2025 (9) TMI 482 - AT - Money Laundering

PMLA schedule applies from date proceeds become untainted, 2009 amendment covers alleged period; pre-offence assets treated as proceeds with safeguards

Smt. Taijunnehar Bibi and Iltush Ahammed Versus The Joint Director Directorate of Enforcement, Kolkata

AT dismissed the appeals. It held the relevant date for applying the PMLA schedule is when proceeds are projected to be untainted (triggering ECIR), ... Money Laundering - provisional attachment of properties - scheduled offences - offences punishable u/s 120B, 419, 420, 467, 468, 471 of IPC, 1860 and Sections 11, 12 & 13(2) read with Section 13(1)(d) of Prevention of Corruption Act, 1988 - applicability of amendment in the schedule to PMLA, 2002 w.e.f. 01.06.2009 with retrospective effect to cover the said period of commission of scheduled offence - investments in properties made by the appellants prior to the alleged period of offence are covered within the definition of proceeds of crime or not - merely filing of chargesheet before CBI Court, is no ground to believe regarding the commission of alleged fraud, in absence of any independent investigation by ED - Stressed immovable assets by appellant is covered within the definition of scheduled offence as defined in section 2 (y)(ii) of PMLA, 2002 or not. Whether the amendment in the schedule to PMLA, 2002 w.e.f. 01.06.2009 can be made applicable with retrospective effect to cover the said period of commission of scheduled offence? - HELD THAT:- The relevant date is a date when the tainted property is projected to be untainted and as a consequence to it, the ECIR is recorded showing offence under Section 3 of the 2002 Act. The relevant date to find out the scheduled offence and the offence of money laundering is when it is projected to be untainted property to make out an offence under section 3 of the Act of 2002. The issue aforesaid has been decided by Hon’ble High Court of Karnataka, in the case of Dyani Antony Paul vs Union Of India [2020 (12) TMI 1296 - KARNATAKA HIGH COURT] where it was held that 'The main object of PML Act is to ascertain the proceeds of crime which involved in money laundering and attachment, confirmation and confiscation of the proceeds of crime in the form of properties and also to punish the offenders of money laundering. The date of acquisition of properties is immaterial but the date of projecting the proceeds of crime as untainted properties would only have to be ascertained by conducting investigation.' Thus, the relevant date to find out offence of money laundering is when proceeds is projected to be untainted property. Whether the investments in properties made by the appellants prior to the alleged period of offence are not covered within the definition of proceeds of crime? - HELD THAT:- The three limbs of the definition of 'proceeds of crime' out of which first part refers to the property acquired or derived directly or indirectly by a person relating to the criminal activity to a scheduled offence. The second part includes “the value of any such property”. The second part is generally mixed with third part for giving interpretation. However, an elaborate judgment on the issue has been given by the Delhi High Court in the case of Prakash Industries Ltd. v. Directorate of Enforcement [2022 (7) TMI 877 - DELHI HIGH COURT] where it was held that 'However, enforcement action against such properties would have to satisfy the tests and safeguards as propounded in Axis Bank with the learned Judge observing that in such a situation it would have to be established that the person accused of money laundering had an interest in such property at least till the time that he indulged in the proscribed criminal activity. The learned Judge further observed that bona fide rights acquired by third parties prior to the commission of the predicate offense would stand saved.' Further, this Tribunal has also given an elaborate judgment on the issue in the case of Sadananda Nayak Versus The Deputy Director, Directorate of Enforcement, Bhubaneswar [2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI] where all the judgments on the issue have been considered and thereby this issue was decided in favour of ED. There are no force in the argument 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, even though it might have been purchased prior to the commission of schedule offence. In the light of the aforesaid, second limb of the definition of “proceeds of crime” has been correctly applied to attach the property of equivalent value. Thus, this ground raised by the appellants cannot be accepted. Whether merely filing of chargesheet before CBI Court, is no ground to believe regarding the commission of alleged fraud, in absence of any independent investigation by ED and thereby, attaching the properties in absence of any evidence to substantiate this allegation? - HELD THAT:- The police/CBI has to conduct investigation for the commission of the predicate/schedule offence and ED is not empowered to re-investigate the same - this contention is also decided against the appellant and in favour of ED. Stressed immovable assets by appellant is covered within the definition of scheduled offence as defined in section 2 (y)(ii) of PMLA, 2002 or not - HELD THAT:- It is not agreed with the contention of the Ld. Counsel for the appellants in this regard, as the total assets of both the appellant and her husband are ₹10,09,000 + ₹43,66,450= ₹53,75,450/-, against the unearth proceeds of crime to the extent of ₹ 5.24 crores, by committing fraud with Indian Overseas Bank. It is the quantum of fraud not the quantum of property, which is relevant to attract scheduled offence as defined in section 2 (y)(ii) of PMLA, 2002 - this contention is also decided against the appellants. The present appeals are hereby dismissed being devoid of any merits, with liberty to the victim Indian Overseas Bank to stake its claim as per law. However, it is made clear that nothing expressed herein will affect the merits of the criminal trials and the appellants are at liberty to lead their defence as per law - Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the amendment to the Schedule of the Prevention of Money-Laundering Act (PMLA) effective 01.06.2009 can be applied retrospectively so as to cover acts said to have been committed between 13.06.2005 and 16.06.2007 (i.e., whether the relevant date for invoking PMLA is the date of the predicate offence or the date of the money-laundering activity/projection of proceeds as untainted property). 2. Whether immovable properties acquired prior to the alleged period of the predicate offences can be treated as 'proceeds of crime' or as property equivalent in value under the definition of 'proceeds of crime' in Section 2(1)(u) of PMLA. 3. Whether the Directorate of Enforcement (ED) may confirm provisional attachment relying upon the criminal investigative agency's charge-sheet/allegations without conducting an independent reinvestigation of the predicate offence (i.e., sufficiency of reliance on the investigating agency's materials for attachment under PMLA). 4. Whether the quantum/extent of immovable assets held by an accused (or accused and spouse taken together) falls short of the threshold required to attract scheduled offence treatment under PMLA, in circumstances where the alleged fraud amount is substantially larger. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Temporal applicability of Schedule amendment; relevant date for PMLA offences Legal framework: The Court examined Section 3 (offence of money-laundering), the concept of 'scheduled offence,' and the effect of amendment to the Schedule to PMLA introduced w.e.f. 01.06.2009; constitutional protection against ex post facto criminal law (Article 20 concept) was noted as background. Precedent treatment: The Tribunal followed authoritative judicial pronouncements of higher fora holding that the offence of money-laundering is independent and may be a continuing offence; the relevant date is when the proceeds are projected/treated as untainted (i.e., date of the alleged money-laundering activity) and not necessarily the date of commission of the predicate offence. The Tribunal relied on both High Court and Supreme Court reasoning to that effect. Interpretation and reasoning: The Tribunal reasoned that Article 20 does not preclude prosecution under PMLA for laundering activities occurring after the laundering act occurred, even if the predicate offence predates inclusion in the Schedule; what matters is whether the accused engaged in the process/activity (concealment, possession, acquisition, use, or projection as untainted property) constituting money-laundering. The date of projecting proceeds as untainted property is the relevant date for invoking the Act. The Tribunal held that the amendment is not required to be retrospective to capture money-laundering that continued or was consummated after the Schedule addition, because the offence of money-laundering by its nature can continue and be prosecuted based on the date of the laundering act. Ratio vs. Obiter: Ratio - the temporal test for PMLA is the date of the money-laundering act/when proceeds are projected as untainted property (not solely the date of the predicate offence); held to be determinative for applicability of the Schedule/amendment. Supporting authorities were treated as binding/precedential for this proposition. Conclusion: The Tribunal rejected the appellants' contention that the Schedule amendment could not be applied; the first issue was held devoid of merit. Issue 2 - Treatment of properties acquired before the predicate offence as proceeds of crime or property equivalent in value Legal framework: Definition of 'proceeds of crime' under Section 2(1)(u) of PMLA was examined, including its limbs: (i) property derived or obtained directly/indirectly by reason of criminal activity relating to a scheduled offence; (ii) the value of any such property; and the explanatory inclusion of property indirectly derived. Precedent treatment: The Tribunal considered prior judicial analysis addressing (a) attachment of property acquired prior to the predicate offence where tainted property cannot be traced (leading to attachment of property 'equivalent in value'), and (b) safeguards protecting bona fide third-party rights and the necessity of establishing continuing interest or connection. The Tribunal followed the line of authority allowing attachment of untainted property as equivalent value when actual proceeds are dissipated, subject to tests and safeguards previously propounded. Interpretation and reasoning: The Tribunal held that where proceeds of crime have been siphoned off, layered, or otherwise dissipated and cannot be traced, the second limb (value of any such property / property equivalent in value) may be invoked to attach properties of equivalent value, even if those properties were acquired prior to the predicate offence. The Tribunal found material on record indicating siphoning and layering into group entities and therefore concluded that attachment of properties of equivalent value was justified. The Tribunal also noted that the quantum relevant for invoking the definition is the amount of unearned proceeds (extent of fraud), not the absolute quantum of assets held by a specific accused, and relied on apex jurisprudence recognizing the wide ambit of 'proceeds of crime.' Ratio vs. Obiter: Ratio - properties acquired before the predicate offence can be proceeded against as property equivalent in value where tainted property cannot be located and there is prima facie material of dissipation/layering; safeguards and tests (e.g., interest of accused, bona fide third-party rights) remain applicable. The Tribunal applied and followed this ratio. Conclusion: The Tribunal rejected the appellants' argument that pre-offence acquisitions immunized the properties; attachment under the second limb of Section 2(1)(u) was upheld. Issue 3 - Reliance on charge-sheet/materials of the investigating agency and scope of ED's investigation Legal framework: The Tribunal outlined ED's investigative remit under PMLA as distinct from the police/CBI role: ED need not re-investigate the predicate scheduled offence but must satisfy itself on points necessary for money-laundering investigation. Precedent treatment: The Tribunal adhered to the established approach that ED can rely on investigative materials of the investigative agency (e.g., CBI/Police) insofar as ED's statutory functions require examination of prima facie incriminating evidence, generation/trail/dissipation of proceeds, mode of layering, alternative properties for attachment, and genuineness of claimants. Interpretation and reasoning: The Tribunal specified non-exhaustive factors ED must consider: (i) prima facie incriminating evidence of scheduled offence; (ii) whether proceeds were generated; (iii) whether proceeds were or likely to be laundered; (iv) mode of layering/trail; (v) dissipation and availability of alternative properties; and (vi) genuineness of claimants. The Tribunal held that ED is not obliged to re-investigate predicate offences but must form an opinion based on available materials addressing these points; reliance on the charge-sheet and investigation material without a fresh CBI-style reinvestigation is permissible for attachment purposes. Ratio vs. Obiter: Ratio - ED's reliance on the investigating agency's materials is permissible for attachment/confirmation if ED's investigation establishes the enumerated points; absence of independent reinvestigation of the predicate offence by ED is not a ground to invalidate attachment if ED has properly considered the relevant factors. This was applied to dismiss the contention. Conclusion: The Tribunal found no merit in the contention that attachment was improper because ED relied upon the criminal agency's chargesheet rather than conducting a fresh probe; attachment confirmation was sustained. Issue 4 - Relevance of the quantum of immovable assets of an accused relative to the quantum of alleged fraud Legal framework: Interpretation of the notion of 'scheduled offence' and the test for invoking attachment - the Tribunal contrasted the amount of alleged proceeds with the manifest assets. Precedent treatment: The Tribunal relied on precedent articulating that it is the magnitude of proceeds of crime (the fraud/the unearthing) that is relevant for treating an activity as a scheduled offence matter, not the isolated quantum of assets held by an accused at a point in time. Interpretation and reasoning: The Tribunal observed that the combined assets of the accused and spouse, when considered against the alleged misappropriation/ fraud amount, were insufficient to defeat the inference of laundering and attachment of equivalent value; the relevant metric is the unearthing of proceeds of crime (Rs. 5.24 crores) rather than the individual's asset total. Accordingly, the appellant's argument that relatively small asset holdings precluded PMLA action was rejected. Ratio vs. Obiter: Ratio - the quantum of the predicate fraud/proceeds is the relevant yardstick for invoking PMLA attachment powers; smaller aggregated personal assets do not preclude attachment where proceeds have been siphoned/dissipated and equivalent value attachments are warranted. Conclusion: The contention that low quantum of immovable property held by one accused precluded application of PMLA was rejected. Final Disposition In view of the foregoing analyses on Issues 1-4, the Tribunal dismissed the appeals as devoid of merit and affirmed confirmation of the provisional attachments, subject to the victim bank's liberty to stake its claim and without prejudice to the criminal trials and the appellants' right to defend on merits.