2025 (9) TMI 132 - AT - Money Laundering

Appeal dismissed; provisional attachment under PMLA upheld as s.50 statements and wage violations show proceeds of crime

Nishi Sarkar Versus The Deputy Director Directorate of Enforcement, Delhi

Nishi Sarkar Versus The Deputy Director Directorate of Enforcement, Delhi - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the immovable property purchased on 23.04.2013 is 'proceeds of crime' under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 (PMLA) where the appellant operated a domestic servants placement business alleged to have placed domestic workers at wages below statutory minimums and engaged in bonded/child labour. 2. Whether the findings of underpayment of wages and employment of children (bonded labour) were sufficiently established on the material on record and whether lack of statements from rescued labourers vitiates the attachment. 3. Whether the calculation and attribution of proceeds of crime to the impugned property was made mechanically or with adequate investigative basis. 4. Whether substitution of an attached immovable property by payment of cash or other security is permissible under the statutory Rules, and whether the appellant may secure release of the attached house by depositing amounts already paid as occupation/user charges. 5. Whether prior deposits of occupation/user charges permit deduction from determined proceeds of crime or warrant release/substitution of the immovable property while criminal trials remain pending. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of the immovable property as 'proceeds of crime' under Section 2(1)(u) PMLA Legal framework: Section 2(1)(u) defines 'proceeds of crime' as property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence; explanatory proviso clarifies inclusion of property indirectly derived from scheduled offences. Precedent treatment: No binding precedential reversal or overruling was relied upon or required; argument invoked external observation (assertion that 'there is no bonded labour in India' as per a Supreme Court comment) but no precedent was determinative in the impugned reasoning. Interpretation and reasoning: The Tribunal accepted investigative findings that the appellant conducted a placement business, fixed wages in consultation with employers, and placed numerous domestic workers over years; those wages were fixed below Minimum Wages Act rates and there is recorded finding of employment of children in certain instances. The appellant failed to satisfactorily account for the full purchase consideration (Rs. 11,00,000) of the impugned house, his claimed source (sale of Faridabad land) lacked corroborative documentation accounting for the entire amount, and financial returns did not explain large commissions stated in statements. On this basis the Tribunal concluded that a substantial portion (Rs. 9,94,290) of the purchase price was funded by proceeds derived from criminal activity relatable to the scheduled offence. Ratio vs. Obiter: Ratio - where an accused operating a placement service cannot satisfactorily account for purchase funding and investigative material shows income streams derived from offences (underpayment, bonded/child labour), the property may be held to be proceeds of crime under Section 2(1)(u). Obiter - ancillary observations about the business model and wage-fixing practices serve as supporting reasoning. Conclusion: The Tribunal held the impugned immovable property to be proceeds of crime to the extent of Rs. 9,94,290 and upheld provisional attachment confirmed by the Adjudicating Authority. Issue 2 - Sufficiency of evidence on bonded labour/child employment and effect of absence of statements from rescued labourers Legal framework: Liability and characterization of criminal proceeds require investigation into scheduled offences; findings can be based on corroborated investigative material and official declarations (e.g., SDM order declaring rescued labourers bonded labour). Precedent treatment: The Tribunal relied on investigative corroboration, including administrative findings (SDM order), rather than treating absence of specific statements as dispositive. Interpretation and reasoning: Although the appellant asserted that the Directorate failed to record statements of labourers and denied employing children, the record included investigative findings and an SDM declaration that the rescued labourers were bonded labour. The Tribunal noted the appellant's denials lacked supporting evidence and that trials remained pending; absence of labourer statements did not negate the weight of other corroborative material gathered during investigation. Ratio vs. Obiter: Ratio - corroborative investigative findings and administrative declarations can sustain prima facie conclusions about employment practices for the purpose of attachment proceedings even where some direct witness statements are not in the file. Obiter - the critique of investigative completeness (lack of certain statements) is noted but not determinative. Conclusion: The Tribunal treated the investigative record and SDM declaration as sufficient for the attachment decision and rejected the contention that absence of recorded labourer statements invalidated the provisional attachment. Issue 3 - Adequacy of proceeds calculation and allegation of mechanical computation Legal framework: Proceeds calculations arise from investigation and must link criminal activity to assets; adequacy is judged on whether sources of funds are satisfactorily explained. Precedent treatment: No overruling of investigative methodology alleged; Tribunal evaluated documentary evidence (sale deeds, ITRs) and explanations offered. Interpretation and reasoning: The appellant's explanation that the house was funded by sale of a Faridabad plot and earlier DDA flat proceeds lacked documentary proof for the full amount. Income tax returns did not reconcile claimed high commissions. Investigators traced patterns of income from the placement business over years. Given these deficits in the appellant's explanation, the Tribunal concluded the proceeds calculation attributing Rs. 9,94,290 to criminal origin was supported by the record rather than merely mechanical. Ratio vs. Obiter: Ratio - where an accused fails to provide documentary substantiation for claimed legitimate sources and financial records are inconsistent, investigators' computed proceeds linking asset funding to criminal activity may be sustained. Obiter - observations on specific values and business charge rates furnish factual support. Conclusion: The Tribunal rejected the submission of mechanical calculation and upheld the proceeds assessment on the available evidentiary material. Issue 4 - Permissibility of substitution of attached immovable property by payment of cash/security under the Rules Legal framework: Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties by the Adjudicating Authority) Rules, 2013 - Rule 5 prescribes manner for taking possession of immovable property; Rule 4 governs movable property including provisions allowing acceptance of fixed deposit receipts/security in lieu of movable assets. Precedent treatment: The Tribunal applied the plain text of Rules 4 and 5; a comparative allowance of substitution for movable property was noted (Rule 4(2) provisos) but no parallel provision exists for immovable property under Rule 5. Interpretation and reasoning: Rule 5(1)-(2) details recording, registrar notice, eviction and taking possession of immovable property; there is no provision authorizing substitution of immovable property by cash or other security. By contrast, Rule 4 explicitly contemplates substitution/security for movable property (e.g., vehicles) via fixed deposit receipts in the name of Director of Enforcement. The Tribunal reasoned that statutory scheme therefore does not permit substitution of immovable property by payment even where occupants offer cash, and cited this difference to deny the substitution application. Ratio vs. Obiter: Ratio - substitution of attached immovable property by payment or security is not permissible under the Rules; substitution provisions exist for movable property only. Obiter - illustration comparing release of a motor vehicle on deposit was used to explain the statutory distinction. Conclusion: Applications seeking substitution of the attached house by payment of determined proceeds were rejected as not permissible under the Rules. Issue 5 - Effect of prior deposits of occupation/user charges and requests to adjust/deduct such payments from proceeds or waive further charges Legal framework: Orders under Section 8(4) PMLA permit issuance of eviction notices; Tribunals may stay eviction subject to user/occupation charges allowing occupants to continue possession pending proceedings; attachment secures property for potential confiscation upon conviction. Precedent treatment: The Tribunal treated its earlier conditional stay and monthly user charges as a separate, interim regime permitting continued enjoyment in exchange for payment; such payments do not operate as equivalent to purchase or security for substitution of immovable property. Interpretation and reasoning: The Tribunal found the occupation/user charges were imposed to allow continued possession after service of eviction notice; payments made by the appellant were thus consideration for continued occupancy, not payments towards the proceeds of crime or a substitute security enabling release of the attached property. The statutory scheme aims to secure attached property pending final adjudication and potential confiscation; permitting deduction/substitution would undermine that statutory object, especially with criminal trials pending. Ratio vs. Obiter: Ratio - payments of occupation/user charges ordered as condition for staying eviction do not entitle the payor to deduction against determined proceeds of crime nor permit release/substitution of immovable property; such payments do not substitute statutory attachment. Obiter - references to COVID hardship and cumulative sums paid are noted but insufficient to alter prescription under the Rules. Conclusion: Applications seeking adjustment/deduction of occupation/user charges against proceeds or seeking waiver were dismissed; prior deposits do not entitle to release/substitution of the immovable property while proceedings remain pending. Overall Conclusion The Tribunal dismissed the appeal, holding that (a) the impugned immovable property is proceeds of crime to the quantified extent; (b) investigative and documentary record sufficed to support the finding despite certain evidentiary gaps claimed by the appellant; (c) substitution of immovable property by payment/security is not permitted under the Rules whereas substitution provisions exist for movable property; and (d) occupation/user charges already paid do not operate to discharge or substitute the attachment or permit release of the property while criminal proceedings are unresolved.