLA. Whether the findings and provisional attachment order were justified on the facts and law. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Involvement of the Appellant in Commission of Scheduled Offences and Authority/Responsibility to Sanction Loans Legal Framework and Precedents: The appellant was charged under the Prevention of Money Laundering Act, 2002 (PMLA) and related offences under IPC and Prevention of Corruption Act. The Act mandates that persons involved in criminal activity relating to scheduled offences can be proceeded against, including attachment of proceeds of crime. Court's Interpretation and Reasoning: The Court noted that although the appellant did not have absolute authority to sanction loans, as Branch Manager he was responsible to examine and undertake due diligence before sanctioning loans as per bank norms. The appellant was part of the sanctioning process for 35 loans which later turned non-performing assets (NPAs) due to fraudulent documents and non-existent businesses. Key Evidence and Findings: Investigation revealed that the appellant, in connivance with an auditor, accepted fake documents for loan sanction. Borrowers were not genuine coir industry members, and the loans were sanctioned without proper verification. Statements under Section 50(2) of PMLA corroborated the appellant's involvement. Application of Law to Facts: The appellant's failure to perform due diligence and his role in sanctioning loans based on forged documents amounted to participation in the predicate offence, making him liable under PMLA. Treatment of Competing Arguments: The appellant argued lack of evidence and absence of absolute sanctioning power. The Court rejected this, emphasizing the appellant's supervisory role and duty to ensure genuineness of documents, which was neglected. Conclusion: The appellant was held responsible for involvement in the commission of scheduled offences through sanctioning loans without due diligence. Issue 3: Encashment of Cheques Taken from Borrowers and Attribution as Proceeds of Crime Legal Framework and Precedents: Under PMLA, proceeds of crime include property derived directly or indirectly from criminal activity. Encashment of cheques obtained fraudulently can be considered proceeds of crime. Court's Interpretation and Reasoning: The Court found that two cheques were taken from each borrower at the time of loan sanction and were encashed on the same day or immediately thereafter. The appellant, as Branch Manager, was responsible for safeguarding these cheques but failed to do so, facilitating fraudulent withdrawal of loan amounts. Key Evidence and Findings: Statements of borrowers and witnesses recorded under Section 50(2) of PMLA confirmed the encashment of cheques and the appellant's knowledge. Majority of encashments occurred while the appellant was in charge; some occurred after his transfer but did not absolve his responsibility. Application of Law to Facts: The appellant's failure to prevent encashment and his connivance with others to accept fake documents established his involvement in laundering the proceeds of crime. Treatment of Competing Arguments: The appellant contended that encashments after his transfer could not be attributed to him. The Court held that his supervisory duty extended to the process, and subsequent encashments did not absolve him. Conclusion: The encashment of cheques constituted proceeds of crime attributable to the appellant to the extent of Rs. 2.3 Crores. Issue 4 & 5: Attachment of Property Acquired Prior to Commission of Crime as Proceeds of Crime or Property of Equivalent Value Legal Framework and Precedents: Section 2(1)(u) of PMLA defines 'proceeds of crime' to include: Property derived or obtained directly or indirectly from criminal activity relating to scheduled offence; The value of any such property; Property equivalent in value held within or outside the country. Judgments of the Apex Court and various High Courts have interpreted this definition to have three limbs, allowing attachment of property acquired prior to the offence if proceeds of crime are not available. Court's Interpretation and Reasoning: The Court relied on authoritative precedents interpreting 'proceeds of crime' to include property of equivalent value even if acquired prior to the offence, provided proceeds of crime are vanished or not traceable. The Court rejected the appellant's argument that property acquired prior to the offence cannot be attached, holding that such a narrow interpretation would defeat the object of the Act. Key Evidence and Findings: The appellant's property attached was acquired prior to the commission of the offence. However, the actual proceeds of crime were vanished and not available. Therefore, attachment of property of equivalent value was justified. Application of Law to Facts: Since proceeds of crime were not found in the appellant's possession, attachment of property of equivalent value, even if acquired prior to the offence, was lawful and necessary to protect victim interests and prevent frustration of the Act's objectives. Treatment of Competing Arguments: The appellant relied on judgments holding that prior-acquired property cannot be attached. The Court distinguished these by emphasizing the three-limbed definition and the necessity of protecting victim interests. The Court also noted the binding nature of Apex Court precedents overruling contrary views. Conclusion: Attachment of property acquired prior to commission of scheduled offence as property of equivalent value is valid under PMLA when proceeds of crime are not available. Issue 6: Justification of Findings and Provisional Attachment Order Legal Framework and Precedents: Under PMLA, provisional attachment orders can be confirmed if there is prima facie evidence of involvement in scheduled offences and proceeds of crime. Court's Interpretation and Reasoning: The Tribunal found sufficient material on record including investigation reports, statements under Section 50(2) of PMLA, and documentary evidence establishing the appellant's involvement and the nexus to proceeds of crime. Key Evidence and Findings: The appellant's failure to exercise due diligence, acceptance of fake documents, encashment of cheques, and the loss to the bank established a prima facie case. The property attached was proportionate to the proceeds of crime attributed to the appellant. Application of Law to Facts: The provisional attachment order was properly confirmed as the statutory requirements under PMLA were met and the appellant's arguments did not undermine the material on record. Treatment of Competing Arguments: The appellant's contentions regarding lack of evidence, absence of absolute sanctioning power, and timing of cheque encashments were considered but rejected on the basis of overall evidence and legal principles. Conclusion: The provisional attachment order was rightly confirmed and no interference was warranted.