ED's property attachment over illegal granite quarry proceeds upheld under PMLA, proceeds-of-crime and multiple scheduled offences confirmed

AT upheld ED's provisional attachment of properties linked to illicit granite quarrying, rejecting appellants' contentions of absence of "reason to believe," reliance on an unsigned charge-sheet, and non-involvement in scheduled offences. It found that FIRs and final reports named appellants as accused and that expert "Evaluation Reports" established illegal extraction and pecuniary gains reinvested in immovable properties, constituting "proceeds of crime" under PMLA, including attachment of property of equivalent value. The tribunal held that the presence of multiple scheduled predicate offences sustained PMLA proceedings even if illegal mining per se was not scheduled. All issues were decided against the appellants, and the appeal was dismissed, with liberty to contest issues in the criminal trial.

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1. ISSUES PRESENTED AND CONSIDERED

(a) Whether there was absence of material to establish illegal quarrying of granite and generation of proceeds of crime.

(b) Whether the appellants were not involved in any scheduled offences as they were not named in the FIR and whether reliance on an unsigned charge-sheet vitiated PMLA proceedings.

(c) Whether the Directorate of Enforcement and the Adjudicating Authority lacked valid "reason to believe" under the Prevention of Money Laundering Act, 2002 for attachment and issuance of show-cause notice.

(d) Whether the property purchased on 20.09.2007, prior to the quarrying lease/permit, was an untainted property and thus outside the ambit of "proceeds of crime" under Section 2(1)(u) PMLA.

(e) Whether attachment under PMLA was impermissible as the relevant predicate/scheduled offences were added to the Schedule only with effect from 01.06.2009 and whether PMLA had been applied retrospectively.

(f) Whether PMLA proceedings were vitiated on the ground that "illegal mining" per se is not a scheduled offence.

2. ISSUE-WISE DETAILED ANALYSIS

(a), (b) and (c): Material regarding illegal quarrying; involvement in scheduled offences; existence of "reason to believe"

Interpretation and reasoning

The Court held that investigation into the commission of predicate/scheduled offences is the domain of the police/CBI, and the Directorate of Enforcement is not empowered to re-investigate such offences. In PMLA proceedings, ED is to focus on: (i) existence of prima facie incriminating material regarding the scheduled offence; (ii) quantum of proceeds of crime; (iii) whether proceeds of crime were laundered or likely to be laundered; (iv) mode of layering/trail of proceeds; (v) identification of other attachable properties if direct proceeds are dissipated; and (vi) genuineness or complicity of claimants/vendees of the attached properties. These factors are sufficient to form "reason to believe" for provisional attachment and for filing the complaint.

In this case, an FIR was registered against the appellants, inter alia, for illegal excavation of granite from unleased State land adjoining the leased area, causing loss to the Government and wrongful gain to the accused. Final reports/charge-sheets were filed wherein the appellants were arrayed as accused for multiple scheduled offences. The ED recorded its reasons to believe in the provisional attachment order and in the Original Complaint, including details of properties. The Adjudicating Authority reproduced these reasons, considered replies, rejoinders, and material including investigation reports and expert "Evaluation Report" based on scientific and systematic "Total Station Survey", showing illegal extraction and wrongful pecuniary benefits. On this basis, it concluded that the appellants had committed scheduled offences, caused wrongful loss of about Rs. 256.44 crores to the State and corresponding wrongful gain to themselves, sold granites in excess of declared quantities and realised sale proceeds which were used for acquiring properties.

The Court found that properties at Sl. No. 2 to 15 had been acquired from such proceeds of crime and that the property at Sl. No. 1 was attachable as property of equivalent value since the proceeds of crime far exceeded the value of the attached assets. The appellants failed to discharge the burden of proof to rebut the conclusions arising from investigation. It was further held that the existence and sufficiency of "reason to believe" stood clearly demonstrated on the record; lack of lengthy discussion did not undermine the validity of the reasoning. The contention that the charge-sheet being unsigned vitiated the PMLA proceedings was rejected in view of the existence of FIRs, final reports and sufficient prima facie material to show commission of scheduled offences and generation of proceeds of crime.

Conclusions

(i) There was adequate material to establish illegal quarrying and generation of proceeds of crime.

(ii) The appellants were prima facie involved in scheduled offences as reflected in FIRs and final reports; reliance by ED on such material was valid.

(iii) The ED and the Adjudicating Authority had validly recorded and exercised "reason to believe"; attachment and show-cause notice were lawful.

(d) Attachability of property acquired in 2007 as "proceeds of crime" or its equivalent value

Legal framework

The Court referred to Section 2(1)(u) PMLA defining "proceeds of crime" as: (i) any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence; and (ii) "the value of any such property"; including, where property is outside India, equivalent property held within India or abroad, as clarified by the Explanation.

The Court relied on the interpretation of "proceeds of crime" in decisions analysing the three limbs of the definition, including discussion that action can extend to "untainted property" when attached as equivalent to the value of tainted property, particularly where the actual tainted property cannot be traced, subject to conditions and safeguards regarding the accused's interest at the relevant time and protection of bona fide third-party rights. The Court also drew support from the Supreme Court's pronouncement that the definition of "proceeds of crime" is wide enough to include the value of such property and authorises attachment of property equivalent in value for effective prevention of money-laundering.

Interpretation and reasoning

The appellants argued that the property purchased on 20.09.2007 (prior to the lease order of 14.07.2008 and prior to the period of alleged illegal quarrying) was untainted and, therefore, not "proceeds of crime". The Court held that even if the specific property is not directly derived from the criminal activity, attachment can validly extend to properties of equivalent value where the proceeds of crime are not available with the accused. The second limb of Section 2(1)(u) squarely covers attachment of property representing the value of tainted property.

Applying this interpretation, and in view of the magnitude of proceeds of crime generated vis-à-vis the value of the attached assets, the Court held that the 2007-acquired property could be attached as property of equivalent value, notwithstanding its acquisition prior to the commission of the scheduled offence, as the actual proceeds of crime were either laundered or not fully available. The earlier judicial pronouncements on this aspect, including the principle that such action is permissible where the tainted property cannot be traced and subject to the accused's continuing interest, were noted to support the ED's action.

Conclusions

(i) "Proceeds of crime" includes property representing the value of property derived from criminal activity.

(ii) The property acquired in 2007 was validly attached as property of equivalent value, even if not directly derived from the illegal quarrying.

(iii) The challenge to attachment of the 2007 property as untainted was rejected.

(e) Temporal applicability of PMLA where scheduled offences were added with effect from 01.06.2009; allegation of retrospective application

Legal framework

The Court referred to constitutional protection under Article 20 against conviction for an act which was not an offence under a law in force at the time of its commission, and to judicial authorities holding that for PMLA prosecution, what is relevant is the time of the act of money-laundering under Section 3, not the date of commission of the scheduled offence. It noted that the offence of money-laundering is a separate and, in many instances, a continuing offence, involving placement, layering, possession, use, concealment or projection of proceeds of crime as untainted, which may occur or continue after the commission of the scheduled offence and after its inclusion in the Schedule.

It relied on precedents which clarified that: (i) the relevant date for PMLA liability is when the proceeds of crime are projected or claimed as untainted; (ii) incorporation of offences into the Schedule brings the proceeds of those crimes within PMLA; and (iii) if a person continues, after the scheduled offence has become so notified, to possess, conceal, use or project proceeds of crime as untainted, he may be prosecuted for money-laundering regardless of when the predicate offence was committed. It also relied on the Supreme Court's conclusion that the offence of money-laundering is independent of the date of the scheduled offence and that the critical date is the date of engaging in the process or activity connected with proceeds of crime, which may be a continuing offence.

Interpretation and reasoning

The appellants contended that the predicate offences were added to the PMLA Schedule only from 01.06.2009 and that invoking PMLA amounted to impermissible retrospective application. The Court rejected this contention, holding that there can be no prosecution for money-laundering in respect of proceeds of crimes which were exhausted before PMLA became applicable, but where the acts of possession, use, concealment, or projection of proceeds of crime as untainted continued after the inclusion of the predicate offences in the Schedule, PMLA validly applies.

The Court emphasised that the relevant date is when the property is being projected or claimed as untainted or is otherwise being dealt with in the manner described in Section 3. Since the appellants continued to hold, possess, and utilise the proceeds of the scheduled offences and acquired properties therefrom after the relevant scheduled offences had come within the PMLA Schedule, the attachment and proceedings did not suffer from retrospective operation. The acts constituting money-laundering were independent and, in fact, continuing beyond 01.06.2009.

Conclusions

(i) The decisive factor is the timing of the acts constituting money-laundering, not merely the date of the predicate offence.

(ii) Where the appellants continued to deal with and project proceeds of crime as untainted after 01.06.2009, PMLA proceedings are not retrospective.

(iii) The objection based on post-2009 inclusion of predicate offences in the Schedule was rejected.

(f) Effect of "illegal mining" per se not being a scheduled offence

Interpretation and reasoning

The appellants urged that the alleged illegal mining activity itself was not a scheduled offence and hence PMLA could not be invoked. The Court held that this contention was misconceived because the prosecution for money-laundering was not founded solely on "illegal mining" as an independent head, but on multiple IPC and other statutory offences, which are included in the PMLA Schedule and which were invoked in the FIRs and final reports. The existence of one or more non-scheduled offences among several charges does not nullify PMLA proceedings where other scheduled predicate offences are clearly made out and have generated proceeds of crime.

Conclusions

(i) The fact that "illegal mining" simpliciter is not a scheduled offence does not invalidate PMLA action where other scheduled offences are involved.

(ii) Since multiple scheduled offences were alleged and supported by material, the PMLA proceedings and attachments remained valid.

Overall Outcome

All issues were decided against the appellants. The attachments of the properties and the impugned order confirming them were upheld, and the appeals were dismissed.

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