2026 (2) TMI 184 - AT - Money Laundering

Scope of investigation under PMLA: ED limited from reinvestigating predicate offence; attachment upheld and appeals dismissed

The ED's inquiry under PMLA is confined to examining proceeds of crime, provisional attachment and confirmation, and related valuation and source-of-funds ... Scope of investigation under PMLA (ED not to re-investigate predicate offence) - reason to believe for provisional attachment - provisional attachment u/s 5(1) - confirmation of attachment u/s 8(1) - burden of proof u/s 24 - proceeds of crime - property or value thereof / property equivalent in value - undisclosed income and afterthought ITRs as defence - HELD THAT:- Allegations made in the FIR and/or Police report under Section 173 CrPC. 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 appellant, as no independent investigation is required to be made by the ED, to assess the quantum of DA. Proceeds of crime by commission of crime/predicate offence - There is ample evidence available from the investigation against the appellant no.1 and his family members that they do not have regular and genuine source of income as claimed by them from agricultural, diary and business, except the salary of appellant no.1. The appellant no.1 has not declared the extra income and acquisition of properties, either in his property returns to his department as per State CS Conduct Rules, or in his ITRs, as pointed out by Ld. counsel for the respondent ED. Thus, question of giving any benefit with respect to undisclosed income does not arise. Moreover, the contention of extra undisclosed income and exaggerated valuation report regarding cost of construction needs to be subjected to examination & cross-examination of the appellants, alongwith documentary evidence during the criminal trials in charge-sheet and prosecution complaint cases. Appellants can also take the said plea, before the trial courts at the stage of consideration of charges, if charges are yet to be framed. We are handicapped to express any view on the quality of investigation conducted by the respective agencies, as this Appellate Tribunal cannot usurp the said powers, in absence of any charge-sheet and prosecution complaint before us. We are satisfied with the Ld. Counsel for the Respondent ED that during investigation, it is revealed that the impugned properties were acquired by the Appellants though unaccounted cash, which was in-fact the proceed of crime. The said unaccounted cash deposits in the various bank accounts and thereafter acquisition of the properties by the Appellants clearly reflects that POC was layered in the form of acquired properties in the name of all the family members, as Appellants failed to explain the sources of said cash deposits. Ld. Counsel for Respondent ED during the arguments pointed out that there is total cash deposit of Rs. 25,29,000/- in the account of Shri Ramadhar Ram Rs. 12,85,900/- in the account of his wife Anita Devi and Rs. 36,37,500/- into the saving account of his son Bikash Kumar. During investigation, it was also revealed that Bikash Kumar was not running any business during the check period as alleged. On scrutiny, it was revealed that Bikash Kumar had invested Rs. 2,45,000/- in 08 plots of land purchased in cash and kept the documents with different persons. The proof regarding capital for starting business with Rs. 4 Lakh from his mother is also proceeds of crime, as he could not produce any documentary evidence to prove the source or mode of investment by his mother. Thus, the business was also started using the proceeds of crime. The statement of Bikash Kumar regarding cost of construction of approx. Rs. 17 Lakh is also apparently false, as the Valuation Report filed by Respondent ED clearly reveals the cost of the house as Rs. 28,00,441/-. In the aforesaid construction, Bikash Kumar himself admitted to have invested Rs. 13 Lakh taken from his father in the construction of the house during the check period, and the same was sold off for Rs. 45 Lakhs and purchased a new plot in the name of his wife Pinki Kumar. This clearly reflects the purchase of the plot from the proceeds of crime of Ramadhar Ram. The perusal of the definition of “proceeds of crime” given under Section 2(1) (u) of the Act of 2002, 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. In the light of the aforesaid, 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. Appeals are hereby dismissed being devoid of any merits. Issues: (i) Whether ED is required to conduct an independent investigation into the predicate offence; (ii) Whether there was reason to believe to pass the Provisional Attachment Order (PAO) and for the Adjudicating Authority to confirm it under Sections 5(1) and 8(1) of PMLA; (iii) Whether benefit should be granted to appellants for undisclosed income; (iv) Whether appellants discharged burden of proof under Section 24 of PMLA to show properties were lawfully acquired; (v) Whether properties acquired prior to the alleged period or without direct connection to proceeds of crime can be attached as property equivalent in value.Issue (i): Whether ED is required to conduct an independent investigation into the predicate offence.Analysis: ED's investigatory mandate under PMLA is limited to (a) establishing prima facie incriminating material regarding the scheduled/predicate offence, (b) determining quantum of proceeds of crime, (c) checking laundering or likely laundering and mode of layering, (d) tracing alternative properties where proceeds are dissipated, and (e) testing genuineness of claimants. ED may note lacunae in police/CBI investigation but is not empowered to re-investigate or supplant the police/CBI conclusion on predicate offence or quantum of fraud.Conclusion: ED is not required to conduct an independent investigation into the predicate offence. This issue is decided against the appellants.Issue (ii): Whether there was reason to believe to pass the PAO and for the Adjudicating Authority to confirm it under Sections 5(1) and 8(1) of PMLA.Analysis: Material before ED and the Adjudicating Authority included FIR/chargesheet, ECIR, bank statements showing substantial unexplained cash deposits, sale deeds evidencing cash payments, valuation reports, and statements under Section 50. The second proviso of Section 5(1) permitting immediate attachment where non-attachment would frustrate proceedings was engaged. Evidence indicated layering of alleged proceeds of crime into properties and other assets, and risk of alienation was shown.Conclusion: There was reason to believe to pass the PAO and to confirm it. This issue is decided against the appellants and in favour of the respondent.Issue (iii): Whether benefit should be given to appellants for undisclosed income.Analysis: Undisclosed income claimed after raids/ECIR filings and unsupported assertions of agricultural/dairy/business income were not substantiated by documentary evidence. Filings of ITRs after searches and lack of corroborative proof indicated afterthought explanations. Assessment of such claims requires trial-level evidence and cross-examination; appellate review on these materials does not mandate granting benefit.Conclusion: No benefit is to be given to appellants for undisclosed income. This issue is decided against the appellants.Issue (iv): Whether appellants discharged burden under Section 24 of PMLA to prove lawful acquisition of attached properties.Analysis: Appellants failed to produce adequate contemporaneous documentary proof to rebut the inference that substantial cash deposits and cash payments for property acquisitions derived from proceeds of crime. Conflicting or fabricated documents and unsupported assertions established that appellants did not satisfactorily discharge the statutory burden of proof under Section 24; assessment of disputed documentary quality is for trial courts.Conclusion: Appellants did not discharge the burden under Section 24. This issue is decided against the appellants.Issue (v): Whether properties acquired prior to the alleged period or without direct connection to proceeds of crime can be attached as property equivalent in value.Analysis: The definition of 'proceeds of crime' in Section 2(1)(u) includes the value of such property and property equivalent in value where tainted property cannot be traced. Authorities permit attachment of untainted or prior-acquired property to the extent of equivalent value, subject to established safeguards and tests; recourse to the second limb is permissible where actual tainted property is not traceable or where proceeds have been dissipated, provided statutory safeguards are satisfied.Conclusion: Attachment of properties as property equivalent in value is permissible in the circumstances of this case. This issue is decided against the appellants.Final Conclusion: On the issues decided, the material on record justified provisional attachment and its confirmation by the Adjudicating Authority; appellants failed to discharge statutory burden to show lawful acquisition, and no relief is warranted on the grounds urged.Ratio Decidendi: Where material establishes prima facie that assets were acquired from unexplained/unaccounted cash deposits constituting alleged proceeds of crime and the tainted property cannot be effectively traced or is likely to be alienated, Sections 5(1) and 2(1)(u) permit provisional attachment and attachment of property equivalent in value, unless the claimant satisfactorily discharges the burden under Section 24 of the PMLA to show lawful acquisition.