2026 (3) TMI 88 - AT - Money Laundering

Attachment of equivalent property allowed when proceeds are untraceable; Covid exclusion extends the statutory time limit for confirmation.

The article explains that under the three limb statutory definition of proceeds of crime a property acquired before commission of the scheduled offence ... Proceeds of crime - attachment of property of equivalent value - tainted and deemed-tainted property - provisional attachment and confirmation within 180 days - exclusion of Covid-19 period for computing statutory timelines - onus on person claiming interest in attached property (Section 24)Proceeds of crime - attachment of property of equivalent value - tainted and deemed-tainted property - Whether immovable property acquired prior to the scheduled offence can be provisionally attached as 'proceeds of crime' or as property of equivalent value when the actual proceeds are not traceable. - HELD THAT: - The Tribunal applied the three limb interpretation of 'proceeds of crime' and held that the definition encompasses (a) property obtained directly or indirectly from the scheduled offence, and (b) property equivalent in value where the actual proceeds are not traceable. The Tribunal relied on the reasoning that interpreting the definition to exclude the second limb would render it redundant and would frustrate the object of the Act by enabling accused persons to siphon off proceeds immediately after committing the scheduled offence. The Tribunal therefore accepted precedents treating 'deemed tainted' or 'equivalent value' attachments as permissible subject to established safeguards, and held that a property acquired prior to the offence may be attached where proceeds are vanished or not traceable and the requisite connection or equivalence is shown. [Paras 19, 20, 21, 22, 23]Attachment of property acquired prior to the commission of the scheduled offence is permissible as property of equivalent value when the proceeds of crime are not traceable; the appellant's contention that such prior acquisition precludes attachment is rejected.Onus on person claiming interest in attached property (Section 24) - provisional attachment and confirmation within 180 days - Whether the appellants discharged the onus to show that the attached properties were not derived from proceeds of crime (specifically repayment/source of the friendly loan), and whether admissions in statements affect the attachment. - HELD THAT: - The Tribunal examined the evidentiary material concerning the allegedly 'friendly' loan and its repayment. It noted absence of loan documentation, failure to explain source of repayment of the large sum, and the admitted statement by one appellant that loan obligations were serviced from bill discounting receipts. The Tribunal applied the statutory burden on persons in whose favour property is attached and found that the appellants failed to prove a legitimate source or documentary basis for the loan and repayment. The admission in the statement under Section 50(2) regarding use of bill discounting proceeds to service the housing loan further supported the view that the property was indirectly acquired with proceeds of crime. [Paras 15, 16, 20]The appellants did not discharge the onus under the Act; the provisional attachment as reflecting acquisition directly or indirectly from proceeds of crime is sustained.Provisional attachment and confirmation within 180 days - exclusion of Covid-19 period for computing statutory timelines - Whether the Adjudicating Authority's confirmation of provisional attachment after the expiry of 180 days was invalid because the 180 day period had lapsed, or whether the Covid 19 exclusion (orders in Suo Motu Limitation matters) applies to the computation of the 180 days under Section 5(3) of the PMLA. - HELD THAT: - The Tribunal analysed the effect of the Supreme Court orders excluding the period from 15.03.2020 to 28.02.2022 for purposes of limitation and for termination of proceedings. Relying on binding guidance and subsequent High Court and Tribunal decisions, the Tribunal held that the Covid period exclusion applies for computing the 180 day window in Section 5(3) because that provision prescribes an outer limit after which the provisional attachment ceases to have effect-i.e., a statutory timeframe for termination of proceedings. The Tribunal rejected arguments distinguishing institution of proceedings from prescribed termination periods and concluded that exclusion of the Covid period brings the confirmation within 180 days. [Paras 21, 22, 23]The Covid 19 exclusion is applicable in computing the 180 days under Section 5(3); the confirmation order does not lapse for being beyond 180 days when the excluded period is duly accounted for.Final Conclusion: The Tribunal dismissed the appeals: the provisional attachment of the properties in question was lawfully confirmed. The appellants failed to discharge the onus to show legitimate source of funds and the Tribunal upheld (a) attachment of prior acquired property as property of equivalent value where proceeds were not traceable, and (b) applicability of the Covid period exclusion in computing the 180 day limit under Section 5(3) of the PMLA. Issues: (i) Whether immovable property purchased prior to the commission of the scheduled offence can be provisionally attached / confirmed as proceeds of crime or as property equivalent in value; (ii) Whether confirmation of a provisional attachment order passed beyond 180 days from attachment is invalid where the intervening period falling within the Covid-19 exclusion (15.03.2020 to 28.02.2022) is excluded from computation.Issue (i): Whether property acquired prior to the commission of the scheduled offence may be attached under the definition of 'proceeds of crime' or as property equivalent in value when the actual proceeds are not traceable.Analysis: The Tribunal analysed the three-limbed definition of 'proceeds of crime' in Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 and followed authoritative precedents recognizing (a) tainted property derived directly or indirectly from criminal activity, and (b) the second limb permitting attachment of property of equivalent value where proceeds are not traceable. The Tribunal considered decisions including Axis Bank and subsequent High Court and Supreme Court pronouncements, and applied the tests and safeguards for attachment of deemed tainted (untainted) property. It also applied the statutory onus under Section 24 on persons claiming the property to show lawful source and relied on admissions and documentary record (including admission under Section 50(2)) showing repayment/servicing from alleged proceeds where applicable.Conclusion: The Tribunal held that a property acquired prior to the commission of the scheduled offence can be provisionally attached / confirmed as proceeds of crime under the second limb (property equivalent in value) when the actual proceeds are not traceable and statutory safeguards and tests are satisfied. This conclusion is adverse to the appellants.Issue (ii): Whether the confirmation order of provisional attachment dated 22.08.2022 (after attachment dated 21.02.2022) is invalid for being passed beyond 180 days in terms of Section 5(3) of the Prevention of Money Laundering Act, 2002.Analysis: The Tribunal examined the nature of the 180-day timeline in Section 5 and the Supreme Court's orders excluding the period from 15.03.2020 to 28.02.2022 for computation of limitation and termination of proceedings (In re: Limitation and subsequent orders). It considered conflicting authorities and detailed High Court decisions interpreting applicability of the Covid exclusion to statutory time-limits for termination of proceedings. The Tribunal concluded that the Covid exclusion applies for computing the 180-day period under Section 5(3), and therefore the confirmation order fell within the permissible period once the excluded interval was omitted. The Tribunal also considered facts such as admissions regarding use/servicing of loan from proceeds and failure of appellants to discharge the onus under Section 24.Conclusion: The Tribunal held that the confirmation of the provisional attachment was within the extended/adjusted period after excluding the Covid-19 interval and thus is not invalid under Section 5(3). This conclusion is adverse to the appellants.Final Conclusion: On the decided issues, the Tribunal upheld the Adjudicating Authority's confirmation of provisional attachment: properties acquired prior to the scheduled offence may be attached as property equivalent in value when proceeds are untraceable and the 180-day period for confirmation must be computed excluding the Covid-19 exclusion period from 15.03.2020 to 28.02.2022; consequently the appeals are dismissed.Ratio Decidendi: Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 comprises three limbs permitting attachment of (i) property directly/indirectly derived from crime and (ii) property equivalent in value where proceeds are not traceable; and the Covid-19 exclusion (15.03.2020-28.02.2022) applies in computing the 180-day period under Section 5(3) for confirmation of provisional attachment, subject to statutory safeguards and onus on the person claiming the property.