2025 (8) TMI 1474 - AT - Money Laundering

Appeals dismissed; enforcement agency actions upheld for money-laundering findings, attachment of pre-offence and third-party properties allowed

AT dismissed the appeals and upheld ED's actions. The Tribunal found sufficient evidence of money-laundering-fraudulent accounts, paper companies, ... Money Laundering - attachment of property of petitioner - illegal sale of coal - existence of reasons to believe with ED for passing the PAO and with Adjudicating Authority for issuing the Show Case Notice - properties purchased prior to the commission of scheduled offence can be attached or not - no accused persons and no predicate offence. Whether there were reasons to believe with ED for passing the PAO and with Adjudicating Authority for issuing the Show Case Notice? - HELD THAT:- In the matter at hand, there is ample evidence available from the investigation against the appellants regarding the commission of offence of money laundering by committing fraud using fake signatures for opening numerous accounts and creating paper companies for the purpose of laundering the money, generated by diverting the subsidized coal in the open market, instead of selling to the genuine quota holders. There are a large number of cash deposits in these accounts, which then have been layered/rotated/transferred amongst these Axis bank accounts through RTGS before transferring the same to the beneficiaries/accused persons. Further, in the case of accounts mainly used for trading of illegal coal, the money has been received via RTGS, but debits are in the form of huge cash withdrawal which are given to the beneficiaries - The detailed discussion of the money trail created by the accused has been done in para 2 above and hence the same is not reiterated here for the sake of brevity. Further, there are also statements of witnesses and the appellants on record which support the stance of commission of offence of money laundering in the present matter. As regards, the reasons under section 8, it is seen that the language of the said provision is different insofar as section 8 does not specifically lay down that the reasons to believe are to be recorded or that there should be any material in possession, other than the original complaint filed by the Directorate under section 5(5). Nor does the provision specifically necessitate recording of the reasons in writing, before issuing SCN. SCN is issued by the Adjudicating Authority on the basis of Original Complaint and the relied upon documents and the same is self-explanatory for issuing the same. Nevertheless, a perusal of the impugned order itself provides the detailed reasons leading to the registration of ECIR by the Directorate, further investigations conducted by the Directorate and the complaint received by the Ld. AA from the Directorate u/s 5 (5). As such, there is little substance in this averment of the appellant either. The issue is decided against the appellants and in favour of the Respondent ED. Whether ED has to conduct separate investigation qua the predicate offence or it has to confine its investigation to the offence of money laundering? - HELD THAT:- The first point can be inferred by the ED on the basis of allegations made in the FIR and/or Police report under Section 173 CrPC, coupled with ECIR, statements u/s 50 of PMLA, relevant documents seized/taken from various sources. With respect to the second point, the ED can adopt the quantum of proceeds mentioned in the FIR/chargesheet and can also conduct further investigation regarding total quantum of proceeds of crime and thereby exceed the said value, but ED is not required to enter into the domain of investigation of Police/CBI to conduct any investigation for the predicate offence. Thus, ED has to confine its inquiry/investigation qua the quantum of proceeds of crime and the remaining four points mentioned above. Further, ED can also point out any glaring mistake, or lacunae in the said investigation conducted by Police/CBI, which may come to its knowledge while conducting the investigation under PMLA. However, ED cannot arrive at different conclusion qua the predicate offence, while conducting investigation under PMLA, as it is not a supervisory investigating agency over police/CBI. But ED can certainly exceed the limit of quantum of proceeds of crime on the basis of investigation conducted by it, if new facts and evidence comes to its knowledge, and thereafter, inform the police/CBI regarding the same for filing supplementary chargesheet, if any. However, it will be the prerogative of the police/CBI to file the supplementary chargesheet on the basis of information received from ED - the issue is decided against the appellants and in favour of Respondent ED. Whether the properties purchased prior to the commission of scheduled offence can be attached, as value thereof? - HELD THAT:- There are no force in the contention of the appellant, as when the proceeds out of crime was not available with the appellant rather vanished and siphoned off, the property of equivalent value has been attached. The proceeds were siphoned off by diverting it to various entities and by layering the proceeds. In the light of the aforesaid, second limb of the definition of “proceeds of crime” has been applied to attach the property of equivalent value. Thus, the ground raised by the appellant cannot be accepted - the issue is accordingly decided against the appellants and in favour of the respondent ED. Whether the properties of appellant no. 2 & 4 cannot be attached since they are not accused persons and have not committed any predicate offence? - HELD THAT:- The property in the hands of any person in possession of proceeds of crime can be attached even if he is not accused of the offence of money-laundering. The present appeals are hereby dismissed being devoid of any merits. ISSUES PRESENTED AND CONSIDERED 1. Whether the Enforcement Directorate (ED) had 'reason to believe' under Section 5(1) PMLA for issuing a Provisional Attachment Order (PAO) and whether the Adjudicating Authority had sufficient grounds to issue a Show Cause Notice. 2. Whether ED is required to conduct a separate investigation into the predicate/scheduled offence or must confine its inquiry to money-laundering aspects under the PMLA. 3. Whether properties purchased prior to the commission of the scheduled offence can be attached as 'value thereof' under the definition of 'proceeds of crime.' 4. Whether properties of persons who are not accused of the predicate offence can be attached under Section 5(1) PMLA. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Reason to Believe for PAO and Show Cause Notice Legal framework: Section 5(1) PMLA authorises provisional attachment where an authorised officer has 'reason to believe' (reasons to be recorded) on the basis of material in possession that a person is in possession of proceeds of crime and such proceeds are likely to be concealed, transferred or dealt with so as to frustrate confiscation proceedings; Section 8 governs issuance of Show Cause Notices by the Adjudicating Authority on the basis of the original complaint and relied documents. Precedent treatment: The Tribunal relied on established pronouncements interpreting the statutory threshold for 'reason to believe' and the scope of materials that may be relied upon for issuing PAO/SCN as reflected in higher court authority considered in the judgment. Interpretation and reasoning: The Court found ample material in ED's possession - FIRs/charge-sheets, an ECIR, extensive banking transaction analyses demonstrating cash deposits, layering and routing of funds, statements recorded under Section 50 PMLA, handwriting expert findings and corroborative witness statements - establishing a prima facie money trail and the likelihood of alienation/ dissipation of assets. The second proviso to Section 5(1) permitting immediate attachment where non-attachment would frustrate proceedings was held to be applicable given the apprehension of alienation. Ratio vs. Obiter: Ratio - that a PAO and SCN may be validly issued where ED has recorded reasons in writing supported by material showing prima facie proceeds of crime and risk of frustration; observation that Section 8 does not require separate written reasons prior to SCN is an applied interpretation (ratio in context). Conclusion: Issue decided against appellants; ED had reasons to believe and the Adjudicating Authority validly issued the Show Cause Notice based on materials in ED's possession. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Scope of ED Investigation vis-à-vis Predicate Offence Legal framework: PMLA investigation framework distinguishes money-laundering inquiry from investigation of the predicate/scheduled offence, with primary responsibility for investigation of predicate offences resting with police/CBI or the agency authorised under relevant law. Precedent treatment: The Tribunal referred to prior authoritative decisions delineating the ED's role and limits in probing predicate offences while emphasising ED's remit under PMLA. Interpretation and reasoning: The Court held that ED is not empowered to re-investigate the predicate offence; ED's investigation must focus on: (i) prima facie incriminating evidence of the scheduled offence, (ii) quantum of proceeds of crime (which ED may investigate and even expand upon), (iii) whether proceeds are laundered or likely to be laundered, (iv) modes of layering/trail of proceeds, (v) identifying other attachable properties if proceeds are dissipated, and (vi) assessing genuineness of claimants. ED may point out lacunae in the predicate investigation and can inform the police/CBI for supplementary chargesheets, but cannot supplant or reach different conclusions on guilt for the predicate offence. Ratio vs. Obiter: Ratio - ED must confine itself to money-laundering aspects and related financial tracing, and cannot re-investigate the predicate offence though it may investigate quantum of proceeds and trace assets. Conclusion: Issue decided against appellants; ED need not, and must not, re-investigate predicate offences but may investigate money-trace, quantum and assets for laundering purposes. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Attachment of Properties Acquired Prior to Scheduled Offence Legal framework: Definition of 'proceeds of crime' in Section 2(1)(u) PMLA includes (a) property derived or obtained directly or indirectly by a person as a result of criminal activity relating to a scheduled offence and (b) 'the value of any such property' or property equivalent in value held within the country where property is held outside. Explanation clarifies inclusion of indirect derivation. Precedent treatment: The Tribunal considered prior high court and supreme court interpretations establishing that properties acquired before commission of an offence may, in limited circumstances, be subjected to attachment as 'value thereof' where the actual tainted property cannot be traced; safeguards and tests in earlier jurisprudence (including requirement of an interest by the accused in such property during the relevant period and protection of bona fide third-party rights) were relied upon. Interpretation and reasoning: The Court analysed the three limbs of the definition and applied the second limb (value of such property) on facts where proceeds were siphoned off and the actual tainted funds were not directly traceable into the impugned properties. Detailed transaction analysis showed layering, routing into controlled companies and ultimate accumulation in entities controlled by accused-family interests. Given dissipation of direct tainted property, attachment of property of equivalent value was permissible. The Tribunal also observed that such attachment must satisfy established safeguards (e.g., link/interest of accused in the property during the relevant period; protection of bona fide third-party rights), and that ED may attach properties as value where proceeds cannot be located. Ratio vs. Obiter: Ratio - properties purchased prior to commission of scheduled offence can be attached as equivalent value when the actual tainted property is not traceable, subject to statutory tests and judicial safeguards; observation on application of safeguards and interest requirement is binding in the context. Conclusion: Issue decided against appellants; properties acquired prior to the scheduled offence were properly attached as value thereof given the demonstrated dissipation/ layering of proceeds and inability to trace tainted property directly. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Attachment of Properties Held by Persons Not Accused of Predicate Offence Legal framework: Section 5(1) PMLA authorises attachment of property where an officer has reason to believe a person (not necessarily an accused in the predicate offence) is in possession of proceeds of crime or property equivalent in value; the statutory objective is to reach proceeds of crime 'in whosoever's name they are kept.' Precedent treatment: The Tribunal relied on prevailing supreme court authority holding that Section 5(1) sweep is not limited to those named as accused in the predicate offence and extends to any person involved in processes connected with proceeds of crime; property in hands of any possessor of proceeds can be attached. Interpretation and reasoning: The Court emphasised that attachment may be ordered against persons who are not accused if material shows involvement in transfer, layering, accommodation entries or other processes facilitating laundering. The focus is possession/control of proceeds rather than formal prosecution status under predicate laws. Ratio vs. Obiter: Ratio - ED can attach property of persons not yet accused of the predicate offence if there is material indicating involvement with proceeds of crime; such attachment is consistent with the PMLA's objective to recover proceeds irrespective of nominal ownership. Conclusion: Issue decided against appellants; non-accused status with respect to the predicate offence does not preclude attachment where possession/connection to proceeds is established. DISPOSITIONAL NOTE (LIMITED TO APPLICABLE RELIEF AS PER JUDGMENT) The appeals were dismissed as devoid of merit on the above grounds. The Tribunal directed that ED shall restrain from taking physical possession of attached properties until conclusion of criminal trials except in exceptional circumstances, preserving parties' rights at trial. Nothing stated affects rights in ongoing criminal proceedings.