2025 (11) TMI 1709 - AT - Money Laundering

Provisional attachment under PMLA Section 5(1) upheld as appellant fails to prove legitimate funds for property purchase

Mrs. Irqa Mushtaq and Mushtaq Peer Versus The Deputy Director Directorate of Enforcement, Srinagar

AT at New Delhi upheld the provisional attachment of properties under PMLA. It held that the appellant failed to establish legitimate sources for the ... Money Laundering - scheduled offence - proceeds of crime - reasons to believe - attachment of various properties - pending proceedings relating to offence under the PMLA - HELD THAT:- The appellant has failed to relate the consideration paid to the entries reflected in the bank account statements. Upon perusal of the bank account statement of account no. 0007040100006179 it is seen that transactions of payment of Rs. 2 lakh and Rs. 50,000/- are found reflected in the account on 08.04.2013 and 10.05.2013 respectively. However, it is seen that prior to the transactions there are some entries for deposits into the same account against the narration „TRF’ and „Cash’. The nature of these deposits is not explained. In sum and substance, the appellant had failed to discharge his onus of proving the legitimate sources for the acquisitions of the said property. Neither the payment of the full amount of consideration nor the sources of the deposits into the account out of which the partial payment is seen to have been made, have been explained with reference to the entries in the bank accounts. With regard to 'reason to believe’ under Section 5(1) I find from the Provisional Attachment Order that the Ld. Joint Director, Srinagar Zonal Office, has discussed the same at great length. Paragraphs 2(i) to (xiv) discussed in elaborate detail the allegations against the appellant in the scheduled offence case and the basis thereof, the findings regarding the properties owned by him, the transactions in the bank accounts and other financial transactions of the appellant. There are sufficient reasons by outlining the predicate offence, providing details of the transaction found in the bank account as well as the ownership of properties by the appellant, for the authority concerned to come to the satisfaction on the face of it the appellant has committed offence u/s 3 or is not possession of proceedings of crime derived from the predicate offence of leaking the CET papers against payment of consideration. Accordingly, there are no merit in the contention of the appellant as regards reason to believe arrived at by the Ld. AA. The appellant in the present case has entirely failed to discharge his burden of proving the legitimate nature of acquisition of the properties which has been attached - there are no reason to interfere with the impugned order. In the result, the appeal fails and is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the pendency of criminal appeal and suspension of sentence in the scheduled offence case rendered the money-laundering attachment proceedings under the PMLA liable to be deferred or untenable. 1.2 Whether the provisional attachment and its confirmation were invalid for want of pendency of PMLA prosecution proceedings and/or for lapse of the 180-day period under Section 5(1) read with Section 8(3) of the PMLA, as amended. 1.3 Whether the statutory requirement of 'reason to believe' under Sections 5(1) and 8(1) of the PMLA was not complied with, vitiating the provisional attachment and adjudication proceedings. 1.4 Whether the attached immovable properties and bank balances of the primary appellant were shown to be 'proceeds of crime' within Section 2(1)(u) of the PMLA, and whether the appellant discharged the burden of explaining their legitimate acquisition. 1.5 Whether offences under Sections 120-B and 420 of the Ranbir Penal Code constitute 'scheduled offences' under the PMLA and whether any monetary threshold under Section 2(1)(y) barred initiation of PMLA proceedings in this case. 1.6 In respect of the daughter's appeal, whether the amount credited to her bank account from her father's account constituted 'proceeds of crime,' attachable under Section 5 of the PMLA notwithstanding her claim of bona fides and lack of knowledge. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of pendency of criminal appeal and suspension of sentence in the scheduled offence case Interpretation and reasoning 2.1 The Tribunal noted that the appellant stood convicted in the scheduled offence by the Trial Court. The High Court's order suspending sentence was found to be based on the precarious health condition of the appellant, and not on an evaluation of the merits of the conviction. 2.2 It was observed that there was no order of discharge, acquittal, or quashing of the FIR by any competent court. Hence, the scheduled offence subsisted and continued to form a valid predicate for PMLA proceedings. Conclusion 2.3 The pendency of criminal appeal and suspension of sentence did not render the money-laundering proceedings untenable or warrant deferment; no relief could be granted to the appellant on the plea of innocence in the scheduled offence case. Issue 2 - Validity of attachment and confirmation in light of Section 8(3) PMLA and alleged lapse of 180 days Legal framework (as discussed) 2.4 The appellant argued that, post-amendment to Section 8(3), attachment could continue only if proceedings relating to an offence 'under this Act' (i.e., a PMLA prosecution complaint) were pending, and that in the absence of any such proceedings within 180 days, the provisional attachment lapsed. 2.5 The Respondent relied on Section 5(3) and the legal position prior to the 2018 amendment, and on the Tribunal's decision in Indra Pal Pandey, to contend that up to 18.04.2018 there was no statutory time limit for filing a prosecution complaint under Section 8(3). Interpretation and reasoning 2.6 The Tribunal recorded that the Provisional Attachment Order (PAO) dated 25.03.2014 was confirmed by the Adjudicating Authority on 12.08.2014, well within the 180-day period provided in Section 5(1). 2.7 It accepted the Respondent's contention, following Indra Pal Pandey, that before 19.04.2018, Section 8(3) did not stipulate any time limit for completion of investigation or for filing of prosecution complaint, nor did it impose a requirement of pendency of PMLA proceedings as a pre-condition for continuation of attachment. 2.8 The Tribunal held that the subsequent amendments introducing time limits (90 days, later 365 days) became effective only from 19.04.2018 and 20.03.2019 respectively and could not govern attachments and confirmations made in 2014. Conclusion 2.9 The Tribunal rejected the contention that the PAO lost validity after 180 days or that the confirmation order was without jurisdiction for want of pending PMLA prosecution. The attachment and its confirmation were held to be valid and in conformity with the then prevailing statutory framework. Issue 3 - Compliance with 'reason to believe' requirements under Sections 5(1) and 8(1) PMLA Legal framework (as discussed) 2.10 The appellant relied on judicial precedents (including P. Chidambaram, Seema Garg, J. Sekar, Mahanivesh Oils, Aftabuddin Ahmed) to contend that recording of 'reason to believe' in writing, based on relevant material, and communication thereof was mandatory; mechanical reproduction of statutory phrases or mere suspicion would not suffice; non-compliance would vitiate the attachment and adjudication. 2.11 The Respondent relied, inter alia, on the decision of the Madras High Court in G. Gopalakrishnan to submit that Section 5 did not mandate communication of reasons before ordering attachment, and that Section 8(1) did not require separate recording of reasons by the Adjudicating Authority beyond subjective satisfaction drawn from the complaint under Section 5(5). Interpretation and reasoning 2.12 Examining the PAO, the Tribunal found that the Joint Director had set out in detail: the allegations in the scheduled offence, the manner of receiving Rs. 60 lakh, the financial and property holdings of the appellant, bank transactions (including cash deposits and transfers), and the linkage to alleged criminal proceeds. 2.13 The Tribunal noted that Para 5 of the PAO expressly recorded the apprehension that non-attachment would frustrate confiscation proceedings under PMLA, including the reasoning that the properties were located at prime locations and likely to be sold or otherwise disposed of, thereby justifying preventive attachment. 2.14 Relying on G. Gopalakrishnan, the Tribunal held that Section 5 does not stipulate communication of reasons in the form of a separate show-cause notice at the stage of provisional attachment, and that a PAO, valid for 180 days, itself functions as an initial show-cause mechanism. 2.15 As regards Section 8(1), the Tribunal held that the Adjudicating Authority is not statutorily required to record separate detailed 'reasons to believe' and may act on the complaint under Section 5(5) based on subjective satisfaction. The Original Complaint in this case was held to sufficiently outline the predicate offence, property details, and bank transactions to justify initiation of adjudication. Conclusion 2.16 The Tribunal held that the requirement of 'reason to believe' under Section 5(1) was duly complied with and that the Original Complaint provided adequate material for satisfaction under Section 8(1). The challenge to the attachment and adjudication on this ground was rejected. Issue 4 - Whether the attached properties and bank balances of the primary appellant constituted 'proceeds of crime' and whether the burden of proof was discharged Legal framework (as discussed) 2.17 The Tribunal referred to the definition of 'proceeds of crime' in Section 2(1)(u) and to the jurisprudence (including Vijay Madan Lal Choudhary and Nikesh Tarachand Shah as cited by the appellant) emphasising that property must be derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, and that money-laundering under Section 3 involves processes or activities connected with such proceeds. 2.18 The Tribunal reiterated that under the PMLA scheme the burden of proving legitimate acquisition of attached properties lies on the person proceeded against. Interpretation and reasoning - General income explanation 2.19 The appellant's reliance on aggregate salary and retirement benefits received by him and his wife over a decade, without correlating specific properties and transactions to identifiable lawful sources, was held to be broad, non-specific and insufficient to discharge the statutory onus. Interpretation and reasoning - Property-wise findings Plot of 5 marlas with shed, Sidra, Jammu 2.20 The appellant claimed acquisition for Rs. 22 lakh (against the wife's statement of about Rs. 25 lakh), partly from a bank loan of Rs. 15 lakh from J&K Bank and partly from savings. The Tribunal noted that the deed did not mention the consideration value and that the reduced figure of Rs. 22 lakh was unsupported by any evidence and appeared to be an afterthought. 2.21 Scrutiny of the relevant bank account (No. 0007040100006179) showed certain payments towards the property (Rs. 2 lakh and Rs. 50,000/- in April-May 2013) preceded by deposits with narrations like 'TRF' and 'Cash,' the nature and source of which were unexplained. 2.22 The Tribunal found that the appellant had failed to relate the full consideration to bank entries or to explain the sources of deposits that funded the payments. It noted that while the PAO had given credit for the Rs. 15 lakh bank loan, it rightly treated the balance part of the property value (Rs. 12,90,079.99) as unexplained and attached to that extent. Flat No. 4, Building No. 125, Block-A, Freedom Fighter Enclave, Neb Sarai, New Delhi 2.23 The property was shown in a GPA as valued at Rs. 15 lakh, but the appellant stated that the actual consideration was Rs. 25 lakh (Rs. 15 lakh by cheque, Rs. 10 lakh in cash), allegedly from his salary and bank withdrawals. 2.24 The Tribunal found that the appellant had not linked these payments to bank account entries. On examining Account No. 0007040100006179, it noted cheque payments of Rs. 5 lakh, Rs. 3 lakh, and Rs. 5 lakh in May-June 2012 to the seller, as well as Rs. 2 lakh from HDFC Account No. 04151930017391 to M/s Bonton Optics (the seller's firm), but found no coherent explanation or correlation by the appellant to legitimate, traceable sources. 2.25 The Tribunal held that the appellant failed to establish legitimate funding of this acquisition, and his explanation with regard to this flat was rejected. Flat No. 2/2A, Custodian General Flat, Wazarat Road, Jammu 2.26 The appellant contended that this leasehold flat was acquired in 2010, two years before the alleged money-laundering transactions, and therefore unconnected. The property was attached to the extent of Rs. 11 lakh representing security deposits with the Custodian General. 2.27 Review of Account No. 04151930017391 showed a payment of Rs. 10 lakh to one Hamidullah Bhat on 26.07.2013, preceded by a receipt of an identical amount from appellant's own HDFC Account No. 041510000002228. The Tribunal noted that the source of this Rs. 10 lakh in the appellant's hands remained unexplained. 2.28 In the absence of proof of legitimate origin of the funds used in relation to this property, the Tribunal held that there was no evidence on record of lawful acquisition of the concerned interest/security deposit, justifying attachment. HDFC Account No. 041510000002228 (balance Rs. 4,57,243/-) 2.29 The Tribunal found unexplained cash deposits of Rs. 1 lakh and Rs. 5 lakh on 02.07.2012 and another Rs. 40,000/- on 17.10.2012 totaling Rs. 6.40 lakh. Despite the appellant's reliance on his overall salary earnings, there was no specific explanation of why such amounts were received in cash or the source thereof. 2.30 Considering that the allegations involved receipt of Rs. 60 lakh as illegal consideration for leaking examination papers, and that there was no plausible lawful explanation for the cash deposits, the Tribunal upheld attachment of the balance of Rs. 4,57,243/- as traceable to proceeds of crime. Conclusion 2.31 The Tribunal held that the appellant had entirely failed to discharge the statutory burden of proving legitimate acquisition of the attached properties and bank balances. The attached assets were rightly treated, wholly or in relevant part, as 'proceeds of crime' or their value, and the confirmation of attachment was upheld. Issue 5 - Whether Ranbir Penal Code offences are 'scheduled offences' and whether any monetary threshold under Section 2(1)(y) barred proceedings Legal framework (as discussed) 2.32 The appellant argued that offences under Sections 120-B and 420 of the Ranbir Penal Code were not 'scheduled offences' and that the value of the attached property was below the monetary threshold envisaged for certain scheduled offences under Section 2(1)(y). 2.33 The Respondent contended that the relevant Ranbir Penal Code provisions correspond to Sections 120-B and 420 IPC, which are included in Part A of the Schedule to the PMLA. It was further submitted that Section 2(1)(y) prescribes no threshold for Part A offences. Interpretation and reasoning 2.34 The Tribunal accepted that the Ranbir Penal Code provisions correspond to the IPC offences that are expressly included in Part A of the Schedule, and that PMLA extends to Jammu & Kashmir. 2.35 It was noted that no monetary threshold under Section 2(1)(y) applies to offences in Part A of the Schedule, and thus no 'value' condition restricted applicability in the present case. 2.36 The Tribunal recorded that, at the stage of oral hearing, the appellant's counsel did not press the contention regarding non-applicability of PMLA to Ranbir Penal Code offences. Conclusion 2.37 The offences under Sections 120-B and 420 Ranbir Penal Code were held to be scheduled offences for PMLA purposes, and no monetary threshold barred the proceedings. The ground was rejected. Issue 6 - Attachment of funds in the daughter's bank account and application of PMLA to property held in another's name Legal framework (as discussed) 2.38 The Tribunal noted the settled position under Section 5 PMLA, as explained in Vijay Madan Lal Choudhary, that the statute aims to reach proceeds of crime irrespective of in whose name or hands such property is held. 2.39 The burden, once Section 8 notice is issued, lies on the noticee to show that the property in his or her name is not proceeds of crime but legitimately acquired. Interpretation and reasoning 2.40 It was found that Rs. 10 lakh was transferred on 26.07.2013 into the daughter's HDFC Account No. 04151530005241 from her father's Account No. 04151900017391, which in turn had been funded by unexplained amounts from the father's other account. 2.41 Since, in the father's case, it had already been held that he was in receipt of Rs. 60 lakh as proceeds of crime from leakage of examination papers and that the funds used for various transfers were unexplained, the Tribunal held that the Rs. 10 lakh transferred to the appellant-daughter's account bore the same taint. 2.42 The daughter's pleas that she is a doctor, was living separately, had received marriage gifts, and lacked knowledge of the illicit origin of money were held insufficient to rebut the statutory presumption. No concrete evidence was produced to demonstrate that the impugned funds in her account arose from lawful sources independent of her father's tainted funds. 2.43 The Tribunal emphasised that PMLA attaches proceeds of crime 'in whosoever's name they are kept or by whosoever they are held,' and the humanitarian or familial context does not, by itself, neutralise the illegality of the source once proceeds of crime are traced to the account. Conclusion 2.44 The Rs. 10 lakh credited to the daughter's bank account was held to constitute proceeds of crime passed on from her father and thus validly attached. The appeal filed by the daughter was dismissed, following and adopting the reasoning in the father's case.