2025 (9) TMI 69 - AT - Money Laundering

Provisional attachment of equivalent-value property upheld against appellant when original proceeds have vanished in money-laundering case

Kumar Sanjit Krishna Versus The Deputy Director Directorate of Enforcement, Guwahati

Kumar Sanjit Krishna Versus The Deputy Director Directorate of Enforcement, Guwahati - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether a property acquired prior to or during the period of commission of scheduled offences can be treated as 'proceeds of crime' within the meaning of Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 and therefore be subject to provisional attachment (including attachment by value when actual tainted property is not traceable). 2. Whether, in circumstances where the actual proceeds of crime have 'vanished' or are not traceable, attachment of untainted property of equivalent value (including property acquired prior to commission of the scheduled offence) is permissible under the second limb of the definition of 'proceeds of crime'. ISSUE-WISE DETAILED ANALYSIS Issue 1: Scope of 'proceeds of crime' - whether property acquired prior to or during commission of scheduled offences falls within Section 2(1)(u) Legal framework: Section 2(1)(u) defines 'proceeds of crime' in three parts: (i) property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence; (ii) the value of any such property; and (iii) where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. The Explanation further clarifies inclusion of property directly or indirectly derived or obtained as a result of criminal activity. Precedent treatment: The Tribunal analyzed a three-Judge apex decision which construed the definition expansively, particularly para treating the second limb as extending to value-equivalent property even where proceeds are not traceable. The Tribunal contrasted High Court decisions that read the definition narrowly (treating only tainted property) and upheld the Delhi High Court's decision characterizing three categories: tainted property, and two categories of 'untainted' or 'deemed tainted' property attachable as equivalent in value, subject to safeguards. Interpretation and reasoning: The Tribunal held that the definition must be read in three limbs; to ignore the middle limb ('the value of any such property') would render it redundant and frustrate the legislative purpose of preventing dissipation of proceeds and protecting victims. The second limb permits attachment of untainted property of equivalent value when tainted property is not available, vanished or siphoned off. The Tribunal relied on the purposive interpretation to prevent circumvention by immediate dissipation of proceeds post-offence, and on precedent that requires an assessment (even tentative) of the wrongful gain before confirming attachment of untainted property. The Tribunal rejected narrower readings that would restrict attachment to only property directly traceable to the crime. Ratio vs. Obiter: Ratio - the three-limb interpretation of Section 2(1)(u) is substantive: (a) first limb covers property obtained directly/indirectly from criminal activity; (b) second limb permits attachment of property equivalent in value where actual tainted property is not available; (c) the second limb is not confined to cases where property is outside India. Observations distinguishing certain High Court decisions and emphasizing the purposive impact of the second limb are ratio in support of this construction. Obiter - commentary on strategic misuse by accused and some comparative remarks about third-party bona fides as discussed in other decisions are ancillary. Conclusion: Property acquired during the currency of the scheduled offence can fall within the first limb as directly/indirectly derived from criminal activity; property acquired prior to the scheduled offence may nevertheless be attachable under the second limb as 'value of any such property' if the tainted proceeds are not available or have been siphoned off, subject to statutory safeguards and an assessment of illicit gain. Issue 2: Permissibility and safeguards for attaching untainted property of equivalent value when proceeds are not traceable Legal framework: Attachment powers under the Act operate only in respect of 'proceeds of crime' as defined; the second and third limbs permit proceeding against untainted or equivalent-value property where tainted property cannot be traced. The Tribunal referred to the requirement of some assessment of the value of wrongful gain and established safeguards for third parties as articulated in precedent. Precedent treatment: The Tribunal relied on authoritative decisions (including a three-Judge apex ruling and detailed High Court analyses) that (i) recognized the 'deemed tainted' or 'alternative attachable' categories, (ii) insisted on an assessment of illicit gain before confirming attachment of untainted property, and (iii) preserved bona fide third-party interests acquired for valid consideration. It rejected High Court authorities that would nullify the second limb or confine its application to property held outside India. Interpretation and reasoning: The Tribunal reasoned that where proceeds of crime have been quantified and found to be not traceable in the accused's possession, enforcement agencies may provisionally attach property of equivalent value to secure victim interests and statutory objectives. The Tribunal emphasized that attachment of equivalent-value property requires at least a tentative quantification of wrongful gain and that such attachment is a means to preserve the recovery potential pending trial. The Tribunal also noted that attachment of equivalent-value untainted property must respect established safeguards (assessment of illicit gain; protection of bona fide third-party rights), drawing on the analytical framework applied in prior decisions. Ratio vs. Obiter: Ratio - confirmation that, consistent with Section 2(1)(u), attachment of untainted property of equivalent value is permissible when tainted proceeds are not available, provided there is an assessment of illicit gain and protection of third-party bona fides. Obiter - examples or hypotheticals about siphoning off proceeds and policy considerations, while persuasive, serve illustrative purposes rather than novel legal propositions. Conclusion: Attachment of untainted property of equivalent value is permissible where the proceeds of crime are vanished or not traceable; such attachment must be predicated on an assessment (even if tentative) of the wrongful pecuniary gain and must observe safeguards for bona fide third-party interests. Application to the present facts and final conclusion Legal reasoning applied: The Tribunal found the period of commission of scheduled offences undisputed and that proceeds had been quantified with the appellant alleged to have received a specified sum which was not available (vanished). The flat attached was purchased during the currency of the offences and thus could be captured by the first limb; even if argued otherwise, the second limb would permit attachment by value where proceeds are not traceable. Conclusion: The challenge that property acquired prior to commission of crime cannot be attached was rejected. On the facts (purchase during the period of offence and quantified vanished proceeds), provisional attachment of the property to the stated value was upheld and the appeal dismissed.