2026 (3) TMI 306 - AT - Money Laundering

Proceeds of crime limited to profit element; provisional attachment confirmed only to quantified illicit profit after assessment.

The article addresses provisional attachment under the Prevention of Money Laundering Act concerning receipts for supply of additional goods. It reasons ... Provisional Attachment Order (“PAO”) - proceeds of crime - Existence of a prima facie offence - allegation involving bribe and service to the Railway officers to get supply order for bogey frames. Prima facie case for money laundering - HELD THAT: - The Tribunal accepted the material collected during investigation, including recovery of bribe money from the public servant, and noted that the FIR remains pending and has not been quashed. While deeper inquiry into commission of the offence would prejudice the pending criminal trial, the available material established a prima facie case involving the alleged payment and transmission of bribe, and potential money laundering consequences. Accordingly, the contention that no crime was committed was rejected and a prima facie case was held to exist. [Paras 13] A prima facie case involving offences including money laundering is found; the plea that no crime was committed is rejected. Provisional attachment to be limited to quantifiable proceeds and not entire transaction value - HELD THAT: - Although the supply of additional bogey frames may have been in terms of the contract, the allegations of bribery cannot be ignored. The Tribunal held that the entire contract value cannot be mechanically treated as proceeds of crime because manufacturing costs and legitimate expenses are part of the transaction. Equity requires that the attachment be confined to that portion which can reasonably be regarded as proceeds of crime (for example, the profit element), rather than the whole consideration. The Tribunal therefore directed the respondent to quantify the proceeds of crime appropriately and reassess the provisional attachment accordingly. [Paras 16, 17] The provisional attachment must be limited to the quantifiable proceeds of crime (not the entire value received); respondent directed to quantify the proceeds within four weeks and adjust the attachment accordingly. Final Conclusion: The Tribunal found a prima facie case of money laundering and refused to accept the appellant's contention that no crime was committed; however, it held that the provisional attachment cannot cover the entire contract value and remitted the matter for quantification of proceeds of crime (limited to the appropriate profit/illicit portion), directing the respondent to complete such quantification within the specified period. Issues: (i) Whether the provisional attachment and confirmation of the entire sum received by the appellant for supply of 11 additional bogey frames (Rs. 1,80,77,400.00 / Rs. 1,88,77,400/- as noted) can be treated wholly as proceeds of crime; (ii) Whether the provisional attachment should be modified or quantified in light of legitimate manufacturing costs and contractual terms.Issue (i): Whether the entire amount received for supply of 11 additional bogey frames is proceeds of crime and therefore liable to provisional attachment and confirmation under the Prevention of Money Laundering Act, 2002.Analysis: The record includes FIR and investigation material indicating payment of alleged bribe (Rs. 1,80,000/-) and a chain of transactions linked to the award of additional supply. A prima facie case for the offences alleged exists and the matter remains pending criminally. However, the supplies were performed under a contract containing an express clause permitting enhancement up to 30% and the additional bogey frames involved real manufacturing costs and consideration paid by the contracting authority. The attachment regime must account for the distinction between illicit gain attributable to criminal activity and legitimate business receipts that cover cost of production.Conclusion: The Tribunal holds that the entire amount received for the additional 11 bogey frames cannot be treated wholly as proceeds of crime; provisional attachment of the entire sum is not warranted.Issue (ii): Whether and how the provisional attachment should be quantified or modified given legitimate costs and contractual entitlement.Analysis: A balanced and equitable approach is required where part of the gross receipts represents legitimate costs of manufacture and supply while only the illicitly obtained profit component can be equated to proceeds of crime. The respondent is to assess and quantify the portion properly to be regarded as proceeds of crime rather than treating the full contract value as such. A limited period is appropriate for such re-quantification to avoid prolonged uncertainty.Conclusion: The Tribunal directs that the proceeds of crime be quantified by the respondent by isolating the profit element (or other appropriate measure) from the total value received for the 11 additional bogey frames, and that the provisional attachment be confirmed only to the extent of that quantified proceeds of crime. The respondent is directed to complete the quantification within four weeks from receipt of the order.Final Conclusion: The appeal is partly allowed by modifying the scope of the provisional attachment - the attachment confirmed only to the extent of the quantified proceeds of crime (profit component) after respondent's assessment within four weeks; the remainder of the attached amount shall not be treated as proceeds of crime for confirmation purposes.Ratio Decidendi: Where a contracted supply generates both legitimate business receipts covering production costs and an alleged illicit advantage, provisional attachment under the Prevention of Money Laundering Act, 2002 must be confined to the portion that reasonably represents proceeds of crime (for example the profit element), and not the entire gross contract value.