2025 (11) TMI 1708 - AT - Money Laundering

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

M/s Olympus Granites Pvt. Ltd. and S. Nagarajan Versus The Deputy Director, Directorate of Enforcement, Chennai

AT upheld ED's provisional attachment of properties linked to illicit granite quarrying, rejecting appellants' contentions of absence of 'reason to ... Money Laundering - provisional attachment order - scheduled offences - illicit quarrying of granite in Madurai District - offences under Section 120-B IPC read with Sections 447, 379, 409, 411, 420, 434, 468, 471, 304(ii), 109 & 202 of IPC and Section 3(a), 4(a) of Explosives Substances Act, 1908 and Section 4 of Tamil Nadu Public Property (Prevention of Damage and Loss) Act, 1992 - no reason to believe on the part of ED for attaching the properties. Whether there was no material regarding the alleged illegal quarrying of the Granite Blocks, as alleged? - Whether the Appellants were not involved in any scheduled offences, being not mentioned in the FIR and the ED wrongly relied upon the unsigned charge-sheet sent by Police by incorporating scheduled offences? - Whether there was no reason to believe on the part of ED for attaching the properties and whether there was no reason to believe on the part of the Adjudicating Authority for issuing Show Cause Notice to the Appellants? - HELD THAT:- Whether the property at Sl. No. 1 of the list of properties purchased on 20.09.2007 i.e. prior to the quarrying permit dated 14.07.2008 are not covered under PMLA, being untainted properties? - HELD THAT:- In the present case, FIR was registered against the accused persons, including the appellants for carrying out illegal excavation of granite stones from the unleased State Government land or the land reserved for common use of the community, which was adjoining to their lease land. Final Reports are already filed by the police in the said FIR, wherein they were arrayed as accused persons. The reason to believe for passing the PAO is recorded by the Deputy Director, ED, as apparent from the Original Complaint (copy of PAO not filed by the Appellants), along with the details of the properties. From the proceed of crime the appellants purchased the properties in their names from Sl. No. 2 to 15, which were rightly confirmed for attachment and further adjudication and confiscation in terms of Section 8 of PMLA and the property at Sl. No. 1 was rightly attached as value of the attached property is quite less than the POC generated by the appellants. Further, the experts from the Department of Geology and Mining, based on the scientific and systematic study using 'Total Station Survey' had furnished a report named as 'Evaluation Report' for each quarry they have inspected and verified. It is revealed in the investigation that the pecuniary benefits obtained illegally by the aforesaid persons were re-invested in acquisition of the immovable properties in their own names. Therefore, it stands to reason that the subject landed property is nothing, but property involved in Money laundering. Moreover, the appellants have not given any proper defence to negate the above conclusions made out in investigation and thus, the burden of proof has not been discharged by them. However, liberty is granted to the appellants to lead their defence during the criminal trial. The issues decided against the appellants and in favour of respondent ED. Whether the impugned order is liable to be set-aside, as the alleged predicate offences under Section 120-B IPC r.w.s. 447, 379, 409, 411, 420, 434, 468, 471, 304(ii), 109 & 202 of IPC and Section 3(a), 4(a) of Explosives Substances Act, 1908 Act were inserted in the list of Schedule Offences under PMLA, w.e.f. 01.06.2009? - HELD THAT:- The judgment of the Apex Court in the case of Smt. Pavana Dibbur v. The Directorate of Enforcement [2023 (12) TMI 49 - SUPREME COURT] has also been considered. However, findings given by three judges Bench of the Apex Court in the Vijay Madanlal Choudhary v. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)] has been relied to give interpretation to the definition. In the light of the above, there are no force in the first argument when the proceeds out of crime was not available with the appellant, the property of equivalent value has been attached. In the light of the aforesaid, second limb of the definition of “proceeds of crime” has been applied to attach the property of equivalent value. Thus, this ground raised by the appellants cannot be accepted - the issue decided against the appellants and in favour of respondent ED. Whether the impugned order needs to be set-aside on the ground that the illegal mining is not a Scheduled Offence? - HELD THAT:- Regarding the fact that illegal mining is not a scheduled offence and thus, impugned order should be set aside merely on this ground does not hold good, as there are many other predicate offences committed by the appellants which fall under the scheduled offences as mentioned above and hence, PMLA proceedings won’t get affected merely because one of the many offences committed is not covered under the scheduled offence - the issues accordingly decided against the appellants and in favour of respondent ED. Appeal dismissed. 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.