2025 (10) TMI 268 - AT - Money Laundering

Appeal dismissed; attachment of four properties upheld as proceeds and equivalent value after illicit funds siphoned through group companies

AT dismissed the appeal. The tribunal upheld attachment of four properties in a money-laundering case: two acquired during the period of the predicate ... Money Laundering - property purchased out of any proceeds of crime or not - source of funds for acquiring the properties are explained - predicate/schedule offence - HELD THAT:- Admittedly, at present, appellant Surendra Tiwary is facing trial along with co-accused persons in predicate offence and his wife Smt. Savitri Devi is also arrayed as an accused along with Shri Surendra Tiwary in prosecution complaint case. Seeing the fact that appellant Surendra Tiwary is facing the trial, this Appellate Tribunal cannot appreciate the quality of evidence collected by the investigation agencies, as it may seriously prejudice the interest of the either party during the trial. Further, the police/CBI has to conduct the investigation for the commission of the predicate/schedule offence and ED is not empowered to re-investigate the same. Seeing the fact that the present appellant Surendra Tiwary along with other co-accused persons committed the fraud to the extent of about Rs. 2.5 crores during the period from 2011 to 2013. Out of the four attached properties, two properties were purchased in August, 2011 and December, 2011. Accordingly, these two properties are apparently purchased by the appellants from the proceeds of crime. The property at SL. No. 3 and 4 were purchased in December 2010 and September 2007, respectively. Even if, it is presumed that these two properties are not purchased from the proceeds of crime, even then, in absence of the said proceeds of crime, these two properties can also be attached as value thereof under the second limb of the definition of “proceeds of crime” under Section 2(1)(u) of the Prevention of Money- Laundering Act, 2002. The judgment of the Apex Court in the case of Smt. Pavana Dibbur vs The Directorate Of Enforcement [2023 (12) TMI 49 - SUPREME COURT] has also been considered. However, findings given by three judges Bench of the Apex Court in the Vijay Madanlal Choudhary Vs. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)] has been relied to give interpretation to the definition. In the light of the above, we find no force in the first 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. The proceeds were siphoned off by diverting it to various group companies 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. 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 can be 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. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the attached immovable properties can be held to be 'proceeds of crime' under Section 2(1)(u) of the Prevention of Money-Laundering Act, 2002 (PMLA), where acquisition dates pre-date or coincide with the period of the predicate offences. 2. Whether properties not directly traceable to the identified tainted proceeds may be attached as 'the value of any such property' or 'property equivalent in value' under the second limb of Section 2(1)(u) PMLA when actual proceeds have been siphoned off or dissipated. 3. The scope of the Enforcement Directorate's (ED) investigation under PMLA vis-à-vis the police investigation of the predicate/scheduled offences and whether the Appellate Tribunal may re-appreciate the quality of evidence collected by investigating agencies while trial on the predicate offence is pending. 4. Whether claimants who assert independent sources for acquisition (ITRs and other documents) discharged the onus to defeat attachment when allegations of laundering and conspiracy are sustained by the ED's material. ISSUE-WISE DETAILED ANALYSIS - I. Attachment as 'Proceeds of Crime' under Section 2(1)(u) PMLA Legal framework: The definition of 'proceeds of crime' in Section 2(1)(u) PMLA encompasses (i) property derived or obtained directly or indirectly from criminal activity relating to a scheduled offence; (ii) the value of any such property; and (iii) where property is held outside India, property equivalent in value within India. The statute includes an Explanation clarifying that proceeds include property indirectly derived from the scheduled offence. Precedent treatment: The Tribunal relied on authoritative judicial pronouncements interpreting the second limb of the definition, including the principle that untainted property may be proceeded against as equivalent in value where the actual tainted property cannot be traced, subject to safeguards articulated in earlier decisions (as discussed with reference to Axis Bank and subsequent High Court and Supreme Court reasoning). Interpretation and reasoning: The Tribunal analyzed acquisition dates of the attached properties (two acquired during 2011 when frauds aggregating approx. Rs. 2.5 crores occurred; two acquired earlier in 2010 and 2007). Noting that proceeds were siphoned off and layered through group entities, the Tribunal held that where actual tainted property cannot be located, ED is entitled to attach other properties as equivalent in value under the second limb. The Tribunal emphasized that ED need only establish prima facie incriminating evidence linking the accused to the scheduled offence and the generation or likely laundering of proceeds; it is not required to re-investigate the predicate offence. Ratio vs. Obiter: Ratio - Properties purchased during the period of the scheduled offence may be prima facie regarded as acquired from proceeds of crime; where tainted proceeds are dissipated, properties (including those acquired prior to the offence) may be attached as equivalent in value under the second limb of Section 2(1)(u) if statutory safeguards and tests (as articulated in precedent) are satisfied. Observational/obiter references were made to broader jurisprudence clarifying conditions under which pre-offence acquisitions may be vulnerable. Conclusion: The Tribunal concluded that the two properties acquired in 2011 are apparently acquired from proceeds of crime; the other two properties, though acquired earlier, can be attached as value equivalent because proceeds were siphoned and not available, applying the second limb of Section 2(1)(u). The contention that pre-offence purchases were immune was rejected. ISSUE-WISE DETAILED ANALYSIS - II. ED's Investigative Scope and Appellate Review While Predicate Trial is Pending Legal framework: PMLA investigation focuses on (i) prima facie incriminating evidence of commission of scheduled offence; (ii) generation of proceeds of crime; (iii) laundering or likely laundering of those proceeds; (iv) layering/trail of proceeds; (v) identification of other properties when proceeds are dissipated; and (vi) genuineness of claimants of attached properties. ED is not empowered to re-investigate the predicate scheduled offence, which is the province of police/CBI. Precedent treatment: The Tribunal cited established separation of functions between investigating agencies for scheduled offences and ED's statutory mandate to investigate money-laundering aspects. Judicial guidance approving limited enquiry by ED at the attachment stage was followed. Interpretation and reasoning: Given the pendency of the predicate trial, the Tribunal declined to re-appreciate the quality of police evidence so as to prejudice trial rights of either party. The Tribunal confined its review to whether ED satisfied itself on the points specified above for attachment. This approach prevents overlap with the trial and respects investigatory boundaries. Ratio vs. Obiter: Ratio - Appellate authority should not re-weigh or probe the full quality of evidence gathered for the predicate offence while trial remains pending; its role is confined to assessing whether ED's prima facie satisfaction and statutory tests for attachment under PMLA are met. Obiter - commentary on potential prejudice to trial and limits on ED's power reinforced the approach. Conclusion: The Tribunal held that it could not reassess the evidentiary quality of the predicate investigation; instead it evaluated the ED material on the statutory parameters and found the ED's satisfaction and attachment were justified. ISSUE-WISE DETAILED ANALYSIS - III. Burden on Claimants and Sufficiency of Explanations (ITRs and Documents) Legal framework: Once ED demonstrates prima facie nexus between accused and proceeds/ laundering activity, claimants bearing title must prove genuineness of their claim and independent source of funds to defeat attachment; ED may attach property as proceeds or value equivalent unless claimants satisfactorily rebut the statutory inference. Precedent treatment: The Tribunal applied the settled principle that mere production of transactional documents or ITRs does not automatically negate laundering allegations if ED's material shows siphoning, layering and dissipation of proceeds. Precedents cited allow attachment where claimants are part of or connected to conspiracy or fail to establish bona fide independent acquisition. Interpretation and reasoning: The Tribunal considered appellants' reliance on ITRs and other documentary replies but found ED's material sufficiently indicative of acquisition from laundered proceeds (particularly for properties acquired during the fraud period) and of dissipation of proceeds necessitating attachment of equivalent value properties. The Tribunal observed absence of cogent documentary proof that would displace ED's prima facie case or show non-involvement in conspiracy. Ratio vs. Obiter: Ratio - Claimants must satisfactorily establish bona fide independent source and disentangle the impugned acquisition from proceeds of crime to defeat attachment; production of some documents alone is not conclusive. Obiter - remarks on the adequacy of specific documents in the record are contextual to the facts. Conclusion: The appellants' explanations and produced documents did not meet the threshold to overturn ED's prima facie satisfaction; attachment was therefore sustained. FINAL CONCLUSION The Tribunal dismissed the appeals as devoid of merit, upholding confirmation of attachment under PMLA: (a) properties acquired during the period of the scheduled offences were found to be apparently from proceeds of crime; (b) properties acquired prior to the offences could be attached as equivalent value where tainted proceeds were siphoned off and not traceable; and (c) the Tribunal refrained from re-appreciating the quality of predicate investigation evidence while trial is pending, limiting its review to ED's statutory satisfaction and material.