2025 (11) TMI 1280 - AT - Money Laundering

Provisional attachment under PMLA sustained; Section 3 money laundering prima facie made out, appeals dismissed over unexplained assets

Chandrama Prasad Singh, Shri Dablu Kumar, Smt. Sangeeta Kumari and Shri Shivji Prasad Versus The Deputy Director, Directorate of Enforcement, Patna

AT upheld the provisional attachment order under PMLA, holding that appellants were involved in the predicate offences as revealed through FIRs and ... Money Laundering - provisional attachment order - Predicate offence - FIR registered against the accused did not disclose extortion of the money or loot so as to make out a case of money laundering - HELD THAT:- It is found that the appellants were involved in the predicate offence for which FIRs were registered and in the investigation pursuance to the FIR and after recording of the ECIR, it was revealed that the accused are involved in extortion of money by using their muscle powers and even to obtain the documents of the land and thereafter with manipulation in the revenue records and otherwise to sell it. The facts aforesaid came in the investigation and accordingly, quantifying the proceeds of crime in the hands of the appellant, provisional attachment order was passed. It is no doubt that in the order passed by the Apex Court in the case of Chandrama Prasad Singh [2024 (2) TMI 734 - SC ORDER], it was mentioned that no case of money laundering has been shown while in detailed discussion, reference given to the material to make out a case of money laundering. The appellant had projected tainted money to be untainted and otherwise involved in concealment to make out an offence under section 3 of the Act of 2002. The quantification of the proceeds is in reference to those allegations only. The appellants would have otherwise disclosed the source to purchase the properties with necessary proof but no material or evidence was produced to prove the source for purchase of the property. This is not a case to cause interference in the impugned order - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the provisional attachment under the Prevention of Money-Laundering framework (Act of 2002) was sustainable on the material collected during investigation, i.e., whether proceeds of crime were prima facie established in the hands of the appellants. 2. Whether production of Income-Tax Returns and asserted disclosure of income, without corroborative documentary proof (bank statements, invoices, assessment orders), suffices to rebut the presumption or prima facie finding of tainted income and to vitiate provisional attachment. 3. The legal effect, for the purpose of adjudication under PMLA, of a higher court bail order that found no prima facie material of money-laundering in separate proceedings. 4. Whether statements recorded under section 50(2)/50(3) of the Act and witness statements collected during investigation provide sufficient corroboration of modus operandi, acquisition and concealment of proceeds to justify provisional attachment under the Act. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of provisional attachment - prima facie establishment of proceeds of crime Legal framework: Provisional attachment under the Act is based on ECIR/investigation disclosing proceeds of crime and may be confirmed by the Adjudicating Authority if material shows such proceeds are in the possession of persons named; quantification for attachment is permissible on the basis of investigation material. Precedent treatment: The Tribunal considered, but did not treat as conclusive, a higher court bail order in a separate criminal proceeding; no authority was overruled or followed as dispositive. Interpretation and reasoning: The Tribunal reviewed FIRs disclosing predicate offences, the recorded ECIR, statements under section 50, witness statements (including complainant and corporate directors), evidence of frequent unexplained cash deposits (about Rs. 2.72 crores), fabricated property transactions, use of relatives to camouflage assets, insurance purchases in cash, and mismatch between declared income and asset acquisitions. The Tribunal found a consistent modus operandi (financial help, obtaining documents, mutation/forgery, sale/encroachment and diversion of assets to relatives) corroborated by multiple witnesses and documentary traces, which cumulatively constituted prima facie material of proceeds of crime. Ratio vs. Obiter: Ratio - where investigation and corroborative statements disclose a modus operandi and unexplained wealth diverted to relatives, provisional attachment is sustainable; Obiter - observations on the detailed credibility of each income tax return and hypothetical misuse of tax returns to launder money. Conclusion: The provisional attachment was sustainable on the material and the Tribunal declined to interfere with the Adjudicating Authority's confirmation of attachment. Issue 2: Sufficiency of Income-Tax Returns and disclosure of source to rebut attachment Legal framework: Persons on whom a notice under section 8(1) is served bear the burden to disclose the source of acquisition; mere production of Income-Tax Returns does not automatically displace an adverse inference where corroborative evidence is lacking and where declared income does not match asset purchases. Precedent treatment: The Tribunal reiterated that assessment orders, bank statements, invoices and other documentary evidence are necessary to corroborate asserted sources; mere ITRs without supporting documentation are inadequate for discharge of burden. Interpretation and reasoning: The Tribunal examined declared incomes in ITRs vis-à-vis timing and value of multiple property acquisitions, absence of bank statements or invoices reflecting underlying business transactions, lack of evidence for claimed businesses (dairy/ice-cream/agriculture), and inconsistent conduct (housewife status yet large returns). It held that ITRs filed to 'cover up' proceeds of crime cannot by themselves convert tainted money into legitimate income. The Tribunal also noted that mere disclosure of ITRs without assessment orders or corroboration would facilitate laundering if accepted uncritically. Ratio vs. Obiter: Ratio - ITRs without corroborative documentary proof are insufficient to rebut prima facie findings of proceeds of crime; Obiter - cautionary remarks on ease of laundering if ITRs are treated as conclusive. Conclusion: The appellants' reliance on ITRs failed to discharge the burden of demonstrating legitimate source; nondisclosure/corresponding bank records and discrepancy between declared income and assets supported confirmation of attachment. Issue 3: Effect of higher court bail order in separate criminal proceedings Legal framework: A bail order in criminal proceedings, addressing prima facie or bail considerations, does not equate to acquittal or preclude independent civil/administrative adjudication under the PMLA based on investigation material. Precedent treatment: The Tribunal treated the bail order as not determinative for the adjudicatory exercise under the Act; it emphasized that differing standards and evidence in criminal bail proceedings and adjudication under PMLA may lead to different outcomes. Interpretation and reasoning: The Tribunal observed that the bail order noted the absence of material for money-laundering in the record before the higher court, but the Tribunal had before it investigative material and detailed witness statements which, in its view, were not necessarily placed before that court. Given that bail does not equal discharge or acquittal, and that adjudication under section 8(1) contemplates examination of disclosure and documentary proof of source, the Tribunal declined to set aside the attachment on the sole basis of the bail order. Ratio vs. Obiter: Ratio - a bail order in separate criminal proceedings is not automatically conclusive in PMLA adjudication; Obiter - observations that the bail order may reflect record limitations rather than merit on all material. Conclusion: The bail order did not override the investigative material relied upon by the Adjudicating Authority; it did not justify interference with the confirmed provisional attachment. Issue 4: Admissibility and weight of statements under section 50 and other witness statements as corroborative material Legal framework: Statements recorded under section 50(2)/50(3) of the Act during investigation may be treated as material for the Adjudicating Authority to form a prima facie view; corroboration by independent witnesses and corporate officers strengthens the probative value. Precedent treatment: The Tribunal relied on the investigative statements and witness testimonies as substantive material for quantifying proceeds, without expressly re-evaluating each statement's evidentiary weight beyond the prima facie stage. Interpretation and reasoning: The Tribunal found multiple witness statements (complainant, directors of construction companies, others) describing similar patterns (fraudulent documentation, multiple sales of same property, development agreements manipulated, non-delivery of possession) and thus collectively corroborating the inference of illicit acquisition and diversion. The presence of consistent documentary traces (frequent cash deposits, insurance in cash, multiple property transactions in questioned periods) further supported reliance on those statements. Ratio vs. Obiter: Ratio - consistent investigative and witness statements, when corroborated by financial traces, can constitute sufficient material to uphold provisional attachment at the adjudicatory stage; Obiter - detailed critique of each witness' credibility was not undertaken, as the standard was prima facie sufficiency for attachment confirmation. Conclusion: Statements under section 50 and related witness statements provided adequate corroboration of modus operandi, acquisition and diversion of proceeds to justify provisional attachment. Final Holding The Tribunal concluded that the investigation produced sufficient prima facie material of proceeds of crime, that the appellants failed to discharge the burden of proving legitimate source despite filing Income-Tax Returns (unsupported by corroborative documentation), and that the prior bail order did not preclude confirmation of the provisional attachment; the appeals were dismissed and the attachment order sustained.