2025 (10) TMI 887 - AT - Money Laundering

Appeal dismissed; provisional attachment upheld over undisclosed Rs.12 crore kickbacks traced via shell construction entities, equivalent-value attachment affirmed

AT dismissed the appeal and upheld the provisional attachment. Tribunal found sufficient material showing the appellant received kickbacks routed through ... Money Laundering - Provisional Attachment Order - property purchased by J&K Bank at Bandra Kurla Complex at a very high price simply to confer undue benefit to the vendor for kickback - HELD THAT:- The issue has to be analyzed taking into consideration of the source to acquire the property as is required to be satisfied on notice under Section 8(1) of the Act of 2002. The statement of the witness was otherwise enough to show that appellant remained the recipient of the kickback for purchase of the property at Mumbai. The proceeds were routed through M/s AMR Constructions Pvt. Ltd. and the shell companies at Kolkata and then involving the CAs, the payment was passed on to the employee of Nihal Garware, namely, Santosh Borkar and the fact further remains that the appellant failed to disclose the source for a sum of Rs. 12 Crores. It is not found that the material available on record needs further analysis. The counsel for the appellant then referred to the receipt of Rs. 1 Crore through proper channel out of which Rs. 10 lakhs was received from M/s Atharva Business Pvt. Ltd. It was against the loan advanced by the said Company and repaid on 07.07.2014. The appellant failed to produce the document to show advance of Rs. 10 Lakhs from M/s Atharva Business Pvt. Ltd., rather the burden was passed on to the respondents to prove it and for that they failed to summon M/s Atharva Business Pvt. Ltd. and even no document from them was found. So far as the receipt of Rs. 20 Lakhs from Jagruti Bharat Shah is concerned, it was submitted that the amount of Rs. 6 Lakhs and Rs. 4 Lakhs were advanced to the Company and repaid on the very next day and thereby multiplying the amount, ED quantified Rs. 20 Lakhs as direct proceeds of crime - a proper analysis of the fact was made by the respondents for the route of the amount of Rs. 1 Crore to be direct proceeds of crime. The facts aforesaid are borne out from the statement of Jagruti Bharat Shah and other statements for which no explanation or response could be given. In the light of the facts aforesaid, we do not find that the appellant remained successful to disclose the source for purchase of property. Reference made to the judgment of the Madras High Court in the case of G. Gopalakrishnan Vs. The Deputy Director, Directorate of Enforcement & Ors. [2019 (1) TMI 1916 - MADRAS HIGH COURT] where it has been held that Section 8(1) of the Act of 2002 does not contemplate recording reasons to believe in writing and to be served. At this stage, it would be necessary to indicate that the definition of `proceeds of crime’ does not mean only when it is obtained or derived directly or indirectly out of the scheduled offence, rather it can be when the proceed acquired or derived out of the scheduled offence is not available or vanished, then the property of equivalent value can be attached. In that case also, such a property would fall in the definition of `proceeds of crime’. Thus, what can be attached is the property of equivalent value when the proceed obtained or derived directly or indirectly out of the commission of crime is not available or vanished. It is obviously after confirming the fact that non-attachment is likely to vitiate the proceedings of confiscation. The appellant has made an allegation of political vendetta in view of the close association of Nihal Garware with the present Chief Minister Mr. Omar Abdullah. There is no material on record to prove the allegation. The allegations of mala fide are made easily but in absence of proof, it cannot be accepted. There are no merit in the appeal on any of the grounds raised by the appellant - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Provisional Attachment Order under Section 5(1) of the Prevention of Money Laundering Act, 2002 was validly made where the authority purportedly had 'reasons to believe' but the recording and service of those reasons was challenged. 2. Whether the requirement of the second proviso to Section 5(1) (urgency / apprehension of alienation or concealment) was satisfied such as to justify provisional attachment in the absence of an immediate threatened alienation. 3. Whether the material on record (including confessional/statements recorded under Section 50(2) & (3), banker/transactional records, and the alleged money-trail through intermediary entities) furnished cogent and tangible evidence to form a belief that the attached property was proceeds of crime or of equivalent value. 4. Whether reliance on statements of co-accused / chartered accountants (notably the statement of Bharat Shah) without independent corroboration was sufficient to support provisional attachment. 5. Whether the appellant's disclosed sources for acquisition of the impugned property (bank statements, corporate purchase, alleged professional receipts) were satisfactorily proved to rebut the attachment. 6. Whether allegations of mala fide / political vendetta vitiate the attachment in absence of supporting material. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of 'reasons to believe' under Section 5(1) Legal framework: Section 5(1) PMLA permits provisional attachment where the authorized officer has 'reasons to believe' property is proceeds of crime; those reasons are to be recorded in writing. Section 8(1) prescribes show-cause procedure but does not mandate service of the reasons to believe. Precedent treatment: The Tribunal examined authorities including the Supreme Court's directions in Vijay Madanlal Choudhary (regarding requirement of recorded reasons), and High Court judgments interpreting whether Section 8(1) contemplates written reasons being served. The Tribunal relied on Deoki Nandan Aggarwal to caution against judicial re-writing of statutes and on a Madras High Court decision holding Section 8(1) does not mandate serving reasons to believe. Interpretation and reasoning: The Tribunal found that detailed reasons to believe were served with the show-cause notice although Section 8(1) does not require it; the Adjudicating Authority had provided, and the appellant had access to, the reasons. The Tribunal rejected the contention that the provisional order merely reproduced statutory language and held that the notice and records contained adequate reasons to satisfy Section 5(1) and enable adjudication. Ratio vs. Obiter: Ratio - where the show-cause notice is supported by a detailed record and the recorded satisfaction is available for inspection, procedural objection of non-service of separate reasons does not vitiate provisional attachment. Obiter - references to wider doctrinal limits on judicial re-writing of statutes. Conclusion: The challenge on ground of non-recording/non-service of reasons to believe is not sustained; the Tribunal upholds the validity of the recorded reasons for provisional attachment under Section 5(1). Issue 2 - Application of second proviso to Section 5(1) (urgency / apprehension of alienation) Legal framework: Second proviso to Section 5(1) permits attachment where there is apprehension of alienation/ concealment likely to frustrate confiscation; proviso contemplated urgency but does not require proof that alienation is imminent at the moment of attachment. Precedent treatment: Tribunal considered jurisprudence warning against mechanical application of provisos and accepted that apprehension can be prospective; relied upon prior Tribunal and High Court reasoning distinguishing requirement of immediate past act versus reasonable apprehension. Interpretation and reasoning: The Tribunal reasoned that apprehension of alienation is inherent in many property contexts (property can be transferred anytime), so the statutory language contemplates attachment where such apprehension reasonably exists. Given the money-trail and risk of dissipation, the proviso was held attracted. Ratio vs. Obiter: Ratio - provisional attachment may be justified by reasonable apprehension of alienation even if there is no proof of immediate transfer; such apprehension must be evaluated on materials forming the reasons to believe. Conclusion: The second proviso did not invalidate the attachment on facts; urgency/apprehension requirement was considered satisfied. Issue 3 - Sufficiency of material to treat property as proceeds of crime / equivalent value Legal framework: 'Proceeds of crime' includes (i) property directly/indirectly derived from scheduled offences, (ii) where such proceeds are not available, property of equivalent value; provisional attachment requires tangible, credible evidence connecting person and property to money-laundering activity (Vijay Madanlal Choudhary principles). Precedent treatment: The Tribunal reviewed and distinguished decisions (Seema Garg, Axis Bank, Prakash Corporates) on the second limb and on attachment of equivalent value; it relied foremostly on the Supreme Court's Vijay Madanlal Choudhary guidance that reasons must be supported by material and belief must be cogent evidence-based. Interpretation and reasoning: The Tribunal recited the alleged money-trail: instruction for illegal gratification, issuance of cheques to intermediary (AMR Construction), conversion into cash via network of CAs and angadias, accommodation entries into companies controlled by the appellant, and use of such routed funds in acquiring the impugned property. The Tribunal examined bank records of the holding companies, found absence of independent corroboration for the appellant's claimed source (no trace of Rs. 8.25 Crore purported personal funds at execution of sale deed), and noted admissions/statements by intermediaries (including Bharat Shah) describing conversion operations. On cumulative appraisal, the Tribunal held the material sufficed to form belief that the property was derived from proceeds or equivalent value of the scheduled offence. Ratio vs. Obiter: Ratio - provisional attachment permissible where cumulative evidence (transactional trail, intermediary admissions, failure of accused to satisfactorily prove lawful source) yields cogent reasons to believe property is proceeds of crime or of equivalent value; absence of complete final quantification does not preclude provisional attachment pending further investigation. Conclusion: The Tribunal concluded the authority had tangible and credible material to treat the property as proceeds/equivalent value and upheld attachment on this ground. Issue 4 - Reliance on statements of co-accused / CAs (corroboration question) Legal framework: Statements under Section 50(2)/(3) are admissible and can constitute material; however, weight depends on corroboration and surrounding evidence. Precedent treatment: The Tribunal acknowledged that reliance on self-serving/confessional statements requires caution but may be permissible when supported by other records and consistent money-trail. Interpretation and reasoning: The Tribunal accepted Bharat Shah's detailed account of the routing and conversion of cheques to cash and his admissions about arranging accommodation entries. Although the appellant contested lack of independent corroboration, the Tribunal found corroboration in bank entries, sequence of transactions, intermediary names, and the appellant's failure to account for the claimed lawful source. The Tribunal therefore treated Bharat Shah's statement as significant and reasonably corroborated by documentary and circumstantial material. Ratio vs. Obiter: Ratio - statements of intermediaries/co-accused, if detailed and buttressed by transactional/material evidences and inconsistencies in the accused's explanation, can supply sufficient basis for provisional attachment. Conclusion: Reliance on the statements (including Bharat Shah) was justified on the facts; such statements were not the sole basis but part of a cumulative material matrix supporting attachment. Issue 5 - Adequacy of appellant's disclosed sources for purchase of property Legal framework: Accused bears onus to produce credible documentary evidence (bank statements, transactional links) to establish legitimate source; mere assertion of professional receipts or corporate advances is not sufficient if records do not corroborate payments at requisite times. Precedent treatment: The Tribunal applied evidential standards consistent with prior PMLA jurisprudence requiring tangible documentary proof to rebut attachment. Interpretation and reasoning: The Tribunal examined bank statements of the holding companies and found no evidence of accumulation/transfer of the claimed Rs. 8.25 Crore at the time of the sale deed; payments cited were earlier and did not match sale execution timing. The Tribunal found the appellant failed to produce contemporaneous transfers to seller or documentary proof of the alleged loans/repayments from named entities (Atharva Business, Nakshatra, Jagruti Bharat Shah, Asha Suresh Shah), and some of these sources were contradicted or explained adversely in statements recorded under Section 50(2)/(3). Consequently, the appellant's proffered source was held unproved. Ratio vs. Obiter: Ratio - a disclosed source must be demonstrably traceable by contemporaneous banking/corporate documents to defeat provisional attachment; unsupported assertions and untimely/insufficient accounting do not discharge that evidential burden at the show-cause stage. Conclusion: The appellant did not satisfactorily establish legitimate source of funds; this failure reinforced the reasonableness of provisional attachment. Issue 6 - Allegation of mala fide / political vendetta Legal framework: Allegations of mala fide must be supported by cogent material; mere assertion of political association does not invalidate lawful investigatory action. Precedent treatment: Tribunal noted general principle that mala fide allegations require proof and cannot be presumed. Interpretation and reasoning: No material was produced to substantiate the claim of political vendetta. The Tribunal found the allegation unsubstantiated and declined to infer mala fides from the record. Ratio vs. Obiter: Ratio - unproven allegations of mala fide do not vitiate statutory attachment where reasons to believe and supporting material exist. Conclusion: The mala fide contention fails; no basis to set aside attachment on that ground. Overall Disposition The Tribunal concluded that (i) the reasons to believe were adequately recorded and available in the procedural record, (ii) the urgency/apprehension proviso did not invalidate attachment, (iii) cumulative material (statements, money-trail, failure to prove disclosed source) furnished cogent evidence to form belief that the property was proceeds of crime or of equivalent value, and (iv) allegations of mala fide were unsupported. The appeal was dismissed.