2025 (9) TMI 1088 - AT - Money Laundering

Provisional attachment of flat as proceeds of crime upheld after Rs.15 crore loan obtained with fabricated documents and misapplied funds

Shri Kommalapati Kishore Babu Versus The Deputy Director, Directorate of Enforcement, Hyderabad

AT upheld the provisional attachment of the flat as proceeds of crime, finding that a company obtained a Rs.15 crore credit facility using fabricated ... Money Laundering - proceeds of crime - provisional attachment order - commission of crime - thrust of the argument was that the flat was not purchased out of proceeds of crime and therefore the provisional attachment order is illegal - illegal gratification - HELD THAT:- The allegation that M/s Digital PC Technologies Limited mortgaged third party properties along with personal securities to obtain the credit facility of Rs. 15 Crores by submitting fake and fabricated documents to M/s GTFL in collusion with the appellant. The said amount was utilized by Shri Vijay Kumar Chanakya and Shri Addala Murthy for their personal benefits other than for the purpose mentioned at the time of obtaining the factoring facility. The appellant gained illegal gratification of Rs. 50 lakhs in the loan sanctioning process during the year 2008-2009 otherwise Shri Vijay Kumar Chanakya and Shri Addala pocketed an amount of Rs. 9 Crores from the total loan of amount of Rs. 15 Crores availed in the name of M/s Digital PC Technologies Limited. There are no illegality in the provisional attachment of the flat to protect the proceeds of crime in the hands of the appellant - appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the Provisional Attachment Order (PAO) in respect of a flat can be confirmed where the Adjudicating Authority found the property to be proceeds of crime in the hands of the respondent. 2. Whether disclosure of sources of acquisition (bank loan, family loan, chit fund and salary) and production of bank statements by the owner negate the characterization of the property as proceeds of crime. 3. Whether unexplained cash transactions and contemporaneous purchases during the period of alleged commission of crime justify provisional attachment despite some documentary proof of banking channel repayments. 4. Whether, even if a property is not shown to be directly or indirectly derived from proceeds of crime, provisional attachment may be sustained by treating the attachment as being for value equivalent to proceeds of crime under the Act of 2002. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of confirmation of the PAO where Adjudicating Authority found property to be proceeds of crime Legal framework: The Act of 2002 empowers provisional attachment of property that is proceeds of crime and authorizes the Adjudicating Authority to confirm such attachment to protect proceeds of crime. Precedent Treatment: No earlier judicial authorities were relied upon by the parties or the Tribunal in the order; the Tribunal resolved the matter on record-based findings. Interpretation and reasoning: The Tribunal noted that the allegation of receipt of illegal gratification existed and was not contested by the appellant. Statements in investigative records implicated the appellant as recipient of bribe during the period when the subject loan transaction occurred. The Adjudicating Authority's finding that the flat was proceeds of crime was therefore supported by the overall investigative material and unchallenged allegations concerning receipt and use of illicit funds. Ratio vs. Obiter: The conclusion that confirmation of PAO was not illegal insofar as the Adjudicating Authority treated the flat as proceeds of crime is ratio; it is a dispositive basis for upholding the attachment. Conclusion: The Tribunal finds no illegality in confirmation of the PAO on the ground that the flat was proceeds of crime in the hands of the appellant. Issue 2: Effect of disclosed sources and bank statements on characterization of the property as proceeds of crime Legal framework: An owner's disclosure of source and production of bank statements are relevant to determine whether an asset was acquired out of proceeds of crime; repayment and payment trails are material to attribution of funds. Precedent Treatment: Not invoked; Tribunal examined documentary record and bank statements directly. Interpretation and reasoning: The appellant produced a bank statement and asserted that the initial purchase consideration arose from a bank loan of Rs. 25 lakhs, a Rs. 3 lakh loan from a relative, salary receipts, and a chit fund contribution. The Tribunal accepted that certain repayments were made through banking channels and that the bank statement supported repayment by instalments through banks rather than wholly by cash, undermining the respondent's contention that repayments were cash-based and therefore necessarily proceeds of crime. Ratio vs. Obiter: The Tribunal's acceptance that some repayment evidence via banking channels weakens a pure cash-proceeds inference is part of its core findings (ratio) to the extent it rebutted the respondent's specific contention about cash repayments. Conclusion: The appellant successfully demonstrated, to the Tribunal's satisfaction, that repayments of the bank loan were effected through banking channels and not entirely in cash; this evidence limited the strength of the respondent's specific cash-repayment argument. Issue 3: Relevance of unexplained cash transactions and contemporaneous purchases to justify attachment Legal framework: Unexplained cash receipts or transactions in the owner's account during the relevant period, and asset acquisitions contemporaneous with the alleged commission of crime, are relevant indicia of proceeds of crime. Precedent Treatment: No prior decisions were treated as controlling; the Tribunal relied on factual matrix and investigative findings. Interpretation and reasoning: Despite some banking evidence favoring the appellant, the Tribunal identified unexplained cash transactions reflected in the appellant's account which remained unclarified. The investigative record showed purchase of a car with payment during the alleged offence period and allegations of other property transactions with cash margins. The unchallenged allegation of receipt of Rs. 50 lakhs as bribe, combined with these unexplained cash entries and contemporaneous purchases, permitted an inference that at least some part of the assets/transactions related to proceeds of crime. Ratio vs. Obiter: The finding that unexplained cash transactions and contemporaneous asset purchases support provisional attachment is ratio with respect to upholding the PAO on the existing record. Conclusion: The presence of unexplained cash transactions in account records and contemporaneous acquisitions during the period of alleged criminality furnished sufficient basis to sustain provisional attachment despite partial documentary proof of lawful source. Issue 4: Permissibility of attachment for value equivalent when property is not shown to be direct/indirect proceeds of crime Legal framework: The definition of 'proceeds of crime' and the attachment provisions under the Act of 2002 permit attachment to protect proceeds, including attachment of property of a value equivalent to proceeds of crime where direct tracing may be absent. Precedent Treatment: The Tribunal applied statutory principle rather than specific precedent. Interpretation and reasoning: The Tribunal held that even if the flat were not established to have been purchased directly or indirectly from proceeds of crime, the statutory scheme allows securing proceeds by attaching property of equivalent value. Given the unchallenged allegation of receipt of illicit gratification of Rs. 50 lakhs and availability of the flat of approximate value Rs. 30 lakhs in the appellant's hands, provisional attachment to that value was permissible to protect the State's interest in recovering proceeds. Ratio vs. Obiter: The holding that attachment may be sustained as attachment for value equivalent to proceeds of crime is a central ratio of the decision and determinative of the appeal's disposition. Conclusion: Attachment of the flat may lawfully be sustained as an attachment for value equivalent to the alleged proceeds of crime; consequently, the Tribunal upheld the confirmation of the PAO but substituted the characterization of the attachment to be for value equivalent rather than strictly as direct proceeds. Cross-References See Issue 2 and Issue 3: The Tribunal balanced admissible banking evidence showing repayment by banking channel (Issue 2) against unexplained cash transactions and contemporaneous asset purchases (Issue 3) and found the latter sufficient, in conjunction with unchallenged bribery allegations, to uphold attachment. Final Disposition The Tribunal upheld the Adjudicating Authority's confirmation of the provisional attachment, substituting the basis to attachment for value equivalent to proceeds of crime; no interference with the impugned order was warranted on the record before the Tribunal.