2025 (8) TMI 1406 - AT - Money Laundering

Provisional attachment of hotel's bank account upheld as proceeds of crime; director's appeal dismissed for lack of merit

AT dismissed the appeals and upheld provisional attachment of the hotel company's bank account as proceeds of crime. The tribunal found multiple FIRs, an ... Money Laundering - provisional attachment of the bank account - proceeds of crime - mis-statement of the fact - failure to show any document to indicate cancellation of the booking other than the statement of the person who booked the hotel rooms for the accused - retention/forfeiture of the sum by the hotel converts allegedly tainted money into legitimate earnings or not - HELD THAT:- It is not in dispute that several FIRs were registered against the accused for commission of offence under IPC which ultimately resulted in recording of ECIR and the PAO. So far as the appellant, Director of the Indian Hotels Company Limited is concerned, his property is not under attachment, thus, the Ld. Counsel for the appellant could not explain the reason for filing the appeal. It is more so, he is not named as an accused and therefore any adverse inference out of the order qua the appellant effecting him in the trial when he is not even an accused. No reason for filing of appeal could be shown. There are no notice for cancellation of the booking or the forfeiture of the amount in terms of the agreement and therefore the appellant, the Indian Hotels Company Limited remains recipient of the proceeds of crime and therefore the bank account to that extent has been attached. In fact, the motive of the accused was to keep the amount with the bank account of the Hotel to save it from attachment finding recording of the ECIR against him. It is for that reason alone that despite booking of the rooms, it was not occupied or utilized, rather, no marriage was commenced and in that circumstances, the appellant could have either cancelled the booking or take appropriate decision in writing to forfeit the amount but no such order has been placed on record. It is even when they did not recover balance amount within the time-frame. In the light of the aforesaid, we do not find any illegality in the order to attach the amount transferred to the appellant company out of proceeds of crime. There are no case to cause interference in the impugned order and accordingly appeals fail and are dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a bank account receipt of Rs. 20,00,000 received by a commercial hotel pursuant to a booking agreement can be treated as proceeds of crime and lawfully provisionally attached under the relevant money-laundering/asset-recovery regime where the underlying accused are implicated in predicate offences (including offences under the Prevention of Corruption Act, IPC and the Information Technology Act) and no actual event (marriage/occupancy) took place. 2. Whether retention/forfeiture of the sum by the hotel pursuant to an agreement (clause permitting cancellation and forfeiture) converts allegedly tainted money into legitimate earnings such that provisional attachment must be set aside. 3. Whether an appeal by a director (not an accused and whose property is not under attachment) against confirmation of provisional attachment of a corporate bank account is maintainable where no adverse consequence to his property is shown. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Lawfulness of provisional attachment of funds received by a third-party commercial entity where source is alleged proceeds of crime Legal framework: Provisional attachment may be ordered where property is found to be proceeds of crime arising from predicate offences; ECIR/PAO and FIRs for offences under the Prevention of Corruption Act, IPC and IT Act are relevant antecedent records for such attachment. Precedent treatment: The Tribunal proceeded on established principles that property traced to proceeds of crime can be provisionally attached pending adjudication; no specific precedent was overruled or distinguished in the decision. Interpretation and reasoning: The Tribunal noted undisputed facts that multiple FIRs and an ECIR had been recorded against the accused and that the corporate bank account received Rs. 20,00,000 transferred by the accused (through an agent) nominally for hotel bookings which were never occupied and no marriage took place. The Tribunal found objective indicia (non-utilization of services, absence of written cancellation/forfeiture communications, and timing relative to ECIR) supporting the inference that the money in the hotel account was proceeds of crime and had been routed to the hotel to evade attachment. Ratio vs. Obiter: Ratio - where funds are transferred by accused implicated in predicate offences into a third-party commercial account and the transaction is not consummated (services not availed) and there is no documentary evidence effecting cancellation/forfeiture under the contract, provisional attachment of that sum is sustainable as proceeds of crime. Obiter - the Tribunal expressly declined to determine the substantive guilt of the accused for the predicate frauds or the hotel's knowledge of laundering beyond what was necessary for upholding attachment. Conclusion: The provisional attachment of the Rs. 20,00,000 in the corporate bank account was lawfully confirmed because the money was traced to proceeds of crime and circumstances did not rebut that inference. Issue 2 - Effect of contractual forfeiture/cancellation clause on tainted funds Legal framework: A contractual right to cancel and forfeit advance payments can convert an advance into the recipient's legitimate earning only if the contractual mechanism for cancellation/forfeiture is validly and effectively invoked and evidenced in accordance with the contract and commercial practice. Precedent treatment: The Tribunal relied on contractual principles requiring written notice/correspondence to establish valid exercise of cancellation/forfeiture clauses; no contrary authority was adopted to negate the need for documentary proof. Interpretation and reasoning: The hotel relied on an agreement clause permitting cancellation and forfeiture and asserted it had forfeited the sum. The Tribunal examined the record and found no correspondence, written notice, or documentary evidence demonstrating that the cancellation/forfeiture procedures in the agreement were actually invoked. Oral statements by an agent were insufficient to establish compliance with contractual formalities. Absence of written action meant the hotel remained a recipient of funds traceable to criminal activity rather than the holder of legitimate earnings derived under the contract. Ratio vs. Obiter: Ratio - contractual entitlement to retain advances does not cleanse tainted money absent compliance with the contractual mechanism and admissible documentary proof of cancellation/forfeiture; oral assertions are inadequate. Obiter - reference to motive of accused to park funds to avoid attachment, while persuasive, was not used to decide the contractual point beyond evidentiary insufficiency. Conclusion: The alleged contractual forfeiture did not convert the amount into legitimate earnings because the hotel failed to produce the required written notice/evidence; therefore the sum remained susceptible to provisional attachment. Issue 3 - Maintainability of appeal by a non-accused director whose property is not attached Legal framework: An appellant must demonstrate a justiciable interest/adverse effect from the impugned order; mere joinder or naming without attachment of personal property or status as an accused does not alone justify relief. Precedent treatment: The Tribunal applied ordinary principles of locus/standing in appellate review proceedings without invoking or overruling specific precedent. Interpretation and reasoning: The director was neither an accused nor had any personal property attached. Counsel could not show any adverse effect on the director arising from confirmation of attachment of the corporate bank account. The Tribunal therefore found no reason or legal basis for maintenance of the director's appeal. Ratio vs. Obiter: Ratio - an appeal by a person whose property is not under attachment and who is not an accused will be dismissed if no adverse consequence or legal interest is demonstrated. Obiter - none. Conclusion: The appeal filed by the director was dismissed for lack of a demonstrable adverse interest and absence of attachment of his property. Remedial/operative determination and incidental directions Interpretation and reasoning: Having found no illegality in confirmation of provisional attachment, the Tribunal dismissed the appeals. The Tribunal nonetheless clarified that the corporate account could continue to be operated subject to maintaining the attached sum of Rs. 20,00,000 in the account pending outcome of trial/adjudication. Ratio vs. Obiter: Ratio - provisional attachment may be confirmed while allowing operation of a bank account provided the attached amount is preserved intact; this is an appropriate incidental direction balancing preservation of assets with operational needs. Obiter - remarks declining to delve into full merits of predicate offences were incidental observations. Conclusion: Appeals dismissed; attached sum to remain preserved in the account while allowing limited operation subject to preservation of the attached amount and subject to outcome of trial/adjudication.