2026 (1) TMI 720 - AT - Money Laundering

Attachment of properties as 'proceeds of crime' upheld; PAO confirmed; ED not required to re-investigate predicate offences

Dominant issue 1 - Whether properties can be attached as 'proceeds of crime': The AT applied the second limb of the statutory definition (value of ... Money Laundering - provisional attachment of property in the absence of proceeds of crime - availing housing loans by submitting fake/forged documents - reason to believe for passing the PAO and confirmation of the same or not - requirement to conduct independent investigation qua the predicate offences. Whether any properties of the appellants can be attached as value thereof, in absence of proceeds of crime? - HELD THAT:- The perusal of the definition of proceeds of crime reveals three limbs of the definition out of which first part refers to the property acquired or derived directly or indirectly by a person relating to the criminal activity to a scheduled offence. The second part includes “the value of any such property”. The second part is generally mixed with third part for giving interpretation. Further, this Tribunal has also given an elaborate judgment on the issue in the case of Sadananda Nayak v. The Deputy Director, Directorate of Enforcement, Bhubaneswar [2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI], where all the judgments on the issue have been considered and thereby this issue was decided in favour of ED. Thus, the 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. Whether there was any reason to believe for passing the PAO and confirmation of the same? - HELD THAT:- In the matter at hand, there is ample evidence available from the investigation against the appellant Ganne Srinivasa Rao that during the period 2010-2013, he took loans fraudulently from the State Bank of India, Jangareddygudem; Andhra Bank, Jangareddygudem; Indian Overseas Bank, Krishna Nagar Branch; Oriental Bank of Commerce, Rajahmundry Branch and Bank of Maharashtra, Eluru Branch to the tune of Rs. 29,66,40,000/-, on the basis of false and forged documents, which was later-on siphoned of by him for the other purposes than shown in the loan applications/agreements. Out of the said defrauded amount, sum of Rs. 19,83,78,905/-, is still outstanding towards the said banks and accordingly, the quantum of proceeds of crime were taken by ED as the said amount - Regarding applicability of Section 5(1)(a) & (b), the appellant Shri Ganne Srinivasa Rao, is an accused in the said FIR and the ECIR is also recorded against him, his wife and relative Nandigam N. Kumar, thus, they are the persons in possession of alleged proceeds of crime and there is likelihood of concealment or divesting of the impugned properties is not ruled out. Hence, the said properties are clearly covered for attachment under Section 5(1)(a) & (b). The fact that four properties our of 13 properties are already attached and auctioned by the banks, is no ground to set aside the impugned order qua the remaining properties. The Adjudicating Authority after perusal of the contents of Original Complaint No. 1189/2017 along with the relied upon documents was satisfied with the same and accordingly, Show Cause Notice was issued to the defendants (herein Appellants) - the issue is decided against the Appellants. Whether ED was required to conduct the independent investigation qua the predicate offences? - HELD THAT:- The police/CBI has to conduct the investigation for the commission of the predicate/schedule offence and ED is not empowered to re-investigate the same - The ED has to confine its inquiry/investigation qua the remaining four points mentioned above. Accordingly, we are of the view that ED is not required to conduct any investigation for the predicate offence. ED can only point out any glaring mistake, or lacunae in the said investigation conducted by police/CBI, which may come to its knowledge while conducting the investigation under PMLA. However, ED cannot arrive at different conclusion qua the predicate offence and quantum of fraud/POC, while conducting investigation for PMLA, as it is not a supervisory investigating agency. Thus, this contention is decided against the appellants, as no independent investigation is required to be made by the ED, to assess the quantum of POC. The present Appeals are hereby dismissed being devoid of any merits - However, it is made clear that any mortgaged property already attached and auctioned by banks will remain protected from the impugned order and the banks will be at liberty to move appropriate application before the Ld. Special Judge, PMLA Court for disposal of remaining properties, subject to deposit of excess amount in the form of FDR with the Respondent ED. Issues: (i) Whether any properties of the appellants can be attached as value thereof in absence of direct proceeds of crime; (ii) Whether there was reason to believe for passing and confirming the Provisional Attachment Order (PAO) under Section 5(1) PMLA; (iii) Whether the Enforcement Directorate (ED) was required to conduct an independent investigation into the predicate offences.Issue (i): Whether properties can be attached as value equivalent in absence of direct proceeds of crime.Analysis: The definition of 'proceeds of crime' under Section 2(1)(u) includes the value of such property and permits attachment of properties of equivalent value when the actual tainted property cannot be traced. Relevant precedents recognise limited attachment of pre-acquisition properties where statutory tests are satisfied and bona fide third-party rights are preserved. The tribunal applied the second limb of the definition to permit attachment of properties as value equivalent.Conclusion: Attachment of the appellants' properties as value equivalent is permissible and this ground is against the appellants.Issue (ii): Whether there was reason to believe for passing and confirming the PAO under Section 5(1) PMLA.Analysis: Material on record showed extensive allegations and documentary trail of fraudulent loans, outstanding quantum of alleged proceeds of crime, searches and seizures, and ECIR recording. The second proviso to Section 5(1) permits immediate attachment where non-attachment is likely to frustrate proceedings. The Adjudicating Authority issued show-cause notice and reviewed the Original Complaint and supporting material before confirming the PAO.Conclusion: There was reason to believe for passing and confirming the PAO; this ground is against the appellants.Issue (iii): Whether ED was required to conduct an independent investigation into predicate offences.Analysis: ED's investigatory role under PMLA is limited to establishing prima facie incriminating evidence relating to laundering, the quantum and trail of proceeds, layering, dissipation, and genuineness of claimants. ED is not required to re-investigate or supersede the investigative findings of police/CBI on the predicate offences, although ED may point out manifest lacunae if discovered.Conclusion: ED was not required to conduct an independent investigation into the predicate offences; this ground is against the appellants.Final Conclusion: The appeals are dismissed as devoid of merits and the attachment confirmation is sustained while preserving banks' rights in respect of mortgaged properties.Ratio Decidendi: Where actual tainted property cannot be located, Section 2(1)(u) and Section 5(1) PMLA permit attachment of properties of equivalent value as proceeds of crime, and ED's inquiry under PMLA is limited to laundering-related aspects without re-investigating predicate offences.