2026 (1) TMI 655 - HC - Money Laundering

Scope of 'proceeds of crime' under PMLA requiring scheduled-offence nexus; ED provisional attachments invalidated, interest partly refunded

Dominant issue - scope of 'proceeds of crime' under PMLA and validity of provisional attachments: The HC held that 'proceeds of crime' must be strictly ... Provisional Attachment Orders (PAO) - power and jurisdiction of authority of the Enforcement Directorate/Authorities for attachment - “reason to believe” that the subject properties were proceeds of crime involved in the money laundering - withdrawal of the concessions given by the Advocate - Meaning of term “proceeds of crime” - proceeds of crime involved in the money laundering - Whether the contention of a party, that its submissions/stand has been wrongly recorded by the Court, be taken up in the Appeal which seeks to challenge the very judgment and order? - HELD THAT:- The Supreme Court in the case of Bhavnagar University V/s Palitana Sugar Mill Pvt Ltd & Others [2002 (12) TMI 563 - SUPREME COURT], after referring to the judgments in the matter of Daman Singh and others [1985 (4) TMI 322 - SUPREME COURT] and State of Maharashtra v. Ramdas Shrinivas Nayak [1982 (7) TMI 265 - SUPREME COURT], has observed that a statement of fact as to what transpired at the hearing, recorded in the order are conclusive of the facts so stated and no one can contradict such statements or recording of facts. The pronouncements of the Supreme Court are having binding effect on all Courts. It is only prudent and matter of judicial discipline that the clarifications, corrections or mis-recordings be clarified before the same Authority/Court. This may be done by filing appropriate proceedings before the said Court. If there are incorrect concessions or statements or the same are misquoted or fact or admission misreported or a different stand was taken by the Advocate for Appellants before learned Appellate Tribunal, the only option or remedy available to the Appellant was to approach the Appellate Tribunal and seek a clarification by filing appropriate proceedings. A perusal of the Impugned Order, passed by the learned Appellate Tribunal, PMLA clearly indicates that certain admissions or statements made by the Advocate of the Appellants, are recorded in the Impugned Order. The same till date are a part of the record. The statements and admissions thus form a part of the record, as no steps have been taken to have them corrected or withdrawn. The parties are bound by the record. Raising the said ground, in the present Appeal will be of no consequences. Term “proceeds of crime” - The term “proceeds of crime”, in any prosecution under the PMLA Act is the basis and foundation for the said action. It being the foundation of the offence of money laundering, it is required to be interpreted and construed in a strict sense. If any of the aforestated ingredients i.e property, derived out of a criminal activity, relating or relatable to a schedule offence is missing, then in that event the property cannot be termed as a “proceeds of crime”. We also note that, one of the vital ingredient and condition to attract or invoke an offence of money laundering, is that the concerned person has knowledge or is knowingly involved in any process or activity which is related to the proceeds of crime. We have noted that, the offence under Prevention of Corruption Act came to be notified as Schedule offence of the PMLA, by the PMLA Amendment Act which came into force on 1st June, 2009. Before 1st June,2009, the offence under Section 13 of the Prevention of Corruption Act was not predicate/scheduled offence under PMLA. Therefore, before 1st June 2009, offence under Section 13 of the Prevention of Corruption Act, was not a scheduled offence. It is settled law that, no person can be prosecuted for an allegation/act which occurred earlier by applying law which has come into force at a later date after the act/allegation is made. There can be no retrospective application of criminal liability for an act/offence which has taken place or committed prior to introduction of the liability in the statute books. Even otherwise, the Enforcement Directorate, does not have any material to show that the money is covered under the definition of “Proceeds of Crime” under section 2 (u) of the PMLA. Without a criminal activity and/or a scheduled offence there cannot be a “proceeds of crime”. Pertinent to note, that it is not even the case or allegation of the Enforcement Directorate that the monies advanced by SPCL are generated from or of a criminal activity, let alone the same being relating or relatable to a schedule offence. Attaching properties under the PMLA, without any legal evidence or basis or when the basic requirements/ingredients under the PMLA are not fulfilled is misplaced and misconceived. Considering the facts and documents on record, and the same viewed from any angle or in any manner, the conclusion can only be one that, the Appellant has incorrectly attached the properties especially in the absence of any criminal activity. No merits in the Appeal. We are inclined to dismiss the Appeals and uphold the impugned Order dated 17th January, 2019 with modification to the extent of refund of the accrued interest to Shapoorji Pallonji and Co. Pvt. Ltd. The Appellate Authority by the impugned Judgment, as far as the interest accrued is concerned, has directed that it be paid to the Shapoorji Pallonji and Co. Pvt. Ltd. As would be evident from the track record of the company, the said companies had all times whilst pursuing its own objectives has strived to develop economic activities in the interest of the nation and charitable works for benefit of the society. We are therefore inclined to modify the said directions of refund of interest accrued on the said principal amount. We therefore, deem it fit to transfer 50% of the interest accrued on the said FD’s to the Armed Forces Battle Casualties Welfare Fund (AFBCWF). We do this in a manner and with an object of balancing the equities. Issues: (i) Whether a party can challenge in this appeal the contention that its earlier submissions/concessions were wrongly recorded by the Appellate Tribunal; (ii) Whether Rs.141.50 crores advanced by the company to the Thakur group constitute 'proceeds of crime' under the PMLA.Issue (i): Whether a party may now contradict or seek to displace concessions or admissions recorded by the Appellate Tribunal in the impugned order.Analysis: Authoritative principles require that facts recorded as to what transpired at hearing are conclusive unless corrected before the same court while the matter is fresh. The proper remedy for any alleged mis-recording or unauthorized concession is to seek clarification or review before the very forum which recorded it; failing that, the recorded concession remains binding. The record shows no effective step was taken to correct or withdraw the recorded admissions before the Appellate Tribunal.Conclusion: The challenge to recorded concessions is impermissible and the recorded admissions stand; this issue is against the appellant.Issue (ii): Whether the advances of Rs.141.50 crores by the company to the Thakur group are 'proceeds of crime' under Section 2(u) and thereby attract the offence of money-laundering under Section 3 of the PMLA.Analysis: The statutory definition of 'proceeds of crime' requires property to be derived from criminal activity relating or relatable to a scheduled offence. The record establishes that the advances were made under a contractual agreement, routed through banking channels, reflected in the payer's audited books as loans and advances, and upheld as lawful business transactions by tax and appellate authorities. There is no evidence linking those funds to criminal activity relating to a scheduled offence; a substantial portion of the advances pre-dated inclusion of the Prevention of Corruption Act offence as a scheduled offence. The requisite scienter/knowledge and a nexus between the funds and a scheduled offence are absent on the record.Conclusion: The advances do not constitute 'proceeds of crime' and no offence of money-laundering under the PMLA is made out; this issue is in favour of the respondent (against the appellant).Final Conclusion: The appeals are without merit and are dismissed; the Appellate Tribunal's order of 17th January 2019 is confirmed with modification as to distribution of accrued interest.Ratio Decidendi: For a PMLA offence the prosecution must establish that the property was derived from criminal activity which is relating or relatable to a scheduled offence; absent such nexus and requisite knowledge, property cannot be treated as 'proceeds of crime' and attachment under the PMLA cannot be sustained.