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of <h1>Pre-offence property treated as 'proceeds of crime' u/s 2(1)(u) upheld; provisional attachment affirmed and virtual hearing valid</h1> Dominant issue 1: Whether property acquired prior to the predicate offence can be provisionally attached as 'proceeds of crime' under Section 2(1)(u). ... Money Laundering - provisional attachment of the property acquired prior to commission of crime - deemed tainted property - definition of 'proceeds of crime' in Section 2(1)(u) - bona fide receipt - provisional attachment without providing the appellants an opportunity of hearing - violation of the principles of natural justice - opportunity to contest the notice but failed to avail the opportunity - fraudulent balance sheets - HELD THAT:- The argument has been raised in ignorance of the definition of “proceeds of crime” having three limbs out of which the second limb of the definition can be applied when the proceeds of crime acquired or derived directly or indirectly out of the predicate offence is not found available with the person and cannot be otherwise traced out, having been siphoned off. In such case, the respondent can attach the property of equivalent value to the value of the proceeds of crime and in the instant case the second limb of the definition of “proceeds of crime” has been applied. In that case, the property acquired prior to commission of crime can be attached for equivalent value to the proceeds. The issue aforesaid has been settled by this Tribunal in the case of Sadananda Nayak Versus The Deputy Director, Directorate of Enforcement, Bhubaneswar in Appeal [2024 (10) TMI 1619 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI] after referring various judgments of the High Courts and the Supreme Court. We find that the Adjudicating Authority has all-India jurisdiction and it can hold sitting for hearing of the OC at a suitable place and in the instant case the venue of hearing was changed from Delhi to Mumbai. The appellant was having opportunity of hearing on Virtual Mode which has been enforced by the Apex Court for all the Courts and the Tribunals but the appellant insisted for physical hearing which cannot be accepted to be justified and therefore we do not find a case of violation of principles of natural justice. Thus, the first argument raised by the appellant cannot be accepted. Thus, we do not find that even second ground is made out to question the provisional attachment of the property. The facts remain that once the appellant could know about the involvement of the amount received by them out of commission of crime, it ought to have returned it as was done for an amount of more than Rs. 20 Crores out of Rs. 30.90 Crores received by the appellant. There is nothing on record to show utilization of the amount of Rs. 10.50 Crores against the shares or returns and accordingly we do not find reason to accept the argument raised by the appellant. The argument aforesaid has been raised in ignorance of the statements of the witnesses recorded during the course of investigation which is of Shri Sant Lal Aggarwal and Shri Satish Pawa. They categorically stated that the appellant did not return a sum of Rs. 10.50 and therefore it remains proceeds of crime in the hands of the appellant. It is not taking only first limb of the definition of proceeds of crime to attach the property only when it is directly or indirectly obtained or acquired out of predicate offence. If the proceeds is not found available or traceable having been laundered, the property of equivalent value would fall within the definition of proceeds of crime which can be attached as per the judgment of the Apex Court in the Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT (LB)] and otherwise the recent judgment of the Division Bench has been given by the Hon’ble Punjab and Haryana Court in the Dilbag Singh [2024 (11) TMI 833 - PUNJAB AND HARYANA HIGH COURT] Thus, do not find any case to cause interference in the impugned order. Accordingly appeals fail and are dismissed. Issues: (i) Whether the Adjudicating Authority violated principles of natural justice by not providing a hearing before confirming the provisional attachment; (ii) Whether immovable property acquired prior to commission of the predicate offence can be attached as 'proceeds of crime' under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002; (iii) Whether the undisputed retention by the appellants of Rs. 10,50,75,000 out of funds received amounts to proceeds of crime attracting provisional attachment.Issue (i): Whether the Adjudicating Authority's confirmation of the provisional attachment without providing the appellants an opportunity of hearing violated principles of natural justice.Analysis: The statutory timeline for finalizing the Adjudicating Authority's order and availability of virtual hearing were considered; correspondence requesting physical hearing was weighed against the availability of virtual hearing and the requirement that the authority conclude within statutory period. The record shows opportunities for participation were provided and not availed; change of venue within the authority's nationwide jurisdiction was examined in the context of procedural adequacy.Conclusion: The non-attendance of the appellants did not amount to denial of hearing and there was no infringement of principles of natural justice in confirming the provisional attachment.Issue (ii): Whether property acquired prior to the commission of the predicate offence can be attached under the definition of 'proceeds of crime' in Section 2(1)(u).Analysis: The definition of 'proceeds of crime' was interpreted as comprising three limbs, including a limb permitting attachment of property equivalent in value where directly traceable proceeds are not available. Precedents explaining the concept of deemed tainted property and safeguards for bona fide third-party interests and the need to prevent evasion by siphoning off proceeds were applied to the statutory text and legislative purpose.Conclusion: Property acquired prior to the predicate offence can be attached as property of equivalent value under Section 2(1)(u) when traceable proceeds are not available, subject to the statutory safeguards for bona fide third-party interests.Issue (iii): Whether the appellants' retention of Rs. 10,50,75,000 out of receipts linked to the predicate offence constitutes proceeds of crime justifying attachment.Analysis: Evidence regarding receipt, partial repayment, absence of demonstrable legitimate utilization of the retained sum, and witness statements indicating non-return were considered; the applicability of the second limb of Section 2(1)(u) to attach equivalent value where proceeds are retained was applied.Conclusion: The retained amount of Rs. 10,50,75,000 was held to be proceeds of crime in the hands of the appellants and sustained the provisional attachment.Final Conclusion: The appeals are dismissed and the confirmed provisional attachment stands, reflecting that (i) procedural opportunity to be heard was not denied, (ii) the second limb of Section 2(1)(u) permits attachment of property acquired prior to the predicate offence as property of equivalent value when proceeds are not otherwise available, and (iii) the retained sum was properly treated as proceeds of crime under the statute.Ratio Decidendi: Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 encompasses (a) property directly or indirectly derived from the scheduled offence, (b) property of equivalent value where such proceeds are not traceable, and (c) property equivalent in value to proceeds taken or held outside the country; accordingly, attachment of property acquired prior to the offence is permissible under the second limb where traceable proceeds are unavailable, subject to statutory safeguards for bona fide third-party interests.
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