2026 (2) TMI 435 - SC - Money Laundering

Interpretation of PMLA Section 8(7) and 8(8): Special Court confirmation set aside; appeal restored for merits.

The definition of 'proceeds of crime' under the PMLA covers property equivalent in value to assets obtained from scheduled offences, permitting attachment ... Interpretation of Section 8(7) of the PMLA - interpretation of Section 8(8) of the PMLA - definition of 'proceeds of crime' under Section 2(1)(u) of the PMLA - finality of confirmation order u/s 8(3) - doctrine of merger - limitation on Special Court where appeal under Section 26 is pending - scope of expression 'material before it' in Section 8(7) - requirements of Rule 2(b) and Rule 3A of the Prevention of Money-laundering (Restoration of Confiscated Property) Rules, 2016 - powers and role of the Appellate Tribunal under Sections 25, 26 and 35 - HELD THAT:- The definition of “proceeds of crime” under Section 2(1)(u) of the PMLA is wide enough to include a property which is equivalent in value to the property that is directly or indirectly obtained from a criminal activity relating to the scheduled offence. Thus, such a property can also be attached if the proceeds of crime, as such, are not otherwise available. Section 2(1)(u) of the PMLA, despite being a definition clause, indicates the very objective of the enactment to secure proceeds of crime in any form. When an appeal or a further challenge is pending before the Appellate Tribunal or the concerned higher forum against an order passed under Section 8(3) of the PMLA, the Special Court is expected to refrain from dealing with an application filed under Section 8(7) of the PMLA, without awaiting the disposal of such appeal or further challenge. We also say so in view of the doctrine of merger. Once an order of confiscation has been made either under Section 8(5), or Section 8(7), or Section 58B, or Section 60(2A) of the PMLA, the confiscated properties vest in favour of the Central Government, as provided under Section 9 of the PMLA. Resultantly, any right or title over the property, qua a third party, gets extinguished, since such a vesting becomes absolute. By the operation of law, the Central Government gets ownership of the property, free from any encumbrances. Hence, this provision clearly delineates the final consequence of a confiscation order. To sum up, Chapter – III of the PMLA provides a comprehensive picture of how properties involved in the offence of money-laundering are to be dealt with. Admittedly, the appellant company, having suffered an order under Section 8(3) of the PMLA, had preferred an appeal under Section 26 of the PMLA which was pending on the file of the Appellate Tribunal even at the time of filing of the applications under Sections 8(7) and 8(8) of the PMLA. The fact that the said appeal was pending before the Appellate Tribunal, for want of coram, is not in dispute. The decision of the Adjudicating Authority under Section 8(3) of the PMLA is subject to the outcome of any further challenge to the same. The powers of the Appellate Tribunal are rather wide and exhaustive. What is referred to under Section 8(7) of the PMLA is a confirmation order which has attained finality. At the cost of repetition, once an order under Section 8(3) of the PMLA is challenged before a higher forum, a deemed embargo operates on the conclusion of the proceedings under Section 8(7) of the PMLA. Hence, the Special Court cannot go into the issues which the higher forums have been entrusted with. When an appeal is provided for under the statute, it gives a vested right to any aggrieved person to exhaust the same. In the present case, we are concerned with the decision-making process adopted by the Special Court, as confirmed by the High Court. Instead of deferring the application filed under Section 8(7) of the PMLA, and awaiting the adjudication by the Appellate Tribunal under Section 26 of the PMLA, the Special Court has allowed the said application, for which exhaustive reasons have been given independently on merits. The Special Court has, in effect, rendered the appeal under Section 26 of the PMLA infructuous. The said action at the instance of the Special Court is totally impermissible in law. Insofar as the application filed by the appellant under Section 8(8) of the PMLA is concerned, we find that it has been correctly dismissed by the Special Court. Having preferred an appeal under Section 26 of the PMLA against the order suffered under Section 8(3) of the PMLA, and not having demonstrated that it suffered a quantifiable loss as a result of the offence of money-laundering, the necessary conditions under Section 8(8) of the PMLA have not been satisfied by the appellant company. In such view of the matter, we set aside the order passed by the Special Court allowing the application under Section 8(7) of the PMLA, as confirmed by the High Court in the impugned order. We are also conscious of the fact that after filing the present appeal, the Appellate Tribunal has dismissed the appeal under Section 26 of the PMLA, as having become infructuous. Hence, the interest of justice would require that the order passed by the Appellate Tribunal under Section 26 of the PMLA also be set aside, as merits have not been gone into by the Appellate Tribunal for no fault of the appellant. It would only be fair and just to restore the said appeal for a decision on merits. Thus, we set aside the order dated 15.09.2022 passed by the Special Court allowing the application filed by the respondent under Section 8(7) of the PMLA, as confirmed by the High Court vide the impugned order dated 27.02.2023. The application filed by the appellant under Section 8(8) of the PMLA was not maintainable. Issues: (i) Whether an application under Section 8(7) of the Prevention of Money-laundering Act, 2002 can be decided by the Special Court while an appeal against the Adjudicating Authority's confirmation order under Section 8(3) is pending before the Appellate Tribunal; (ii) Whether an application under Section 8(8) of the Prevention of Money-laundering Act, 2002 by a claimant (appellant company) was maintainable in the facts of the case.Issue (i): Whether a Special Court may adjudicate an application under Section 8(7) of the Prevention of Money-laundering Act, 2002 while an appeal under Section 26 against the Adjudicating Authority's Section 8(3) confirmation order remains pending.Analysis: Section 8(7) is contingent upon a confirmation order under Section 8(3) that has attained finality; the Appellate Tribunal under Section 26 has broad powers and time-bound disposal obligations; once an order under Section 8(3) is challenged, the doctrine of merger and the statutory appeal mechanism create a deemed embargo on concluding proceedings under Section 8(7) until finality is achieved. The phrase 'material before it' in Section 8(7) is limited to material demonstrating the contingency and entitlement to possession and does not permit the Special Court to supplant or review an order under Section 8(3) that is under challenge, except on new material not earlier considered.Conclusion: The Special Court cannot decide an application under Section 8(7) while an appeal under Section 26 against the Section 8(3) confirmation order is pending; Section 8(7) is available only after the confirmation order attains finality. This conclusion is in favour of the appellant.Issue (ii): Whether the appellant's application under Section 8(8) of the Prevention of Money-laundering Act, 2002 for restoration was maintainable.Analysis: Section 8(8) requires that a claimant demonstrate legitimate interest, quantifiable loss, good faith, absence of involvement in money-laundering, and having taken reasonable precautions. The second proviso to Section 8(8) permits restoration during trial only subject to compliance with Rule 2(b) and Rule 3A of the 2016 Rules, including framing of charges and publication procedures. The appellant had appealed the Adjudicating Authority's order under Section 26 and failed to demonstrate the statutory prerequisites including quantifiable loss and the conditions of Rule 2(b) and Rule 3A.Conclusion: The appellant's Section 8(8) application was not maintainable on the facts and statutory criteria. This conclusion is against the appellant on the Section 8(8) claim.Final Conclusion: The Special Court's order allowing the respondent's application under Section 8(7) is set aside and the Appellate Tribunal is directed to decide the pending appeal under Section 26 on merits; the appellant's Section 8(8) application was correctly dismissed. The overall legal effect is restoration of the appellant's right to have its appeal heard on merits and restraint on Section 8(7) proceedings until the confirmation order attains finality.Ratio Decidendi: An application under Section 8(7) of the Prevention of Money-laundering Act, 2002 can be decided by the Special Court only after the Adjudicating Authority's confirmation order under Section 8(3) attains finality; where an appeal under Section 26 is pending, a deemed embargo operates on Section 8(7) proceedings unless new material not previously considered is placed before the Special Court.