2026 (2) TMI 1281 - AT - Money Laundering

Proceeds of Crime: unexplained assets can sustain provisional attachment, but mandatory notice defects vitiate specific confirmations.

Where investigative material including seized ledgers, diary entries, statements and patterns of unexplained cash and remittances fail to establish a ... Provisional attachment - Proceeds of crime - property equivalent in value - third party holding/parking of proceeds - movable and immovable properties - burden to explain lawful source - failure to serve the notice required by the second proviso to Section 8(1) - effect of acquittal in predicate offence on PMLA proceedings - Proceeds of crime - third party holding/parking of proceeds - burden to explain lawful source - HELD THAT:- No reasoning has been offered by the Appellants for entering into agreements to sale of their own ancestral property. It further remains unexplained that why transfer of full consideration for such sale was not made at first instance. Then, to prescribe a date line for registration of the sale of the parcels of land, failing which the said properties will be forfeited to the Appellant in itself reflects dubious modus operandi adopted to camouflage the flow of funds from the Gaba family to the Appellants. In addition, the letter dated 06.11.2015 of Sh. Gurmesh Gaba and recovery of diary by the Income Tax Authority clearly corroborate that the arrangement was entered into by the Appellants with the Gaba family so as to provide the ‘parking place’ for the Proceeds of Crime generated out of the trafficking of Narcotics and Psychotropic Substances. Reference to the suits filed by the Appellants in the Court of Ld. Civil Judge, Phagwara provided for injunction to prevent the alienation of the ancestral properties owned by the Appellants and hence, strengthen the inference drawn about the nature of the transactions indulged in by the Appellants. These were attempts to give credence to these transactions so as to hoodwink their true nature as to layer the proceeds of crime. The creation of the FDRs either in the sole name of Shri Vaibhav Mehra or in the joint names of father and son would in fact go on to show that the Appellant Shri Anil Kumar Jalota made efforts to bring in his son, so as to distance himself from the said allegations. No evidence has been produced as to show whether the amount transferred in either cheque or in cash has arisen from source other than the income of the Gaba family. Therefore, dismiss the two Appeals as being without merit. Proceeds of crime - property equivalent in value - burden to explain lawful source - effect of acquittal in predicate offence on PMLA proceedings - HELD THAT:- While the payment of Rs. 3,60,000/- made through Pay Order dated 14.11.2005 of State Bank of Patiala, Jalandhar, seems to have been established by the documents submitted as part of the Appeal Paper Book, the rest of the amount of Rs. 2 lakhs made in cash has not been explained by the Appellant. Her only explanation is that the details thereof were known to her demised husband. It is a matter of record that Smt. Rekha Rani/Luthra was married to Shri Gurjit Gaba in the year 2003. Shri Gaba has in his statement cited afore admitted having funded the impugned property including the construction of the house thereupon. Therefore, the attached property cannot be regarded as free from taint. The copies of the ITRs for self, late husband, her school and her late husband’s business do not mention about the cash payment of Rs. 2 lakhs of the plot and about the funding of the construction of the house on the plot. As mentioned afore Shri Gurjit Gaba in his statement has stated that it was he who had purchased the plot and constructed the house thereupon. The contention of the Ld. Counsel that the Appellants Smt. Swarn Luthra and Smt. Rekha Rani have not been made accused in the Scheduled Offence has been dealt with by the Tribunal. The argument made by the Ld. Counsel for the Appellant that since the impugned property was purchased and constructed before the occurrence of the crime is also to be rejected. Dismiss the two Appeals, being devoid of merit. Service of show cause notice under section 8(1) provisos - principles of natural justice - HELD THAT:- On perusal of the record, find that Ld. AA while issuing the Show Cause Notice u/s. 8(1) has failed to make Shri Ram Lubhaya, the father of the Appellant as a noticee. In this regard, Ld. Counsel for the Appellant has pointed out that the second proviso of Section 8(1) of PMLA requires that Show Cause Notice should have been issued to Sh. Ram Lubhaya. Ld. Counsel therefore argued that on this sole ground the confirmation of the provisional attachment of the said property vide the Impugned Order is not sustainable. I have perused the translated version of the sale deed dated 03.06.1978 evidencing the title of Shri Ram Lubhaya for the impugned parcel of land. I do not find that any evidence to the contrary has been placed before me. The statutory requirement of second proviso to Section 8(1) of PMLA is therefore not fulfilled. I therefore hold that the Impugned Order is vitiated to the extent of having confirmed the PAO issued for the said impugned Property. I therefore allow the Appeal. Proceeds of crime - property equivalent in value - burden to explain lawful source - HELD THAT:- There is no evidence placed by the Appellant as to hit the voluntariness and veracity of his statement even though tendered in judicial custody. Ld. Counsel has further challenged the attachment on the ground that the said property was purchased by the Appellant jointly with his elder brother much before the lodging of the FIR. He, therefore, pleaded that the said property cannot be regarded as proceeds of crime. However, it is also on record that there was a family settlement that the said property will be exclusively owned by the Appellant Sh. Ajay Jain. The definition of ‘proceeds of crime’ was given interpretation by the Apex Court in the case of Vijay Madanlal Choudhary and Others v. Union of India & Ors. [2022 (7) TMI 1316 - SUPREME COURT (LB)]. It is held that to fall in the definition of ‘proceeds of crime’, it can be even a property of equivalent in value to the proceeds out of the crime. Meaning thereby, it is not necessary that to fall in the definition ‘proceeds of crime’ it should always be a property directly or indirectly derived or obtained as a result of criminal activity rather if somebody has obtained and derived any property out of the crime and has siphoned off or vanished, then any property of equivalent value can be attached. Since the challenge by the Appellant to the attachment of the property fails on the two grounds mentioned afore, I do not find that the Appeal of the Appellant is on merit and therefore the Appeal is dismissed. Proceeds of crime - property equivalent in value - burden to explain lawful source - HELD THAT:- It is evident that many of the properties were purchased in cash for which no explanation has been given, other than it being from agriculture and that ITRs have been filed. The explanations offered by the Appellants are neither adequate nor corroborated by evidence documentary or otherwise. The role of the two Appellants Smt. Jagminder Kaur and Smt. Joginder Kaur (since deceased and substituted by LR Shri Maninder Singh) has been that of lending their names for the acquisition of the properties by Shri Maninder Singh. Smt. Jagminder Kaur is admittedly a house wife. Neither Smt. Joginder Kaur in the pleadings made in the Appeal nor subsequently her son and LR Shri Maninder Singh, the other Appellant, could show her capacity as to earn enough to purchase the impugned properties in her name. No identifying particulars have been submitted by the Appellant or her LR to corroborate the contention made in the Appeal. With respect to the properties at Serial No. 14 & 15 of the impugned order in the name of the Appellant Shri Maninder Singh the prayer in the Appeal has been made that these were also already attached vide the aforementioned order dated 09.03.2015 of the Ld. Competent Authority and Administrator, SAFEM (FOP) & NDPS, New Delhi. However, in these pleadings not even the Serial No. in the Table of the said order dated 09.03.2015 has been mentioned. Therefore, there is no material to infer that the properties are the same which has been attached in the two orders. For the property at Serial No. 18 of the table in the impugned order the prayer in the Appeal states that the order dated 09.03.2015 of the Ld. Competent Authority and Administrator, SAFEM (FOP) & NDPS, New Delhi has not been confirmed. Therefore, with respect to this property the provisional attachment and its confirmation thereof under the provisions of the PMLA cannot be questioned. These three Appeals are therefore dismissed. Liberty is granted to the Appellants to approach this Tribunal in case the conviction orders are reversed at subsequent stage. Proceeds of crime - burden to explain lawful source - HELD THAT:- Appellant was sentenced twice for drug related offences in Canada where he migrated. The impugned property at Serial No.1 of the Table in Paragraph 1 of this Order was purchased by the Appellant in the name of his son. The son Sh. Roy Bahadur Nirwal has denied having known the source of money which part funded the said property. Part funding was done through loan of Rs. 2.5 crore by the ICICI Bank, Jaipur. The Appellant has failed to provide any explanation as to the lawful source for repayment of such loan. No evidence whatsoever has been placed to corroborate the explanation of the Appellant about money having been generated out of his agriculture income. I also find that the purchase of the agricultural land has not been explained in terms of funding which has come out of legal sources. Again, there is no evidence documentary or otherwise which has been produced by the Appellant. In view of the aforementioned, dismiss the Appeal. Proceeds of crime - burden to explain lawful source - third party holding/parking of proceeds - HELD THAT:- No evidence has been produced as to demonstrate that the attached properties have been generated out of such agricultural income. Moreover, Shri Harmesh Gaba was Director/Partner in more than one firm, wherein Sh. Chunni Lal Gaba is also Director/Partner, except M/s Birji Electricals wherein Sh. Chunni Lal Gaba retired and was substituted by Sh. Mahesh Kumar. The shares/net worth of these Companies/Firms have been attached vide the Impugned Order. The Appellant Shri Harmesh Gaba has failed to produce any evidence documentary or otherwise, as to show the lawful generation of income and its utilisation for purchase of the impugned properties in his name and in the name of his son. As mentioned afore quite a few properties are still jointly owned by the members of the two families. Shri Harmesh Gaba and Shri Chunni Lal Gaba are Directors/Partners in M/s White Rose Pharma Chemicals Ltd., Shiva Cold Storage and Ice Factory, M/s, Shiva Agriculture Farm and M/s. C.H. Real Estate. Shri Chunni Lal was earlier partner in M/s. Briji Electricals along with Shri Harmesh Kumar but Shri Mahesh Kumar replaced Shri Chunni Lal in the year 2009. Shri Chunni Lal and Smt. Sudesh Rani (W/o Shri Harmesh Kumar) are Directors in M/s. White Rose Estate Investment Pvt. Ltd. Shri Gurjit Kumar S/o Shri Chunni Lal is director/partner in M/s. Medcare Remedies Pvt. Ltd. and M/s. C. G. Real Estate. Shri Gurjit Kumar, Shri Gurmesh Kumar, Shri Mahesh Kumar, Shri Chunni Lal and Shri Harmesh Kumar were in charge of, and were responsible to the firm/company, for the conduct of the business of firms/company. Shri Harmesh Kumar Gaba was thus an integral part of the business jointly run with his brother Shri Chunni Lal Gaba and his family. It is also matter of record that Shri Harmesh Gaba surrendered Rs. 5 crores to the Income Tax Department. The Appellants have acquired properties against payment in cash, for which no explanations have been offered. In view of the aforementioned the two Appeals are dismissed. Proceeds of crime - property equivalent in value - effect of acquittal in predicate offence on PMLA proceedings - HELD THAT:- The use of cash for the acquisition of these properties confirms the suspicion about the properties being tainted. It is also on record that all the three Appellants have been investigated for trafficking in Narcotics Drugs and Psychotropic Substances. While the Appellant Shri Chunni Lal Gaba and Shri Gurjit Gaba were arrested under the provisions of the NDPS Act, the investigation also revealed that Shri Gurmesh Gaba had kept record of the suspect transactions. In fact, Shri Gurjit Gaba has since been convicted under the provisions of the NDPS Act. These facts as mentioned afore make very strong grounds for keeping the attachment of these properties intact till the conclusion of the proceedings under the PMLA prosecution complaints filed before the Ld. Special Judge, PMLA, Sas Nagar (Mohali) against the three Appellants. A question has been raised about the impact of the acquittal of Shri Chunni Lal Gaba in the scheduled offence on to the present proceedings. Right at the outset it is made clear that Shri Chunni Lal Gaba is still under trial in the prosecution complaint filed under PMLA for the offence of money laundering. It therefore follows that the mere acquittal of Shri Chunni Lal Gaba from the scheduled offence cannot cause the properties which have been attached relating to him, to be set free. In fact, even where an accused is acquitted from the scheduled offence, the accused cannot get the benefit if he is still under trial for the money laundering offence. It is thus clear that the attachment of the properties of Shri Chunni Lal Gaba cannot be set free at this stage of the proceedings. On consideration of the statutory provision, allow the Appeal No. FPA-PMLA-1369/JL/2016 filed by Shri Suresh Kumar. Issues: (i) Whether certain movable and immovable properties (including fixed deposit receipts) are proceeds of crime or property of equivalent value and therefore liable to confirmation of provisional attachment under the Prevention of Money Laundering Act, 2002; (ii) Whether failure to serve the notice required by the second proviso to Section 8(1) of the Prevention of Money Laundering Act, 2002 vitiates confirmation of the provisional attachment; (iii) Whether acquittal of a person in the predicate/scheduled offence necessarily requires setting aside of attachment or precludes continuation of PMLA proceedings against related properties.Issue (i): Whether the properties and FDRs impugned in the appeals are proceeds of crime or property equivalent in value and thus liable to attachment under PMLA.Analysis: The Tribunal examined documentary evidence, ledger/diary entries seized by investigative agencies, statements under Section 50 of PMLA, patterns of cash payments and use of family/company structures to park assets. The Court applied the three-limbed definition of 'proceeds of crime' in Section 2(1)(u) and precedent recognising: (a) tainted property directly/indirectly derived from scheduled offences; (b) property of equivalent value where proceeds are not traceable; and (c) the need to consider layering, use of third parties, and adequacy of explanations or lawful source documentation. The Tribunal weighed the presence of cash transactions, unexplained remittances/loans, diary corroboration and failures to explain the lawful source of funds. It also considered decisions clarifying safeguards for bona fide third-party interests and the need for tentative assessment of illicit gains where required.Conclusion: In the appeals examined on these facts, the Tribunal held that the preponderance of evidence and lack of satisfactory lawful-source explanations justified confirmation of provisional attachments; those appeals are dismissed insofar as attachment confirmation is sustained.Issue (ii): Whether the impugned confirmation of provisional attachment is vitiated for failure to serve the notice required by the provisos to Section 8(1) of PMLA on a person holding property on behalf of another or on all joint holders.Analysis: The Tribunal reviewed the statutory requirement that where a notice specifies property as held by a person on behalf of another, a copy must be served on that other person, and where property is held jointly, notice must be served on all holders. The certified title documents and the show-cause record were examined to verify service. Where the Adjudicating Authority failed to serve the requisite notice on a joint owner/recorded owner, the statutory defect was found to be material.Conclusion: The Tribunal allowed the appeal concerned and set aside the confirmation of provisional attachment for the property where the mandatory notice under the second proviso to Section 8(1) was not served.Issue (iii): Whether acquittal in the predicate/scheduled offence automatically nullifies PMLA attachment or bars continuation of PMLA proceedings in relation to attached properties.Analysis: The Tribunal analysed the effect of acquittal in the scheduled offence on PMLA proceedings, applying Section 2(1)(u) and binding authority that the definition contains three limbs including property of equivalent value. The Tribunal noted that PMLA proceedings may continue where the scheduled offence persists in law or where the accused remains implicated in laundering activities; acquittal of some accused in the scheduled offence does not ipso facto defeat attachment if PMLA proceedings remain justified on available material. The Tribunal also considered precedents delineating protections for bona fide third-party interests and the circumstance where attachment may be maintained pending PMLA adjudication despite acquittal in the predicate offence.Conclusion: Acquittal in the scheduled offence does not automatically invalidate provisional attachment in PMLA proceedings; attachment may be sustained where the statutory tests and supporting material justify continuation of PMLA action.Final Conclusion: On the applications of Section 2(1)(u), Section 3, Section 5(1) and Section 8(1) of the Prevention of Money Laundering Act, 2002 and the assessed evidentiary record, the Tribunal dismissed a majority of the appeals confirming provisional attachments while allowing the appeal in respect of a property where statutory notice requirements were not complied with; overall the batch of appeals is partly allowed and partly dismissed.Ratio Decidendi: Where investigative material (including corroborative diary entries, statements and unexplained cash or remittance flows) fails to establish a lawful source for challenged assets, such assets may be treated as proceeds of crime or as property equivalent in value under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002; conversely, procedural non-compliance with mandatory notice provisions of Section 8(1) vitiates confirmation of provisional attachment in respect of the affected property.