2025 (12) TMI 103 - AT - Money Laundering

Provisional attachment under PMLA Section 5 upheld for forged forex scheme; properties as Section 2(1)(u) proceeds

Shri Arun Suri Versus The Deputy Director Directorate of Enforcement, Delhi

The AT upheld the provisional attachment of properties under Section 5 read with Section 2(1)(u) PMLA, finding that the appellant orchestrated a ... Money Laundering - provisional attachment order - proceeds of crime or not - foreign exchange remitted abroad - impugned properties belonging to the Appellant and his family were attached as ‘equivalent value’ by invoking Section 5 of PMLA read with Section 2(1)(u) of PMLA - HELD THAT:- It is found that overwhelming evidences have been brought forth to corroborate the finding that the Appellant indulged in fraudulent modus operandi to acquire foreign exchange from the banks and then remit the said foreign exchange abroad ostensibly for the purpose of import of software. There is nothing on record as to show that the software was in fact imported. Moreover, the corroboration is not only based upon the statements tendered by the Appellant under Section 50 of PMLA, but also on statements of the other persons, who participated in the said modus operandi. These persons were of limited means and have admitted opening bank accounts to remit the funds abroad without making any imports. The network of the Appellant extended to the foreign jurisdictions, so as to open firms/companies in whose name the funds were remitted. The fraudulent action included submitting forged documents to the banks, so as to lead them to grant the foreign exchange for remittance abroad. The controversy relating to the status and the nature of the ‘value thereof’ of the proceeds of crime which is included in the definition of the proceeds of crime under Section 2(1)(u) of PMLA has been settled by the Judgment of the Hon’ble Supreme Court in the matter of Vijay Madanlal Choudhary vs. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)] where it was held that 'If the property is taken or held outside the country, even in such a case, the property equivalent in value held within the country or abroad can be proceeded with. The definition of “property” as in Section 2(1)(v) is equally wide enough to encompass the value of the property of proceeds of crime. Such interpretation would further the legislative intent in recovery of the proceeds of crime and vesting it in the Central Government for effective prevention of money laundering.' Since the Ld. Counsel for the Appellant has emphasized on the arguments that the properties which have been attached are not only value thereof the proceeds of crime, but also acquired before the occurrence of the crime, reference made to the judgement of this Tribunal in the matter of Shri Sadananda Nayak vs. Deputy Director, Directorate of Enforcement, Bhubaneshwar [2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI] which has dealt with the issue at some length and it was held that 'It has already been clarified by us that if the definition of “proceeds of crime” is given interpretation by dividing it into two parts or by taking only two limbs, then it would be easy for the accused to siphon off or vanish the proceeds immediately after the commission of scheduled offence and in that case none of his properties could be attached to secure the interest of the victim till conclusion of the trial. This would not only frustrate the object of the Act of 2002, but would advance the cause of the accused to promote the crime of money laundering.' Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the material on record established that the appellant was involved in fraudulent remittances abroad and thereby generated 'proceeds of crime' liable to action under the Prevention of Money Laundering Act, 2002. 1.2 Whether properties of the appellant and his family, including those acquired prior to the alleged criminal activity, could be attached as 'proceeds of crime' or as property of 'equivalent value' under Section 2(1)(u) read with Section 5 of the Act. 1.3 Whether ongoing SARFAESI proceedings, mortgage, and NPA status of the attached properties barred or affected attachment under the Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Existence of 'proceeds of crime' and involvement of the appellant Legal framework (as discussed) 2.1 The Tribunal proceeded on the basis of the definition of 'proceeds of crime' under Section 2(1)(u) of the Act, including any property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, and the value of any such property. 2.2 The Tribunal relied on the scheme of the Act concerning money laundering as a process or activity connected with 'proceeds of crime' as explained by the Supreme Court in Vijay Madanlal Choudhary. Interpretation and reasoning 2.3 The Tribunal found, on the basis of statements recorded under Section 50 of the Act and extensive documentary evidence obtained from Bank of Baroda and other banks, that the appellant had created and used multiple front firms in the names of employees and persons of no financial means solely for the purpose of remitting funds abroad under the guise of import of software. 2.4 It was noted that the purported import firms had no infrastructure or capacity to import or process software; Chartered Accountants' statements and fake certificates were used to project sham software imports; and the software was admittedly never imported. 2.5 The Tribunal recorded that proforma invoices and declarations were generated in India and submitted to banks to obtain foreign exchange for remittances to foreign companies controlled or managed by the appellant in Hong Kong and Dubai, without any genuine import intention. 2.6 The Tribunal held that the appellant was the key person orchestrating the scheme, using 59 firms/companies and dummy proprietors/directors to effect bogus remittances of foreign exchange equivalent to approximately Rs. 39 crores, thereby acquiring 'proceeds of crime'. Conclusions 2.7 The Tribunal concluded that overwhelming evidence established a fraudulent modus operandi of obtaining foreign exchange and remitting it abroad without actual imports, constituting 'proceeds of crime' under Section 2(1)(u), and justified action under the Act. Issue 2 - Attachment of properties acquired prior to the alleged crime and concept of 'equivalent value' Legal framework (as discussed) 2.8 Section 2(1)(u) of the Act (definition of 'proceeds of crime'), including 'the value of any such property' and 'property equivalent in value' where property is taken or held outside the country, was reproduced and relied upon. 2.9 The Tribunal referred to and relied on: (i) the Supreme Court judgment in Vijay Madanlal Choudhary explaining that the relevant date for money-laundering is the date of the laundering process/activity, not the date of the predicate offence; and clarifying that money-laundering is a continuing offence; (ii) paragraph 68 of the same judgment upholding the width of 'proceeds of crime' including 'value of any such property', irrespective of whether the property is held outside India; (iii) the Delhi High Court judgment in Prakash Industries (following Axis Bank), clarifying the scope of 'value of any such property' and 'property equivalent in value held within the country or abroad'; and (iv) this Tribunal's own judgment in Sadananda Nayak reiterating that all three limbs of the definition of 'proceeds of crime' must be given effect and that properties acquired prior to the commission of crime may be attached as 'equivalent value' in appropriate circumstances. Interpretation and reasoning 2.10 The appellant's primary contention that the attached properties were acquired between 1996-2007, much before registration of the FIR in 2015, and thus could not be 'proceeds of crime', was rejected in light of the above precedents. The Tribunal held that: (i) the offence of money-laundering is linked to the process/activity of dealing with proceeds of crime, not to the date of acquisition of the property or date of the scheduled offence; and (ii) the date of laundering activity is decisive. 2.11 The Tribunal endorsed the view that Section 2(1)(u) covers not only property directly derived from the scheduled offence, but also any property representing 'the value of any such property', as well as property equivalent in value where the tainted property is taken/held outside India or is untraceable. 2.12 Relying on Prakash Industries and Axis Bank, the Tribunal held that it is permissible to proceed against untainted properties as 'value of any such property' or 'property equivalent in value' when the actual tainted property is not available, provided there is equivalence in value and the other statutory safeguards are observed. 2.13 The Tribunal agreed with the reasoning that to interpret the definition of 'proceeds of crime' by ignoring or restricting the 'value thereof' limb would defeat the object of the Act, as it would allow an accused to siphon off or vanish the tainted assets immediately after commission of the scheduled offence, leaving no attachable property. 2.14 The Tribunal further endorsed its prior view in Sadananda Nayak that properties acquired prior to the commission of the scheduled offence are not per se immune from attachment if taken as 'equivalent value' when the actual proceeds of crime are untraceable or held abroad, and that such an interpretation alone gives full meaning to all limbs of Section 2(1)(u). 2.15 On facts, the Tribunal noted that the foreign exchange constituting 'proceeds of crime' had been remitted abroad and was not available in India. Therefore, attachment of the appellant's and his family's properties was made as 'equivalent value' under Section 5 read with Section 2(1)(u). The Tribunal observed that the value of attached properties (Rs. 17.52 crores) was less than 50% of the alleged proceeds of crime (about Rs. 39 crores), reinforcing proportionality and the 'equivalent value' rationale. Conclusions 2.16 The Tribunal held that, consistent with the statutory definition and binding judicial precedents, properties acquired prior to the alleged crime can be attached as 'value of any such property' or 'equivalent in value' where the actual proceeds of crime are not available. 2.17 Accordingly, the plea that pre-crime acquisition insulated the attached properties from action under the Act was rejected, and the attachment as 'equivalent value' was upheld. Issue 3 - Effect of SARFAESI proceedings, mortgage, and NPA status on attachment under the Act Legal framework (as discussed) 2.18 The Tribunal relied on Section 71 of the Act, which provides that the provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Interpretation and reasoning 2.19 The appellant contended that certain attached properties were mortgaged to financial institutions, that loan accounts had become NPAs, and that recovery actions under the SARFAESI Act were underway; this, it was argued, should be considered against attachment under the Act. 2.20 The Tribunal, referring to Section 71, held that proceedings and rights under the SARFAESI Act cannot override or invalidate attachment under the Act, since the Act has overriding effect over other inconsistent laws. Conclusions 2.21 The Tribunal concluded that SARFAESI proceedings, mortgage status, or NPA character of the accounts do not constitute a ground to set aside or interfere with attachment under the Act. Overall Result 2.22 In light of the above findings, the Tribunal held that the appeal was devoid of merit and dismissed it, thereby affirming the confirmation of attachment of the properties in question.