2025 (10) TMI 1274 - AT - Money Laundering

Appeal dismissed; provisional PMLA attachment upheld as valid, attachment of proceeds and pre-offence property allowed

Shrradha Sidhwani and Sonia Lalwani Versus The Deputy Director Directorate of Enforcement, Delhi For the Appellants : Mr. Paritosh, Adv.

AT dismissed the appeal and upheld the provisional attachment order under PMLA. The tribunal held it was not the forum to adjudicate civil title disputes ... Money Laundering - Provision Attachment Order - attachment of equivalent property as “value” - scheduled offences - attachment of property acquired prior to the period of commission of the alleged scheduled offence - nexus between the attached property and the alleged proceeds of crime - frustration of proceedings relating to confiscation under the PMLA - HELD THAT:- The Ld. AA has rightly observed that it is not a role or mandate of the AA to decide civil disputes. The same is equally true of this Appellate Tribunal. The appellants cannot assert any right, title or interest in the property before this Appellate tribunal when the matter of ownership of the subject property is sub-judice before the appropriate civil court. Furthermore, the legal position is well-settled that mere attachment of property does not alter the position with regard to the ownership or even possession or user of the properties which are the subject matter of such attachment. Attachment of property is merely a balancing arrangement to secure the interest of the person as also ensure that the proceeds of crime remain available to be dealt with in the manner provided by the Act. Thus, at this stage when the right, title and interest of the appellants in the subject property remains to be established before the competent court, the balance of interests also lies in favour of continued attachment of the subject properties. The same by itself would not upset the interest, if any, of the appellants - Thus, the property could not have been attached since it was acquired prior to the period of commission of the alleged scheduled offence, is hereby rejected. As regards, the argument that no nexus between the attached property and the alleged proceeds of crime has been established, the same holds no water as the property has been attached as “value” of the proceeds of crime and not as direct proceeds of crime. Another argument raised on behalf of the appellants is that the respondent has simply held that the properties are likely to be concealed, transferred or dealt with in any manner which may result in frustrating the proceedings relating to confiscation under the PMLA without there being any material in possession leading to such a conclusion. Having perused the PAO passed in the present case it is not in agreement with the appellants in this regard. There are no grounds to interfere with the impugned order and the present appeal is hereby dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether confirmation of a Provisional Attachment Order under Section 5 read with Section 8 of the PMLA is sustainable where the attached immovable property is claimed to have been acquired prior to the alleged scheduled offence and the attachment is made on the basis of equivalent-value principles. 2. Whether the Adjudicating Authority (and on appeal this Tribunal) may confirm attachment of property where the appellant is not an accused and title to the property is disputed in pending civil proceedings. 3. Whether reliance by the Enforcement Agency on an unregistered electronic 'declaration' and on valuation material not placed on record vitiates the exercise of power to provisionally attach property under Section 5(1) of the PMLA. 4. Whether the requirement of 'reason to believe' under Section 5(1)(b) (that proceedings of confiscation would be frustrated unless property is attached) demands specific factual material or can rest on broadly stated apprehensions supported by investigative material such as charge-sheets, bank records and statements under the PMLA. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Attachment of property acquired prior to the alleged scheduled offence (equivalent-value limb of 'proceeds of crime') Legal framework: Definition of 'proceeds of crime' in Section 2(1)(u) contains three limbs: (i) property derived or obtained directly/indirectly by criminal activity; (ii) the value of any such property (equivalent-value); and (iii) property equivalent in value held within the country where proceeds are taken/held outside the country. Attachment may be of actual tainted property or of property of equivalent value when tainted property is unavailable. Precedent Treatment: The Tribunal applied the binding three-judge authoritative exposition which recognises the three limbs of the definition and permits attachment of untainted property as equivalent value where proceeds are not traceable. The Tribunal rejected narrower precedents that would confine attachable property only to assets acquired after the offence or only to tainted property, treating those approaches as effectively rendering the second limb redundant. Interpretation and reasoning: The Court reasoned that a literal and purposive reading of the three-limbed definition is necessary to effectuate the Act's object - to prevent dissipation of ill-gotten gains and secure victims' interests. If the second limb were ignored, offenders could immediately siphon off proceeds post-offence to evade recovery. Where investigation establishes that proceeds have been layered, dissipated or exhausted through repayment and business operations, attachment of property of equivalent value is permissible subject to statutory safeguards. Ratio vs. Obiter: Ratio - the Tribunal's holding that property acquired prior to the commission of the predicate offence can be attached as property of equivalent value under the second limb of 'proceeds of crime' when the actual tainted property is not available is treated as a substantive ratio. Obiter - discussion of hypothetical policy consequences of alternative interpretations is ancillary. Conclusion: The challenge to the attachment on the ground that the property was acquired prior to the offence is rejected; attachment as equivalent value is sustainable where the investigation shows proceeds are not available and there is a quantification/assessment of illicit gain warranting equivalent-value attachment. Issue 2 - Effect of disputed civil title and non-accused status of appellant on confirmation of attachment Legal framework: Adjudicating Authority's role under the PMLA is to adjudicate whether provisional attachment should be continued; it is not a forum for determination of civil title. Attachment is a protective measure and does not alter legal ownership; third-party civil rights are subject to protection but do not automatically defeat a statutory attachment. Precedent Treatment: The Tribunal followed established authorities holding that civil ownership disputes pending in competent courts do not preclude attachment where the statutory tests are met, and that mere attachment does not affect ownership or possession pending adjudication in civil courts. Interpretation and reasoning: The Tribunal noted appellants were not accused in the scheduled offence but observed that their father (deceased) had been a director of the principal accused entity and that the ownership claim was expressly sub judice in civil proceedings. Given the AA/Tribunal's limited remit, it is not the appropriate forum to resolve competing title claims. Balancing interests favors continued attachment to protect potential confiscation until title is determined by the competent civil forum; attachment is not dispositive of title. Ratio vs. Obiter: Ratio - confirmation of attachment notwithstanding pending civil litigation as long as statutory satisfaction is recorded and attachment does not extinguish bona fide third-party rights (which remain subject to civil adjudication). Obiter - general remarks on the protective purpose of attachment. Conclusion: The fact that appellants are not accused and that title is disputed in civil court does not, by itself, invalidate confirmation of the PAO where statutory requirements are fulfilled; appellants' proprietary claims must be pursued in the civil forum and are not extinguished by the provisional attachment. Issue 3 - Reliance on an unregistered electronic declaration and missing valuation report Legal framework: The Enforcement Agency must record reasons and act on material that forms the basis of its 'reason to believe'; evidence relied upon before the Adjudicating Authority should be placed on record insofar as it bears on the statutory tests. Third-party instruments affecting title ordinarily require proper proof for weight to be accorded. Precedent Treatment: The Tribunal accepted that the AA is not the forum to decide title but must satisfy itself that the attachment is supported by material. Precedents recognise that investigative material (charge-sheets, bank records, statements) can constitute sufficient basis for provisional attachment where they establish a reasonable nexus or the disappearance of tainted assets. Interpretation and reasoning: The Tribunal examined the practical context: investigative findings, charge-sheet particulars, statements under the PMLA and bank transaction evidence collectively formed a coherent investigative narrative that proceeds had been layered and exhausted. The challenged 'declaration' was only one piece in a larger matrix; absence of a formal valuation placed before the AA did not, in the Tribunal's view, negate the overall material establishing need for equivalent-value attachment where the investigation quantified illicit gains and demonstrated disappearance/consumption of proceeds. Ratio vs. Obiter: Ratio - reliance on a single unregistered declaration does not automatically vitiate attachment where substantial other investigative material supports the statutory satisfaction; non-production of a particular valuation document is not fatal if the agency otherwise quantifies proceeds and demonstrates need for equivalent-value attachment. Obiter - cautionary statements on the weight to be given to unverified documents and need for verification where third-party rights are directly implicated. Conclusion: The attachment was not set aside merely because an unregistered electronic declaration was part of the material or because a named valuation report was not produced; the cumulative investigative record satisfied the Tribunal that attachment as equivalent value was justified. Issue 4 - The standard and sufficiency of 'reason to believe' under Section 5(1)(b) Legal framework: 'Reason to believe' connotes a probabilistic standard - more than mere suspicion but less than proof beyond reasonable doubt - and may be based on cause or justification emerging from investigative material; both sub-clauses of Section 5(1) must be considered together. Precedent Treatment: The Tribunal relied on established authority holding that 'reason to believe' signifies substantially probable cause and that investigative materials such as charge-sheets, transactional records and recorded statements can legitimately ground such belief for provisional attachment. Interpretation and reasoning: The PAO contained a detailed narration of modus operandi, money trail, layering and utilisation of funds for repayment and business operations, showing that proceeds were dissipated. The Tribunal found the Agency's apprehension of concealment or transfer to be supported by specific investigative findings rather than by rote recitation of statutory language. Given the preventive/preservationary purpose of provisional attachment and the quantified assessment of illicit gain, the 'reason to believe' threshold was held to have been met. Ratio vs. Obiter: Ratio - 'reason to believe' for provisional attachment can be satisfied by a coherent body of investigative material amounting to probable cause; mechanical repetition of statutory phrases without factual anchoring is unacceptable, but the presence of detailed investigative findings suffices. Obiter - commentary on the need for circumspection in exercise of a drastic power. Conclusion: The Tribunal upheld the AA's finding of reason to believe; the Agency's apprehension of frustration of confiscation proceedings was supported by material establishing dissipation/vanishing of tainted assets and quantification of illicit gains. Overall Conclusion The Tribunal dismissed the appeals: confirmation of the provisional attachment was upheld because (a) equivalent-value attachment is permissible under the three-limbed definition of proceeds of crime where tainted property is not available; (b) pending civil adjudication of title does not preclude provisional attachment and does not extinguish civil claims; (c) reliance on investigatory material (even if it includes an unregistered declaration or lacks a specific valuation on record) was sufficient in the aggregate to meet the statutory standard; and (d) the statutory 'reason to believe' requirement was satisfied by the investigative narrative, quantification of proceeds and evidence of dissipation.