2026 (3) TMI 31 - AT - Money Laundering

Provisional Attachment under PMLA upheld as appellants failed to prove lawful source or repayment, additional evidence refused.

Provisional attachment under the Prevention of Money Laundering Act was sustained because the appellants failed to discharge the statutory burden to prove ... Effect of quashing of FIR on parallel criminal and PMLA proceedings - classification of entities as shell or paper companies - proceeds of crime - burden of proof to disclose and establish source of proceeds - requirement to produce loan documentation for claimed loans - misappropriation and criminal breach of trust after manipulation of the books of accounts - defraud the banks by obtaining the loan - dummy companies and diverted the funds to acquire the properties in the name of other dummy companies. Effect of quashing of FIR on parallel criminal and PMLA proceedings - Whether quashing of the FIR against one accused vitiates the ECIR, investigation and provisional attachment under the Act of 2002 in respect of other accused and ongoing proceedings. - HELD THAT: - The Tribunal examined the orders of the High Court quashing the FIR qua one accused and held that mere quashing of the FIR against that individual does not nullify the entire proceedings where predicate offences remain disclosed and trials are pending against other persons. The finding emphasises that the continuation of the investigation, recording of ECIR and provisional attachment under the Act of 2002 is not automatically defeated by the High Court's order in favour of one accused, particularly where multiple FIRs and allegations involving a consortium of banks and other accused persist. [Paras 16, 17] Quashing of the FIR against the individual accused does not vitiate the ongoing PMLA-related proceedings or the provisional attachment where predicate offences remain and proceedings are pending. Classification of entities as shell or paper companies - requirement to produce loan documentation for claimed loans - HELD THAT: - The Tribunal accepted the respondents' finding that the transfers were routed through a web of companies which, on the material before it, were paper/shell entities. The appellants conceded absence of loan documentation for the alleged Rs. 50 Crore advance and failed to produce balance-sheet entries or supporting books to show genuine loans. Statements and contemporaneous material traced a money trail from the Surana group through these entities to the properties in issue. In that factual matrix the Tribunal concluded there was sufficient basis to treat the transactions as paper transactions and to sustain the provisional attachment. [Paras 18, 19] In absence of loan documents and supporting books, the transactions were rightly treated as paper/shell transactions and provide a sufficient basis for the provisional attachment. Burden of proof to disclose and establish source of proceeds - HELD THAT: - The Tribunal applied the statutory allocation of burden under the Act of 2002, noting the notice obligations under Section 8(1) and the onus under Section 24. The appellants were held to have failed to establish the source of earnings relied upon for repayment of the alleged loan; they also did not file applications or produce the additional evidence during the pendency of the appeal despite a long delay. Given the appellants' inability to produce balance-sheets, loan documents or other material to substantiate their pleaded source, the Tribunal found no merit in their contention and upheld the confirmation of provisional attachment. [Paras 20] The appellants failed to discharge the statutory burden to disclose and prove lawful source of funds; consequently the confirmation of provisional attachment was justified. Final Conclusion: The appeals were dismissed: the Tribunal held that quashing of the FIR against one accused did not invalidate the ongoing PMLA proceedings; the transactions were correctly characterised as routed through paper/shell entities in absence of loan documentation; and the appellants failed to discharge the statutory burden to prove lawful source of funds, justifying confirmation of the provisional attachment. Issues: (i) Whether confirmation of provisional attachment of appellants' properties under the Prevention of Money Laundering Act, 2002 is vitiated by quashing of the FIR against a principal accused; (ii) Whether the appellants received and utilised proceeds of crime to acquire the windmills and whether they discharged the burden to prove lawful source/repayment of loans; (iii) Whether appellants should be permitted to lead additional evidence at the stage of final hearing to establish repayment/source.Issue (i): Whether confirmation of provisional attachment is vitiated by quashing of the FIR against a principal accused.Analysis: The quashing of the FIR against one individual does not nullify the ongoing proceedings where multiple FIRs, predicate offences and a continuing investigation remain pending against the corporate entities and other accused. The provisional attachment and ensuing adjudication proceed on the existence of predicate offences and pending trial against the companies and other accused.Conclusion: The quashing of the FIR against the individual accused does not vitiate the confirmation of provisional attachment; conclusion is against the appellants.Issue (ii): Whether the appellants received and utilised proceeds of crime to acquire the windmills and whether they discharged the burden to prove lawful source/repayment of loans.Analysis: Findings of interconnected transactions, absence of loan documentation, tracing of fund transfers through alleged shell companies, admissions in recorded statements, and failure to produce balance sheets or corroborative records were relied upon in reaching a reasoned conclusion. Statutory allocation of burden to the person to prove source under Section 24 and requirement to disclose source under Section 8(1) of the Prevention of Money Laundering Act, 2002 were applied to assess sufficiency of appellants' evidence. The appellants did not satisfactorily prove lawful source or repayment through contemporaneous financial records.Conclusion: The Tribunal concluded that the appellants failed to discharge the statutory burden and that the properties were rightly treated as involved in proceeds of crime; conclusion is against the appellants.Issue (iii): Whether appellants should be permitted to lead additional evidence at final hearing to establish repayment/source.Analysis: No application for taking additional evidence was filed during the proceedings despite prolonged pendency; appellants admitted delayed filing and inability to produce primary financial records earlier. The Tribunal applied the statutory framework and evidentiary expectations under the Act in declining belated supplementation.Conclusion: The request to admit additional evidence was not accepted; conclusion is against the appellants.Final Conclusion: On the decided issues, the confirmation of provisional attachment under the Prevention of Money Laundering Act, 2002 was upheld because the appellants failed to discharge the statutory burden to prove lawful source and repayment, and no basis was found to permit belated additional evidence; the appeals are dismissed.Ratio Decidendi: Where predicate offences and ongoing proceedings exist, provisional attachment confirmed under the Prevention of Money Laundering Act, 2002 will be sustained unless the person against whom attachment is confirmed discharges the statutory burden to prove lawful source and repayment by producing contemporaneous and corroborative financial records as required by Sections 8(1) and 24 of the Prevention of Money Laundering Act, 2002.