2025 (11) TMI 956 - AT - Money Laundering

Appeal dismissed; prima facie money-laundering found under s.3 (2002 Act); evidence failed to establish lawful source

Appeal to AT dismissed. Tribunal found a prima facie case of money-laundering under s.3 (2002 Act), noting appellants remain accused in pending criminal ... Money Laundering - Provisional Attachment Order - diversion of Govt funds - collection of illegal tax by way of extortion - source disclosed by the appellants for possession of the properties under provisional attachment - calculation of period of 180 days for termination of the proceedings and with its exclusion. Calculation of period of 180 days for termination of the proceedings and with its exclusion - HELD THAT:- The counsel for the appellants fairly admitted that not only the appellants remained behind bar but have not been discharged for commission of crime, rather the criminal case is still pending. An argument with material was not submitted to show innocence of the appellants in reference to the allegation made for commission of offence under different statutes and the charge sheet filed by National Investigating Agency. Therefore, we are unable to record our finding that the appellants were not involved in commission of crime though we would not be recording finding in regard to it, rather it would be drawn in the trial. We, however, find a prima facie case of involvement of the appellants for commission of the offence under Section 3 of the Act of 2002. Source disclosed by the appellants for possession of the properties under provisional attachment - HELD THAT:- The appellant has made reference of the sale deed of the properties acquired which includes ancestral properties. The copies of the sale deed have been submitted but we do not find it to be registered. It was submitted that there was no provision to get sale deed registered for a land belonging to the person of the tribal area. The counsel for the appellants could not make reference of any such provision and otherwise we find that corresponding documents to support receipt of the consideration have not been submitted to the extent required. The reference of the Timber business of the appellant has been given without submission of the supporting documents which may include the details of the registered firm and corresponding firm account to show actual business thereupon. The documents to support the business are either hand written or cannot be considered to be trustworthy to hold actual business in the hands of the appellant. The appellant has failed to submit any invoice for purchase of the Timber or a document in the shape of the sale of the Timber by the firm, if any, belongs to the appellant. Loose documents can be created at any time and, therefore, they were not accepted by the Adjudicating Authority. It is otherwise not matching to the statements recorded under Section 50(2) and (3) of the Act of 2002. This is not a case to cause interference in the impugned orders - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an order confirming provisional attachment under Section 5(1) of the Prevention of Money Laundering Act, 2002 that is passed after the expiry of 180 days from the date of provisional attachment remains effective where the period of 15.03.2020 to 28.02.2022 is excluded pursuant to the Supreme Court's orders on exclusion of limitation due to the COVID-19 pandemic. 2. Whether the provisional attachment of movable properties under Section 5(1) can be invalidly characterized as illegal seizure that ought to have proceeded under Sections 17(1) and 17(4) instead of attachment. 3. Whether the appellants successfully disclosed bona fide sources of the impugned funds and movable properties sufficient to defeat confirmation of provisional attachment (i.e., adequacy, authenticity and probative value of sale deeds, bank statements, contracts and other documents relied upon). 4. Whether allegations concerning association with a proscribed/terrorist organization and related criminal allegations are determinative at the adjudication stage for confirmation of provisional attachment under PMLA (i.e., sufficiency of prima facie material to sustain attachment). ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of COVID-era exclusion (15.03.2020-28.02.2022) to the 180-day period under Section 5(3) PMLA Legal framework: Section 5(1) permits provisional attachment for a period not exceeding 180 days; Section 5(3) provides that such attachment ceases after expiry of that period. The Supreme Court's orders in the suo motu limitation proceedings excluded the period 15.03.2020-28.02.2022 for purposes of limitation and, in clarified orders, for computation of statutory time-limits/outer limits for termination of proceedings under various statutes. Precedent treatment: The Tribunal considered and followed the Supreme Court orders restoring and extending exclusion and subsequent High Court decisions (including the detailed reasoning in Prakash Corporates and various High Court decisions) holding that exclusion applies where a statute prescribes an outer time-limit for termination of proceedings. The Tribunal distinguished and considered contrary authorities that limited the scope of the exclusion (notably decisions treating personal liberty exemptions in S. Kasi), and explained why those authorities are factually and legally distinguishable. Interpretation and reasoning: The Tribunal held that the 180-day period under Section 5(3) is an outer time-limit for termination of attachment proceedings and thus falls within the class of statutory timelines whose computation is to exclude the COVID period. The Tribunal reasoned that the Supreme Court's orders were aimed at preventing loss of remedial rights during the pandemic and, as later clarified, extended to timelines that terminate proceedings. The distinction between rights of personal liberty (requiring stricter treatment) and property-related timelines was emphasized: S. Kasi (personal liberty context) cannot be extended to defeat the application of In re: Limitation to PMLA termination time, and Prakash Corporates supports a broad application of the exclusion where statutes prescribe outer limits. Ratio vs. Obiter: Ratio - the Tribunal's holding that the period 15.03.2020-28.02.2022 is to be excluded in computing the 180 days under Section 5(3) PMLA is a binding proposition for the case. Obiter - discussion of other High Court decisions and nuanced comparisons with S. Kasi are explanatory but form part of the reasoning supporting the ratio. Conclusion: With the COVID exclusion applied, the Adjudicating Authority's confirmation dated within the recalculated 180-day window was valid; the challenge based solely on expiration of 180 days fails. Issue 2: Legality of provisional attachment versus seizure under Sections 17(1) and 17(4) Legal framework: Section 5 provides for provisional attachment where there is reason to believe property is proceeds of crime; Sections 17(1) and 17(4) deal with power to seize movable property during investigation and subsequent retention. Precedent treatment: The Tribunal surveyed the statutory scheme and prior authorities discussing the distinct purposes and procedures for attachment and seizure, recognizing that provisional attachment under Section 5 is an independent statutory mechanism and not conditional on first seizing under Section 17. Interpretation and reasoning: The Tribunal rejected the contention that attachment was an improper attempt to circumvent seizure provisions. It held there is no statutory requirement to first seize movable property before provisional attachment; if the authorized officer has reason to believe property is proceeds of crime or likely to be dealt with so as to frustrate confiscation proceedings, provisional attachment is permissible. The Tribunal observed the respondents had reason to believe proceeds of crime were in appellants' possession and that attachment was therefore appropriate. Ratio vs. Obiter: Ratio - provisional attachment under Section 5 is permissible without prior seizure under Section 17 where statutory conditions for attachment are met. Obiter - comments on harassment allegations and comparative procedure are explanatory. Conclusion: The challenge that provisional attachment was improper for not invoking seizure provisions is unsustainable. Issue 3: Adequacy of disclosed source documents (sale deeds, bank statements, contracts) to rebut reason to believe/probable cause for attachment Legal framework: For confirmation under Section 8 procedures and for resisting attachment the person must plausibly demonstrate legitimate source of the impounded funds or property by production of credible, corroborative documentary evidence (registered instruments, bank credits, invoices, corroborative bank statements consistent with claimed transactions). Precedent treatment: The Tribunal applied conventional evidentiary standards at the adjudicatory stage: admissible, authenticated and probative documentary proof is required to rebut the material relied upon by the attaching authority. The Tribunal treated unregistered sale deeds, unsupported handwritten documents and unsupported assertions as inadequate. Interpretation and reasoning: The Tribunal examined the appellants' documents: unregistered sale deeds, sale agreements, some bank entries that did not corroborate sustained receipt or lawful retention, transaction entries that were immediately debited, and lack of invoices/registered documentation for claimed businesses (timber, sand supply). It found that several sale deeds were unregistered and that bank statements, where amounts appeared, showed immediate debits/transfers inconsistent with the claim that funds were lawfully retained as proceeds of sale. The Tribunal also noted absence of corroborating business records/invoices and mismatch between claimed contract amounts and actual bank credits. Loose, handwritten or potentially fabricated documents were held untrustworthy; statements under Section 50(2)/(3) were not matched by documentary proof. The Tribunal therefore found the appellants did not discharge the evidentiary burden to negate the statutory reason to believe. Ratio vs. Obiter: Ratio - unregistered sale deeds and unsupported/uncorroborated documentary material do not suffice to establish lawful source so as to defeat confirmation of provisional attachment; probative bank records and registered instruments are necessary. Obiter - comments on tribal land registration principles were noted but not accepted in absence of statutory authorization or proof. Conclusion: The appellants failed to prove lawful source; the Tribunal found a prima facie case to sustain confirmation of provisional attachment and refused to interfere. Issue 4: Role of criminal allegations (terrorist/extortion racket) and prima facie satisfaction for attachment Legal framework: Section 3 PMLA defines money-laundering; attachment under Section 5 may be based on material indicating proceeds of scheduled offences. Adjudicating Authority acts on material forwarded by the authorized officer. Precedent treatment: The Tribunal treated charge-sheeted allegations and seized materials (cash, arms, explosives, incriminating documents) and NIA findings as relevant material to constitute reason to believe for attachment at adjudicatory stage, without finally adjudicating guilt (which is a trial issue). Interpretation and reasoning: The Tribunal observed that extensive investigative material, including large cash seizures at premises, arms and incriminating documents and a charge-sheet by the NIA, supported a prima facie inference of involvement in scheduled offences and diversion of funds. While the Tribunal recognized the criminal proceedings were pending and did not record definitive guilt, it held that the threshold for provisional attachment/confirmation is prima facie material supporting reason to believe, which was met here. Ratio vs. Obiter: Ratio - where investigating agency produces material establishing reasonable belief of proceeds of crime linked to scheduled offences (even if trial is pending), provisional attachment can be confirmed; ultimate guilt is for trial. Obiter - cautionary note that absence of convincing exculpatory material at adjudicatory stage is not a final finding on culpability. Conclusion: The material on record furnished a prima facie basis for attachment; allegations of innocence unsubstantiated by reliable documentary proof were insufficient to defeat confirmation. Overall Disposition and Cross-references The Tribunal upheld the Adjudicating Authority's confirmation of provisional attachment: (a) the COVID-era exclusion (15.03.2020-28.02.2022) applies to computation of the 180-day termination period under Section 5(3) PMLA (see Issue 1); (b) provisional attachment under Section 5 can validly be exercised without prior seizure under Section 17 where statutory conditions exist (see Issue 2); (c) appellants failed to produce authentic, corroborative documentary evidence to rebut the authorized officer's reason to believe or to establish lawful source of funds (see Issue 3); and (d) the investigative material including cash seizures and incriminating items constituted sufficient prima facie material to sustain the attachment pending trial (see Issue 4).