2025 (10) TMI 888 - AT - Money Laundering

Provisional attachment under s.5(1) PMLA upheld: provisos allow attachment as value; disputed property secured pending investigation

Shri Roop Singh Yadav, Smt. Shyama Devi and Shri Anil Yadav Versus The Deputy Director Directorate of Enforcement, Lucknow

AT upheld provisional attachment of properties under PMLA, holding that provisos to s.5(1) must be read with the main provision and allow attachment 'as ... Money Laundering - provisional attachment order - scheduled offence under the PMLA - attachment of the properties have been done as ‘value thereof’ in spite of invoking the second proviso to the Sub-Section 5(1) of PMLA - argument is that since the charge-sheet for the Scheduled offences had not been filed, the Respondent was compelled to invoke the second proviso without realizing that the statutory provision of second proviso required them to show that the property was ‘involved in money laundering’ for doing the attachment - HELD THAT:- On reading of Sub-Section 5(1) of PMLA, it is obvious that the provisos to the Sub-Section are to be read along with and in context of the main provisions of the Sub-Section. Reading of any of the proviso in isolation of the main provision will render the true import of the proviso as nugatory - the holistic reading of the provisions of Sub-Section 5 (1) of PMLA, allows for the attachment of the property as ‘value thereof’, even when the second proviso has been invoked for doing so. The meaning of money laundering as provided for in Section 3 of PMLA makes it clear that the laundering can only occur if there exist proceeds of crime. The argument raised by the Appellants that the impugned property Khata No. 31, Plot No. 225/1242 in Gautam Buddha Nagar in the name of the Appellant Smt. Shyama Devi was acquired on 10.09.2013, which was before the period of work on the two projects in the year 2015-16, could not have been attached in view of the judgment of the Hon’ble Supreme Court in the matter of Pavana Dibbur [2023 (12) TMI 49 - SUPREME COURT]. The only question that remains is whether merely because a property that has been acquired before the period of Scheduled Crime cannot be attached in the face of the aforementioned overwhelming evidence for drawing an inference that the wife seems to have provided her name to layer the proceeds of crime generated by her husband can probably best be answered, when the complete investigation report for the predicate offences is produced. Under such circumstances, particularly when, the Respondent Directorate has acted with prudence in attaching only one such property, the said impugned property should remain secured till the completion of the proceedings for the confiscation/release of the said property, so as not to defeat the objective of the Act of 2002. It may be pertinent to mention the Final Order dated 14.10.2024 of this Tribunal in Appeal No. FPA-PMLA-5162/BBS/2023 in the matter of Shri Sadananda Nayak vs. Deputy Director, Directorate of Enforcement, Bhubaneshwar [2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI]. The Appellant Shri Anil Yadav denied the allegations, mainly on the grounds, that his position of being Junior Engineer left no scope for him to take significant decisions which could put him in position to demand and receive bribe. The Appellant, however did not want to disclose his defence at this juncture as it may jeopardize his chances at subsequent stages in the trial before the Special Court. The Appellant tried to explain the acquisition of the three impugned properties in terms of loan availed from his brother and relatives and earnings of Rs. 4,00,000/- per year from the tuitions of his wife Smt. Mamta Devi. The Appellant contended that the properties were purchased prior to the period during which he has alleged to have received bribe. The Appellant has failed to corroborate his contentions by any evidence documentary or otherwise - The Appellant has failed to show any reason whatsoever for transfer of funds from a Company which is under investigation to his wife’s account. No evidence has been produced as to show that there was any business transactions between the said Company and his wife. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a provisional attachment under Section 5(1) PMLA can be made invoking the second proviso when the report under Section 173 CrPC/charge-sheet for the scheduled offence has not been filed. 2. Whether property held in the name of a spouse (acquired prior to the period of the scheduled offence) may be provisionally attached as the 'value thereof' of proceeds of crime under Section 5(1) PMLA. 3. Whether the material on record (statements under Section 50 PMLA, bank records, ITRs, audit/inquiry reports) can give the authorised officer 'reason to believe' that particular properties are involved in money-laundering to justify provisional attachment. 4. Whether a person in a subordinate/non-decision-making role can be proceeded against under PMLA and have properties attached on the basis of contractor statements and banking evidence. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity and scope of invocation of the second proviso to Section 5(1) PMLA Legal framework: Section 5(1) PMLA authorises provisional attachment where the authorised officer 'has reason to believe' (recorded in writing) that a person is in possession of proceeds of crime and such proceeds are likely to be concealed, with two provisos: (i) first proviso requires a report/complaint under Section 173 CrPC (or equivalent) before attachment, and (ii) second proviso permits attachment notwithstanding the first proviso where the officer has reason to believe that the property involved in money-laundering, if not attached immediately, is likely to frustrate proceedings. Precedent treatment: The Court relied on established maxims of statutory interpretation (Sri Jeyaram Educational Trust and Hardeep Singh judgments) to read provisos in context of the main provision; earlier judgments distinguishing limbs of 'proceeds of crime' (three-limb interpretation discussed in analogous tribunal decisions) were considered. Interpretation and reasoning: The Court held provisos must be read with the main subsection; neither proviso can be read in isolation or rendered nugatory. The second proviso is intended to address contingencies when a Section 173/charge-sheet is not yet filed, permitting immediate protective attachment if the authorised officer, on material, records reasons to believe that the property is 'involved in money-laundering' and its non-attachment would frustrate proceedings. Further, since 'proceeds of crime' (Section 2(1)(u)) expressly includes the 'value thereof,' attachment as 'value thereof' is permissible even when the second proviso alone is invoked because the main subsection contemplates proceeds of crime and the definition of proceeds includes value thereof. Ratio vs. Obiter: Ratio - second proviso can legitimize attachment as 'value thereof'; provisos to Section 5(1) must be read with the main provision and cannot be isolated. Conclusion: Invocation of the second proviso without a Section 173 report does not preclude attachment as 'value thereof'; the authorised officer may attach property under the second proviso if reasons to believe (recorded and based on material) are present. Issue 2 - Attachment of property in spouse's name acquired pre-dating the scheduled offence Legal framework: Definition of 'proceeds of crime' under Section 2(1)(u) includes property derived from scheduled offence and the 'value thereof'; offence of money-laundering (Section 3) involves processes connected with proceeds of crime including projecting/claiming as untainted property. Precedent treatment (followed/distinguished): A recent two-judge bench decision holding that property acquired prior to commission of crime could not be treated as proceeds was examined and distinguished on facts; the Court gave weight to a three-judge perspective and judicial decisions interpreting 'proceeds of crime' in all its limbs (including value thereof) to avoid rendering parts of the definition otiose. The two-judge decision was not followed where facts suggest layering through spouse's name. Interpretation and reasoning: The Court concluded that the middle limb of the definition (property 'derived or obtained' or the value thereof) cannot be read down so as to permit easy dissipation of tainted proceeds post-offence. Where material indicates that the accused used the spouse's name to layer/cover proceeds (statements, bank deposits, sudden increase in spouse's declared income, multiple property acquisitions in spouse's name in relevant years), a property bought earlier may still be attached as value thereof if the investigative material furnishes a plausible inference of layering/beneficial ownership by the accused. Ratio vs. Obiter: Ratio - property in spouse's name, even if acquired before the scheduled offence, can be provisionally attached as 'value thereof' where material supports an inference that spouse's name was used to layer/protect proceeds of crime; distinction with contrary authority on factual matrix is permissible. Conclusion: Attachment of spouse-named property acquired prior to alleged offence can be sustained where investigative material (bank entries, withdrawals, ITR anomalies, statements) furnishes reasons to believe the asset is involved in money-laundering and used for layering by the accused. Issue 3 - Sufficiency of material to constitute 'reason to believe' for provisional attachment Legal framework: Section 5(1) requires recorded reasons based on material in possession to justify provisional attachment; Section 50 statements, bank records, ITRs, judicial/technical inquiry reports and recovery of documents during search are relevant material. Precedent treatment: The Court emphasised literal and contextual statutory reading and the requirement that reasons be recorded in writing; it also relied on investigative practice that bank records and confessional/associational statements under Section 50 are relevant to form prima facie conclusions for attachment. Interpretation and reasoning: The Tribunal found that statements under Section 50 indicating bribe demands/payments, cheque numbers and dates, corroborative bank scrutiny confirming cash withdrawals and deposits into spouse accounts, recovered loose sheets showing payments, ITRs showing sudden unexplained income rise, and inquiry reports noting irregularities collectively constituted sufficient material to form a reasoned belief. The Court noted the Respondent had acted with restraint (limiting attachment of spouse-named properties) and that absence of completed criminal proceedings or charge-sheet does not negate the sufficiency of material for provisional attachment under the second proviso. Ratio vs. Obiter: Ratio - a combination of contractor statements, banking transactions, ITR anomalies and inquiry findings can constitute adequate material to record reasons to believe for provisional attachment under Section 5(1). Conclusion: The material on record (statements, bank transactions, ITR inconsistencies, inquiry reports and recoveries) satisfied the 'reason to believe' threshold for provisional attachment in the facts before the Tribunal. Issue 4 - Attachment vis-à-vis persons holding junior/subordinate posts Legal framework: PMLA and Section 3 liability depend on involvement in processes connected with proceeds of crime; PMLA attachment provisions apply to any person in possession/benefit from proceeds. Interpretation and reasoning: The Tribunal recognised contentions that a junior engineer lacks decision-making authority but held that detachment of power does not preclude attachment if investigative material links the person to receipt/possession/acquisition/use of proceeds (e.g., contractor statements admitting payments to the person, bank transfers into spouse's account, withdrawals by the person). The inability/unwillingness of the appellant to disclose full defence at provisional stage was noted but not fatal where no documentary corroboration of his claimed sources (loans, tuition income) was furnished. Ratio vs. Obiter: Ratio - positional non-authority is not a conclusive bar to provisional attachment where material reveals transactions or receipts connected to proceeds of crime; attachment may be sustained subject to trial/charge-sheet outcomes. Conclusion: On the given material (contractor confessions, bank evidences of transfers into family accounts, unexplained withdrawals), provisional attachment of properties attributable to persons in subordinate positions was justified. Final Outcome (Court's Conclusion) The Appeals were dismissed for being devoid of merit: the Tribunal held that (i) the second proviso to Section 5(1) PMLA permits provisional attachment as 'value thereof' when reasons to believe (recorded and supported by material) exist even in absence of a Section 173 report/charge-sheet; (ii) spouse-named properties acquired prior to the alleged offence may be attached where investigative material supports inference of layering; and (iii) the available material (statements, bank records, ITRs, inquiry reports, recoveries) furnished sufficient grounds to sustain the provisional attachments made in the impugned order.