2026 (1) TMI 792 - AT - Money Laundering

Continued money-laundering acts after offence scheduling sustain liability; provisional attachment of proceeds continued, appeal dismissed

Dominant issue: whether an act of money-laundering can be prosecuted where the underlying criminal activity predated its inclusion in the Schedule to the ... Money Laundering - provisional attachment order - no notice was served upon the appellant - Order passed ex-parte - reason to believe under section 8 of PMLA - proceeds of crime - attachment as value - continuing offence - preponderance of probabilities - burden of proof - HELD THAT:- It is by now well-settled that the issue of retrospectivity or otherwise, in so far as the offence of money-laundering is concerned, has to be examined with reference to the time of commission of the act which constitutes ‘money laundering’ under the PMLA, which includes concealment/ possession/ acquisition/ use/ projecting or claiming of proceeds of crime to be untainted property. If any of these actions takes place after the offence from which the proceeds were derived was added to the Schedule, the offence of money laundering would stand committed. The Hon’ble Supreme Court, in the landmark case of Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT (LB)] which has been relied upon by the ld. counsel for the Respondent, has held that the criminal activity may have been committed before the same had been notified as scheduled offence under PMLA, but if a person has indulged in or continues to indulge directly or indirectly in dealing with proceeds of crime, derived or obtained from such criminal activity even after it has been notified as a scheduled offence, such person may be liable to be prosecuted for offence of money laundering under PMLA. A continuing offence occurs and re-occurs, and each time, an offence is committed. The observation of the Hon’ble Delhi High Court in Prakash Industries Limited [2022 (7) TMI 877 - DELHI HIGH COURT] may also be referred to in this context, wherein, it was held that the PMLA, 2002 penalizes the act of money laundering. It does not penalize the scheduled offence. That offence merely constitutes the substratum on which charge of money laundering is being raised. Therefore, what is required to be seen is whether the act comprising money-laundering was committed when the offence from which the proceeds were derived already stood included in the Schedule to the PMLA. This is a matter which the competent court of criminal jurisdiction has to decide after considering the evidence led before it. At this stage, in the present proceedings before this Appellate Tribunal, it is sufficient to observe that on the preponderance of probabilities, there is enough material on record to support the allegations against the appellant. The legal position is well-settled that attachment of property is a balancing arrangement to secure the interests of the person, as also ensure that the proceeds of crime remain available to be dealt with in the manner provided by the Act at the conclusion of the criminal trial. Mere attachment does not lead to loss of possession and the appellants are free to enjoy the property unless, in a given case, it becomes imperative for the Directorate to take possession of the property due to exceptional circumstances as held by the Hon’ble Supreme Court in Vijay Madanlal Choudhary. Therefore, pending conclusion of trial in the criminal prosecution case filed under the PMLA, attachment of the subject property needs to continue. There are no grounds to interfere with the impugned order - appeal dismissed. Issues: (i) Whether notices and show-cause documents were validly served on the appellants; (ii) Whether the Adjudicating Authority was required to independently record a 'reason to believe' or could rely on the Directorate's reasons; (iii) Whether the flat was liable to be attached as direct proceeds of crime or required attachment only to the extent of value, having regard to the appellants' pleaded sources; (iv) Whether offences not originally in the Schedule to the PMLA could support attachment where acts constituting money-laundering continued after such offences were scheduled.Issue (i): Whether notices and show-cause documents were validly served on the appellants.Analysis: Applicable procedural rules provided for service by registered post/speed post in accordance with Order V CPC as applied by the Adjudicating Authority (Procedure) Regulations, 2013. Documentary tracking information and file notings concerning dispatch and delivery were placed on record. The appellants had an advocate contact the Adjudicating Authority prior to the impugned order.Conclusion: Notices and show-cause documents were validly served; this issue is against the appellants.Issue (ii): Whether the Adjudicating Authority was required to independently record a reason to believe under Section 8(1) or could rely on the Directorate's reasons.Analysis: Distinction between the language of Section 5 and Section 8(1) was considered; precedent supports that the Authority may proceed on the basis of subjective satisfaction derived from the complaint and related material without separate formal recording of reasons identical to the Directorate's Section 5 reasons.Conclusion: Reliance on the Directorate's reasons was permissible; this issue is against the appellants.Issue (iii): Whether the flat was liable to be attached as direct proceeds of crime given the appellants' claimed sources of acquisition.Analysis: The appellants submitted documents and oral explanations as sources. Documentary evidence was unregistered, lacked corroborative bank account transactions or loan disbursal proof and appeared to be afterthoughts. On the preponderance of probabilities the proofs were insufficient to establish legitimate source and therefore the attachment as direct proceeds required closer scrutiny but material supported continuation of attachment pending trial.Conclusion: The appellants failed to discharge the burden to show legitimate sources; attachment as proceeds is sustained; this issue is against the appellants.Issue (iv): Whether the fact that underlying alleged offences were not in the Schedule at the time of their commission precluded action under the PMLA for subsequent acts constituting money-laundering.Analysis: Money-laundering is a continuing offence; liability depends on whether acts constituting laundering (possession, acquisition, dealing with proceeds) occurred after the underlying offence was included in the Schedule. Authority and precedent were applied to that principle.Conclusion: Retrospectivity does not bar proceedings where acts constituting money-laundering continued after scheduling; this issue is against the appellants.Final Conclusion: The impugned order confirming provisional attachment is sustained and the appeals are dismissed; the attachment remains in force pending criminal trial.Ratio Decidendi: Where procedural rules permit service by speed post and supporting delivery records exist, service is valid; the Adjudicating Authority may act on the Directorate's reasons when supported by material; money-laundering, being a continuing offence, permits attachment if acts constituting laundering occur after the underlying offence is scheduled and the claimant fails, on preponderance of probabilities, to prove legitimate source of acquisition.